<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-13589
PRIME GROUP REALTY TRUST
(Exact name of registrant as specified in its charter)
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)
(312) 917-1300
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At August 14, 1998, 15,572,494 of the registrant's Common Shares of Beneficial
Interest were outstanding.
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<PAGE>
PRIME GROUP REALTY TRUST
FORM 10-Q
INDEX
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets of Prime Group Realty Trust
as of June 30, 1998 and December 31, 1997.................... 3
Consolidated Statement of Income of Prime Group Realty
Trust for the Three Months Ended June 30, 1998 and the
Combined Statement of Operations of the Predecessor
Properties (predecessor to Prime Group Realty Trust) for
the Three Months Ended June 30, 1997......................... 4
Consolidated Statement of Income of Prime Group Realty
Trust for the Six Months Ended June 30, 1998 and the
Combined Statement of Operations of the Predecessor
Properties (predecessor to Prime Group Realty Trust) for
the Six Months Ended June 30, 1997........................... 5
Consolidated Statement of Cash Flows of Prime Group
Realty Trust for the Six Months Ended June 30, 1998 and
the Combined Statement of Cash Flows of the Predecessor
Properties (predecessor to Prime Group Realty Trust) for
the Six Months Ended June 30, 1997........................... 6 - 7
Notes to Consolidated and Combined Financial Statements
of Prime Group Realty Trust and of the Predecessor
Properties (predecessor to Prime Group Realty Trust)......... 8 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 14 - 20
Item 3. Quantitative and Qualitative Disclosures About Market
Risk......................................................... 20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings............................................ 21
Item 2. Changes in Securities and Use of Proceeds.................... 21
Item 3. Defaults Upon Senior Securities.............................. 21
Item 4. Submission of Matters to a Vote of Security Holders.......... 21
Item 5. Other Information............................................ 21
Item 6. Exhibits and Reports on Form 8-K............................. 22
Signatures ........................................................... 23
-2-
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
PRIME GROUP REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Real estate and equipment, at cost:
Land........................................... $ 157,913 $ 92,440
Building and improvements...................... 688,485 496,839
------------ ------------
846,398 589,279
Accumulated depreciation....................... (12,424) (2,338)
------------ ------------
833,974 586,941
Mortgage note receivable......................... 56,988 56,263
Cash and cash equivalents........................ 13,167 11,969
Tenant receivables............................... 6,185 3,897
Restricted cash escrows.......................... 10,484 3,175
Deferred rent receivable......................... 38,492 37,751
Deferred costs, net.............................. 32,033 28,472
Due from affiliates.............................. 6,352 5,258
Other ........................................... 25,053 7,742
------------ ------------
Total assets..................................... $ 1,022,728 $ 741,468
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable........................... $ 378,501 $ 249,610
Mortgage note payable - Affiliate................ --- 3,984
Bonds payable.................................... 74,450 74,450
Accrued interest payable......................... 1,703 1,245
Accrued real estate taxes........................ 25,420 17,915
Accounts payable and accrued expenses............ 17,721 13,903
Liabilities for leases assumed................... 5,083 5,758
Dividends payable................................ 6,597 2,505
Other ........................................... 5,712 822
------------ ------------
Total liabilities................................ 515,187 370,192
Minority interests:
Operating Partnership.......................... 148,121 147,207
Other.......................................... 1,000 --
Shareholders' equity:
Preferred shares:
Series B Cumulative Redeemable Preferred
Shares, $.01 par value; 4,600,000
shares authorized, 4,000,000 issued
and outstanding ........................... 40 ---
Series A Cumulative Convertible Preferred
Shares, $.01 par value; 30,000,000
shares authorized, 2,000,000 issued and
outstanding................................ 20 20
Common shares, $.01 par value; 100,000,000
shares authorized; 15,572,494 and
12,980,000 shares issued and outstanding
at June 30, 1998 and December 31, 1997,
respectively................................. 156 130
Additional paid-in capital..................... 365,756 225,632
Distributions in excess of earnings............ (7,552) (1,713)
------------ ------------
Total shareholders' equity....................... 358,420 224,069
------------ ------------
Total liabilities and shareholders' equity....... $ 1,022,728 $ 741,468
============ ============
<FN>
See notes to consolidated and combined financial statements.
</FN>
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</TABLE>
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF INCOME OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR
(000'S OMITTED, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
JUNE 30
----------------------------
1998 1997
------------ ------------
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
------------ ------------
<S> <C> <C>
REVENUE
Rental........................................... $ 23,391 $ 8,145
Tenant reimbursements............................ 10,026 3,563
Mortgage note interest........................... 1,507 ---
Other ........................................... 1,999 263
------------ ------------
Total revenue.................................... 36,923 11,971
EXPENSES
Property operations.............................. 6,885 1,961
Real estate taxes................................ 6,874 2,767
Depreciation and amortization.................... 6,240 3,413
Interest......................................... 8,061 7,019
Interest - Affiliates............................ --- 2,719
Financing fees................................... --- 272
Property and asset management fees - Affiliates.. --- 412
General and administrative....................... 1,648 907
Provision for environmental remediation costs.... --- 3,205
------------ ------------
Total expenses................................... 29,708 22,675
------------ ------------
Income (loss) before minority interest and
extraordinary item............................. 7,215 (10,704)
Minority interest................................ (2,896) 109
------------ ------------
Income (loss) before extraordinary item.......... 4,319 (10,595)
Extraordinary loss on extinguishment of debt,
net of minority nterest of $375................ (525) ---
------------ ------------
Net income (loss)................................ 3,794 $ (10,595)
============
Net income allocated to preferred
shareholders................................... (1,341)
------------
Net income available to common shareholders...... $ 2,453
============
Net income available per weighted-average
common share of beneficial interest
- Basic and diluted............................ $ 0.16
============
<FN>
See notes to consolidated and combined financial statements.
</FN>
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</TABLE>
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF INCOME OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR
(000'S OMITTED, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------
1998 1997
------------ ------------
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
------------ ------------
<S> <C> <C>
REVENUE
Rental........................................... $ 41,476 $ 16,131
Tenant reimbursements............................ 18,401 7,769
Mortgage note interest........................... 3,014 ---
Other ........................................... 2,783 689
------------ ------------
Total revenue.................................... 65,674 24,589
EXPENSES
Property operations.............................. 11,941 4,318
Real estate taxes................................ 12,232 5,590
Depreciation and amortization.................... 11,575 6,492
Interest......................................... 14,476 13,587
Interest - Affiliates............................ --- 5,649
Financing fees................................... --- 640
Property and asset management fees - Affiliates.. --- 801
General and administrative....................... 3,044 1,886
Provision for environmental remediation costs.... --- 3,205
------------ ------------
Total expenses................................... 53,268 42,168
------------ ------------
Income (loss) before minority interest and
extraordinary item............................. 12,406 (17,579)
Minority interest................................ (5,167) 368
------------ ------------
Income (loss) before extraordinary item.......... 7,239 (17,211)
Extraordinary loss on extinguishment of debt,
net of minority interest of $375............... (525) ---
------------ ------------
Net income (loss)................................ 6,714 $ (17,211)
============
Net income allocated to preferred shareholders... (2,041)
------------
Net income available to common shareholders ..... $ 4,673
============
Net income available per weighted-average
common share of beneficial interest
- Basic and diluted.......................... $ 0.32
============
<FN>
See notes to consolidated and combined financial statements.
</FN>
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</TABLE>
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(000'S OMITTED)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------
1998 1997
------------ ------------
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................. $ 6,714 $ (17,211)
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).................. 591 622
Depreciation and amortization................... 11,575 6,492
Interest added to principal on mortgage
note payable - Affiliate...................... --- 5,642
Standby loan fee-affiliate added to principal
on mortgage note payable - Affiliate.......... --- 262
Minority interest............................... 5,167 (368)
Extraordinary item, net......................... 525 ---
Changes in operating assets and liabilities:
Increase in tenant receivables................ (2,288) (154)
(Increase) decrease in deferred rent
receivable.................................. (741) 149
Increase in deferred costs.................... --- (921)
(Increase) decrease in other assets .......... (18,046) 458
Increase (decrease) in accrued interest
payable..................................... 458 (53)
Increase in accrued real estate taxes......... 7,505 977
Increase (decrease) in accounts payable and
accrued expenses............................ 1,246 (1,797)
Decrease in liabilities for leases assumed ... (380) (542)
Increase in other liabilities ................ 4,890 3,717
------------ ------------
Net cash provided by (used in) operating
activities...................................... 17,216 (2,727)
-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 STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(000'S OMITTED)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------
1998 1997
------------ ------------
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
------------ ------------
<S> <C> <C>
INVESTING ACTIVITIES
Expenditures for real estate and equipment....... $ (257,119) $ (3,612)
Leasing costs.................................... (1,789) ---
Additions to mortgage note receivable............ (25) ---
Increase in escrow deposits for property
acquisitions................................... (7,309) ---
(Increase) decrease in due from affiliates....... (1,094) 2,803
------------ ------------
Net cash used in investing activities............ (267,336) (809)
FINANCING ACTIVITIES
Proceeds from the sale of Series B Cumulative
Redeemable Preferred Shares.................... 95,318 ---
Proceeds from the private placement of common
shares......................................... 47,194 ---
Proceeds from mortgage notes payable............. 341,856 480
Proceeds from mortgage notes payable-Affiliate... --- 1,980
Repayment of mortgage notes payable.............. (212,268) (62)
Repayment of mortgage note payable-Affiliate..... (3,984) ---
Financing costs.................................. (4,161) ---
Increase in due to affiliates ................... --- 26
Contributions from minority interest - other..... 1,000 ---
Distribution to minority interest - Operating
Partnership.................................... (5,176) ---
Distributions to partners........................ --- (3)
Dividends paid to preferred shareholders......... (1,045) ---
Dividends paid to common shareholders............ (7,416) ---
------------ ------------
Net cash provided by financing activities........ 251,318 2,421
------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 1,198 (1,115)
Cash and cash equivalents at beginning of
period......................................... 11,969 5,573
------------ ------------
Cash and cash equivalents at end of period....... $ 13,167 $ 4,458
============ ============
<FN>
See notes to consolidated and combined financial statements.
</FN>
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</TABLE>
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated and combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Prime Group Realty
Trust's annual report on Form 10-K for the fiscal year ended December 31, 1997
as filed with the Securities and Exchange Commission on March 31, 1998 ("Form
10-K").
Certain prior period amounts have been reclassified to conform with the current
financial statement presentation.
2. FORMATION OF THE COMPANY
Prime Group Realty Trust (the "Company") was formed in Maryland on July 21, 1997
to succeed to and expand the office and industrial real estate business of The
Prime Group, Inc. ("PGI"), which consisted of a portfolio of five office and
seventeen industrial properties, as well as a parking garage facility and the
office and industrial real estate ownership, acquisition, development, leasing
and management businesses historically conducted by PGI (the "PGI Properties").
On November 17, 1997, the Company completed its initial public offering (the
"IPO" or "Offering") of 12.98 million common shares of beneficial interest
("Common Shares") and the private placement of 2.0 million Series A Cumulative
Convertible Preferred Shares ("Convertible Preferred Shares") of beneficial
interest (the "Convertible Preferred Share Private Placement"). The Company's
assets are owned and controlled by, and all of its operations are conducted
through, Prime Group Realty, L.P. (the "Operating Partnership") and other
subsidiaries. The Operating Partnership also sold 4,569,893 common units in the
Operating Partnership for $85.0 million to Primestone Investment Partners, L.P.
("Primestone Joint Venture"), a joint venture between PGI and certain affiliates
of Blackstone Real Estate Advisors, L.P., BRE/Primestone Investment L.L.C. and
BRE/Primestone Management Investment L.C.C. Primestone obtained a 60% interest
in Primestone Joint Venture in exchange for the contribution of 3,375,000 of its
common units in the Operating Partnership received from the contribution of its
interest in the PGI Properties to the Operating Partnership.
Pursuant to financing arrangements for the properties, the partnerships or
limited liability companies which are subsidiaries of the Operating Partnership
and own the properties often have, as a partner or member, a separate corporate
subsidiary of the Company whose board of directors includes an independent
director that, as required by such financing arrangements, must approve the
commencement of any voluntary dissolution or insolvency proceeding with respect
to such subsidiary.
3. 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 it distributes at least 95% of
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.
-8-
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
4. USE OF ESTIMATES
The preparation of the 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 revenue and expenses during the reporting
period. Actual results could differ from these estimates.
5. RECENT DEVELOPMENTS
During the period from January 1, 1998 through June 30, 1998 the Company
acquired the following eight office properties:
<TABLE>
<CAPTION>
NET ACQUISITION MORTGAGE
RENTABLE COST DEBT (*)
SQUARE (IN (IN MONTH
PROPERTY LOCATION FEET MILLIONS) MILLIONS) ACQUIRED
-------- -------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
33 North Dearborn Chicago, IL 302,818 $ 34.4 $ 18.0 1/98
Commerce Point Arlington Hts., 236,642 29.4 20.0 2/98
208 South LaSalle IL
Street Chicago, IL 827,494 61.2 45.8 3/98
122 South Michigan Chicago, IL 512,369 29.6 --- 4/98
2100 Swift Drive Oak Brook, IL 58,000 6.2 5.2 4/98
6400 Shafer Court Rosemont, IL 161,730 21.4 14.4 5/98
Two Century Centre Schaumburg, IL 217,960 35.7 --- 6/98
Oak Brook Business
Center Oak Brook, IL 199,245 16.2 --- 6/98
--------- ----------- ---------
2,516,258 $ 234.1 $ 103.4
========= =========== =========
</TABLE>
(*) "See Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" for a description of the debt
terms.
In June 1998, the Company acquired the following parcels of land under two
purchase contracts:
<TABLE>
<CAPTION>
ACQUISITION
COST
PROPERTY LOCATION ACRES (IN MILLIONS)
-------- -------- ----- -------------
<S> <C> <C> <C>
Aurora Land - I Aurora, IL 37.3 $ 3.1
Aurora Land - II Aurora, IL 17.4 1.4
---- -----
54.7 $ 4.5
==== =====
</TABLE>
The contracts require purchase of an additional 132.7 acres over a three to five
year period for additional consideration of $10,394,210. Certain minimum
installment payments are required; however, the timing of the purchases is at
the Company's discretion.
Concurrently with the closing of the IPO, the Company obtained a secured
revolving credit facility (the "Credit Facility") from a group of financial
institutions. In March 1998, the Credit Facility was amended to provide that the
commitments under the Credit Facility be reduced from $235.0 million to $200.0
million. In April 1998, the Credit Facility was further amended to provide that
the commitments under the Credit Facility be reduced to $190.0 million.
-9-
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
5. RECENT DEVELOPMENTS (CONTINUED)
In January 1998, the Company obtained a $15.0 million revolving line of credit
with LaSalle National Bank (the "Line of Credit"). The Line of Credit, which
matures in January 1999 and is subject to a one-year extension at the Company's
option, is collateralized by an industrial property known as 475 Superior
Avenue. Outstanding balances under the Line of Credit bear interest at a rate
equal to LIBOR plus 195 basis points. Generally, the covenants contained in the
Line of Credit are identical to the covenants contained in the Credit Facility.
Concurrently with the closing of the IPO, the Company borrowed $83.5 million in
financing on a short-term basis evidenced by two separate notes (the "New
Mortgage Notes") which were collateralized by first mortgages on certain office
and industrial properties. On April 1, 1998, the Company refinanced one of the
New Mortgage Notes (which had an original principal balance of $27.5 million)
with a loan of $29.4 million which will mature on March 23, 2008. Interest on
this loan is fixed for 10 years at a rate of 6.85% and is payable monthly. The
remaining New Mortgage Note (which had an original principal balance of $56.0
million) was refinanced on May 1, 1998 with two loans, the first of which is a
$47.0 million loan which has principal and interest payable monthly, using a
30-year amortization period, with interest fixed at 7.17% and a maturity of May
1, 2008. The second loan is a $14.6 million loan which has interest only payable
monthly at 150 basis points over LIBOR or .50% plus the greater of (a) the
lender's U.S. prime rate or (b) the Federal Funds Rate plus 1.0% and matures on
May 1, 2000, not including a six-month extension option. The refinanced notes
are collateralized by first mortgages on certain office and industrial
properties. As a result of the above refinancing, the Company recognized an
extraordinary loss of $525,000, net of minority interest of $375,000,
representing the write-off of previously unamortized deferred financing fees.
In Feruary 1998, the Company refinanced $48.8 million of letters of credit that
provided credit enhancements on certain of the Company's bonds payable from the
Credit Facility to a separate financing facility provided by a financial
institution (the "New LOC's"). The New LOC's have a quarterly fee of 1.4% of the
face amount and are collateralized by mortgages on certain industrial and office
properties and a $5.0 million cash collateral account.
On March 31, 1998, the Company issued 10,000 and 2,500 Common Shares granted to
an officer and a board member of the Company, respectively, pursuant to an
employment agreement and a consulting agreement.
On March 25, 1998, the Company completed a private placement of 2.58 million
Common Shares to institutional investors (the "Private Placement"). The Company
received proceeds, net of underwriter discount, of approximately $49.2 million
from the Private Placement, which were used to fund the acquisition of the
office properties located at 208 South LaSalle Street and 122 South Michigan
Avenue.
On March 30, 1998, the Company entered into a joint venture that acquired an
approximately 67,000 square foot vacant parcel of land located in the Chicago,
Illinois central business district ("Chicago CBD"). The parcel was acquired for
the potential development of a Class A multi-purpose facility, with up to
900,000 square feet of office space, 125,000 square feet of retail space and a
parking garage with a capacity for approximately 250 cars. The Company has
economic control of the joint venture and, therefore, has consolidated the
operations of the joint venture from the date of inception. The joint venture
entered into a bank loan in the amount of $13.5 million to acquire the land.
Interest is payable monthly at a rate of LIBOR plus 200 basis points or at the
lender's prime rate. The note matures April 1, 1999, not including a six-month
extension option. The other joint venturer's interest has been reflected as
Minority Interest - Other at June 30, 1998.
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<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
5. RECENT DEVELOPMENTS (CONTINUED)
On May 15, 1998, the Company obtained a 7.22% note payable with a principal
balance of $75.0 million, collateralized by a mortgage on the suburban office
building known as Continental Towers. The note matures in 2013, with a
prepayment option in 2005, and has monthly payments of principal and interest,
using a 25-year principal amortization payment schedule. The Company used $70.0
million of the proceeds to repay a portion of the Credit Facility. The remaining
proceeds were utilized to pay related costs and to fund escrow reserves required
by the terms of the note.
On June 5, 1998, the Company completed the sale of 4.0 million shares of its
Series B Cumulative Redeemable Preferred Stock (the "Redeemable Preferred Share
Offering"). The Company received net proceeds, net of underwriters' discounts,
of approximately $96.85 million which were used to fund the acquisition of Two
Century Centre and Oak Brook Business Center and repay borrowings under the
Credit Facility and the Line of Credit. Distributions on the Series B Redeemable
Preferred Shares are payable quarterly on or about the last day of January,
April, July and October of each year, at the rate of 9% (equivalent to $2.25 per
annum per Series B Cumulative Redeemable Preferred Share). The Series B
Cumulative Redeemable Preferred Shares rank senior to the Common Shares and the
Convertible Preferred Shares as to the payment of dividends and as to the
distribution of assets.
On and after June 5, 2003, the Series B Cumulative Redeemable Preferred Shares
may be redeemed at the option of the Company at a redemption price of $25.00 per
share plus accrued and unpaid distributions. The redemption price is payable
solely out of the proceeds of sale of other capital shares of beneficial
interest of the Company.
6. RECENTLY ISSUED ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"), which is effective for all fiscal
quarters and fiscal years beginning after June 15, 1999. The Company intends to
adopt Statement 133 in 1999. Management believes that the adoption of Statement
133 will not have a material effect on the Company's results of operations or
financial position.
7. 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 ("Common
Share") for the three months and six months ended June 30, 1998:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1998
------------ ------------
<S> <C> <C>
NUMERATOR:
Net income available to Common Shares before
extraordinary item........................... $ 2,978 $ 5,198
Extraordinary item, net.................... (525) (525)
----------- ------------
Numerator for basic earnings per share-income
available to Common Shares................... $ 2,453 $ 4,673
=========== ============
-11-
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
7. EARNINGS PER SHARE (CONTINUED)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1998
------------ ------------
<S> <C> <C>
DENOMINATOR:
Denominator for basic earnings per share
- weighted average Common Shares........... 15,572,494 14,383,258
------------ ------------
Effect of dilutive securities:
Employee stock options.................. --- 16,545
------------ ------------
Dilutive potential Common Shares............ --- 16,545
------------ ------------
Denominator for diluted earnings per share
- adjusted weighted-average Common Shares
and assumed conversions................... 15,572,494 14,399,803
============ ============
Basic and diluted earnings available to
Common Shares per weighted average
Common Share:
Net income before extraordinary item..... $ 0.19 $ 0.36
Extraordinary item....................... (0.03) (0.04)
----------- ------------
Net income per Common Share............... $ 0.16 $ 0.32
=========== ============
</TABLE>
Options to purchase 1,167,500 Common Shares at a weighted average exercise price
of $20.05 per share outstanding during the three months ended June 30, 1998 and
options to purchase 82,500 Common Shares at a weighted average price of $20.64
per share outstanding during the six months ended June 30, 1998 were not
included in the computation of diluted earnings per share because the conversion
would be antidilutive.
The Company had 10,280,882 Common Units outstanding at June 30, 1998, of which
9,353,782 ("Convertible Common Units") 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 were not included in the computation of diluted
earnings per share because the conversion would be antidilutive.
The Company had 2,000,000 Convertible Preferred Shares outstanding during the
six months ended June 30, 1998 which were not included in the computations of
diluted earnings per share because the conversion would be antidilutive.
8. 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, 1997, (i) the
Company had completed the Offering, the Convertible Preferred Share Private
Placement, the Redeemable Preferred Share Offering and the Private Placement and
used the net proceeds to acquire Preferred Units and Common Units of the
Operating Partnership, (ii) PGI and other individuals 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 Joint Venture, (iv) the Operating Partnership
acquired various office and industrial properties with cash and debt proceeds
(the "Acquisition Properties") and a property management company from various
third parties, and (v) the Operating Partnership repaid debt on
-12-
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
8. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
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 Form 10-K. In management's opinion,
all adjustments necessary to reflect the transactions described above 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 Convertible Preferred Share Private
Placement, the Redeemable Preferred Share Offering the Private Placement and
other transactions described above had occurred at the dates indicated above,
nor do they purport to present the future results of operations of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Total revenue (in 000's) $ 75,499 $ 70,553
============ ============
Net income (in 000's) $ 8,209 $ 4,303
============ ============
Net income (loss) available to common
shareholders (in 000's) $ 2,309 $ (1,597)
============ ============
Earnings (loss) per common share $ 0.15 $ (0.10)
============ ============
</TABLE>
Pro forma earnings per common share increased by $0.25 from the six months ended
June 30, 1997 to the six months ended June 30, 1998 primarily due to improved
operations at the properties in 1998.
9. SUBSEQUENT EVENTS
In July and August 1998, the Company entered into contracts to acquire three
office properties, one industrial property and two land parcels for total
contract prices of approximately $422.5 million. The Company has made escrow and
other deposits of $30.2 million related to these contracts.
The Company expects to complete the above acquisitions by the end of the first
quarter of 1999; however, there can be no assurance that any or all of the
acquisitions will be completed.
-13-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a fully-integrated real estate company providing property
management, leasing, marketing, acquisition, development, redevelopment,
construction, finance and other related services. As of June 30, 1998, the
Company expects to qualify as a REIT for federal income tax purposes. The
Company (through the Operating Partnership) owns 24 office properties ("Office
Properties") containing an aggregate of approximately 5.8 million net rentable
square feet, 46 industrial properties ("Industrial Properties") containing an
aggregate of approximately 5.8 million net rentable square feet, one retail
center and one parking facility. The properties are located primarily in the
Chicago, Illinois metropolitan area. In addition, the Company owns a mortgage on
an office property containing 728,406 net rentable square feet. The Company also
owns approximately 139.7 acres (including a development site containing
approximately 67,000 square feet located in the Chicago CBD held by a joint
venture with a third party) and has rights to acquire approximately 437.8 acres
of developable land (including rights to acquire a development site located in
the Chicago CBD containing approximately 58,000 square feet), which management
believes could be developed with approximately 3.0 million square feet of
additional office space and over 9.4 million square feet of additional
industrial space primarily in the Chicago metropolitan area.
In terms of net rentable square feet, approximately 90.1% of the Office
Properties and 87.5% of the Industrial Properties are located in the Chicago
metropolitan area in prime business locations within established business
communities. The properties located in the Chicago metropolitan area account for
approximately 93.1% of the Company's rental revenue and tenant reimbursement
revenue for the six months ended June 30, 1998. The remaining Office Properties
are located in Nashville, Tennessee; Knoxville, Tennessee; and the Milwaukee,
Wisconsin metropolitan areas, and the remaining Industrial Properties are
located in the Columbus, Ohio metropolitan area. The Company intends to continue
to invest in the acquisition, development and redevelopment of office and
industrial properties primarily located in the Chicago metropolitan area.
The Company intends to access multiple sources of capital to fund future
acquisition 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, joint venture
arrangements and other debt or equity securities and other bank and/or
institutional borrowings. There can be no assurance that any such financing will
be obtained.
CAUTIONARY STATEMENTS
The following discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect management's current view 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 industries 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 adverse impact of
changes in the local economic climate on the revenues and the value of the
Company's properties.
-14-
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1998 of the Company to the Three
Months Ended June 30, 1997 of the Predecessor Properties
- --------------------------------------------------------------------------------
In analyzing the operating results for the quarter ended June 30, 1998, the
changes in rental and reimbursable income, property operating expenses, real
estate taxes and depreciation and amortization from 1997 are due principally to
the addition of operating results from properties contributed and acquired as
part of the Company's IPO as well as properties acquired after the IPO through
June 30, 1998.
The Predecessor Properties consisted of five office properties, 17 industrial
properties, as well as a parking facility. At the time of the IPO, 11 additional
office properties, 28 additional industrial properties and one retail center
were contributed or acquired. After the date of the IPO and through June 30,
1998, the Company acquired ten additional office properties and the first
mortgage note encumbering one office property as described in the footnotes to
the Company's Form 10-K.
For the three months ended June 30, 1998, rental revenue increased $15.2
million, or 187.2%, to $23.4 million, tenant reimbursement income increased $6.5
million, or 181.4%, to $10.0 million, other revenue increased $1.7 million to
$2.0 million, or 566.7%, property operating expenses increased $4.9 million, or
251.1%, to $6.9 million, real estate tax expense increased $4.1 million, or
148.4%, to $6.9 million and depreciation and amortization increased $2.8
million, or 82.8%, to $6.2 million as compared to the three months ended June
30, 1997. The additional office and industrial properties resulted in total
rental revenue of $15.9 million, tenant reimbursements income of $5.9 million,
property operating expenses of $5.0 million, real estate tax expense of $4.0
million and depreciation and amortization of $3.2 million for the three months
ended June 30, 1998. Rental revenue and tenant reimbursement income for the
Predecessor Properties (decreased) increased $(0.6) million and $0.6 million,
respectively, for the three months ended June 30, 1998 compared to the same
period in 1997, due to a major tenant of the 77 West Wacker Drive building
defaulting on its lease in the second quarter of 1997. Property operating
expenses, real estate tax expense and depreciation and amortization for the
Predecessor Properties for the three months ended June 30, 1998 remained
consistent with the same period in 1997.
Mortgage note interest income increased by $1.5 million to $1.5 million on due
to the acquisition of the first mortgage note encumbering the property known as
180 North LaSalle in December 1997.
Interest expense had a net decrease of $1.7 million, or 17.2%, to $8.1 million
during the three months ended June 30, 1998. The decrease was due to an $9.1
million decrease as a result of the repayment of debt with proceeds from the
Company's IPO, offset by an increase of $7.4 million due to mortgages obtained
on certain of the properties which were contributed or acquired after the IPO,
as well as Credit Facility and Line of Credit borrowings used to fund property
acquisitions.
General and administrative expense increased $0.7 million during the three
months ended June 30, 1998, reflecting costs related to the Company's new public
status and its increased size.
The decrease in financing fees and property and asset management fees is due to
these fees being incurred by the Predecessor Properties under their previous
ownership and the costs no longer being incurred by the Company.
In 1997, the Predecessor Properties recorded a provision for environmental
remediation costs of $3.2 million as an estimate of costs to be incurred for
environmental clean-up of certain properties. In management's opinion, no
additional provision is necessary.
Income allocated to minority interest increased $3.0 million, or 333.3%, to $2.9
million for the three months ended June 30, 1998 compared to the same period in
1997 due to an increase in income before minority interest of $17.9 million, or
167.4%, to $7.2 million and a change in the ownership structure. The increase in
income before minority interest is due to additional properties either being
contributed or acquired and the effects they had on revenue and expenses as
described above. The change in ownership structure is due to certain ownership
percentages changing during the IPO.
-15-
<PAGE>
Net income increased $14.4 million, or 135.8%, to $3.8 million for the three
months ended June 30, 1998 compared to the same period in 1997 due to the
changes in revenue, expenses and minority interest described above.
Comparison of the Six Months Ended June 30, 1998 of the Company to the Six
Months Ended June 30, 1997 of the Predecessor Properties
- --------------------------------------------------------------------------------
In analyzing the operating results for the six months ended June 30, 1998, the
changes in rental and reimbursable income, property operating expenses, real
estate taxes and depreciation and amortization from 1997 are due principally to
the addition of operating results from properties contributed and acquired as
part of the Company's IPO as well as properties acquired after the IPO through
June 30, 1998.
For the six months ended June 30, 1998, rental revenue increased $25.3 million,
or 157.1%, to $41.5 million, tenant reimbursement income increased $10.6
million, or 136.8%, to $18.4 million, property operating expenses increased $7.6
million, or 176.5%, to $11.9 million, real estate tax expense increased $6.6
million, or 118.8%, to $12.2 million and depreciation and amortization increased
$5.1 million, or 78%, to $11.6 million as compared to the six months ended June
30, 1997. The additional office and industrial properties resulted in total
rental revenue of $24.8 million, tenant reimbursements income of $9.3 million,
property operating expenses of $8.3 million, real estate tax expense of $7.0
million and depreciation and amortization of $4.9 million for the six months
ended June 30, 1998. Rental revenue and tenant reimbursement income for the
Predecessor Properties increased (decreased) $(0.8) million and $(0.8) million,
respectively, for the six months ended June 30, 1998 compared to the same period
in 1997, due to a major tenant of the 77 West Wacker Drive building defaulting
on its lease in the second quarter of 1997. Property operating expenses, real
estate tax expense and depreciation and amortization for the Predecessor
Properties for the six months ended June 30, 1998 remained consistent with the
same period in 1997.
Mortgage note interest income increased by $3.0 million to $3.0 million due to
the acquisition of the first mortgage note encumbering the property known as 180
North LaSalle in December 1997.
Interest expense had a net decrease of $4.8 million, or 24.7%, to $14.5 million
during the six months ended June 30, 1998. The decrease was due to a $17.9
million decrease as a result of the repayment of debt with proceeds from the
Company's IPO, offset by an increase of $13.1 million due to mortgages obtained
on certain of the properties which were contributed or acquired after the IPO,
as well as Credit Facility and Line of Credit borrowings used to fund property
acquisitions.
General and administrative expense increased $1.2 million during the six months
ended June 30, 1998, reflecting costs related to the Company's new public status
and its increased size.
The decrease in financing fees and property and asset management fees is due to
these fees being incurred by the Predecessor Properties under their previous
ownership and the costs no longer being incurred by the Company.
In 1997, the Predecessor Properties recorded a provision for environmental
remediation costs of $3.2 million as an estimate of costs to be incurred for
environmental clean-up of certain properties. In management's opinion, no
additional provision is necessary.
Income allocated to minority interest increased $5.5 million, or 106%, to $5.2
million for the six months ended June 30, 1998 compared to the same period in
1997 due to an increase in income before minority interest of $30.0 million, or
170.6%, to $12.4 million and a change in the ownership structure. The increase
in income before minority interest is due to additional properties being either
contributed or acquired and the effects they had on revenue and expenses
described above. The change in ownership structure is due to the certain
ownership percentages changing during the IPO.
Net income increased $23.9 million, or 170.6%, to $6.7 million for the six
months ended June 30, 1998 compared to the same period in 1997 due to the
changes in revenue, expenses and minority interest described above.
-16-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THE CREDIT FACILITY. As of June 30, 1998, the Company has a Credit
Facility of $190.0 million from a group of banks led by BankBoston, N.A. and
Prudential Securities Credit Corporation ("PSCC"), an affiliate of Prudential
Securities Incorporated. Borrowings under the Credit Facility are available to
fund acquisitions and development activities and to provide letters of credit
for $26.0 million of tax-exempt bonds. The Credit Facility, which matures on
November 17, 2000, is collateralized by the 77 West Wacker Building and all of
the Company's properties located in Tennessee and was secured by a pledge of the
Company's mortgage note receivable on Continental Towers until May 15, 1998 when
the Company repaid $70.0 million of the Credit Facility in connection with
obtaining the $75.0 million loan collateralized by Continental Towers as
described below under "1998 Mortgage Notes". Concurrently with the loan
transaction, the Credit Facility was reduced from $200.0 million to $190.0
million.
The Credit Facility, at the Company's election, bears interest on Eurodollar
loans at a floating rate based on a spread over the Eurodollar rate equal to 120
to 150 basis points, depending upon the Company's applicable leverage ratio, or
the higher of BankBoston's prime rate or the federal funds rate plus 50 basis
points. Notwithstanding the foregoing, the Credit Facility was amended to
provide that for the period from December 15, 1997 through February 14, 1998,
the spread over the Eurodollar rate applicable to Eurodollar loans was equal to
175 basis points and for the period from February 15, 1998 through May 15, 1998,
such spread was equal to 200 basis points. Borrowings under the Credit Facility
may be repaid at any time, without penalty, except for the costs related to the
breakage of the Eurodollar rate loan, if any. The Credit Facility requires
monthly payments of interest only on prime rate and Eurodollar rate loans.
Eurodollar rate loans may be for periods of between 30 and 180 days. At June 30,
1998 borrowings under the Credit Facility bore interest at a weighted-average
rate equal to 7.13%.
The Company's ability to borrow under the Credit Facility is subject to the
Company's ongoing compliance with a number of financial and other covenants. The
Credit Facility, except under certain circumstances, limits the Company's
ability to make distributions in excess of 90% of its annual Funds from
Operations.
Since the IPO, the Credit Facility has been amended from time to time to, among
other things, modify the loan commitments and the interest rate payable
thereunder, and the Company has obtained several limited waivers from the
lenders under the Credit Facility in connection with certain acquisitions.
NEW MORTGAGE NOTES. The Company borrowed $83.5 million in aggregate
principal amount under the New Mortgage Notes. PSCC provided the original New
Mortgage Notes financing on a short-term basis. The New Mortgage Notes consist
of two separate notes secured, respectively, by first mortgages on certain
office and industrial properties. Prior to their refinancing, interest on the
New Mortgage Notes was fixed to 7.19% (a rate equal to seven-year U.S. Treasury
Notes, plus 1.27%). On March 23, 1998, the Company refinanced one of the New
Mortgage Notes (which had an original principal balance of $27.5 million) with a
loan of $29.4 million, which will mature on April 1, 2008. Interest on this loan
accrues at a rate of 6.85% and is payable monthly. The remaining New Mortgage
Note (which had an original principal balance of $56.0 million) was refinanced
on May 1, 1998 with two loans, the first of which is a $47.0 million loan which
has principal and interest payable monthly, using a 30-year amortization period,
with interest fixed at 7.17% and will mature on May 1, 2008. The second loan is
a $14.6 million loan which has interest only payable monthly at 150 basis points
over LIBOR or 0.50% plus the greater of (a) the lender's U.S. prime rate or (b)
the Federal Funds rate plus 1.0% and will mature on May 1, 2000, not including a
six month extension option. The refinanced notes are collateralized by first
mortgages on certain office and industrial properties. As a result of the above
refinancing, the Company recognized an extraordinary item of $525,000, net of
minority interest of $375,000, representing the write-off of previously
unamortized deferred financing fees.
-17-
<PAGE>
1998 MORTGAGE NOTES. During 1998, the Company has acquired five of its
eight new Office Properties with proceeds from property mortgage loans. The
following is a summary of those loans:
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL INTEREST
PROPERTY (IN MILLIONS) RATE (%) MATURITY
- -------------------- ------------- --------------------------- --------
<S> <C> <C> <C>
33 North Dearborn $ 18.0 LIBOR plus 165 basis points 1/2000
Commerce Point 20.0 7.07 2/2008
208 South LaSalle 45.8 7.785 4/2008
2100 Swift Drive 5.2 7.19 5/2028
6400 Shafer Court 14.4 7.09 5/2028
-------------
$ 103.4
=============
</TABLE>
Except for the loan relating to 33 North Dearborn, all of the loans require
monthly payments of principal and interest. The 33 North Dearborn loan requires
monthly payments of interest only.
On May 15, 1998, the Company obtained a 7.22% note payable, collateralized by
the Company's note receivable encumbering a suburban office building known as
Continental Towers, with a principal balance of $75.0 million. The note matures
in 2013, with a prepayment option in 2005, and has monthly payments of principal
and interest, using a 25-year principal amortization payment schedule. The
Company used $70.0 million of the proceeds to repay a portion of the Credit
Facility.
In January 1998, the Company obtained a $15.0 million revolving line of credit
with LaSalle National Bank (the "Line of Credit"). The Line of Credit, which
matures in January 1999 and is subject to a one-year extension at the Company's
option, is collateralized by an industrial property known as 475 Superior
Avenue. Outstanding balances under the Line of Credit bear interest at a rate
equal to LIBOR plus 195 basis points. Generally, the covenants contained in the
Line of Credit are identical to the covenants contained in the Credit Facility.
LETTERS OF CREDIT. The Company has refinanced $48.8 million of letters of
credit that provided credit enhancements on certain of the Company's bonds
payable from the Credit Facility to the New LOC's. The New LOC's have a
quarterly fee of 1.4% of the face amount and are collateralized by mortgages on
certain industrial and office properties and a $5.0 million cash collateral
account.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES. The Company expects to meet
its short-term liquidity requirements generally through its working capital and
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
$4.47 per square foot of leased space and $0.40 per square foot of leased
industrial space per year. The Company expects that the average annual cost of
recurring tenant improvements and leasing commissions will be approximately $3.6
million based on the average annual square feet for which leases expire during
the next three years. The Company expects the cost of general capital
improvements to the properties to average approximately $0.9 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 long-term secured and unsecured indebtedness (including the
Credit Facility), joint venture agreements and the issuance of additional equity
securities from the Company. The terms of the Credit Facility and the
Convertible Preferred Shares impose restrictions on the Company's ability to
incur indebtedness and issue additional preferred shares.
HISTORICAL CASH FLOWS
In analyzing cash flows for the quarter ended June 30, 1998, the changes in 1997
are due principally to the addition of cash flows from properties contributed
and acquired as part of the Company's IPO as well as properties acquired after
the IPO through June 30, 1998.
-18-
<PAGE>
The Company had net cash provided by (used in) operating activities of $17.2
million and $(2.7) million for the six months ended June 30, 1998 and 1997,
respectively. The $19.9 million increase is primarily due to a $23.9 million
increase in net income, a 5.1 million increase in depreciation and amortization
expense, a $5.5 million increase in income allocated to minority interest, a
$0.5 million increase in accrued interest, a $3.0 million increase in accounts
payable and accrued expenses, a $6.5 million increase in accrued real estate
taxes, and a $1.2 million increase in other liabilities, offset by a $5.9
million decrease in interest expense and fees added to principal on mortgage
note payable affiliate, a $2.1 million increase in tenant receivables, and a
$18.5 million increase in other assets.
The Company had net cash used in investing activities of $267.3 million and $0.8
million for the six months ended June 30, 1998 and 1997, respectively. The
$266.5 million increase in net cash used in investing activities from the period
ended June 30, 1997 as compared to the period ended June 30, 1998 was primarily
due to an $253.5 million increase in expenditures for real estate and equipment,
principally related to the acquisition of five properties, $7.3 million in
escrow deposits for future acquisitions, a $3.9 million net increase in advances
to affiliates and a $1.8 million increase in leasing costs.
The Company had net cash provided by financing activities of $251.3 million and
$2.4 million for the six months ended June 30, 1998 and 1997, respectively. The
$248.9 million increase in net cash provided by financing activities from the
period ended June 30, 1997 as compared to the period ended June 30, 1998 was due
to net proceeds of $95.3 from the Redeemable Preferred Share Offering, net
proceed of $47.2 million from the Private Placement, net proceeds from mortgage
notes payable of $125.6 million and additional minority interest contributions
of $1.0 million, offset by financing costs of $4.1 million and distributions to
preferred shareholders, common shareholders and minority interest of $13.6
million.
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 in the unaudited financial statements
included elsewhere in this Form 10-Q. The following table represents the
unaudited calculation of the Company's Funds from Operations for the six months
ended June 30,1998 (in thousands):
<TABLE>
<CAPTION>
PRO FORMA (1) ACTUAL
------------ ------------
<S> <C> <C>
Net income allocated to common shareholders...... $ 2,309 $ 4,673
Real estate depreciation and amortization..... 12,055 10,849
Amortization of costs for leases assumed...... 566 566
Straight-line rental revenue adjustments...... (522) (522)
Minority interest............................. 5,860 5,167
Extraordinary loss............................ --- 525
------------ ------------
Funds from Operations (2)........................ $ 20,268 $ 21,258
============ ============
</TABLE>
(1) The pro forma calculation of Funds from Operations of the Company is
presented as if, at January 1, 1998, (i) the Company had completed the
Redeemable Preferred Share Offering and the Private Placement and used the
net proceeds to acquire Preferred Units and Common Units of the Operating
Partnership, (ii) the Operating Partnership had acquired the various office
and industrial properties acquired during the six months ended June 30,
1998 and (iii) the Operating Partnership repaid certain
-19-
<PAGE>
indebtedness. The unaudited pro forma calculation of Funds from Operations
should be read in conjunction with unaudited Pro Forma Condensed
Consolidated financial statements contained in the Company's Form 10-K. In
management's opinion, all adjustments necessary to reflect the effects of
the above described transactions have been made.
(2) 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 reports rental revenues on a
cash basis (based on contractual lease terms), rather than a straight-line
GAAP basis, which the Company believes results 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. As a result of the Company's reporting rental revenues on
a contractual 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.
READINESS FOR YEAR 2000
The Company is currently evaluating the nature and extent of the work required
to make its systems and infrastructure Year 2000 compliant. Based on a recent
assessment, the Company will have to modify or replace significant portions of
its hardware and software so that its systems will function properly with
respect to the Year 2000 and beyond. Certain of these systems are currently in
the process of being modified and/or replaced. The Company believes that with
modifications to certain existing software and conversions to new software
applications, in addition to hardware upgrades on certain mechanical systems,
the Year 2000 issue will not pose significant operational problems. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems that
are not in compliance with the Year 2000. The Company anticipates completing the
project in mid-1999. The cost to complete the project has not yet been
determined.
The project completion date is based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the ability
of third parties to modify the Company's systems on a timely basis. There can be
no guarantee that the project will be completed in a timely manner. Specific
factors that might delay completion of the project include, but are not limited
to, the availability of qualified personnel, the ability to locate and correct
relevant computer codes, and similar uncertainties.
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.
As of June 30, 1998, approximately $201.3 million in principal amount of the
Company's indebtedness bore interest at floating rates and future indebtedness
may bear floating rate interest. Inflation, and its impact on floating interest
rates, could affect the amount of interest payments due on such indebtedness.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
-20-
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No material developments with respect to legal proceedings occurred during the
period covered by this quarterly report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 5, 1998, the Company issued and sold 4,000,000 9% Series B Cumulative
Redeemable Preferred Shares for $25 per share, or an aggregate consideration of
approximately $100 million. So long as any Series B Cumulative Redeemable
Preferred Shares ("Series B Shares") are outstanding, no dividends may be
declared or paid or set apart for payment on Common Shares or Convertible
Preferred Shares unless full cumulative dividends on the Series B Shares have
been or contemporaneously are declared and a sum sufficient for the payment
thereof set apart for such payment. In addition, the Series B Shares rank senior
to the Common Shares and the Convertible Preferred Shares as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up. In the event of any liquidation, dissolution or winding up of the
Company, before any payment or distribution of the assets of the Company shall
be made to or set apart for the holders of Common Shares or Convertible
Preferred Shares, the holders of Series B Shares shall be entitled to receive
$25.00 per Series B Share, plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final distribution
to such holders. Further, if and whenever six consecutive quarterly dividends
payable on the Series B Shares shall be in arrears, the number of trustees then
constituting the Board of Trustees shall be increased by two and the holders of
Series B Shares, together with the holders of shares of every other series of
shares on parity with the Series B Shares (which does not include the Common
Shares or the Convertible Preferred Shares), shall be entitled to elect the two
additional trustees to serve on the Board of Trustees.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual Meeting of Shareholders was held on May 22, 1998. At the
meeting, shareholders voted on (i) the election of two trustees; and (ii)
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for 1998. Voting on each such matter was as follows:
<TABLE>
<CAPTION>
VOTES VOTES WITHHELD/ BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
1. Election of Trustees:
Michael W. Reschke 13,096,353 --- 6,640 0
Jacque M. Ducharme 13,095,053 --- 7,940 0
2. Ratification of Auditors: 13,092,902 3,750 6,341 0
</TABLE>
ITEM 5. OTHER INFORMATION.
None
-21-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.1 Amendment No. 7 to the Amended and Restated Agreement of Limited
Partnership dated as of April 15, 1998 as filed as an exhibit to
Amendment No. 1 to the Company's Registration Statement on Form S-11
(No. 333-51599) as filed with the Commission on May 14, 1998 and
incorporated herein by reference
3.2 Amendment No. 8 to the Amended and Restated Agreement of Limited
Partnership dated as of May 15, 1998
3.3 Amendment No. 9 to the Amended and Restated Agreement of Limited
Partnership dated as of June 5, 1998
3.4 Amendment No. 10 to the Amended and Restated Agreement of Limited
Partnership dated as of June 15, 1998
4.1 Articles Supplementary Classifying and Designating a Series of
Preferred Shares of Beneficial Interest as 9% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest and Fixing
Distribution and Other Preferences and Rights of Such Series dated
June 1, 1998
10.1 Amendment No. 4 to the Credit Facility dated as of April 24, 1998 as
filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-11 (No. 333-51599) as filed with the Commission on
May 14, 1998 and incorporated herein by reference
10.2 Subordination and Intercreditor Agreement made as of May 14, 1998
among Connecticut General Life Insurance Company and Prime Group
Realty, L.P.
10.3 Employment Agreement dated as of May 6, 1998 by and between the
Company and Louis Conforti
10.4 Promissory Note dated May 14, 1998 in the principal amount of
$75,000,000.00 made by American National Bank and Trust Company of
Chicago, a national banking association, not personally but solely as
trustee under trust agreement dated July 26, 1977 and known as Trust
No. 40935 and American National Bank and Trust Company of Chicago, a
national banking association, as successor trustee to First Bank,
N.A., as successor trustee to National Boulevard Bank of Chicago, not
personally, but solely as trustee under trust agreement dated
September 27, 1976 and known as Trust No. 5602, payable to the order
of Connecticut General Life Insurance Company
27.1 Financial Data Schedule
- ---------------
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K and Form 8-K/A relating to
the acquisition of certain real estate properties and the required financial
information: Form 8-K on January 14, 1998; Form 8-K on January 30, 1998; Form
8-K/A on February 27, 1998; Form 8-K on March 6, 1998; Form 8-K/A on March 31,
1998; Form 8-K on April 14, 1998; Form 8-K on April 15, 1998; Form 8-K/A on May
5, 1998; Form 8-K on June 15, 1998 and Form 8-K/A on June 15, 1998.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PRIME GROUP REALTY TRUST
------------------------
Registrant
Date: August 14, 1998 /s/ Richard S. Curto
------------------------------- ---------------------
Richard S. Curto
President and Chief Executive
Officer
Date: August 14, 1998 /s/ William M. Karnes
------------------------------ ---------------------
William M. Karnes
Executive Vice President and
Chief Financial Officer
-23-
<PAGE>
AMENDMENT NO. 8 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF PRIME GROUP REALTY, L.P.
This AMENDMENT NO. 8 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF PRIME GROUP REALTY, L.P. (this "Amendment") is made as of May 15,
1998 by Prime Group Realty Trust, a Maryland real estate investment trust
("PGRT"), as the Managing General Partner of Prime Group Realty, L.P., a
Delaware limited partnership (the "Partnership"), and on behalf of the other
Partners (as hereinafter defined). Capitalized terms used but not otherwise
defined herein shall have the meanings given to such terms in the Amended and
Restated Agreement of Limited Partnership of the Partnership, dated as of
November 17, 1997, by and among PGRT and the other parties signatory thereto, as
amended thereafter (as so amended, the "Limited Partnership Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to Section 4.3.C. of the Limited Partnership
Agreement, the Managing General Partner may raise all or any portion of
Additional Funds required by the Partnership for the acquisition of additional
properties by accepting additional Capital Contributions, including the issuance
of Common Units for Capital Contributions that consist of property or interests
in property;
WHEREAS, pursuant to that certain Exchange Agreement dated as of
December 15, 1997 by and between H Group LLC, a Delaware limited liability
company ("HG"), and the Partnership (the "Exchange Agreement"), HG agreed, among
other things, to grant to the Partnership an option (the "First Option") to
exchange the Underlying Option (as defined in the Exchange Agreement) for
220,000 Common Units of Limited Partner Interest (subject to adjustment pursuant
to the terms of the Exchange Agreement), which grant of the First Option
contemplated the transfer by the Partnership to HG of 5,000 Common Units of
Limited Partner Interest on the date thereof and, subject to the terms of the
First Option, 5,000 Common Units of Limited Partner Interest (subject to
adjustment pursuant to the terms of the Exchange Agreement) on the 15th day of
each month thereafter (each such transfer a "First Option Maintenance Transfer")
for such number of months set forth in the Exchange Agreement;
WHEREAS, the Partnership has agreed to the terms of the grant by HG of
the First Option set forth in the Exchange Agreement and desires to effect the
First Option Maintenance Transfer due on May 15, 1998;
WHEREAS, HG was admitted to the Partnership as an Additional Limited
Partner as of December 15, 1997 pursuant to Amendment No. 2 to the Limited
Partnership Agreement;
WHEREAS, the Partners desire to amend the Limited Partnership Agreement
to reflect the increase in outstanding Common Units resulting from the issuance
of Common Units to HG in connection with the First Option Maintenance Transfer
due on May 15, 1998;
-1-
<PAGE>
WHEREAS, on March 31, 1998, (i) 10,000 Common Shares were issued in a
grant to William M. Karnes pursuant to the terms of Mr. Karnes' employment
agreement with PGRT and (ii) 2,500 Common Shares were issued in a grant to
Stephen J. Nardi pursuant to the terms of Mr. Nardi's consulting agreement with
PGRT (such 2,500 Common Shares, together with the 10,000 Common Shares referred
to in clause (i) of this sentence, are collectively referred to herein as the
"Grant Shares");
WHEREAS, for purposes of the Grant Shares, PGRT will be deemed to have
compensated Messrs. Karnes and Nardi in cash, that Messrs. Karnes and Nardi in
turn paid cash for the Grant Shares and that PGRT then contributed such cash to
the Partnership in exchange for Common Units corresponding to the Grant Shares;
WHEREAS, the Partners desire to amend the Limited Partnership Agreement
to reflect the increase in outstanding Common Units as a result of the issuance
of 12,500 Common Units to PGRT in connection with the issuance and grant by PGRT
of the Grant Shares to the Purchasers; and
WHEREAS, Sections 2.4 and 12.3 of the Limited Partnership Agreement
authorizes, among other things, the Managing General Partner, as true and lawful
agent and attorney-in fact, to execute, swear to, acknowledge, deliver, file and
record this Amendment on behalf of each Partner that has executed the Limited
Partnership Agreement and on behalf of the Partnership.
NOW, THEREFORE, for good and adequate consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. ACCEPTANCE OF CAPITAL CONTRIBUTION IN EXCHANGE FOR COMMON
UNITS. (a) PGRT, as Managing General Partner and on behalf of the Partnership,
hereby accepts the grant of the rights consisting of the First Option during the
sixth month of the term of the First Option from HG as a Capital Contribution
having a value on the date hereof of $100,000, in exchange for 5,000 Common
Units of Limited Partner Interest which are hereby issued by the Partnership to
HG pursuant to Section 4.3.C. of the Limited Partnership Agreement, and which
are evidenced by Common Unit Certificate No. 29 of the Partnership.
(b) Each of the Common Units of Limited Partner Interest issued
to HG pursuant to this SECTION 1 shall have the same terms and provisions of the
Common Units of Limited Partner Interest issued by the Partnership on November
17, 1997 except that (i) the Exchange Rights relating thereto may be exercised
at any time after December 15, 1998 (as opposed to November 17, 1998) and (ii)
such Common Units of Limited Partner Interest will be subject to the
Registration Rights Agreement dated as of December 15, 1997 by and among PGRT,
the Partnership and HG as opposed to the Registration Rights Agreement entered
into by PGRT and the Partnership on November 17, 1997.
Section 2. ISSUANCE OF COMMON UNITS CORRESPONDING TO THE GRANT SHARES.
The Partnership hereby issues, effective as of March 31, 1998, 12,500 Common
Units of General Partner Interest to PGRT, which shall correspond to the Grant
Shares. Such Common Units of General Partner Interest issued pursuant to this
SECTION 2 shall not be evidenced by a Common Unit certificate unless hereafter
requested by PGRT.
-2-
<PAGE>
Section 3. AMENDMENT OF EXHIBIT A TO THE LIMITED PARTNERSHIP AGREEMENT.
Exhibit A to the Limited Partnership Agreement is hereby amended and restated to
reflect the aforementioned change(s) by deleting Exhibit A attached thereto in
its entirety, and by attaching in lieu thereof a replacement exhibit in the form
of EXHIBIT A attached hereto. From and after the effectiveness of this
Amendment, the amended and restated EXHIBIT A attached hereto shall be the only
EXHIBIT A to the Limited Partnership Agreement, unless and until it is hereafter
further amended.
Section 4. REFERENCE TO AND EFFECT ON THE LIMITED PARTNERSHIP
AGREEMENT.
A. The Limited Partnership Agreement is hereby deemed to be
amended to the extent necessary to effect the matters contemplated by this
Amendment. Except as specifically provided for hereinabove, the provisions of
the Limited Partnership Agreement shall remain in full force and effect.
B. The execution, delivery and effectiveness of this Amendment
shall not operate (i) as a waiver of any provision, right or obligation of the
Managing General Partner, the other General Partner or any Limited Partner under
the Limited Partnership Agreement except as specifically set forth herein or
(ii) as a waiver or consent to any subsequent action or transaction.
Section 5. APPLICABLE LAW. This Amendment shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
[signature page follows]
-3-
<PAGE>
AMENDMENT NO. 8 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF PRIME
GROUP REALTY, L.P.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
MANAGING GENERAL PARTNER:
-------------------------
PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust
By: /s/ William M. Karnes
----------------------
Name: William M. Karnes
Title: Executive Vice President
LIMITED PARTNERS:
-----------------
Each Limited Partner hereby executes
this Amendment to the Limited
Partnership Agreement.
By: PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, as attorney-in fact
By: /s/ William M. Karnes
----------------------
Name: William M. Karnes
Title: Executive Vice President
-4-
<PAGE>
EXHIBIT A*/
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Capital
Managing General Partner Common Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 15,572,494 **/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
General Partner
- ---------------
The Nardi Group, L.L.C 927,100 $18,542,000
c/o Stephen J. Nardi
4100 Madison Street
Hillside, IL 60162
Limited Partners
- ----------------
Edward S. Hadesman 388,677 $7,773,540
Trust Dated May 22, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Grandville/Northwestern 9,750 $195,000
Management Corporation
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Carolyn B. Hadesman 54,544 $1,090,880
Trust Dated May 21, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
- --------------------
*/ As amended by Amendment No. 8 to the Amended and Restated Agreement of
Limited Partnership of Prime Group Realty, L.P.
**/ This amount shall be inserted by the Managing General Partner.
-1-
<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Lisa Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Cynthia Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Tucker B. Magid 33,085 $661,700
545 Ridge Road
Highland Park, IL 60035
Frances S. Shubert 28,805 $576,100
511 Lynn Terrace
Waukegan, IL 60085
Grandville Road Property, Inc. 7,201 $144,020
c/o Ms. Frances S. Shubert
511 Lynn Terrace
Waukegan, IL 60085
Sky Harbor Associates 62,149 $1,242,980
c/o Howard I. Bernstein
6541 North Kilbourn
Lincolnwood, IL 60646
Jeffrey A. Patterson 110,000 $2,200,000
c/o Prime Group Realty Trust
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Primestone Investment Partners, L.P. 7,944,893 **/
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Paul A. Roehri
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
-2-
<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Prime Group Limited Partnership 47,525 $950,500
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Michael W. Reshcke
Robert J. Rudnik
H Group LLC 281,572 $5,500,000
c/o Heitman Financial Ltd.
180 N. LaSalle
Suite 3600
Chicago, IL 60601
Attn: Norman Perlmutter
Ray R. Grinvalds 5,216 $104,320
217 Deer Valley Drive
Barrington, IL 60010
Warren H. John 37,259 $745,180
1730 N. Clark Street
Chicago, IL 60614
-3-
<PAGE>
EXHIBIT A - CONT'D
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Convertible Capital
Managing General Partner Preferred Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 2,000,000 **/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
-4-
<PAGE>
AMENDMENT NO. 9 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF PRIME GROUP REALTY, L.P.
This AMENDMENT NO. 9 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF PRIME GROUP REALTY, L.P. (this "Amendment") is made as of June 5,
1998 by Prime Group Realty Trust, a Maryland real estate investment trust
("PGRT"), as the Managing General Partner of Prime Group Realty, L.P., a
Delaware limited partnership (the "Partnership"), and on behalf of the other
Partners (as hereinafter defined). Capitalized terms used but not otherwise
defined herein shall have the meanings given to such terms in the Amended and
Restated Agreement of Limited Partnership of the Partnership, dated as of
November 17, 1997, by and among PGRT and the other parties signatory thereto, as
amended thereafter (as so amended, the "Limited Partnership Agreement").
W I T N E S S E T H:
WHEREAS, on the date hereof, PGRT has issued and sold 4,000,000 of its
9% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share (the "Redeemable Preferred Shares"), to the underwriters
(the "Underwriters") identified in that certain Underwriting Agreement, dated
May 29, 1998, among Prudential Securities Incorporated, Bear, Stearns & Co.
Inc., Friedman, Billings, Ramsey & Co., Inc., Legg Mason Wood Walker,
Incorporated and Morgan Keegan & Company, Inc., as Representatives of the
Underwriters, PGRT and the Partnership;
WHEREAS, pursuant to Section 4.3.D. of the Limited Partnership
Agreement, (i) PGRT has made a Capital Contribution of the net proceeds from the
issuance and sale of the Redeemable Preferred Shares to the Underwriters, and
(ii) PGRT in turn shall receive from the Partnership Preferred Units
corresponding to such Shares, which Preferred Units (the "Series B Preferred
Units") shall have the same terms and conditions as are applicable to the
Redeemable Preferred Shares;
WHEREAS, the Partners desire to amend the Limited Partnership Agreement
to reflect the issuance of 4,000,000 Series B Preferred Units to PGRT in
connection with PGRT's issuance and sale of the Redeemable Preferred Shares to
the Underwriters; and
WHEREAS, Section 2.4 of the Limited Partnership Agreement authorizes,
among other things, the Managing General Partner, as true and lawful agent and
attorney-in-fact, to execute, swear to, acknowledge, deliver, file and record
this Amendment on behalf of each Partner that has executed the Limited
Partnership Agreement and on behalf of the Partnership.
NOW, THEREFORE, for good and adequate consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
-1-
<PAGE>
Section 1. ISSUANCE OF SERIES B PREFERRED UNITS PURSUANT TO
SECTION 4.3.D. OF THE LIMITED PARTNERSHIP AGREEMENT. The net proceeds from
PGRT's issuance and sale of the Redeemable Preferred Shares to the Underwriters
have been received by the Partnership as a Capital Contribution from PGRT. The
Partnership hereby issues 4,000,000 Series B Preferred Units of General Partner
Interest to PGRT, pursuant to Section 4.3.D. of the Limited Partnership
Agreement, which Series B Preferred Units shall correspond to the Redeemable
Preferred Shares and shall have the same terms and conditions as are applicable
to the Redeemable Preferred Shares, including without limitation, the same (i)
distribution or dividend rate, (ii) distribution or dividend payment dates,
(iii) distribution or dividend priority and (iv) liquidation preference as are
applicable to the Redeemable Preferred Shares, and the Series B Preferred Units
shall have the same relative rights and preferences with respect to the
outstanding Common Units and Preferred Units (which correspond to PGRT's
outstanding 7% Series A Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest (the "Convertible Preferred Shares")) as the Redeemable
Preferred Shares bear to PGRT's outstanding Common Shares and Convertible
Preferred Shares. Such Series B Preferred Units issued pursuant to this SECTION
1 shall not be evidenced by a Series B Preferred Unit certificate unless
hereafter requested by PGRT.
Section 2. AMENDMENT OF EXHIBIT A TO LIMITED PARTNERSHIP AGREEMENT.
EXHIBIT A to the Limited Partnership Agreement is hereby amended and restated to
reflect the aforementioned change(s) by deleting Exhibit A attached thereto in
its entirety, and by attaching in lieu thereof a replacement exhibit in the form
of EXHIBIT A attached hereto. From and after the effectiveness of this
Amendment, the amended and restated EXHIBIT A attached hereto shall be the only
EXHIBIT A to the Limited Partnership Agreement, unless and until it is hereafter
further amended.
Section 3. REFERENCE TO AND EFFECT ON THE LIMITED PARTNERSHIP
AGREEMENT.
A. The Limited Partnership Agreement is hereby deemed to be
amended to the extent necessary to effect the matters contemplated by this
Amendment. Except as specifically provided for hereinabove, the provisions of
the Limited Partnership Agreement shall remain in full force and effect.
B. The execution, delivery and effectiveness of this Amendment
shall not operate (i) as a waiver of any provision, right or obligation of the
Managing General Partner, the other General Partner or any Limited Partner under
the Limited Partnership Agreement except as specifically set forth herein or
(ii) as a waiver or consent to any subsequent action or transaction.
Section 4. APPLICABLE LAW. This Amendment shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
[signature page follows]
-2-
<PAGE>
AMENDMENT NO. 9 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF PRIME
GROUP REALTY, L.P.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
MANAGING GENERAL PARTNER:
-------------------------
PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust
By: /s/ William M. Karnes
----------------------
Name: William M. Karnes
Title: Executive Vice President
LIMITED PARTNERS:
-----------------
Each Limited Partner hereby executes
this Amendment to the Limited
Partnership Agreement.
By: PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, as attorney-in-fact
By: /s/ William M. Karnes
----------------------
Name: William M. Karnes
Its: Executive Vice President
-3-
<PAGE>
EXHIBIT A*/
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Capital
Managing General Partner Common Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 15,572,494 **/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
General Partner
- ---------------
The Nardi Group, L.L.C 927,100 $18,542,000
c/o Stephen J. Nardi
4100 Madison Street
Hillside, IL 60162
Limited Partners
- ----------------
Edward S. Hadesman 388,677 $7,773,540
Trust Dated May 22, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Grandville/Northwestern 9,750 $195,000
Management Corporation
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Carolyn B. Hadesman 54,544 $1,090,880
Trust Dated May 21, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
- --------------------
*/ As amended by Amendment No. 9 to the Amended and Restated Agreement of
Limited Partnership of Prime Group Realty, L.P.
**/ This amount shall be inserted by the Managing General Partner.
-1-
<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Lisa Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Cynthia Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Tucker B. Magid 33,085 $661,700
545 Ridge Road
Highland Park, IL 60035
Frances S. Shubert 28,805 $576,100
511 Lynn Terrace
Waukegan, IL 60085
Grandville Road Property, Inc. 7,201 $144,020
c/o Ms. Frances S. Shubert
511 Lynn Terrace
Waukegan, IL 60085
Sky Harbor Associates 62,149 $1,242,980
c/o Howard I. Bernstein
6541 North Kilbourn
Lincolnwood, IL 60646
Jeffrey A. Patterson 110,000 $2,200,000
c/o Prime Group Realty Trust
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Primestone Investment Partners, L.P. 7,944,893 **/
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Paul A. Roehri
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
-2-
<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Prime Group Limited Partnership 47,525 $950,500
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Michael W. Reshcke
Robert J. Rudnik
H Group LLC 281,572 $5,500,000
c/o Heitman Financial Ltd.
180 N. LaSalle
Suite 3600
Chicago, IL 60601
Attn: Norman Perlmutter
Ray R. Grinvalds 5,216 $104,320
217 Deer Valley Drive
Barrington, IL 60010
Warren H. John 37,259 $745,180
1730 N. Clark Street
Chicago, IL 60614
-3-
<PAGE>
EXHIBIT A - CONT'D
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Capital
Managing General Partner Preferred Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 2,000,000 **/
77 West Wacker Drive Convertible Preferred
Suite 3900 Units
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
Prime Group Realty Trust 4,000,000 **/
77 West Wacker Drive Series B Preferred
Suite 3900 Units
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
-4-
<PAGE>
AMENDMENT NO. 10 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF PRIME GROUP REALTY, L.P.
This AMENDMENT NO. 10 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF PRIME GROUP REALTY, L.P. (this "Amendment") is made as of June
15, 1998 by Prime Group Realty Trust, a Maryland real estate investment trust
("PGRT"), as the Managing General Partner of Prime Group Realty, L.P., a
Delaware limited partnership (the "Partnership"), and on behalf of the other
Partners (as hereinafter defined). Capitalized terms used but not otherwise
defined herein shall have the meanings given to such terms in the Amended and
Restated Agreement of Limited Partnership of the Partnership, dated as of
November 17, 1997, by and among PGRT and the other parties signatory thereto, as
amended thereafter (as so amended, the "Limited Partnership Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to Section 4.3.C. of the Limited Partnership
Agreement, the Managing General Partner may raise all or any portion of
Additional Funds required by the Partnership for the acquisition of additional
properties by accepting additional Capital Contributions, including the issuance
of Common Units for Capital Contributions that consist of property or interests
in property;
WHEREAS, pursuant to that certain Exchange Agreement dated as of
December 15, 1997 by and between H Group LLC, a Delaware limited liability
company ("HG"), and the Partnership (the "Exchange Agreement"), HG agreed, among
other things, to grant to the Partnership an option (the "First Option") to
exchange the Underlying Option (as defined in the Exchange Agreement) for
220,000 Common Units of Limited Partner Interest (subject to adjustment pursuant
to the terms of the Exchange Agreement), which grant of the First Option
contemplated the transfer by the Partnership to HG of 5,000 Common Units of
Limited Partner Interest on the date thereof and, subject to the terms of the
First Option, 5,000 Common Units of Limited Partner Interest (subject to
adjustment pursuant to the terms of the Exchange Agreement) on the 15th day of
each month thereafter (each such transfer a "First Option Maintenance Transfer")
for such number of months set forth in the Exchange Agreement;
WHEREAS, the Partnership has agreed to the terms of the grant by HG of
the First Option set forth in the Exchange Agreement and desires to effect the
First Option Maintenance Transfer due on June 15, 1998;
WHEREAS, HG was admitted to the Partnership as an Additional Limited
Partner as of December 15, 1997 pursuant to Amendment No. 2 to the Limited
Partnership Agreement;
WHEREAS, the Partners desire to amend the Limited Partnership Agreement
to reflect the increase in outstanding Common Units resulting from the issuance
of Common Units to HG in connection with the First Option Maintenance Transfer
due on June 15, 1998; and
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<PAGE>
WHEREAS, Sections 2.4 and 12.3 of the Limited Partnership Agreement
authorize, among other things, the Managing General Partner, as true and lawful
agent and attorney-in fact, to execute, swear to, acknowledge, deliver, file and
record this Amendment on behalf of each Partner that has executed the Limited
Partnership Agreement and on behalf of the Partnership.
NOW, THEREFORE, for good and adequate consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. ACCEPTANCE OF CAPITAL CONTRIBUTION IN EXCHANGE FOR
COMMON UNITS. (a) PGRT, as Managing General Partner and on behalf of the
Partnership, hereby accepts the grant of the rights consisting of the First
Option during the seventh month of the term of the First Option from HG as a
Capital Contribution having a value on the date hereof of $100,000, in exchange
for 5,000 Common Units of Limited Partner Interest which are hereby issued by
the Partnership to HG pursuant to Section 4.3.C. of the Limited Partnership
Agreement, and which are evidenced by Common Unit Certificate No. 30 of the
Partnership.
(b) Each of the Common Units of Limited Partner Interest
issued to HG pursuant to this SECTION 1 shall have the same terms and provisions
of the Common Units of Limited Partner Interest issued by the Partnership on
November 17, 1997 except that (i) the Exchange Rights relating thereto may be
exercised at any time after December 15, 1998 (as opposed to November 17, 1998)
and (ii) such Common Units of Limited Partner Interest will be subject to the
Registration Rights Agreement dated as of December 15, 1997 by and among PGRT,
the Partnership and HG as opposed to the Registration Rights Agreement entered
into by PGRT and the Partnership on November 17, 1997.
Section 2. AMENDMENT OF EXHIBIT A TO THE LIMITED PARTNERSHIP
AGREEMENT. Exhibit A to the Limited Partnership Agreement is hereby amended and
restated to reflect the aforementioned change(s) by deleting exhibit A attached
thereto in its entirety, and by attaching in lieu thereof a replacement exhibit
in the form of EXHIBIT A attached hereto. From and after the effectiveness of
this Amendment, the amended and restated EXHIBIT A attached hereto shall be the
only exhibit A to the Limited Partnership Agreement, unless and until it is
hereafter further amended.
Section 3. REFERENCE TO AND EFFECT ON THE LIMITED PARTNERSHIP
AGREEMENT.
A. The Limited Partnership Agreement is hereby deemed to be
amended to the extent necessary to effect the matters contemplated by this
Amendment. Except as specifically provided for hereinabove, the provisions of
the Limited Partnership Agreement shall remain in full force and effect.
B. The execution, delivery and effectiveness of this Amendment
shall not operate (i) as a waiver of any provision, right or obligation of the
Managing General Partner, the other General Partner or any Limited Partner under
the Limited Partnership Agreement except as specifically set forth herein or
(ii) as a waiver or consent to any subsequent action or transaction.
Section 4. APPLICABLE LAW. This Amendment shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
[signature page follows]
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<PAGE>
AMENDMENT NO. 10 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF PRIME
GROUP REALTY, L.P.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
MANAGING GENERAL PARTNER:
-------------------------
PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust
By:/s/ Jeffrey A. Patterson
------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
LIMITED PARTNERS:
-----------------
Each Limited Partner hereby executes
this Amendment to the Limited
Partnership Agreement.
By: PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, as attorney-in fact
By:/s/ Jeffrey A. Patterson
------------------------
Name:Jeffrey A. Patterson
Title:Executive Vice President
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<PAGE>
EXHIBIT A*/
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Capital
Managing General Partner Common Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 15,572,494 **/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
General Partner
- ---------------
The Nardi Group, L.L.C 927,100 $18,542,000
c/o Stephen J. Nardi
4100 Madison Street
Hillside, IL 60162
Limited Partners
- ----------------
Edward S. Hadesman 388,677 $7,773,540
Trust Dated May 22, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Grandville/Northwestern 9,750 $195,000
Management Corporation
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Carolyn B. Hadesman 54,544 $1,090,880
Trust Dated May 21, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
- --------------------
*/ As amended by Amendment No. 10 to the Amended and Restated Agreement of
Limited Partnership of Prime Group Realty, L.P.
**/ This amount shall be inserted by the Managing General Partner.
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<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Lisa Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Cynthia Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
Tucker B. Magid 33,085 $661,700
545 Ridge Road
Highland Park, IL 60035
Frances S. Shubert 28,805 $576,100
511 Lynn Terrace
Waukegan, IL 60085
Grandville Road Property, Inc. 7,201 $144,020
c/o Ms. Frances S. Shubert
511 Lynn Terrace
Waukegan, IL 60085
Sky Harbor Associates 62,149 $1,242,980
c/o Howard I. Bernstein
6541 North Kilbourn
Lincolnwood, IL 60646
Jeffrey A. Patterson 110,000 $2,200,000
c/o Prime Group Realty Trust
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Primestone Investment Partners, L.P. 7,944,893 **/
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Paul A. Roehri
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
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<PAGE>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- -------------------- --------------------
Prime Group Limited Partnership 47,525 $950,500
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Michael W. Reshcke
Robert J. Rudnik
H Group LLC 286,572 $5,500,000
c/o Heitman Financial Ltd.
180 N. LaSalle
Suite 3600
Chicago, IL 60601
Attn: Norman Perlmutter
Ray R. Grinvalds 5,216 $104,320
217 Deer Valley Drive
Barrington, IL 60010
Warren H. John 37,259 $745,180
1730 N. Clark Street
Chicago, IL 60614
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<PAGE>
EXHIBIT A - CONT'D
PARTNERS, NUMBER OF UNITS AND CAPITAL CONTRIBUTIONS
Number of Capital
Managing General Partner Preferred Units Contribution
- ------------------------ -------------------- --------------------
Prime Group Realty Trust 2,000,000 **/
77 West Wacker Drive Convertible Preferred
Suite 3900 Units
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
Prime Group Realty Trust 4,000,000 **/
77 West Wacker Drive Series B Preferred
Suite 3900 Units
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
- --------------------
**/ This amount shall be inserted by the Managing General Partner.
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<PAGE>
PRIME GROUP REALTY TRUST
================================================================================
Articles Supplementary
Classifying and Designating a Series of
Preferred Shares of Beneficial Interest as
9% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest and
Fixing Distribution and Other Preferences
and Rights of Such Series
================================================================================
Prime Group Realty Trust, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the State Department of Assessments and Taxation
of Maryland pursuant to section 8-203(b) of the Annotated Code of Maryland that:
FIRST: Pursuant to authority granted to the Board of Trustees of the
Trust by the Amended and Restated Declaration of Trust of the Trust (the
"Declaration"), the Board of Trustees has designated and classified 4,600,000
unissued preferred shares of beneficial interest, par value $0.01 per share, as
9% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share, and authorizing the issuance thereof.
SECOND: The following is a description of the 9% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, including the preferences
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. NUMBER OF SHARES AND DESIGNATION. This class of
preferred shares of beneficial interest shall be designated as "9% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest" and the number of
shares which shall constitute such series shall be 4,600,000 shares which number
may be decreased (but not below the aggregate number thereof then outstanding
and/or which have been reserved for issuance) from time to time by the Board of
Trustees.
Section 2. DEFINITIONS. For purposes of the Series B Preferred
Shares (as hereinafter defined), the following terms shall have the meanings
indicated:
"BOARD OF TRUSTEES" shall mean the Board of Trustees of the
Trust or any committee authorized by such Board of Trustees to perform
any of its responsibilities with respect to the Series B Preferred
Shares.
"BUSINESS DAY" shall mean any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City, New York are authorized or required by
law, regulation or executive order to close.
"COMMON SHARES" shall mean the Common Shares of Beneficial
Interest, par value $0.01 per share, of the Trust.
"OPERATING PARTNERSHIP" shall mean Prime Group Realty, L.P., a
Delaware limited partnership.
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<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SERIES A PREFERRED SHARES" shall mean the Trust's outstanding
7% Series A Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share.
"SERIES B CALL DATE" shall mean the date specified in the
notice to holders required under SECTION 5(d) as the Series B Call
Date.
"SERIES B DIVIDEND PAYMENT DATE" shall mean (i) the
thirty-first day of each January with respect to the Series B Dividend
Period commencing on October 1 of the then immediately preceding year,
(ii) the thirtieth day of each April with respect to the Series B
Dividend Period commencing on January 1 of such year, (ii) the
thirty-first day of each July with respect to the Series B Dividend
Period commencing on April 1 of such year and (iv) the thirty-first day
of each October with respect to the Series B Dividend Period commencing
on July 1 of such year.
"SERIES B DIVIDEND PERIODS" shall mean quarterly dividend
periods commencing on January 1, April 1, July 1 and October 1 of each
year and ending on and including the day preceding the first day of the
next succeeding Series B Dividend Period with respect to any Series B
Preferred Shares (other than the initial Series B Dividend Period,
which shall commence on the Series B Issue Date and end on and include
the last day of the calendar quarter immediately following such Series
B Issue Date, and other than the Series B Dividend Period during which
any Series B Preferred Shares shall be redeemed pursuant to SECTION 5,
which shall end on and include the Series B Call Date with respect to
the Series B Preferred Shares being redeemed).
"SERIES B FULLY JUNIOR SHARES" shall mean the Common Shares,
the Series A Preferred Shares and any other class or series of shares
of beneficial interest of the Trust now or hereafter issued and
outstanding over which the Series B Preferred Shares have preference or
priority in both (i) the payment of dividends and (ii) the distribution
of assets on any liquidation, dissolution or winding up of the Trust.
"SERIES B ISSUE DATE" shall mean the date on which the Series
B Preferred Shares are issued.
"SERIES B JUNIOR SHARES" shall mean the Common Shares, the
Series A Preferred Shares and any other class or series of shares of
beneficial interest of the Trust now or hereafter issued and
outstanding over which the Series B Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets
on any liquidation, dissolution or winding up of the Trust.
"SERIES B PARITY SHARES" shall have the meaning set forth in
SECTION 6(b).
"SERIES B PREFERRED SHARES" shall mean the Trust's 9% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share.
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<PAGE>
"SERIES B VOTING PREFERRED SHARES" shall have the meaning set
forth in SECTION 7.
"SET APART FOR PAYMENT" shall be deemed to include, without
any other action, the recording by the Trust in its accounting ledgers
of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of
Trustees, the allocation of funds to be so paid on any series or class
of shares of beneficial interest of the Trust; PROVIDED, HOWEVER, that
if any funds for any class or series of Series B Junior Shares or any
class or series of shares of beneficial interest ranking on a parity
with the Series B Preferred Shares as to the payment of dividends are
placed in a separate account of the Trust or delivered to a disbursing,
paying or other similar agent, then "set apart for payment" with
respect to the Series B Preferred Shares shall mean placing such funds
in a separate account or delivering such funds to a disbursing, paying
or other similar agent.
"TRANSFER AGENT" shall mean the Trust, or such other agent or
agents of the Trust as may be designated by the Board of Trustees or
their designee as the transfer agent, registrar and dividend disbursing
agent for the Series B Preferred Shares.
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Declaration.
Section 3. DIVIDENDS.
(a) Subject to the preferential rights of the holders of any
Preferred Shares that rank senior in the payment of dividends to the
Series B Preferred Shares, the holders of Series B Preferred Shares
shall be entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available for the payment of dividends,
cumulative preferential dividends payable in cash in an amount per
share equal to an annual rate of 9% of the per share liquidation
preference of the Series B Preferred Shares (equivalent to $2.25 per
Series B Preferred Share). The dividends shall begin to accrue and
shall be fully cumulative from the first day of the applicable Series B
Dividend Period, whether or not in any Series B Dividend Period or
Periods there shall be funds of the Trust legally available for the
payment of such dividends and whether or not such dividends are
authorized by the Board of Trustees, and shall be payable quarterly,
when, as and if declared by the Board of Trustees, in arrears on Series
B Dividend Payment Dates. Each such dividend shall be payable in
arrears to the holders of record of Series B Preferred Shares as they
appear in the records of the Trust at the close of business on such
record date, not less than 10 nor more than 50 days preceding such
Series B Dividend Payment Dates thereof, as shall be fixed by the Board
of Trustees. Accrued and unpaid dividends for any past Series B
Dividend Periods may be declared and paid at any time and for such
interim periods, without reference to any regular Series B Dividend
Payment Date, to holders of record on such date, not less than 10 nor
more than 50 days preceding the payment date thereof, as may be fixed
by the Board of Trustees. Any dividend payment made on Series B
Preferred Shares shall first be credited against the earliest accrued
but unpaid dividend due with respect to Series B Preferred Shares which
remains payable.
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<PAGE>
(b) The initial Series B Dividend Period for the Series B
Preferred Shares will include a partial dividend for the period from
the Series B Issue Date until the last day of the calendar quarter
immediately following such Series B Issue Date. The amount of dividends
payable for such period, or any other period shorter than a full Series
B Dividend Period, on the Series B Preferred Shares shall be computed
by dividing the number of days in such period by 365 and multiplying
the result by the product of the annual dividend rate (i.e., 9%)
multiplied by the liquidation preference of the Series B Preferred
Shares (i.e., $25.00 per Series B Preferred Share). The aggregate
amount of dividends payable in respect of the Series B Preferred Shares
for each full Series B Dividend Period shall be computed by dividing
(x) the product of the annual dividend rate multiplied by the
liquidation preference of the Series B Preferred Shares by (y) four
(4). Holders of Series B Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or shares, in excess of
cumulative dividends, as herein provided, on the Series B Preferred
Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Shares which may be in arrears.
(c) So long as any Series B Preferred Shares are
outstanding, no dividends, except as described in the immediately
following sentence, shall be declared or paid or set apart for payment
on any class or series of Series B Parity Shares for any period unless
full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series B Preferred Shares for all Series
B Dividend Periods terminating on or prior to the dividend payment date
on such class or series of Series B Parity Shares. When dividends are
not paid in full or a sum sufficient for such payment is not set apart,
as aforesaid, all dividends declared upon Series B Preferred Shares and
all dividends declared upon any other class or series of Series B
Parity Shares shall be declared ratably in proportion to the respective
amounts of dividends accumulated and unpaid on the Series B Preferred
Shares and accumulated and unpaid on such Series B Parity Shares.
(d) So long as any Series B Preferred Shares are
outstanding, no dividends (other than dividends or distributions paid
solely in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Series B Fully Junior Shares) shall be declared or
paid or set apart for payment or any other distribution shall be
declared or made or set apart for payment upon Series B Junior Shares,
nor shall any Series B Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other
acquisition of Common Shares made for purposes of an employee incentive
or benefit plan of the Trust or any subsidiary) for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any Series B Junior Shares) by the Trust, directly or
indirectly (except by conversion into or exchange for Series B Fully
Junior Shares), unless in each case (i) the full cumulative dividends
on all outstanding Series B Preferred Shares and any other Series B
Parity Shares of the Trust shall have been or contemporaneously are
declared and paid or declared and set apart for payment for all past
Series B Dividend Periods with respect to the Series B Preferred Shares
and all past dividend periods with respect to such Series B Parity
Shares and (ii) sufficient funds shall have been or contemporaneously
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<PAGE>
are declared and paid or declared and set apart for the payment of the
dividend for the then current Series B Dividend Period with respect to
the Series B Preferred Shares and the then current dividend period with
respect to such Series B Parity Shares.
(e) No distributions on Series B Preferred Shares shall be
declared by the Board of Trustees or paid or set apart for payment by
the Trust at such time as the terms and provisions of any agreement of
the Trust, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment
would constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Trust, whether voluntary or involuntary, subject to
the prior preferences and other rights of any series of shares of
beneficial interest ranking senior to the Series B Preferred Shares
upon liquidation, distribution or winding up of the Trust, before any
payment or distribution of the assets of the Trust (whether capital or
surplus) shall be made to or set apart for the holders of Series B
Junior Shares, the holders of the Series B Preferred Shares shall be
entitled to receive Twenty-Five Dollars ($25.00) (the "Liquidation
Preference") per Series B Preferred Share plus an amount equal to all
dividends (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution to such holders; but such
holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Trust, the assets of the
Trust, or proceeds thereof, distributable among the holders of the
Series B Preferred Shares shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other
shares of any class or series of Series B Parity Shares, then such
assets, or the proceeds thereof, shall be distributed among the holders
of Series B Preferred Shares and any such other Series B Parity Shares
ratably in accordance with the respective amounts that would be payable
on such Series B Preferred Shares and any such other Series B Parity
Shares if all amounts payable thereon were paid in full. For the
purposes of this SECTION 4, (i) a consolidation or merger of the Trust
with one or more corporations, real estate investment trusts or other
entities, (ii) a sale, lease or conveyance of all or substantially all
of the Trust's property or business or (iii) a statutory share exchange
shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Trust.
(b) Subject to the rights of the holders of shares of any
series or class or classes of shares of beneficial interest ranking on
a parity with or prior to the Series B Preferred Shares upon
liquidation, dissolution or winding up, upon any liquidation,
dissolution or winding up of the Trust, after payment shall have been
made in full to the holders of the Series B Preferred Shares, as
provided in this SECTION 4, the holders of Series B Preferred Shares
shall have no other claim to the remaining assets of the Trust and any
other series or class or classes of Series B Junior Shares shall,
subject to the respective terms and provisions (if any) applying
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<PAGE>
thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the Series B Preferred Shares shall
not be entitled to share therein.
Section 5. REDEMPTION AT THE OPTION OF THE TRUST.
(a) The Series B Preferred Shares shall not be
redeemable by the Trust prior to June 5, 2003. On and after June 5,
2003, the Trust, at its option, may redeem the Series B Preferred
Shares, in whole at any time or from time to time in part out of funds
legally available therefor at a redemption price payable in cash equal
to 100% of the Liquidation Preference per Series B Preferred Share
(plus all accumulated, accrued and unpaid dividends as provided below).
The redemption price of the Series B Preferred Shares (other than any
portion thereof consisting of accrued and unpaid dividends) shall be
paid solely from the proceeds of the issuance and sale by the Trust of
other capital shares of beneficial interest of the Trust and not from
any other source. For purposes of the preceding sentence, "capital
shares of beneficial interest" means any equity securities (including
Common Shares and Preferred Shares), shares, interests, participations
or other ownership interests (however designated) and any rights (other
than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
(b) Upon any redemption of Series B Preferred Shares
pursuant to this SECTION 5, the Trust shall pay all accrued and unpaid
dividends, if any, thereon to the Series B Call Date, without interest,
except that if the Series B Call Date falls after a dividend payment
record date and prior to the corresponding Series B Dividend Payment
Date, then each holder of Series B Preferred Shares at the close of
business on such dividend payment record date shall be entitled to the
dividend payable on such shares on the corresponding Series B Dividend
Payment Date notwithstanding any redemption of such shares before such
Series B Dividend Payment Date. Except as provided above, the Trust
shall make no payment or allowance for unpaid dividends, whether or not
in arrears, on Series B Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series B
Preferred Shares and any other class or series of Series B Parity
Shares of the Trust have not been declared and paid or declared and set
apart for payment, the Series B Preferred Shares may not be redeemed
under this SECTION 5 in part and the Trust may not purchase or acquire
Series B Preferred Shares, otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of Series B
Preferred Shares.
(d) Notice of the redemption of any Series B Preferred
Shares under this SECTION 5 shall be mailed by first-class mail to each
holder of record of Series B Preferred Shares to be redeemed at the
address of each such holder as shown on the Trust's records, not less
than 30 nor more than 90 days prior to the Series B Call Date. Neither
the failure to mail any notice required by this paragraph (d), nor any
defect therein or in the mailing thereof, to any particular holder,
shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Each such
mailed notice shall state, as appropriate: (1) the Series B Call Date;
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<PAGE>
(2) the number of Series B Preferred Shares to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (3) the
redemption price; (4) the place or places at which certificates for
such shares are to be surrendered; and (5) that dividends on the shares
to be redeemed shall cease to accrue on such Series B Call Date except
as otherwise provided herein. Notice having been mailed as aforesaid,
from and after the Series B Call Date (unless the Trust shall fail to
make available an amount of cash necessary to effect such redemption),
(i) except as otherwise provided herein, dividends on the Series B
Preferred Shares so called for redemption shall cease to accrue, (ii)
such shares shall no longer be deemed to be outstanding, and (iii) all
rights of the holders thereof as holders of Series B Preferred Shares
of the Trust shall cease (except the right to receive the cash payable
upon such redemption, without interest thereon, upon surrender and
endorsement of their certificates if so required and to receive any
dividends payable thereon). The Trust's obligation to provide cash in
accordance with the preceding sentence shall be deemed fulfilled if, on
or before the Series B Call Date, the Trust shall deposit with a bank
or trust company (which may be an affiliate of the Trust) that has an
office in the Borough of Manhattan, City of New York, and that has, or
is an affiliate of a bank or trust company that has, capital and
surplus of at least $50,000,000 cash, necessary for such redemption, in
trust, with irrevocable instructions that such cash be applied to the
redemption of the Series B Preferred Shares so called for redemption.
No interest shall accrue for the benefit of the holders of Series B
Preferred Shares to be redeemed on any cash so set aside by the Trust.
Subject to applicable escheat laws, any such cash unclaimed at the end
of two years from the Series B Call Date shall revert to the general
funds of the Trust, after which reversion the holders of such shares so
called for redemption shall look only to the general funds of the Trust
for the payment of such cash.
As promptly as practicable after the surrender in accordance
with such notice of the certificates for any such shares so redeemed
(properly endorsed or assigned for transfer, if the Trust shall so
require and if the notice shall so state), such shares shall be
exchanged for any cash (without interest thereon) for which such shares
have been redeemed. If fewer than all the outstanding Series B
Preferred Shares are to be redeemed, shares to be redeemed shall be
selected by the Trust from outstanding Series B Preferred Shares not
previously called for redemption pro rata (as nearly as may be), by lot
or by any other method determined by the Trust in its sole discretion
to be equitable. If fewer than all the Series B Preferred Shares
represented by any certificate are redeemed, then new certificates
representing the unredeemed shares shall be issued without cost to the
holder thereof.
Section 6. RANKING. Any class or series of shares of beneficial
interest of the Trust shall be deemed to rank:
(a) prior to the Series B Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall
be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of Series B Preferred Shares;
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<PAGE>
(b) on a parity with the Series B Preferred Shares, as to
the payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per
share thereof shall be different from those of the Series B Preferred
Shares, if the holders of such class or series and the Series B
Preferred Shares shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation preferences, without preference or priority
one over the other ("SERIES B PARITY SHARES");
(c) junior to the Series B Preferred Shares, as to the
payment of dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such class or series (which
includes the Series A Preferred Shares) shall be Series B Junior
Shares; and
(d) junior to the Series B Preferred Shares, as to the
payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, if such class or series (which
includes the Series A Preferred Shares) shall be Series B Fully Junior
Shares.
Section 7. VOTING. If and whenever six consecutive quarterly
dividends payable on the Series B Preferred Shares or any series or class of
Series B Parity Shares having similar voting rights shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the Board of
Trustees of the Trust shall amend the Bylaws of the Trust (unless the Bylaws had
then been previously amended to increase the number of trustees then
constituting the Board of Trustees pursuant to this SECTION 7) in order that the
number of trustees then constituting the Board of Trustees shall be increased by
two and the holders of Series B Preferred Shares, together with the holders of
shares of every other series of Series B Parity Shares (any such other series,
the "SERIES B VOTING PREFERRED SHARES"), voting as a single class regardless of
series, shall be entitled to elect the two additional trustees to serve on the
Board of Trustees at any annual meeting of shareholders or special meeting held
in place thereof, or at a special meeting of the holders of the Series B
Preferred Shares and the Series B Voting Preferred Shares called as hereinafter
provided. Whenever all arrears in dividends on the Series B Preferred Shares and
the Series B Voting Preferred Shares then outstanding shall have been paid and
dividends thereon for the current quarterly dividend period shall have been paid
or declared and set apart for payment, then the right of the holders of the
Series B Preferred Shares and the Series B Voting Preferred Shares to elect such
additional trustees shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends), and the terms of office of all persons elected as trustees
by the holders of the Series B Preferred Shares and the Series B Voting
Preferred Shares shall, notwithstanding the assignment of such trustees to any
class pursuant to Section 2.2(a) of the Declaration, forthwith terminate and the
number of the Board of Trustees shall be reduced accordingly. At any time after
such voting power shall have been so vested in the holders of Series B Preferred
Shares and the Series B Voting Preferred Shares, the Secretary of the Trust may,
and upon the written request of any holder of Series B Preferred Shares
(addressed to the Secretary at the principal office of the Trust) shall, call a
special meeting of the holders of the Series B Preferred Shares and of the
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Series B Voting Preferred Shares for the election of the trustees to be elected
by them as herein provided, such call to be made by notice similar to that
provided in the Bylaws of the Trust for a special meeting of the shareholders or
as required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series B Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Trust. The trustees elected at any such special meeting
shall, notwithstanding the assignment of such Trustees to any class pursuant to
Section 2.2(a) of the Declaration, hold office until the next annual meeting of
the shareholders or special meeting held in lieu thereof if such office shall
not have previously terminated as above provided. If any vacancy shall occur
among the trustees elected by the holders of the Series B Preferred Shares and
the Series B Voting Preferred Shares, a successor shall be elected by the Board
of Trustees, upon the nomination of the then-remaining trustee elected by the
holders of the Series B Preferred Shares and the Series B Voting Preferred
Shares or the successor of such remaining trustee, to serve until the next
annual meeting of the shareholders or special meeting held in place thereof if
such office shall not have previously terminated as provided above.
So long as any Series B Preferred Shares are outstanding, in addition
to any other vote or consent of shareholders required by law or by the
Declaration, the affirmative vote of at least 66 2/3% of the votes entitled to
be cast by the holders of the Series B Preferred Shares given in person or by
proxy shall be necessary for effecting or validating:
(a) Any amendment, alteration or repeal of any of the
provisions of the Declaration or these Articles Supplementary that
materially and adversely affects the voting powers, rights or
preferences of the holders of the Series B Preferred Shares; provided,
however, that the amendment of the provisions of the Declaration so as
to authorize or create or to increase the authorized amount of, any
Series B Fully Junior Shares, Series B Junior Shares that are not
senior in any respect to the Series B Preferred Shares or any Series B
Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series B
Preferred Shares; or
(b) A share exchange that affects the Series B Preferred
Shares, a consolidation with or merger of the Trust into another
entity, or a consolidation with or merger of another entity into the
Trust, unless in each such case each Series B Preferred Share (i)
shall remain outstanding without a material and adverse change to its
terms and rights or (ii) shall be converted into or exchanged for
cumulative redeemable preferred shares of the surviving entity having
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and term or conditions of
redemption thereof identical to that of a Series B Preferred Share
(except for changes that do not materially and adversely affect the
holders of the Series B Preferred Shares);
PROVIDED, HOWEVER, that no such vote of the holders of Series B
Preferred Shares shall be required if, at or prior to the time when
such amendment, alteration or repeal is to take effect, or when the
issuance of any such prior shares or convertible security is to be
made, as the case may be, provision is made for the redemption of all
Series B Preferred Shares at the time outstanding to the extent such
redemption is authorized by SECTION 5 of these Articles Supplementary.
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For purposes of the foregoing provisions of this SECTION 8, each Series
B Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series B
Preferred Shares as a single class on any matter, then the Series B Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $25.00 of stated liquidation preference. Except as otherwise required
by applicable law or as expressly set forth herein, the Series B Preferred
Shares shall not have any voting rights, and the consent of the holders thereof
shall not be required for the taking of any Trust action.
Section 8. NO CONVERSION. The Series B Preferred Shares are not
convertible into or exchangeable for any other property or securities of the
Trust, except into Excess Shares in connection with maintaining the ability of
the Trust to qualify as a real estate investment trust for federal income tax
purposes.
Section 9. RECORD HOLDERS. The Trust and the Transfer Agent may deem
and treat the record holder of any Series B Preferred Shares as the true and
lawful owner thereof for all purposes, and neither the Trust nor the Transfer
Agent shall be affected by any notice to the contrary.
THIRD: The classification of authorized but unissued shares of
beneficial interests as set forth in these Articles Supplementary to be the act
of the Trust does not increase the authorized capital of the Trust or the
aggregate par value thereof.
FOURTH. These Articles Supplementary have been approved by the majority
of the Board of Trustees of the Trust in the manner prescribed by the
Declaration and Maryland law.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, the Executive Vice President and
Chief Financial Officer of the Trust, acknowledges these Articles Supplementary
to be the act of the Trust and, as to all matters or facts required to be
verified under oath, acknowledges that, to the best of his knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects and that this statement is made under the penalties of
perjury. These Articles Supplementary have been executed under seal in the name
of the Trust by its Executive Vice President and Chief Financial Officer and
attested by its Secretary this 1st day of June, 1998.
[SEAL] PRIME GROUP REALTY TRUST
By: /s/ William M. Karnes
----------------------
William M. Karnes,
Executive Vice President
and Chief Financial Officer
Attest:
By: /s/James F. Hoffman
--------------------
James F. Hoffman,
Secretary
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<PAGE>
SUBORDINATION AND INTERCREDITOR AGREEMENT
BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
AND
PRIME GROUP REALTY, L.P.
CONTINENTAL TOWERS
ROLLING MEADOWS, ILLINOIS
MAY 14, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. Defined Terms............................................................. 1
2. Subordination............................................................. 1
3. Payments on Junior Indebtedness........................................... 1
4. Distributions Held in Trust............................................... 2
5. Lock Box Distributions.................................................... 2
6. Payoff Obligation......................................................... 4
7. Reset..................................................................... 4
8. Purchase Option........................................................... 5
9. Intentionally Omitted..................................................... 5
10. Blocked Accounts Agreement............................................... 5
11. Tenant Estoppels and SNDAs............................................... 5
12. Insurance................................................................ 5
13. Reporting................................................................ 6
14. Management............................................................... 6
15. Release of Parcels....................................................... 6
16. Capital Loans and Capital Improvements................................... 7
17. Events of Default........................................................ 7
18. Remedies................................................................. 9
19. Default Interest; Administrative Costs; Protective Advances;
Collection Costs......................................................... 9
20. Performance by Prime; Waiver of Subrogation.............................. 10
21. Standstill............................................................... 11
22. Enforcement Interference by Prime........................................ 11
23. Consent by Prime......................................................... 12
24. Waivers.................................................................. 12
25. Priority of Payments, Distributions...................................... 13
26. Additional Covenants of Prime............................................ 14
27. Representations of Prime................................................. 16
28. Senior Lender Representations............................................ 17
29. Nature of Relationship................................................... 18
30. Governing Law............................................................ 18
31. Notice................................................................... 18
32. Waiver................................................................... 20
33. Binding Agreement........................................................ 20
34. Construction............................................................. 20
35. Severability............................................................. 20
36. Counterparts............................................................. 21
37. No Other Agreements...................................................... 21
38. Time of the Essence...................................................... 21
39. Rule of Construction..................................................... 21
40. Saturday, Sunday or Legal Holiday........................................ 21
41. Amendments............................................................... 21
42. No Third Party Beneficiaries; No Relationship............................ 22
43. Exhibits................................................................. 22
44. Jury Waiver; Venue....................................................... 22
45. Assignment............................................................... 22
46. Attorneys' Fees.......................................................... 23
47. Prime Exculpation........................................................ 23
48. Senior Lender Exculpation................................................ 23
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SCHEDULES AND EXHIBITS
- ----------------------
SCHEDULE 1 DEFINED TERMS
EXHIBIT 7 RESET RECOURSE LIABILITY
EXHIBIT 15 PRELIMINARY SITE PLAN
EXHIBIT 1-43 JUNIOR LOAN DOCUMENTS
EXHIBIT 1-67 PROPERTY
EXHIBIT 1-90 SENIOR LOAN DOCUMENTS
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SUBORDINATION AND INTERCREDITOR AGREEMENT
HIS SUBORDINATION AND INTERCREDITOR AGREEMENT is made as of
May 14, 1998 among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation, ("SENIOR LENDER"), and PRIME GROUP REALTY, L.P., a Delaware limited
partnership ("PRIME").
RECITALS:
Prime is the holder of the Junior Loan Documents which evidence
the Junior Loan and which encumber the Property. Simultaneously with the
execution and delivery hereof, Senior Lender has made the Senior Loan to
Borrower which Senior Loan is evidenced and secured by the Senior Loan Documents
which also encumber the Property. This Agreement is entered into to evidence the
subordination of the Junior Loan and the Junior Loan Documents to the Senior
Loan and the Senior Loan Documents, to set forth the relative rights of the
holders thereof and to evidence additional agreements between the holders.
Therefore, the parties agree as follows:
1. DEFINED TERMS.
--------------
In addition to the terms defined elsewhere in this Agreement and
the Exhibits hereto, certain terms shall have the meanings ascribed to such
terms in SCHEDULE 1 attached hereto.
2. SUBORDINATION.
--------------
2.1. Prime hereby subordinates and does hereby declare to be
subordinate the Junior Loan Documents, the Junior Loan and the Junior
Indebtedness to the Senior Loan Documents, the Senior Loan and the Senior Loan
Indebtedness. The security interests of Prime in the Collateral are hereby made
subject and subordinate in all respects to the security interests of Senior
Lender in the Collateral. Prime agrees that it does not have nor will it assert
any lien or security interest in or against the Lock Box Accounts or the
partnership interests in Beneficiary.
2.2. This Agreement is a Subordination Agreement under
Section 510 of the United States Bankruptcy Code.
3. PAYMENTS ON JUNIOR INDEBTEDNESS.
--------------------------------
Notwithstanding any provision contained herein to the contrary, as
long as no Senior Default exists with respect to the payment when due of any
principal, interest, prepayment premium or any other amount payable to Senior
Lender by Borrower or Beneficiary under the Senior Loan Documents, and as long
as no Senior Event of Default has occurred and is continuing, Prime shall have
the right to receive payments due under the Junior Loan Documents to the extent,
but only to the extent, cash is available for such payments under the terms of
the Blocked Accounts Agreement ("PERMITTED PAYMENTS"). Prime agrees that it will
not accept or demand any payments (by acceleration, set-off or otherwise) with
respect to the Prime Indebtedness other than the Permitted Payments. If a Senior
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<PAGE>
Event of Default or such monetary Senior Default occurs and is continuing, Prime
shall not be entitled and shall not accept any payment or prepayments (whether
by acceleration, set-off or otherwise) on the Junior Indebtedness, such payments
to be held and distributed, if received, in accordance with Section 4.
4. DISTRIBUTIONS HELD IN TRUST.
----------------------------
If Prime shall receive any payment or distribution from or for
the account of Borrower or Beneficiary or any cash or other proceeds of the
Collateral, other than a Permitted Payment, Prime shall hold the same in trust,
as trustee, for the benefit of Senior Lender and shall promptly deliver the same
to the Lock Box Account or as otherwise directed by Senior Lender, for the
benefit of Senior Lender in precisely the form received (except for the
endorsement or assignment thereof by Prime without recourse or warranty). In the
event Prime fails to make any such endorsement or assignment, Senior Lender, or
any of its officers or employees, is hereby irrevocably authorized to make the
same.
5. LOCK BOX DISTRIBUTIONS.
-----------------------
5.1. DISTRIBUTIONS PRIOR TO SENIOR ACCELERATION.
-------------------------------------------
(a) Prior to the occurrence of a Senior Acceleration, all
funds deposited in the Lock Box Account from time to time and all other
revenues of the Property, including all Rents as defined in the Lock
Box Agreement, all Gross Revenues other than Special Service Payments
and all Net Proceeds and TIA Periodic Payments (collectively "FUNDS"),
shall be distributed as provided in Section 2.3 of the Lock Box
Agreement. The Applied Amount shall, until the occurrence of an Event
of Default hereunder, be distributed as follows and in the following
order of priority:
(i) To Senior Lender, any unpaid Monthly Secondary
Payments due in prior months and any outstanding Default Charges.
(ii) To Senior Lender, any unreimbursed Administrative
Costs and Protective Advances.
(iii)To Senior Lender, the amount of $73,989.41 (each
a "MONTHLY SECONDARY PAYMENT") in payment of the balance of the
Scheduled Payment due in such month remaining after payment to
Senior Lender of the Minimum Payment.
(iv) To Lock Box Bank, the deposits due in each such
month under the terms of the Blocked Accounts Agreement.
(v) To Prime, the balance on account of the Junior
Indebtedness.
(b) Prime shall cause to be deposited in the Lock Box
Account all Funds which are received by Prime or any of its Affiliates.
Prime will cause to be deposited in the Property Management Account
all Special Service Payments which are received by Prime or any of its
Affiliates. So long as an Affiliate of Prime is the Manager, Prime
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will not permit any withdrawal from the Property Management Account
except as permitted by the Management Agreement.
5.2. DISTRIBUTION FOLLOWING EVENT OF DEFAULT OR SENIOR
ACCELERATION.
-------------------------------------------------
(a) Following an Event of Default and so long as no Senior
Acceleration has occurred, all Funds theretofore deposited and as and
when deposited thereafter into the Lock Box Account or otherwise
collected by Senior Lender shall be applied in accordance with and in
the order of priority set forth in Section 2 of the Lock Box Agreement
with the Applied Amounts to be applied to any one or more of the
following (to the extent not paid with distributions under Section
2.3(b)(i)-(vii) of the Lock Box Agreement) and in such order as
Senior Lender may determine in its absolute discretion: any Operating
Expenses of the Property; any required deposits under the Blocked
Accounts Agreements; payment of re-leasing costs and capital
expenditures of whatever nature not funded from any remaining funds in
the Blocked Accounts; any Default Charges, any Deferred Payments;
accrued and unpaid Prime Interest, including Deferred Interest;
Outstanding Principal; Prepayment Premium; and any other component of
Senior Indebtedness.
(b) Following a Senior Acceleration, all Funds theretofore
deposited and as and when deposited thereafter into the Lock Box
Account or otherwise collected by Senior Lender shall be applied upon
the sole direction of Senior Lender to any one or more of the following
in such order as Senior Lender may determine in its absolute
discretion: current or past Operating Expenses; any required deposits
under the Blocked Accounts Agreements; payment of real estate taxes,
re-leasing costs and capital expenditures of whatever nature not
funded from any remaining funds in the Lock Box Accounts or Blocked
Accounts; Default Charges; accrued and unpaid Interest, including
Deferred Interest; Outstanding Principal; Prepayment Premium; and any
other component of Senior Indebtedness.
5.3. SENIOR LENDER NOTICES.
----------------------
Senior Lender shall give such Senior Lender Notices under and
as defined in the Lock Box Agreement as may be required to effect the
distributions described in Sections 5.1 and 5.2 above.
6. PAYOFF OBLIGATION.
------------------
On January 5, 2013 ("FINAL PAYOFF DATE") or such earlier date as
provided in this Agreement, Prime will pay off the Senior Indebtedness by paying
to Senior Lender by Wire Transfer an amount equal to the Payoff Amount (without
Prepayment Premium), upon receipt of which Senior Lender will perform the
Release Actions.
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7. RESET.
------
On a date which is between one hundred forty (140) and one hundred
sixty (160) days prior to the Reset/Payoff Date, Senior Lender will, by written
notice to Prime (the "RESET NOTICE"), effective on the Reset/Payoff Date and
continuing for the balance of the Term (the portion of the Term commencing on
the Reset/Payoff Date being the "RESET PERIOD"): (a) reset the Interest Rate
(the "RESET INTEREST RATE"), (b) establish an underwriting fee payable on the
Reset/Payoff Date, (c) reset the amortization schedule (the "RESET AMORTIZATION
SCHEDULE"), (d) calculate and set forth the Reset Scheduled Payment and the
Reset Secondary Payment Amount and (e) set forth any other modifications of the
payment terms of the Senior Note (the terms set forth in the Reset Notice being
the "RESET TERMS"). If Senior Lender fails to give the Reset Notice on a timely
basis, the only consequence shall be that the Reset/Payoff Date shall be
postponed to the date which is one hundred forty (140) days following the giving
of a late Reset Notice. Senior Lender shall be free to quote such Interest Rate,
underwriting fees, amortization schedule, Closed Period, Prepayment Premium and
such other terms and conditions applicable to the Reset Period as Senior Lender
may determine in its absolute discretion (except that Senior Lender may not
change the formula for calculation of the Reset Secondary Payment Amount). Prime
will advise Senior Lender, by written notice (the "RESET RESPONSE"), given
within sixty (60) days following receipt of the Reset Notice, whether Prime
accepts or rejects the Reset Terms. Failure by Prime to give a timely Reset
Response shall be deemed a rejection of the Reset Terms. If the Reset Terms are
so accepted, Senior Lender will prepare within thirty (30) days thereafter, and
Senior Lender and Prime will promptly execute, a modification or modifications
of this Intercreditor Agreement and the Prime Documents in accordance with
EXHIBIT 7 attached hereto and otherwise as Senior Lender and Prime deem
necessary to reflect the Reset Terms. Senior Lender shall also prepare an
appropriate amendment to the Senior Loan Documents (the "RESET AMENDMENT") and
tender it to Borrower for execution, provided that the refusal or other failure
of Borrower to execute such amendment shall not affect, as between Senior Lender
and Prime, Senior Lender's right to receive interest and debt service based upon
the Reset Terms. Accordingly, the Secondary Payment Amount shall be reset to
reflect the Reset Terms whether or not the Senior Note is ever amended to
reflect the Reset Terms. Such modification or modifications shall become
effective on the Reset/Payoff Date. If the Reset Terms are so rejected or deemed
rejected, Prime shall, on the Reset/Payoff Date, pay off the Senior Indebtedness
by paying to Senior Lender by Wire Transfer the Payoff Amount (without
Prepayment Premium), upon receipt of which Senior Lender will perform the
Release Actions.
8. PURCHASE OPTION.
----------------
Prime shall have the option to purchase the Senior Loan at any time
after the Closed Period upon thirty (30) days prior written notice to Senior
Lender and payment to Senior Lender by Wire Transfer of the Payoff Amount plus
the Prepayment Premium. Upon receipt of such payment, Senior Lender shall
perform the Transfer Actions.
9. INTENTIONALLY OMITTED.
----------------------
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10. BLOCKED ACCOUNTS AGREEMENT.
---------------------------
Simultaneously with the execution and delivery hereof, (a) Prime,
Senior Lender, and Lock Box Bank have entered into the Blocked Accounts
Agreement and (b) Prime has made the initial deposits of funds pursuant thereto.
Prime hereby pledges its interest in the Blocked Accounts to Senior Lender as
security for its obligations under this Intercreditor Agreement and the other
Prime Documents.
11. TENANT ESTOPPELS AND SNDAs.
---------------------------
To the extent that Tenant Estoppels and SNDAs from Tenants occupying
100% of the total rentable space in the Property have not been delivered to
Senior Lender on the date hereof, Prime will diligently pursue the missing
Tenant Estoppels and SNDAs and report on the progress thereof as requested by
Senior Lender.
12. INSURANCE.
----------
Throughout the Term, so long as Prime or an Affiliate of Prime is the
Manager, Prime will cause Manager to maintain policies of All Risk Replacement
Cost Insurance and Agreed Amount Endorsement, flood insurance (if the Property
is in an area which is considered a flood risk area by the U.S. Department of
Housing and Urban Development), rent insurance in an amount not less than twelve
months gross rent, comprehensive general and excess or umbrella liability
insurance and such other appropriate insurance as Senior Lender may require from
time to time in amounts, form, and substance satisfactory to Senior Lender, with
companies acceptable to Senior Lender which have a Best's rating of at least A-
(superior), Class: "X." Senior Lender shall be named additional insured under
all of the aforementioned policies, and loss payees on all such policies except
those pertaining to general and excess liability coverage. Prime will, so long
as Prime or an Affiliate of Prime is the Manager, cause Manager to deposit
original certificates, certified copies of the policies or original policies
with Senior Lender with respect to all required insurance. Such policies shall
not be cancelable without thirty (30) days prior written notice to JTD and
Senior Lender. Replacement certificates or policies extending the term of the
insurance shall be delivered to Senior Lender prior to the scheduled expiration
thereof, in default of which Senior Lender may, but shall not be obligated to,
acquire such insurance at Prime's cost, payable on demand. Any cost so incurred
by Senior Lender shall be an Administrative Cost.
13. REPORTING.
----------
So long as the Manager is an Affiliate of Prime, Prime will cause the
Manager to furnish Senior Lender the Financial Reports required by the Mortgage.
14. MANAGEMENT.
-----------
The Property will be managed at all times by a property manager
approved by Senior Lender pursuant to a management agreement approved by Senior
Lender. Senior Lender approves Prime Group Realty Services, Inc. as the initial
Manager under the Management Agreement previously submitted to and approved by
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Senior Lender (the "MANAGEMENT AGREEMENT"). A change in the Manager or the
Management Agreement without the consent of Senior Lender shall be an Event of
Default hereunder. Any transaction which results in Manager no longer being an
Affiliate of Prime shall constitute a change in the Manager.
15. RELEASE OF PARCELS.
-------------------
Prime intends to cause to be developed vacant sites currently included
in the Property for one or two office towers and/or one hotel generally at the
locations indicated on the site plan attached hereto as EXHIBIT 15 and otherwise
pursuant to a development plan to be submitted to Senior Lender for its approval
(the "RELEASE PARCELS"). Senior Lender will release the Release Parcels from the
lien of the Senior Loan Documents, provided (a) the developer is not
Beneficiary, (b) Beneficiary does not undertake any substantive role in any such
development or incur any indebtedness or other obligation in respect thereof,
(c) the development plan may include the construction of one or two parking
structures generally as indicated on EXHIBIT 15, (d) Senior Lender will not
unreasonably withhold or delay its approval of the development plan except that,
insofar as the development plan has a material impact on the remaining Property,
Senior Lender may withhold its approval in its absolute discretion, (e) prior to
the release of such parcels, Senior Lender is given reasonable assurances as to
the completion of all shared facilities shown on the development plan and
payment of the costs thereof, (f) easements, covenants and restrictions
("EASEMENTS") relating to use, operation, maintenance, repair and replacement of
shared facilities and sharing of and payment for the cost of such operation,
maintenance, repair and replacement of the shared facilities are executed and
recorded in form and substance reasonably acceptable to Senior Lender, (g) the
released parcels will become separate tax parcels apart from the remaining
Property, (h) Senior Lender and Fee Owners receive contemporaneous endorsements
to their respective title policies reaffirming zoning compliance and insuring
such Easements, such endorsements to be in form and substance reasonably
acceptable to Senior Lender and Beneficiary, and (i) Prime pays or causes to be
paid all of Senior Lender's expenses, including reasonable attorneys' fees and
survey and title costs, incurred in connection therewith.
16. CAPITAL LOANS AND CAPITAL IMPROVEMENTS.
---------------------------------------
Prime will fund as Capital Loans to Borrower under the Junior
Loan Documents all amounts necessary to pay Re-Leasing Costs and Capital Costs
so that Mortgagor may perform its obligations in respect thereof under the
Senior Mortgage.
17. EVENTS OF DEFAULT.
------------------
Each of the following shall constitute an Event of Default under this
Intercreditor Agreement:
(a) The occurrence of any Senior Event of Default, provided:
(i) in the case of a Senior Event of Default which arises from a
Senior Default in the making of any payment or deposit required
under the Senior Loan Documents, such Senior Default has continued
unremedied for five (5) days following Prime's receipt of written
notice of such Senior Default (whether or not notice or the elapsing
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of any grace period is required under the Senior Loan Documents prior
to such Senior Default becoming a Senior Event of Default); or
(ii) in the case of a Senior Event of Default which arises from a
Senior Default other than failure to make any payment or deposit
required under the Senior Loan Documents, such Senior Default has
continued unremedied for thirty (30) days following Prime's receipt
of written notice of such Senior Default (whether or not notice or the
elapsing of a longer or shorter grace period is required under the
Senior Loan Documents) unless (A) such default is reasonably
susceptible of cure but such cure cannot be accomplished within such
thirty (30) period using reasonable commercial efforts and (B) within
such thirty (30) day period (1) Prime undertakes in a written notice
(the "CURE NOTICE") to cure the default within a reasonable period of
time by taking such action as is described therein, (2) Prime posts
such security as is reasonably required by Senior Lender to assure that
such default will be cured within such period of time, (3) Prime
continuously and diligently pursues such cure in compliance with the
Cure Notice and such other reasonable requirements reasonably requested
by Senior Lender, (4) the value of the Property or Senior Lender's
interest therein is not jeopardized during the cure period and (5)
Prime pays any reasonable costs (including reasonable attorneys'
fees) incurred by Senior Lender in preparing and sending notices of the
default, evaluating the default and the proposed cure and monitoring
the cure.
(b) The occurrence of an Event of Default under and as defined in any
of the Prime Documents.
(c) The failure of Prime to pay or make any payment, deposit, Default
Charge, Administrative Cost or Protective Advance due under this Agreement
or any other Prime Document within five (5) days following Senior Lender's
written request to Prime for the payment thereof.
(d) The failure of Prime to pay off the Senior Indebtedness on the
Reset/Payoff Date if so required by Section 7 or, if not so required, on the
Final Payoff Date.
(e) Any action by Prime in violation of Section 21 or 22 hereof.
(f) The failure of Prime to perform any other obligation under this
Agreement or any of the other Prime Documents and such failure continues
for thirty (30) days following receipt by Prime of written notice thereof.
(g) The untruth in any material respect of any warranty or
representation made by Prime in any of the Prime Documents.
(h) (i) The filing by or against any of either Fee Owner, Beneficiary,
General Partner, or Prime of a petition under the United States Bankruptcy
Code, which in the case of an involuntary petition is not dismissed within
ninety (90) days; (ii) an assignment by any party for the benefit of
creditors; or (iii) the appointment of a trustee, receiver or liquidator
for any such party.
(i) The transfer or encumbrance of any direct or indirect interest
in the Property, General Partner, Beneficiary, the beneficial interest,
either Fee Owner or Prime's interest as holder of the Junior Loan Documents
-7-
<PAGE>
by either Fee Owner, Member, General Partner, Beneficiary or Prime,
provided that the foregoing shall not restrict the transfer of (i)
limited partnership interests in Beneficiary, (ii) title to the Property
from either Fee Owner to Beneficiary, (iii) the membership interest in
General Partner to an Affiliate of Prime or an employee of Prime or of an
Affiliate of Prime and the spouse of any such person, or (iv) limited
partnership interests in Prime or units of beneficial interest in Prime
Group Realty Trust, a Maryland real estate investment trust.
(j) Any modification of the Junior Loan Documents without the prior
written consent of Senior Lender, which consent shall not be unreasonably
withheld.
(k) The occurrence of a Management Event of Default (as defined in
the Management Agreement) at any time when any Affiliate of Prime is the
Manager.
18. REMEDIES.
---------
Upon the occurrence of an Event of Default under this Intercreditor
Agreement, Senior Lender may exercise some or all of the following rights and
remedies in any order and in any combination it may choose:
(a) Exercise any right or remedy available under this Agreement
or any of the Prime Documents.
(b) Take any action permitted under Section 5.2(a) above or, if
a Senior Acceleration has occurred, under Section 5.2(b) above.
(c) Designate a new Manager, replace the Manager and/or modify or
replace the Management Agreement.
19. DEFAULT INTEREST; ADMINISTRATIVE COSTS; PROTECTIVE ADVANCES; COLLECTION
COSTS.
-----------------------------------------------------------------------
(a) All payments or deposits due under this Agreement or any of
the other Prime Documents shall bear interest at the Default Rate from
the date due until paid ("DEFAULT INTEREST"). In addition, if any
payment due to Senior Lender under this Agreement or any of the other
Prime Documents is not paid within five (5) days following the due date
thereof, Senior Lender may impose, with or without notice to Prime, a
late payment fee (each, a "LATE CHARGE") equal to four percent (4%) of
the amount due to cover Senior Lender's administrative expenses.
(b) Prime will reimburse Senior Lender within five (5) days after
demand for all reasonable expenses, including fees of attorneys,
architects, engineers and other consultants, incurred in connection
with any consent or approval sought by Prime, any Fee Owner or
Beneficiary pursuant to or in connection with this Agreement, the
other Prime Documents, the Senior Loan Documents or the Property
(collectively "ADMINISTRATIVE COSTS"). Senior Lender may require
payment of Administrative Costs as a condition precedent to giving
any such consent or approval sought by Prime.
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(c) Prime shall appear in and defend any action or proceeding
purporting to affect the Senior Loan Documents, Property, or the
Security or the rights or powers of the Senior Lender. Prime shall pay
all reasonable costs and expenses, including without limitation cost
of evidence of title and reasonable attorneys' fees, in any such
action or proceeding in which Senior Lender may appear. If Prime fails
to perform any of the material covenants or agreements contained in
this Agreement, or if any action or proceeding is commenced which may
have a materially adverse effect on the Senior Loan Documents,
Property or the Security or any part thereof, including, but not
limited to, eminent domain, code enforcement, or proceedings of any
nature whatsoever under any federal or state law, whether now existing
or hereafter enacted or amended, relating to bankruptcy, insolvency,
arrangement, reorganization or other form of debtor relief, or to a
decedent, then Senior Lender may, but without obligation to do so and
without notice to or demand upon Prime and without releasing Prime
from any obligation hereunder, make such appearances, disburse such
sums and take such action as Senior Lender deems necessary or
appropriate to protect Senior Lender's interests, including, but not
limited to, disbursement of reasonable attorneys' fees, entry upon the
Property to make repairs or take other action to protect the Property
or other Security, making of Necessary Capital Expenditures, and
payment, purchase, contest or compromise of any mechanics lien and any
other encumbrance, charge or lien which other encumbrance in the
judgment of Senior Lender appears to be prior or equal in priority to
the lien of the Loan Documents. Prime further agrees to pay or
reimburse Senior Lender for the payment of all reasonable expenses of
Senior Lender (including without limitation attorneys fees and
expenses) incident to the actions of Senior Lender pursuant to this
Section 19(c). Any amounts disbursed by Senior Lender pursuant to this
Section 19(c) or otherwise reimbursable by Prime ("PROTECTIVE
ADVANCES") shall be payable by Prime within ten (10) days after
demand. Nothing contained in this Section shall be construed to
require Senior Lender to incur any expense, make any appearance, or
take any other action.
(d) Prime will pay within ten (10) days after demand the
reasonable costs, including fees of attorneys and other consultants,
incurred by Senior Lender in preparation for the exercise of and in
exercising any of its remedies under or in respect of this Agreement,
the Senior Loan Documents or the Property arising by reason of the
occurrence of any default or Event of Default under this Agreement, any
of the other Prime Documents or the Senior Loan Documents
(collectively, "COLLECTION COSTS").
20. PERFORMANCE BY PRIME; WAIVER OF SUBROGATION.
--------------------------------------------
Senior Lender shall accept performance by Prime of any of the
obligations of Borrower or Beneficiary under the Senior Loan Documents,
including any cure effected during any cure period provided for therein or
herein. Notwithstanding any such performance by Prime of any obligations of
Borrower or Beneficiary, Prime hereby absolutely and irrevocably waives, to the
fullest extend permitted by applicable law, any rights it may have, by contract,
at law or in equity, to be subrogated to Senior Lender's rights against Borrower
or Beneficiary under the Senior Loan Documents or to Senior Lender's security
interests in any of the Collateral until three hundred sixty-six (366) days
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following the satisfaction in full of the Senior Indebtedness. Provided Senior
Lender has complied with the terms of this Agreement, Prime shall not contest
any foreclosure of Senior Lender's security interests against the Collateral.
Notwithstanding any provision of this Agreement, Prime agrees and acknowledges
that it is not, in its capacity as creditor of Borrower and Beneficiary, a third
party beneficiary of any obligations of Senior Lender under the Senior Loan
Documents.
21. STANDSTILL.
-----------
Prime shall not under any circumstance take any action to foreclose
or otherwise enforce any of the security interests or rights under the Junior
Loan Documents by reason of a default thereunder unless and until the Senior
Indebtedness is paid in full, Prime acknowledging that it is fully able to
protect its rights under the Junior Loan Documents by exercising its right to
pay off the Senior Indebtedness (including Prepayment Premium) at any time after
the Closed Period. Without limitation of the foregoing, until the Senior
Indebtedness is paid in full, (i) Prime will take no action which would or may
have the effect of terminating any lease of the Property by reason of such lease
being subordinate to the Junior Loan Documents or otherwise, (ii) Prime will not
seek the appointment of a receiver, trustee or conservator of the Property,
Borrower or Beneficiary in any proceeding or otherwise and (iii) Prime will not
exercise any assignment of rents contained in the Junior Loan Documents.
22. ENFORCEMENT INTERFERENCE BY PRIME.
----------------------------------
(a) Until at least three hundred sixty-six (366) days following
the satisfaction in full of the Senior Indebtedness, Prime hereby
covenants and agrees that it will not acquiesce, petition or otherwise
invoke or cause any other Person to invoke the process of the United
States of America, any state or other political subdivision thereof or
any other jurisdiction, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government for the purpose of commencing or sustaining any Insolvency
Proceeding against Borrower or Beneficiary. Prime hereby irrevocably
appoints Senior Lender as Prime's agent and attorney-in-fact to vote
the full amount of the Junior Indebtedness and to file any claims as
the holder thereof in any Insolvency Proceeding. The Junior Loan
Documents are hereby pledged to Senior Lender as security for Prime's
obligations under this Agreement and the other Prime Documents.
Accordingly, such irrevocable appointment of Senior Lender as agent
and attorney-in-fact is a power coupled with an interest. In so voting,
Senior Lender shall be entitled to vote in its own self-interest
without regard to the interest of Prime. Without limitation of the
foregoing, Prime shall not in any Insolvency Proceeding propose, join
in, or vote in favor of, any plan of reorganization (or any provision
in any such plan) that would impair (within the meaning of 11
U.S.C.ss. 1124) any claim of Senior Lender under the Senior Loan
Documents or any security or collateral for the Senior Loan, including
without limitation any plan (or any provision in any such plan) that
would (i) extend the term of the Senior Loan, (ii) cause any reduction
in the debt service or the amount of the debt owed by Borrower or
Beneficiary to Senior Lender under the Senior Loan Documents or any of
them, or (iii) amend or modify in any way the agreements between Prime
and Senior Lender as set forth in this Agreement and the other Prime
Documents.
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<PAGE>
(b) Prime shall not institute any judicial or administrative
proceeding against Senior Lender with the intent of interfering with
or delaying the exercise by Senior Lender of its rights and remedies in
respect of the Collateral or any part thereof or under the Senior Loan
Documents or this Agreement or the other Prime Documents. Without
limiting the generality of the foregoing, in the event of an Insolvency
Proceeding under the United States Bankruptcy Code, Prime agrees that
it will not object to or oppose any efforts by Senior Lender to obtain
relief from the automatic stay under Section 362 of the United States
Bankruptcy Code or to seek to cause such entity's bankruptcy estate to
abandon the Property (or any portion thereof). Prime agrees that if
Prime or any of its Affiliates purchases any claims of other creditors
of Borrower in any Insolvency Proceeding, such claims and all security
therefor will for all purposes be subject to the terms of this
Agreement as if such claims were included in the Junior Loan and as if
such security were included in the Junior Loan Documents.
23. CONSENT BY PRIME.
-----------------
Prime hereby consents and agrees that, subject to the provisions
of this Agreement and the other Prime Documents, any lawful action taken by or
on behalf of Senior Lender in the exercise of Senior Lender's rights and/or
remedies under the Senior Loan Documents (including, without limitation, any
foreclosure or acquisition of title to the Property or any part thereof by deed
in lieu of foreclosure or otherwise) are hereby deemed to be consented to and
approved by Junior Lenders in all respects.
24. WAIVERS.
--------
Prime hereby waives and agrees not to assert or take advantage of, to
the fullest extent permitted by law:
(a) Any right to require Senior Lender to proceed against
Borrower or any other Person or to proceed against or exhaust any of
the Collateral held by it at any time, or to proceed with any other
remedy in Senior Lender's power before exercising any other right, or
remedy under the Senior Loan Documents;
(b) Until the Senior Indebtedness has been paid in full, any
defense that may arise by reason of the incapacity, lack of authority,
death or disability of, or revocation hereof by any Person or the
failure of Senior Lender to file prior to any disallowance date or to
enforce a claim against the estate (either in administration,
bankruptcy or any other proceedings), of any Person;
(c) Until the Senior Indebtedness has been paid in full, demand,
protest and notice of any kind, except for any notice expressly
required under the Prime Documents or the Senior Loan Documents,
including without limiting the generality of the foregoing, notice of
the evidence, creation or incurring of any new indebtedness or
obligation or of any action or non-action on the part of Borrower or
Senior Lender in connection with any obligation or evidence of
indebtedness held by Senior Lender as collateral or in connection with
any indebtedness evidenced by the Senior Loan Documents;
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(d) Any and all right to have the Property and estates comprising
the Property or any other Collateral marshalled upon any foreclosure of
the security interests of Senior Lender and Prime further agrees that
any court having jurisdiction to foreclose such security interests may
order the Collateral sold as an entirety or in any parcels or
combinations thereof elected by Senior Lender.
25. PRIORITY OF PAYMENTS, DISTRIBUTIONS.
------------------------------------
In the event of any Insolvency Proceeding, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of Borrower, the Senior Indebtedness (which term as used throughout
this Agreement shall include, without any limitation, any Interest accruing
after the occurrence of a Senior Event of Default whether or not such Interest
is allowed as a claim in any Insolvency Proceeding) due or to become due shall
first be paid in cash in full before any payment on account of principal,
interest or otherwise is made upon the Junior Indebtedness, and in any such
proceeding, any payment or distribution of any kind or character which may be
payable or deliverable with respect to the Junior Indebtedness shall be paid or
delivered directly to Senior Lender for application in payment of the Senior
Indebtedness, unless and until the Senior Indebtedness shall have been paid and
satisfied in full in cash. Further, Prime specifically agrees as follows:
(a) In the event that, notwithstanding the foregoing, upon any
proceeding or event described above, any payment or distribution of
assets of Borrower or Beneficiary of any kind or character, whether in
cash or property, shall be received by Prime before the Senior
Indebtedness is paid in full in cash, such payment or distribution
shall be held in trust for the benefit of Senior Lender and, unless
prohibited by law or court order, shall be immediately paid over to
Senior Lender for application to the payment of the Senior Indebtedness
remaining unpaid until the Senior Indebtedness shall have been paid
in full in cash, after giving effect to any concurrent payment or
distribution with respect to the Senior Indebtedness. The provisions
of this Agreement shall apply among Senior Lender and Prime, regardless
of whether any of the security interests of any party hereto are held
to be invalid or the priority thereof changed.
(b) Prime shall not take or support any action to contest (i) the
validity of any liens or security interests granted to Senior Lender
under the Senior Loan Documents or with respect to the Collateral,
(ii) the relative rights of Senior Lender and Prime with respect to
such liens and security interests or (iii) the enforceability of this
Agreement or any of the Senior Loan Documents.
(c) The subordination provisions contained herein shall continue
to be effective or be reinstated, as the case may be, until such time
as the Senior Indebtedness shall be paid in full in cash; provided that
if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by Senior Lender upon the
insolvency, bankruptcy or reorganization of Borrower or Beneficiary or
otherwise, the provisions of this Agreement shall again be operative
until the Senior Indebtedness shall again be paid in full in cash, all
as though such payment had not been made.
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26. ADDITIONAL COVENANTS OF PRIME.
------------------------------
Prime covenants and agrees for the benefit of Senior Lender or any
subsequent holder of the Senior Loan Documents, regardless of the provisions of
the Junior Loan Documents, as follows:
(a) Without limiting the generality of any other provisions
of this Agreement, except as provided in this Section 26, Senior Lender
may at any time and from time to time without the consent of, or notice
to Prime, and without incurring responsibility to Prime, upon or
without any terms or conditions and in whole or in part:
(1) with the written consent of Prime, change the
manner or place and/or change or extend the time of payment
or performance of, renew or alter, any portion of the Senior
Indebtedness or any other obligations of any Person evidenced
or secured by the Senior Loan Documents;
(2) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any
Collateral;
(3) exercise or refrain from exercising any rights
against Borrower or Beneficiary or others or otherwise act or
refrain from acting;
(4) settle or compromise any portion of the Senior
Indebtedness or any other obligations of any Person evidenced
or secured by the Senior Loan Documents, any security
therefor or any liability incurred directly or indirectly
in respect thereto;
(5) apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of Borrower or
Beneficiary to Senior Lender regardless of what liability or
liabilities of Borrower or Beneficiary remain unpaid or
unperformed; and/or
(6) consent to or waive any breach of, or any act,
omission or default under, any of the Senior Loan Documents,
or otherwise amend, modify or supplement any of the Senior
Loan Documents or any other instruments or agreements
executed and delivered in connection therewith or otherwise
relating thereto.
(b) The benefits and burdens of this Agreement are transferable
to any person to whom Senior Lender may transfer the Senior Loan
Documents.
(c) Until the Senior Indebtedness is repaid in full, Prime hereby
releases any claim to rents, extraordinary payments with respect to any
lease, insurance proceeds and/or condemnation awards and all other
Funds and Special Service Payments (each of which if received shall be
held and delivered in accordance with Section 4). Insurance proceeds
or condemnation awards shall be applied as provided in the Senior
Mortgage and, to the extent applicable, the Lock Box Agreement. Prime
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further agrees that, in the event of a casualty to the Property or a
condemnation or taking under a power of eminent domain, all adjustments
of insurance claims, condemnation claims and settlements of insurance
claims, condemnation claims and settlements in anticipation of such
condemnation or taking shall be prosecuted, at Senior Lender's
election, by Senior Lender and all payments and settlements of
insurance claims or condemnation awards or payments in anticipation of
condemnation or a taking shall be paid to Senior Lender, to the extent
provided for in the Senior Loan Documents, Prime hereby agreeing that
its interest in any such proceeds is junior to the rights of Senior
Lender therein and that Prime shall have no right to participate in
any such adjustment process, payment or settlement unless and until
the Senior Indebtedness is paid in full.
(d) Prime will not permit any amendment of the Junior Loan
Documents without the prior written consent of Senior Lender.
(e) Prime will not transfer or assign, either outright or as
security for any obligation, any of its powers, rights or interests in
the Junior Loan Documents, without the prior written consent of Senior
Lender.
27. REPRESENTATIONS OF PRIME.
-------------------------
Prime hereby makes the following representations and warranties to
Senior Lender as of the date hereof (but only with respect to itself):
(a) Prime has the power, authority and legal right to execute,
deliver and perform this Agreement. This Agreement has been duly
authorized by all necessary action of Prime, duly executed and
delivered by Prime and constitutes valid and binding obligations of
Prime enforceable against Prime in accordance with its terms, subject
to applicable bankruptcy, insolvency and similar laws affecting rights
of creditors generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(b) Neither the execution, delivery or performance by Prime of
this Agreement nor compliance by it with the terms and provisions
hereof, (i) will contravene any provision of any applicable law,
statute, rule or regulation or any order, writ, injunction or decree
of any court or governmental instrumentality, (ii) will conflict or
be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to create
or impose) any lien upon any of the property or assets of Prime
pursuant to the terms of any material indenture, mortgage, deed of
trust, credit agreement, loan agreement, partnership agreement or any
other material agreement, contact or instrument to which Prime is a
party or by which it or any of its property or assets is bound or to
which it may be subject or (iii) will violate any provision of
the organizational documents of Prime.
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(c) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as
have been obtained or made prior to the date hereof), or exemption by,
any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with,
(i) the execution, delivery and performance by Prime of this Agreement
or (ii) the legality, validity, binding effect or enforceability of
this Agreement with respect to Prime.
(d) Prime entered into the transactions contemplated by the
Junior Loan Documents and this Agreement without reliance upon any
information or advice from Senior Lender. Prime made its own
underwriting analysis in connection with the Junior Indebtedness, its
own credit review of Borrower and Beneficiary and investigated all
matters pertinent, in Prime's judgment, to its determination to make
the Junior Indebtedness to Borrower and to execute and deliver the
Junior Loan Documents.
(e) Neither Prime nor any of Prime's Affiliates (i) is or will
become an "employee benefit plan" (as defined in Section 3(3) of and
governed by the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) or (ii) is or will be engaging in this transaction
directly on behalf of an "employee benefit plan" as defined therein;
unless, if Prime or Prime's affiliates or principals are such a plan
governed by ERISA, this Agreement and the performance of Prime's
obligations hereunder will not result in, a "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended).
It shall not be a breach of any of the representations and warranties made in
this Section 27 if the breach or inaccuracy thereof will not materially or
adversely affect the obligations of the warranting party under this Agreement or
its ability to perform such obligations.
28. SENIOR LENDER REPRESENTATIONS.
------------------------------
Senior Lender hereby makes the following representations and warranties
to Prime as of the date hereof:
(a) Senior Lender has the power, authority and legal right to
execute, deliver and perform this Agreement. This Agreement has
been duly authorized by all necessary action of Senior Lender, duly
executed and delivered by Senior Lender and constitutes valid
and binding obligations of Senior Lender enforceable against Senior
Lender in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting rights of creditors generally,
and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity
or at law).
(b) Neither the execution, delivery or performance by Senior
Lender of this Agreement nor compliance by it with the terms and
provisions hereof, (i) will contravene any provision of any law,
statute, rule or regulation or any order, writ, injunction or decree
of any court or governmental instrumentality, (ii) will conflict or
be inconsistent with or result in any breach of any of the terms,
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covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to create
or impose) any lien upon any of the property or assets of Senior Lender
pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement, loan agreement, partnership agreement or any other
agreement, contact or instrument to which Senior Lender is a party or
by which it or any of its property or assets is bound or to which it
may be subject or (iii) will violate any provision of the
organizational documents of Senior Lender.
(c) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as
have been obtained or made prior to the date hereof), or exemption by,
any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with,
(i) the execution, delivery and performance by Senior Lender of this
Agreement or (ii) the legality, validity, binding effect or
enforceability of this Agreement with respect to Senior Lender.
29. NATURE OF RELATIONSHIP.
-----------------------
Senior Lender and Prime intend that the relationship between them
created by the Prime Documents is of senior lender and junior lender and not
that of lender and borrower, joint venturers or tenants in common. Senior Lender
and Prime shall file all future federal and state income tax returns in a manner
consistent with the foregoing.
30. GOVERNING LAW.
--------------
This Agreement will be construed in accordance with the internal
laws of the State of Illinois without regard to principles of conflicts of laws.
31. NOTICE.
-------
Any notice, demand, request, statement or consent made hereunder
shall be in writing, signed by the party giving such notice, request, demand,
statement, or consent, and shall be (a) delivered personally, (b) delivered to a
reputable overnight delivery service providing a receipt (c) deposited in the
United States mail, postage prepaid and registered or certified mail, return
receipt requested, or (d) sent by facsimile, provided a copy of such facsimile
is also delivered in accordance with (a), (b) or (c) above, at the address or
facsimile number set forth below or to such other address or facsimile number
within the continental United States of America as may have theretofore been
designated in writing. The effective date of any notice given as provided in
this Section shall be the date of personal service, one (1) business day after
delivery to such overnight delivery service, or three (3) business days after
being deposited in the United States mail, whichever is applicable. For purposes
hereof, the addresses and phone numbers are as follows:
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If to Senior Lender:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Investment Services, S-319
Fax: (860) 726-6328
with a copy to:
CIGNA Corporation
Investment Law Department
Mortgage and Real Estate Group
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attn: Real Estate Division, S-215A
Fax: (860) 726-8446
with a copy to:
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Stephen B. Bell
Fax: (312) 332-2196
If to Prime:
Prime Group Realty, L.P.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Jeffrey Patterson
Fax: (312) 917-4230
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg, Esq.
Fax.: (312) 558-5700
32. WAIVER.
-------
Any term, condition or provision of this Agreement may be waived
in writing at any time by the party which is entitled to the benefits thereof.
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33. BINDING AGREEMENT.
------------------
This Agreement shall be binding upon the heirs, executors,
administrators, personal representatives, successors and assigns of the parties
hereto; provided, however, the foregoing shall not be deemed or construed to (a)
permit the assignment of either party's rights or obligations hereunder except
as provided in Section 36 hereof or (b) confer any right, title, benefit, cause
of action or remedy upon any person or entity not a party hereto.
34. CONSTRUCTION.
-------------
Whenever the context hereof so requires, reference to the singular
shall include the plural and the plural shall include the singular; words
denoting gender shall be construed to mean the masculine, feminine or neuter, as
appropriate; and specific enumeration shall not exclude the general, but shall
be construed as cumulative of the general recitation. The headings contained in
this Agreement are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or any provision hereof.
35. SEVERABILITY.
-------------
If any clause or provision of this Agreement is held to be illegal,
invalid or unenforceable under any law applicable to the terms hereof, then the
remainder of this Agreement shall not be affected thereby, and in lieu of each
such clause or provision of this Agreement that is illegal, invalid or
unenforceable, such clause or provision shall be judicially construed and
interpreted to be as similar in substance and content to such illegal, invalid
or unenforceable clause or provision, as the context thereof would reasonably
suggest, so as to thereafter be legal, valid and enforceable.
36. COUNTERPARTS.
-------------
To facilitate execution, this Agreement may be executed in as many
counterparts as may be convenient or required. It shall not be necessary that
the signature and acknowledgment of, or on behalf of, each party, or that the
signature and acknowledgment of all persons required to bind any party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Agreement to
produce or account for more than a single counterpart containing the respective
signatures and acknowledgments of each of the parties hereto.
37. NO OTHER AGREEMENTS.
--------------------
Other than as set forth in the Prime Documents and in the documents
delivered pursuant to this Agreement, and the other Prime Documents, this
agreement represents the final agreement between the parties with respect to the
transaction contemplated herein, supersedes any and all prior discussions and
agreements (written or oral) between Prime and Senior Lender with respect to the
transaction contemplated herein, the Property and the Junior Loan Documents and
may not be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties.
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38. TIME OF THE ESSENCE.
--------------------
Time is of the essence in the execution and performance of this
Agreement and of each provision hereof.
39. RULE OF CONSTRUCTION.
---------------------
The parties acknowledge that each party and its counsel has reviewed
this Agreement, and the parties hereby agree that normal rules of construct to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
40. SATURDAY, SUNDAY OR LEGAL HOLIDAY.
----------------------------------
If any date set forth in this Agreement for the performance of any
obligation by Prime or Senior Lender or for the delivery of any document or
notice should be on other than a Business Day, the compliance with such
obligation or delivery shall be deemed acceptable on the next following Business
Day. For purposes of this Agreement, the term "Business Day" shall mean any day
on which banks and federal savings associations in Illinois are generally open.
41. AMENDMENTS.
-----------
This Agreement shall not be amended except by a writing signed on
behalf of all of the parties to this Agreement.
42. NO THIRD PARTY BENEFICIARIES; NO RELATIONSHIP.
----------------------------------------------
No person or entity not a party to this Agreement shall have any third
party beneficiary claim or other right hereunder or with respect thereto. This
Agreement shall not establish any fiduciary, joint venture, partnership or
similar relationship between Prime and Senior Lender.
43. EXHIBITS.
---------
Each exhibit referred to in this Agreement is attached hereto and each
such exhibit is hereby incorporated by reference and made a part hereof as if
fully set forth herein.
44. JURY WAIVER; VENUE.
-------------------
PRIME AND SENIOR LENDER DO HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ANY
ACTION OF ANY PARTY ARISING OUT OF OR RELATED IN ANY MANNER TO THIS AGREEMENT,
THE SENIOR LOAN, THE JUNIOR LOAN, THE SENIOR LOAN DOCUMENTS, THE JUNIOR LOAN
DOCUMENTS, OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND
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<PAGE>
OR CANCEL THIS AGREEMENT AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS
AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE)
(COLLECTIVELY, AN "ACTION"). THIS WAIVER IS A MATERIAL INDUCEMENT FOR PRIME AND
SENIOR LENDER TO ENTER INTO THIS AGREEMENT AND SHALL SURVIVE THE CLOSING OR ANY
TERMINATION OF THIS AGREEMENT. PRIME AND SENIOR LENDER HEREBY IRREVOCABLY SUBMIT
TO THE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT LOCATED
IN COOK COUNTY, ILLINOIS IN ANY ACTION AND EACH PARTY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION MAY BE HEARD AND DETERMINED BY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH ACTION BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM.
45. ASSIGNMENT.
-----------
Prime may not assign this Agreement or any right, liability, or
obligation hereunder without the prior written consent of Senior Lender, which
may be withheld in Senior Lender's absolute discretion. Senior Lender may
transfer, by assignment, participation or otherwise, the Senior Loan Documents,
or any interest therein and any or all of its right, liabilities, or obligations
under the Prime Documents to any one or more of its Affiliates, separate
accounts, nominees and subsidiaries or to any other person or entity.
46. ATTORNEYS' FEES.
----------------
References to attorneys' fees or the like in this Agreement and in
any of the other Prime Documents shall include (a) the reasonable fees charged
by attorneys who are employees of Senior Lender or any of its Affiliates and (b)
reasonable attorneys' fees incurred in any trial and appellate proceedings.
47. PRIME EXCULPATION.
------------------
Notwithstanding any provision contained in this Intercreditor
Agreement, Prime shall have no personal liability for the performance of its
obligations hereunder (including without limitation the obligation to pay off
the Senior Interest under Section 6 hereof). In the event of a default by Prime,
Senior Lender shall nonetheless be entitled to exercise all remedies available
under the Prime Documents against the Property, the Gross Revenues and other
security as are set forth therein or as may otherwise be available under law.
The foregoing shall not be construed to limit the personal liability of Prime
under the Recourse Indemnity Agreement, the Environmental Indemnification
Agreement, the Blocked Accounts Agreement and any other document now or
hereafter delivered by Prime which does not expressly exculpate Prime from such
liability.
48. SENIOR LENDER EXCULPATION.
--------------------------
Notwithstanding any provision contained in this Agreement or the other
Prime Documents to the contrary, the obligations of Senior Lender under this
Intercreditor Agreement and the Prime Documents shall be enforceable only
against the interest of Senior Lender in the Senior Loan Documents as such
interest may exist from time to time.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
PRIME GROUP REALTY, L.P., a
Delaware limited partnership
By PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, its managing general partner
By \s\ Jeffery A. Patterson
--------------------------------
Its Executive Vice President
--------------------------------
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation
By CIGNA INVESTMENTS, INC., a Delaware
corporation, its authorized agent
By \s\ Patrick H. Thompson
--------------------------------
Its Vice President
--------------------------------
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<PAGE>
SCHEDULE 1
DEFINED TERMS
-------------
1. "ACCRUED OBLIGATIONS" shall mean all accrued and unpaid Monthly Secondary
Payments, Default Interest, all outstanding Late Charges, Collection Costs,
Administrative Charges and all accrued obligations under the Recourse
Indemnity Agreement and the Environmental Indemnification Agreement.
2. "ADMINISTRATIVE COSTS" shall have the meaning set forth in Section 19(b) of
this Agreement.
3. "AFFILIATE" shall mean with respect to any person: any individual related
by blood or marriage to such person or any person controlling, controlled
by or under common control with such person ("control" and forms of the
word mean (i) the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise; and
(ii) the ownership or beneficial ownership of equity interests, directly or
indirectly, representing fifty percent or more ownership (on a fully
diluted basis) in a person or rights, warrants, or options to purchase such
ownership (whether or not currently exercisable)).
4. "APPLIED AMOUNT" shall have the meaning set forth in the Lock Box
Agreement.
5. "BENEFICIAL INTEREST" shall mean the beneficial interest in the Fee Owner.
6. "BENEFICIARY" shall mean Continental Towers Associates-I, L.P. an Illinois
limited partnership, and any successor beneficiary of either Fee Owner.
7. "BLOCKED ACCOUNTS" means collectively the Re-Leasing Account and the
Capital Improvement Account created and maintained pursuant to the Blocked
Accounts Agreement.
8. "BLOCKED ACCOUNTS AGREEMENT" means that certain Subordinate Lender's
Blocked Accounts Agreement of even date herewith among Lock Box Bank,
Senior Lender, Prime and JTD.
9. "BORROWER" means collectively the Fee Owners.
10. "CAPITAL COSTS" shall have the meaning set forth in the Senior Mortgage.
11. "CAPITAL LOANS" shall have the meaning set forth in the 1998 Agreement.
12. "CLOSING" shall mean the date of disbursement of the Senior Loan.
13. "CLOSED PERIOD" shall mean the period commencing on the date hereof and
ending on April 30, 2000.
14. "COLLATERAL" means all present and future assets of Borrower and
Beneficiary, including all of Borrower's and Beneficiary's personal
property and real estate, including, to the extent any Borrower has
interest therein, the Lock Box Accounts.
15. "COLLECTION COSTS" shall have the meaning set forth in Section 19(d) of
this Agreement.
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<PAGE>
16. "CURE NOTICE" shall have the meaning set forth in Section 17(a)(ii) of this
Agreement.
17. "DEED IN LIEU NOTICE" shall have the meaning set forth in Section 26 of
this Agreement.
18. "DEFAULT CHARGES" shall mean collectively all Prime Interest, Default
Interest, Late Charges, Protective Advances and Collection Costs payable
under this Agreement or any of the other Prime Documents.
19. "DEFAULT INTEREST" shall have the meaning set forth in Section 19 of this
Agreement.
20. "DEFAULT RATE" shall mean an annual rate of 11.22% calculated on the basis
of a 360 day year.
21. "DEFAULT SALE NOTICE" shall have the meaning set forth in Section 9 of this
Agreement.
22. "DEFERRED INTEREST" shall have the meaning set forth in the Senior Note.
23. "DEFERRED PAYMENTS" shall have the meaning set forth in the Senior Note.
24. "EASEMENTS" shall have the meaning set forth in Section 15 of this
Agreement.
25. "ENFORCEMENT ACTION" means the commencement of the exercise of any default
or other contract remedies against Borrower, Beneficiary or both,
including, without limitation, the commencement of any litigation or
proceeding, including the commencement of any foreclosure proceeding, the
exercise of any power of sale, the sale by advertisement, the taking of a
deed or assignment in lieu of foreclosure, the obtaining of a receiver or
the taking of any other enforcement action against, or the taking of
possession or control of, any of the Property, but specifically excludes
Borrower, Beneficiary or both, the assertion or enforcement of any right of
Prime to receive payment from proceeds of a foreclosure sale of the
Property incident to foreclosure of the liens or security interests of the
Senior Loan Documents which may remain after payment of costs and expenses
of such foreclosure and payment and satisfaction in full of the Senior
Indebtedness, and the filing of claims in any Insolvency Proceeding as may
be required to protect and preserve the right of Prime or Senior Lender to
participate in such Insolvency Proceeding as creditor and to participate in
distributions of assets of Borrower in said Insolvency Proceeding with
respect to the Junior Indebtedness or the Senior Indebtedness, as
applicable, but subject in all respects to the rights of Senior Lender
under and as provided in this Agreement and without in any way impairing or
affecting the right of Senior Lender to require Prime to perform and
observe their respective covenants, undertakings and agreements of Prime
under and as provided in this Agreement.
26. "ENVIRONMENTAL INDEMNIFICATION AGREEMENT" shall mean the Environmental
Indemnification Agreement of even date herewith executed by Prime in
respect of the Property.
27. "ESCROW DEPOSITS" shall mean all deposits required under the Blocked
Accounts Agreement.
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<PAGE>
28. "EVENT OF DEFAULT" shall have the meaning set forth in Section 17 of this
Agreement.
29. "EXCESS AMOUNT" shall have the meaning set forth in Section 9 of this
Agreement.
30. "EXTRAORDINARY PAYMENT" shall have the meaning set forth in the Management
Agreement.
31. "FEE OWNERS" shall mean the two land trusts identified as Trust 40935 and
Trust 5602 in EXHIBIT 43 or any successor owner of any interest in the fee
title to the Property.
32. "FINAL PAYOFF DATE" shall have the meaning set forth in Section 6 of this
Agreement.
33. "FUNDS" shall mean all Gross Revenues, and all other revenues relating to
the Property including lease termination payments, advance rental payments,
Net Proceeds and Special Service Payments.
34. "GENERAL PARTNER" shall mean CTA Partner, L.L.C., a Delaware limited
liability company, or other holder of a general partnership interest or
other managing interest in Beneficiary.
35. "GROSS REVENUES" shall have the meaning set forth in the Senior Note.
36. "INSOLVENCY PROCEEDING" means any proceeding under Title 11 of the United
States Code (11 U.S.C. Sec. 101 et. seq.) or any other insolvency,
liquidation, reorganization or other similar proceeding concerning
Borrower, any action for the dissolution of Borrower, any proceeding
(judicial or otherwise) concerning the application of the assets of
Borrower, for the benefit of its creditors, the appointment of or any
proceeding seeking the appointment of a trustee, receiver or other similar
custodian for all or any substantial part of the assets of Borrower or any
other action concerning the adjustment of the debts of Borrower.
37. "INTEREST" shall have the meaning set forth in the Senior Note.
38. "INTEREST RATE" shall have the meaning set forth in the Senior Note.
39. "JTD" means Julian, Toft & Downey, Incorporated or such other entity
designated by Senior Lender to perform the functions of JTD in connection
with the Loan Documents, this Intercreditor Agreement and the other Prime
Documents.
40. "JUNIOR INDEBTEDNESS" means all principal, interest, default interest,
prepayment premium, collection costs and other amounts outstanding from
time to time under the Junior Loan Documents.
41. "JUNIOR LOAN" means the loan evidenced and secured by the Junior Loan
Documents.
42. "JUNIOR LOAN AGREEMENT" shall have the meaning set forth in EXHIBIT 1-43.
43. "JUNIOR LOAN DOCUMENTS" means the documents listed on EXHIBIT 1-43, as
amended from time to time subject to the limitations set forth in this
Agreement.
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44. "JUNIOR SECURITY" shall mean all real and personal property at any times
pledged to Senior Holder to secure the performance by Prime of its
obligations under the Prime Security Documents.
45. "LATE CHARGE" shall have the meaning set forth in Section 19(a) of this
Agreement.
46. "LOCK BOX ACCOUNT" means the deposit account in the name of Senior Lender
established pursuant to the Lock Box Agreement at Lock Box Bank into which
all rent and other revenues of the Property will be deposited.
47. "LOCK BOX ACCOUNTS" means collectively the Lock Box Account, Real Estate
Tax Escrow Account and the Working Capital Account created and maintained
under the Lock Box Agreement.
48. "LOCK BOX AGREEMENT" means the Lock Box Agreement of even date herewith
among Lock Box Bank, Senior Lender, Borrower, Beneficiary, Manager and JTD.
49. "LOCK BOX BANK" means LaSalle National Bank or any successor thereto or
assignee thereof under the Lock Box Agreement or Blocked Accounts Agreement
and any bank serving similar functions under any replacement of either or
both such agreements.
50. "MANAGEMENT AGREEMENT" shall mean the Management Agreement dated December
12, 1997 among Beneficiary and Manager, together with the Agreement
Pertaining to Management Agreement of even date herewith among Manager,
Beneficiary, and Senior Lender.
51. "MANAGER" shall mean Prime Group Realty Services, Inc., a Delaware
corporation, or the manager approved by Senior Lender.
52. "MEMBER" shall mean Richard S. Curto and his spouse or other holder of an
equity interest in General Partner.
53. "MINIMUM PAYMENT" shall have the meaning set forth in the Senior Note.
54. "MONTHLY OPERATING REPORT" shall have the meaning set forth in the
Management Agreement.
55. "MONTHLY SECONDARY PAYMENT" shall have the meaning set forth in Section 5
of this Agreement.
56. "NECESSARY CAPITAL EXPENDITURES" shall mean such capital expenditures as
are reasonably determined by Senior Lender to be necessary to maintain the
Property in first class condition. including without limitation Re-Leasing
Costs and Capital Costs.
57. "NET PROCEEDS" shall mean all insurance proceeds and eminent domain
compensation and awards attributable to the Property which are not used to
repair or restore the Property pursuant to the Senior Loan Documents.
58. "OUTSTANDING BALANCE" shall have the meaning set forth in the Senior Note.
59. "PARTNER LOANS" shall mean any "Partner Loans" as referred to in the Junior
Loan Agreement.
60. "PAYOFF AMOUNT" shall mean the aggregate of the Outstanding Balance and
Accrued Obligations.
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61. "PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
62. "PLAZA REPAIRS" shall have the meaning set forth in the Senior Mortgage.
63. "PREPAYMENT PREMIUM" shall have the meaning set forth in the Senior Note.
64. "PRIME" means Prime and any subsequent holder of any interest in the Junior
Loan or the Junior Loan Documents.
65. "PRIME DOCUMENTS" shall mean this Agreement; the Blocked Accounts
Agreement; the Recourse Indemnity Agreement; the Environmental
Indemnification Agreement; the Collateral Assignment of Loan Documents of
even date herewith executed by Prime in favor of Senior Lender; and such
all other documents executed by Prime or its Affiliates and delivered to
Senior Lender in connection herewith and therewith, including all documents
securing or perfecting security for Prime's obligations hereunder and
thereunder.
66. "PRIME INTEREST" shall mean all interest, including Default Interest,
imposed under any of the Prime Documents.
67. "PROPERTY" means the real estate commonly known as Continental Towers,
Rolling Meadows, Illinois which is legally described on EXHIBIT 1-67 and
all improvements now or hereafter located thereon and all appurtenances
thereto.
68. "PROTECTIVE ADVANCES" shall have the meaning set forth in Section 19(c) of
this Agreement.
69. "RECOURSE INDEMNITY AGREEMENT" shall mean that certain Recourse Indemnity
Agreement of even date herewith delivered by Prime to Senior Lender.
70. "RELEASE ACTIONS" shall mean (i) execution of instruments of release or
terminations, as appropriate, of the Senior Loan Documents and Prime
Documents and (ii) release or transfer of all cash security for the Senior
Loan Documents and Prime Documents, except the Environmental
Indemnification Agreement shall not be released or terminated but shall
instead survive the performance of the Release Actions.
71. "RE-LEASING COSTS" shall have the meaning set forth in the Senior Mortgage.
72. "RENT ROLL" shall mean a rent roll on the form previously submitted to and
approved by Senior Lender.
73. "REQUIRED CAPITAL IMPROVEMENTS" shall have the meaning set forth in the
Senior Mortgage.
73A. "RESET AMENDMENT" shall have the meaning set forth in Section 7 of this
Agreement.
74. "RESET AMORTIZATION SCHEDULE" shall have the meaning set forth in Section 7
of this Agreement.
75. "RESET NOTICE" shall have the meaning set forth in Section 7 of this
Agreement.
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76. "RESET PERIOD" shall have the meaning set forth in Section 7 of this
Agreement.
77. "RESET/PAYOFF DATE" shall mean May 1, 2005.
78. "RESET RESPONSE" shall have the meaning set forth in Section 7 of this
Agreement.
79. "RESET SCHEDULED PAYMENT" shall mean the fixed level payment required to
amortize the Outstanding Balance in accordance with the Reset Amortization
Schedule at the Reset Interest Rate.
80. "RESET SECONDARY PAYMENT AMOUNT" shall mean the excess of Reset Scheduled
Payment over Minimum Payments due during the Reset Term.
81. "RESET TERMS" shall have the meaning set forth in Section 7 of this
Agreement.
82. "SCHEDULED PAYMENT" shall mean $540,656.41 per month (being the sum of the
Minimum Payment and the Monthly Secondary Payment) which is an amount
sufficient to amortize the Senior Loan over a period of 25 years at the
Interest Rate.
83. "SECURITY" shall mean all real and personal property, tangible and
intangible, in which security interests have been granted as security for
the Senior Loan or Prime's obligations under this Intercreditor Agreement.
84. "SENIOR ACCELERATION" shall mean the acceleration of the Senior
Indebtedness following a Senior Event of Default.
85. "SENIOR DEFAULT" means the failure by Borrower to pay Senior Lender any
amount when due under the Senior Loan Documents or the occurrence or
existence of any other event or circumstance which, with the passage of
time or the giving of notice, or both, would constitute a Senior Event of
Default.
86. "SENIOR DEFAULT CHARGES" shall mean all late charges and default in
interest, collection charges, administrative charges or the like arising
under the Senior Loan Documents, including Default Interest as defined in
the Senior Note.
87. "SENIOR EVENT OF DEFAULT" means an "EVENT OF DEFAULT" as defined in any of
the Senior Loan Documents.
88. "SENIOR INDEBTEDNESS" means all principal, interest, default interest,
prepayment premium, collection costs and other amounts outstanding from
time to time under the Senior Loan Documents.
89. "SENIOR LOAN" shall have the meaning set forth in the Senior Note.
90. "SENIOR LOAN DOCUMENTS" means the documents listed on EXHIBIT 1-90, as
amended from time to time subject to the limitations set forth in the
Agreement.
91. "SENIOR MORTGAGE" shall have the meaning set forth in EXHIBIT 1-90.
92. "SENIOR NOTE" shall have the meaning set forth in EXHIBIT 1-90.
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93. "SPECIAL SERVICE PAYMENTS" shall have the meaning set forth in the
Management Agreement.
94. "SNDAS" shall mean Subordination, Non-Disturbance and Attornment Agreements
with tenants of the Property on a form previously approved by Senior Lender
with such changes as are reasonably acceptable to Senior Lender.
95. "TAX INDEMNITY AGREEMENT" shall mean that certain Tax Indemnity Agreement
dated November 17, 1997 among Prime, Roland E. Casati and Richard A. Heise.
96. "TENANT ESTOPPELS" shall mean Tenant Estoppel Certificates from tenants of
the Property on a form previously approved by Senior Lender with such
changes as are reasonably acceptable to Senior Lender.
97. "TERM" shall mean the period from the date hereof through and including the
Final Payoff Date.
98. "TIA PERIODIC PAYMENTS" shall mean the payments to be made after the date
hereof by Roland E. Casati and Richard A. Heise pursuant to Sections 11 and
12 of the Tax Indemnity Agreement.
99. "TRANSFER ACTIONS" shall mean (i) execution of instruments of transfer and
endorsements, as appropriate, of the Senior Loan Documents and the Senior
Lender's title policy, in all cases without recourse, (ii) transfer to
Prime of all balances in the Blocked Accounts, and (iii) execution of
instruments of termination of this Agreement and the other Prime Documents,
except the Environmental Indemnification Agreement shall not be terminated
but shall instead survive the performance of the Transfer Actions. In
connection with the performance of the Transfer Actions, Senior Lender will
be obligated to warrant only that it has not encumbered or transferred the
Senior Loan Documents.
100. "WIRE TRANSFER" shall mean transfer of immediately available funds by
federal wire to an account designated by the recipient in a written notice
to the transferor.
101. "1998 AGREEMENT" shall have the meaning set forth in Exhibit 1-43.
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EXHIBIT 7
RESET RECOURSE LIABILITY
------------------------
In the event that the Reset Terms are accepted pursuant to
Section 7, the Recourse Indemnity Agreement will be modified as follows and
re-executed by Prime:
(i) The "CONTROL PERIOD" will commence on the Reset/Payoff
Date.
(ii) The starting balance of the "REMAINING DEFICIENCY
AMOUNT" shall equal the product of the number of months in the Reset
Period times the Monthly Secondary Payment due during the Reset Period.
(iii) The dollar amount set forth in Section 2(n) of the
Recourse Indemnity Agreement shall be the Reset Scheduled Payment minus
$466,667.
The original Recourse Indemnity Agreement will remain in effect with respect to
any event or occurrence which occurred prior to the Reset/Purchase Date.
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EXHIBIT 15
PRELIMINARY SITE PLAN
---------------------
[Exhibit Omitted]
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EXHIBIT 1-43
JUNIOR LOAN DOCUMENTS
---------------------
1. Loan Modification and Amended and Restated Loan
Agreement dated as of June 1, 1995 (as amended, the "JUNIOR LOAN AGREEMENT"), by
and among American National Bank and Trust Company of Chicago, not personally,
but as Trustee of Trust No. 40935 ("TRUST 40935"), Continental Towers Associates
- - I ("CTA"), Roland E. Casati ("CASATI"), Richard E. Heise ("HEISE"),
Casati-Heise Partnership ("C/H") and General Electric Capital Corporation
("GECC"), which was recorded in the office of the Recorder of Deeds, Cook
County, Illinois ("RECORDER'S OFFICE") on August 17, 1995 as Doc. No. 95545031.
2. First Amendment to Loan Modification and Amended
and Restated Loan Agreement by and among Trust 40935, CTA, Casati, Heise, C/H
and GECC, which was recorded in the Recorder's Office on December 17, 1997 as
Document No. 97947240.
3. Amended and Restated First Mortgage dated as of
December 1, 1991 from Trust 40935 and joined in by C/H to GECC and recorded in
the Recorder's Office as Document No. 92001888, as amended by the First
Amendment and the Second Amendment (together with the Supplemental Mortgage and
as either has been amended, the "JUNIOR MORTGAGE").
4. Assignment of Leases and Rents dated as of
December 1, 1991, from Trust 40935 and joined in by C/H to GECC and recorded in
the Recorder's Office as Document 92001889, as amended by the First Amendment
and the Second Amendment.
5. First Amendatory Agreement dated as of April 30,
1993 (the "FIRST AMENDMENT") executed and delivered by and among the Parties,
which First Amendment was duly filed for record and recorded in the Recorder's
Office as Document No. 93-434372 on June 9, 1993.
6. Second Amendatory Agreement dated as of November
1, 1994 (the "SECOND AMENDMENT") executed and delivered by and among the
Parties, which Second Amendment was duly filed for record and recorded in the
Recorder's Office as Document No. 94084292, on December 30, 1994.
7. Supplemental First Mortgage and Security Agreement
dated June 1, 1995, from First Bank, N.A. as successor trustee to National
Boulevard Bank of Chicago, not personally, but solely as Trustee of Trust No.
5602 ("TRUST 5602"), with joinder by CTA, in favor of GECC, which was recorded
in the Recorder's Office on August 17, 1995 as Doc. No. 95545032 (the
"SUPPLEMENTAL MORTGAGE").
8. 1997 Promissory Note ("1997 PROMISSORY NOTE")
dated October 1, 1991 Amended and Restated as of the Effective Date December 12,
1997 in the amount of $163,103,099.24 made by Trust 40935 in favor of GECC.
9. Hazardous Substances Indemnity Agreement dated as
of October 1, 1991, as amended by the Loan Agreement.
10. All UCC financing statements executed in
connection with any of the foregoing.
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11. 1998 Agreement of even date herewith among
Mortgagor, Beneficiary and Prime (the "1998 AGREEMENT").
AND ITEMS LISTED ON ATTACHED PAGES 3 AND 4
[Exhibit Omitted]
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EXHIBIT 1-67
LEGAL DESCRIPTION
-----------------
PARCEL 1
Lots 1 and 2 in Casati-Heise Subdivision, being a subdivision of part of the
Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in
Township 41 North, Range 11 East of the Third Principal Meridian, in Cook
County, Illinois according to the plat thereof recorded December 27, 1988 as
Document Number 88-592766, in Cook County, Illinois.
PARCEL 2
Easements appurtenant to and for the benefit of Parcel 1 as created and granted
and set forth in Easement Agreement dated as of September 23, 1977 recorded
October 10, 1978 as Document Number 24662689 and as amended by Amendment to
Easement Agreement dated as of May 15, 1980 recorded June 10, 1980 as Document
Number 25482426 upon, over and under Parcels 1, 2 and 3 and over, upon and under
portions of Lots 1 to 6, inclusive, in Heise's Subdivision, a subdivision of
part of the Northwest 1/4 of Section 16, Township 41 North, Range 11, East of
the Third Principal Meridian in Cook County, Illinois, according to the plat
thereof recorded December 23, 1977 as Document 24119807 and also over, upon and
under portions of that part of the Northeast 1/4 of Section 17 and part of the
Northwest 1/4 of Section 16, Township 41 North, Range 11, East of the Third
Principal Meridian, in Cook County, Illinois described as follows:
Commencing at the Northeast corner of the Northeast 1/4 of said Section 17;
thence Southerly along the East line of said Northeast 1/4 of Section 17, 80.0
feet to the Southerly right-of-way of Golf Road (State Route 58), as dedicated
and recorded September 24, 1929 as Document Numbers 10488005 and 10488006;
thence South 89 degrees 08 minutes West along said Southerly right-of-way of
Golf Road (State Route 58), 691.05 feet for a point of beginning; thence South 0
degrees 52 minutes East, 265.0 feet; thence South 89 degrees 08 minutes West
parallel with said Southerly right-of-way Golf Road (State Route 58), 196.11
feet; thence North 0 degrees 27 minutes 20 seconds East parallel with the West
line of Schwake's Subdivision, recorded August 11, 1970 as Document 21235091,
now vacated 265.07 feet to said Southerly right-of-way of Golf Road (State Route
58); thence North 89 degrees 08 minutes East, along said Southerly right-of-way
of Golf Road (State Route 58), 190.0 feet to the point of beginning, all in Cook
County, Illinois, for the operation, maintenance, repairs, replacement,
relocation and removal of a water supply line, sewer and other utilities, in
Cook County, Illinois.
PARCEL 3
Easements appurtenant to and for the benefit of Parcel 1 as created and granted
and set forth in Reciprocal Easement and Common Wall Agreement dated as of
September 23, 1977 and recorded October 10, 1978 as Document Number 24662688,
and as amended by Amendment thereto dated as of November 21, 1979 and recorded
December 17, 1979 as Document Number 25284791 upon, over and under Parcels 1, 2
and 3 and over, and upon and under portions of that part of the Northeast 1/4 of
Section 17 and part of the Northwest 1/4 of Section 16, Township 41 North, Range
11, East of the Third Principal Meridian, in Cook County, Illinois described as
follows:
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Commencing at the Northeast corner of the Northeast 1/4 of said Section 17;
thence Southerly along the East line of said Northeast 1/4 of Section 17, 80.0
feet to the Southerly right of way of Golf Road (State Route 58) as dedicated
and recorded September 24, 1929, as Document 10488005 and 10488006; thence South
89 degrees 08 minutes West along said Southerly right of way of Golf Road (State
Route 58), 691.05 feet for a point of beginning; thence South 0 degrees 52
minutes East, 265.0 feet; thence South 89 degrees 08 minutes West, parallel with
said Southerly right of way of Golf Road (State Route 58) 196.11 feet; thence
North 0 degrees 27 minutes 20 seconds East, parallel with the West line of
Schwake's Subdivision recorded August 11, 1970 as Document 21235091, now
vacated, 265.07 feet to said Southerly right of way of Golf Road (State Route
58) thence North 89 degrees 08 minutes East, along said Southerly right of way
of Golf Road (State Route 58) 109.0 feet to the point of beginning, all in Cook
County, Illinois, for operation, maintenance, repair, replacement, relocation
and removal of a water supply line, sewers and other utilities, and for use of
parking areas, roadways and walkways to provide ingress and egress for
pedestrians, vehicles, and for water supply, sewers and common walls.
PARCEL 4
Lot 3 in Casati-Heise Subdivision, being a subdivision of part of the Northeast
1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township
41 North, Range 11, East of the Third Principal Meridian, according to the plat
thereof recorded December 27, 1988 as Document 88592766, in Cook County,
Illinois.
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EXHIBIT 1-90
SENIOR LOAN DOCUMENTS
---------------------
1. Promissory Note of even date herewith from Fee Holder to the Mortgagee in
the amount of $75,000,000.
2. 1998 Lock Box and Block Accounts Agreement of even date herewith, executed
by Lock Box Bank, Fee Holder, Beneficiary, Manager, and Julian, Toft &
Downey.
3. Agreement Pertaining to Management Agreement of even date herewith,
executed by Beneficiary, Manager, and the Mortgagee.
4. First Mortgage of even date herewith, from the Mortgagor to the Mortgagee.
5. Assignment of Rents and Leases of even date herewith, executed by the
Mortgagor and the Mortgagee.
6. UCC Financing Statements executed by Beneficiary.
7. UCC Financing Statements executed by Mortgagor.
8. Borrower Parties Estoppel Certificate of even date herewith, executed by
Fee Holder, Beneficiary, Casati, Heise, C/H Partnership, and Mortgagee.
9. Hazardous Substances Indemnity Agreement of even date herewith, executed by
Beneficiary.
10. Certificate of Casati-Heise of even date herewith, executed by C/H
Partnership and Junior Holder.
11. All other documents, agreements and instruments evidencing, securing or in
any way relating to the Loan, together with all amendments thereto which
may hereafter exist.
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EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 6th day of May, 1998 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and
Louis Conforti, an individual residing at 4432 N. Winchester Avenue, Apt. 2
North, Chicago, Illinois 60640 ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management,
leasing, marketing, acquisition, development and construction of office and
industrial real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application
of Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit to serve Employer in the position
set forth herein on the terms herein provided.
D. he parties wish by this Agreement to set forth the terms
and conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, and for other good and valuable consideration,
Employer and Executive hereby agree as follows:
1. EMPLOYMENT AND DUTIES. During the Employment Term (as
defined in Section 2 hereof), Employer agrees to employ Executive, and Executive
agrees to be employed by Employer, as the Senior Vice President and Director of
Capital Markets of Employer on the terms and conditions provided in this
Agreement. Executive shall conduct, operate, manage and promote the business and
business concept of Employer. The Chief Executive Officer or the President of
Employer may from time to time further define and clarify Executive's duties and
services hereunder, provided that such duties and services are consonant with
Executive's position as Senior Vice President and Director of Capital Markets of
Employer. Executive agrees to devote Executive's best efforts and substantially
all of Executive's business time, attention, energy and skill to perform
Executive's duties as Senior Vice President and Director of Capital Markets of
Employer, subject to debt and equity financing origination activities to be
conducted by Executive on behalf of Prime Capital Holding, LLC with the consent
of Employer.
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2. TERM. The term of this Agreement shall commence on the first
day of Executive's employment with Employer as agreed to by Employer and
Executive and expire on the third anniversary of such date (the "Employment
Term").
3. COMPENSATION AND RELATED MATTERS. (a) Base Salary. As
compensation for performing the services required by this Agreement during the
Employment Term, Employer shall pay to Executive an annual salary of no less
than One Hundred Forty Thousand Dollars ($140,000) ("Base Compensation"),
payable in accordance with the general policies and procedures for payment of
salaries to its executive personnel maintained, from time to time, by Employer
(but no less frequently than monthly), subject to withholding for applicable
federal, state, and local taxes. Increases in Base Compensation, if any, shall
be determined by Employer , based on periodic reviews of Executive's performance
conducted on at least an annual basis..
(b) Bonus. In addition to Base Compensation, Employer, in
Employer's sole and absolute discretion, may, but in no event shall be obligated
to, authorize the payment of additional annual cash bonuses for each calendar
year of up to one hundred and fifty percent (150%) of Base Compensation (a
"Performance Bonus Distribution") to Executive based upon achievement of such
corporate and individual performance goals and objectives as may be established
or determined by Employer from time to time. For the first year of employment,
within sixty (60) days after the first anniversary of the date of this
Agreement, Executive will be paid a Performance Bonus Distribution of at least
eighty percent (80%) of Executive's Base Compensation (the "First Year
Performance Bonus Distribution"). Subsequent to the first year of employment,
any Performance Bonus Distributions shall be paid within sixty (60) days after
the conclusion of the applicable calendar year, provided that with respect to
any Performance Bonus Distribution for (i) the 1999 calendar year, Employer
shall be entitled to a credit equal to one-third of the First Year Performance
Distribution and (ii) the 2001 calendar, if this Agreement expires and is not
renewed by Employer and Executive, Executive shall be paid a pro-rata portion of
any bonus otherwise payable to Executive for or with respect to such calendar
year within sixty (60) days after the expiration of this Agreement.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan established by Employer (which may include
contributions by Executive, but only to the extent such contributions are
required by other senior executive officers of Employer) and in any other
retirement, pension, insurance, health or other benefit plan or program that has
been or is hereafter adopted by Employer (or in which Employer participates), as
such plans and programs may be amended or modified from time to time by
Employer, according to the terms of such plan or program with all the benefits,
rights and privileges as are enjoyed by any other senior executive officers of
Employer. Employer expects to have in place a life insurance program in which
Executive will be entitled to participate with all benefits, rights and
privileges as are enjoyed by any other senior executive officers of Employer. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing Executive with substantially comparable benefits.
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(d) Expenses. Executive shall be reimbursed, subject to
Employer's receipt of invoices or similar records as Employer may reasonably
request in accordance with its policies and procedures, as such policies and
procedures generally applicable to other senior executive officers of Employer
may be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance.
(e) Vacations. During the Employment Term, Executive shall be
entitled to vacation in accordance with Employer's practices generally
applicable to other senior executive officers of Employer, as such practices may
be amended or modified from time to time by Employer, provided that Executive
shall be entitled to at least three (3) weeks paid vacation in each full
calendar year, which in the case of the 1998 calendar year shall be prorated
based on the number of days Executive is employed by Employer during such
calendar year. Executive may accrue unused vacation time if not used in any
calendar year or years, however, the maximum cumulative amount of vacation time
that Executive may accrue and carry over to the next year is two (2) weeks.
Executive shall be entitled to a payment for any vacation time which has accrued
but has not been used as of the date of the termination of Executive's
employment with Employer, unless Executive's employment is terminated pursuant
to Section 5(a)(ii) hereof.
4. SHARE OPTIONS AND GRANTS. PGRT has established a share
incentive plan (the "Share Incentive Plan"). The Share Incentive Plan initially
provides, among other things, for the issuance from time to time to certain
officers, directors and other employees of PGRT and Employer, including
Executive, of share options. Pursuant to the Share Incentive Plan, (i) on the
date hereof, PGRT shall grant to Executive 50,000 nonqualified stock options at
a purchase price per share equal to the Fair Market Value (as defined in the
Share Incentive Plan) of such share on the last trading date prior to the
commencement date of the Employment Term (the "Options"). Such Options shall
have the terms and conditions as are set forth in the Share Incentive Plan and
the Share Option Agreement to be entered into between PGRT and Executive. On the
date hereof, PGRT shall also grant to Executive without further consideration
12,500 shares of beneficial interests of PGRT, which shares shall be restricted
stock, will not be registered and will not be subject to any registration rights
obligating PGRT or Prime to register such shares, provided that if this
Agreement and Executive's employment is terminated pursuant to Section 5(a)(ii)
or 5(b) hereof within six (6) months after the commencement date of the
Employment Term, Executive shall return all of such shares to Employer.
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5. TERMINATION AND TERMINATION BENEFITS. (a) Termination by
Employer. (i) Without Cause. Employer may terminate this Agreement and
Executive's employment at any time for any reason or for no reason at all upon
written notice to Executive of such termination. In connection with the
termination of Executive's employment pursuant to this Section 5(a)(i),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the effective date of such termination and, to the extent not
previously paid, Executive shall be entitled to all bonuses payable to Executive
in accordance with Section 3(b) hereof for or with respect to any calendar years
prior to the calendar year in which such termination occurs, (C) be entitled to
the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the
effective date of such termination. For purposes of calculating Executive's pro
rata portion of any bonus pursuant to clause (B) in the previous sentence, if
the termination takes place prior to receipt by Executive of any Performance
Bonus Distribution, the Performance Bonus Distribution, a pro rata (based on the
number of days in the year) portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, the "effective date of
termination" shall mean the last day on which Executive is employed with
Employer which may be later than the date of the delivery of any applicable
notice of termination.
(ii) WITH CAUSE. Employer may terminate this Agreement with
cause immediately upon written notice to Executive. Employer may elect to
require Executive to continue to perform Executive's duties under this Agreement
for an additional thirty (30) days following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(ii), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to any bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination. For
purposes of this Section 5(a)(ii), "cause" shall mean (1) a finding by the Chief
Executive Officer of PGRT or the Board of Trustees of PGRT (the "Board") that
Executive has materially harmed Employer, its business, assets or employees
through (a) an act of dishonesty, material conflict of interest, gross
misconduct or willful malfeasance or (b) Executive's willful failure to perform
(which shall not include inability to perform due to disability), or gross
negligence in the performance of, in any material respects, Executive's material
duties under this Agreement, (2) Executive's conviction of (or pleading nolo
contendere to) a felony, involving acts of dishonesty, financial
untrustworthiness or adversely impacting Executive's ability to perform
Executive's duties hereunder, (3) the breach by Executive of any of Executive's
material obligations hereunder (other than those covered by clause (1)(b) above)
and the failure of Executive to cure such breach within thirty (30) days after
receipt by Executive of a written notice of Employer specifying in reasonable
detail the nature of the breach, or (4) Executive's governmental sanction
(including restrictions, prohibitions and limitations agreed to under a consent
decree or agreed order) under, or conviction for violation of, any federal or
state securities law, rule or regulation (provided that in the case of a
sanction, such sanction materially impedes or impairs the ability of Executive
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to perform Executive's duties and exercise Executive's responsibilities
hereunder in a satisfactory manner) or (5) Executive's willful breach of any
material policies or procedures of Employer.
(iii) DISABILITY. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
Bonus Distributions, effective upon expiration of such thirty (30) day period,
without terminating this Agreement. In any such event, Executive shall (A) be
paid Executive's Base Compensation in accordance with Section 3(a) hereof up to
the effective date of such termination, (B) be paid a pro rata portion of any
bonus otherwise payable to Executive for or with respect to the calendar year in
which such termination occurs in accordance with Section 3(b) hereof up to the
first day of such four (4) month period and, to the extent not previously paid,
Executive shall be entitled to all bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs and (C) be entitled to the
benefits set forth in Sections 3(c) (or the after-tax cash equivalent), 3(d) and
3(e) hereof up to the effective date of such termination. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. In the event Employer elects to suspend Executive's right to Base
Compensation and Performance Bonus Distributions, at such time as Executive is
able to resume the duties required under this Agreement, Executive shall be
entitled to receive Base Compensation and Performance Bonus Distributions from
the date Executive commences the performance of such duties following the
disability in accordance with the terms and provisions of this Agreement. This
Section 5(a)(iii) shall not limit the entitlement of Executive, Executive's
estate or beneficiaries to any disability or other benefits available to
Executive under any disability insurance or other benefits plan or policy which
is maintained by Employer for Executive's benefit. For purposes of this
Agreement, the "date of disability" shall mean the first day of the consecutive
period during which Executive fails to perform the duties required by this
Agreement due to illness, physical or mental disability or other incapacity.
(b) Termination by Executive Without Good Reason. Executive
may terminate this Agreement and Executive's employment at any time for any
reason or for no reason at all upon thirty (30) days' written notice to
Employer, during which period Executive shall continue to perform Executive's
duties under this Agreement if Employer so elects. In connection with the
termination of Executive's employment pursuant to this Section 5(b), Executive
shall (A) be paid Executive's Base Compensation in accordance with Section 3(a)
hereof up to the effective date of such termination, and, to the extent not
previously paid, Executive shall be entitled to all bonuses payable to Executive
in accordance with Section 3(b) hereof for or with respect to any calendar years
prior to the calendar year in which such termination occurs and (B) be entitled
to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the
effective date of such termination.
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(c) Death. Notwithstanding any other provision of this Agreement,
Executive's employment hereunder shall terminate on the date of Executive's
death. In such event, Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the date of such death, (B) be paid
a pro rata portion of any bonus otherwise payable to Executive for or with
respect to the calendar year in which such death occurs in accordance with
Section 3(b) hereof up to the effective date of such death and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such death occurs and (C) be
entitled to the benefits set forth in Sections 3(c) (or the after-tax cash
equivalent), 3(d) and 3(e) hereof up to the date of such death. This Section
5(c) shall not limit the entitlement of Executive, Executive's estate or
beneficiaries under any insurance or other benefits plan or policy which is
maintained by Employer for Executive's benefit. For purposes of calculating
Executive's pro rata portion of any bonus pursuant to clause (B) in the previous
sentence, if the termination takes place prior to receipt by Executive of any
Performance Bonus Distribution, the Performance Bonus Distribution, a pro rata
portion of which Executive shall be entitled to receive, shall be deemed to be
50% of Executive's then current annual Base Compensation.
(d) Termination Compensation. In the event of a termination
of this Agreement and Executive's employment pursuant to Section 5(a)(i) hereof,
Employer shall pay to Executive, within thirty (30) days of termination, an
amount in one lump sum ("Termination Compensation") equal to (i) if such
termination occurs during the first year of this Agreement, one hundred eighty
percent (180%) of Executive's then current annual Base Compensation, (ii) if
such termination occurs during the second year of this Agreement, fifty-five
percent (55%) of Executive's then current annual Base Compensation and (iii) if
such termination occurs during the third year of this Agreement, thirty percent
(30%) of Executive's then current annual Base Compensation. In the case of any
such termination, the payment of such Termination Compensation shall be in lieu
of and Executive shall not be entitled to receive any payment pursuant to
Section 5(a)(i)(B).
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that
Executive is not personally subject to any agreement, order or decree which
restricts Executive's acceptance of this Agreement and the performance of
Executive's duties with Employer hereunder.
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(b) Non-Competition. In return for the performance of the
management duties described in Section 1 hereof, during the Employment Term,
Executive shall not, directly or indirectly, in any capacity whatsoever, either
on Executive's own behalf or on behalf of any other person or entity with whom
Executive may be employed or associated, own any interest in, participate or
engage in the day-to-day supervision, management, development, marketing or
operation of any office or industrial real estate facilities or such other
business as Employer may be engaged in during the Employment Term (the
"Business") which is competitive with any of Employer's facilities. For purposes
hereof, a facility will be deemed competitive with one of Employer's facilities
if such facility is located within ten (10) miles of a facility owned, operated
or managed by Employer or within ten (10) miles of a facility which Employer is
developing or with respect to which Employer has signed a letter of intent or
term sheet or binding contract for the acquisition, development or management
thereof dated on or prior to the date of such termination. Furthermore, for a
period of one year after any applicable Section 5 termination event, Executive
shall not, directly or indirectly, solicit, attempt to hire or hire any employee
or client of Employer. Notwithstanding the foregoing, nothing herein shall
prohibit Executive from owning 5% or less of any securities of a competitor
engaged in the same Business if such securities are listed on a nationally
recognized securities exchange or traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period
of two years after the expiration or termination of this Agreement for any
reason, Executive shall not disclose or use, except in the pursuit of the
Business for or on behalf of Employer, any Trade Secret (as hereinafter defined)
of Employer. For purposes of this Section 6(c), "Trade Secret" means any
proprietary commercial information which derives independent economic value,
actual or potential, with respect to Employer which Employer uses in its
Business from not being generally known to, and not being readily ascertainable
by proper means by, other persons who can obtain economic value from its
disclosure or use and is the subject of efforts to maintain its secrecy that are
reasonable under the circumstances. Said term, however, shall not include
general "know-how" information acquired by Executive prior to or during the
course of Executive's service which could have been obtained by him from public
sources without the expenditure of significant time, effort and expense which
does not relate to Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, Executive shall be free to pursue such business opportunity,
provided that such business opportunity does not cause any tenant to relocate
from a facility owned and/or operated by Employer, PGRT or any of their
respective subsidiaries and participation by Executive in such business
opportunity would not violate Executive's non-competition obligations set forth
in Section 6(b) hereof.
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(e) Return of Documents. Upon termination of Executive's services
with Employer, Executive shall return all originals and copies of books,
records, documents, customer lists, sales materials, tapes, keys, credit cards
and other tangible property of Employer within Executive's possession or under
Executive's control.
(f) Equitable Relief. In the event of any breach by Executive of
any of the covenants contained in this Section 6, it is specifically understood
and agreed that Employer shall be entitled, in addition to any other remedy
which it may have, to equitable relief by way of injunction, an accounting or
otherwise and to notify any employer or prospective employer of Executive as to
the terms and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer and its
other partners from the unfair competition of Executive who, as a result of
Executive's performance of services on behalf of Employer, will have had
unlimited access to the most confidential and important information of Employer,
its business and future plans. Executive furthermore acknowledges that no
unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that Executive will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. PRIOR AGREEMENTS. This Agreement, together with the Stock
Incentive Plan, supersedes and is in lieu of any and all other employment
arrangements between Executive and Employer or its predecessor or any subsidiary
and any and all such other employment agreements and arrangements are hereby
terminated and deemed of no further force or effect.
8. ASSIGNMENT. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. SUCCESSOR TO EMPLOYER. Employer will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of Employer,
as the case may be, by agreement in form and substance reasonably satisfactory
to Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that Employer
would be required to perform it if no such succession or assignment had taken
place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement giving Executive the right to terminate this Agreement. This
Agreement shall inure to the benefit of and be enforceable by Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts are still payable to Executive hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
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10. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if personally delivered,
sent by courier or by certified mail, postage or delivery charges prepaid, to
the following addresses:
(a) if to Executive, to:
Louis Conforti
4432 North Winchester Avenue
Apt. 2 North
Chicago, IL 60640
WITH A COPY TO:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Attn: Donald S. Snider
(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
WITH A COPY TO:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
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11. AMENDMENT. This Agreement may not be changed, modified or
amended except in writing signed by both parties hereto.
12. WAIVER OF BREACH. The waiver by either party of the breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by either party.
13. SEVERABILITY. Employer and Executive each expressly agree
and contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. INDEMNIFICATION BY EXECUTIVE. Executive shall indemnify
Employer for any and all damages, costs and expenses resulting from any material
harm to Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance by Executive. Executive also shall indemnify Employer for any and
all damages, costs and expenses resulting from Executive's acts of omission
constituting willful or reckless disregard of Executive's duties to Employer
following notice thereof by Employer after it becomes aware of such conduct and
Executive's failure to so cure within thirty (30) days.
15. GOVERNING LAW. This Agreement shall be governed by, and
construed, interpreted and enforced in accordance with the laws of the State of
Illinois, exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By: \s\ Richard S. Curto
-------------------------------------
Title:Chief Executive Officer and President
-------------------------------------
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By: \s\ Richard S. Curto
----------------------------
Title:Chief Executive Officer and
President
----------------------------
EXECUTIVE:
\s\ Louis Conforti
----------------------------------------------
Louis Conforti
DOCUMENT NUMBER: 317632.5
May 30, 1998
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PROMISSORY NOTE
$75,000,000.00 Dated: May 14, 1998
FOR VALUE RECEIVED, AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, a national banking association, not personally but solely as trustee
under trust agreement dated July 26, 1977 and known as Trust No. 40935 and
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking
association, as successor trustee to First Bank, N.A., as successor trustee to
National Boulevard Bank of Chicago, not personally, but solely as trustee under
trust agreement dated September 27, 1976 and known as Trust No. 5602
(collectively, "BORROWER"), promise to pay to the order of CONNECTICUT GENERAL
LIFE INSURANCE COMPANY, a Connecticut corporation, having an address at c/o
CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford, Connecticut
06152-2319, Attention: Investment Services, S-319 ("HOLDER"), or any subsequent
holder of this Note, the principal sum of Seventy-Five Million and 00/100
Dollars ($75,000,000.00), with interest on the unpaid balance of such amount
from the date hereof at the rates of interest specified herein.
1. CERTAIN DEFINED TERMS. In addition to the terms defined
elsewhere in this Note, as used herein, the following terms shall have the
following meanings:
"ADJUSTED NET OPERATING INCOME" shall mean for any period the
Net Operating Income for such period less Basic Payments made during
such period.
"AFFILIATED ENTITIES" and "AFFILIATED ENTITY" shall mean,
collectively, Beneficiary, or any of the partners or shareholders of
any partnership or corporation which directly or indirectly through
corporations or partnerships controlled by them is a limited or general
partner of the Beneficiary, or any entity of which any of such parties
or shareholders alone or in any combination is a general partner or a
controlling director, managing officer or majority shareholder or has
or have more than a ten percent (10%) beneficial interest therein;
provided that (a) any one of the foregoing Affiliated Entities is
individually called an "Affiliated Entity"; and (b) the term Affiliated
Entity shall specifically include Casati, Heise, and their respective
spouses, blood and adoptive relatives, ancestors and descendants.
"ASSIGNMENT" shall mean the Assignment of Rents and Leases of
even date herewith, made by Borrower in favor of Holder pertaining to
the Property.
"BASIC PAYMENT" shall mean the sum of the Minimum Payment plus
the Tax Reserve Payment.
"BENEFICIARY" shall mean Continental Towers Associates-I, L.P.,
an Illinois limited partnership, which is the owner of the beneficial
interest of Borrower, or such successor as shall have been approved by
Holder.
"BUSINESS DAY" shall mean any day on which commercial banks
are not authorized or required to close in Chicago, Illinois.
"CAPITAL LOANS" shall have the meaning set forth in the
Intercreditor Agreement.
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"CASATI" shall mean ROLAND E. CASATI.
"C/H PARTNERSHIP" shall mean Casati-Heise Partnership, an Illinois
general partnership.
"CLOSED PERIOD" shall mean the period beginning on the date hereof
and ending on April 30, 2000.
"COMMERCIUM" shall mean that portion of the Property used as a
restaurant, health club, spa and related facilities.
"COLLATERAL" shall mean all real and personal property encumbered
by the Loan Documents including proceeds thereof.
"DEFAULT RATE" shall mean an annual rate of 11.22% calculated on
the basis of a 360-day year.
"DEFAULT RATE INTEREST" shall mean Interest calculated at the
Default Rate.
"DEFERRED AMOUNT" shall mean the amount by which $540,656.41
exceeds the Required Monthly Payment. Deferred Payments shall bear
interest at the Default Rate from the due date of the applicable
Required Monthly Payment until the Deferred Amount is fully paid
("DEFERRED AMOUNT INTEREST").
"EVENT OF DEFAULT" shall mean (i) a Payment Default under this
Note, (ii) an Event of Default under and as defined in any of the other
Loan Documents or the Subordinated Loan Documents, or (iii) the failure
by Borrower to accept the Reset Amendment within ten (10) Business Days
following the tendering thereof to Borrower by Lender.
"GROSS REVENUES" for any period shall mean the sum of the
gross rental receipts and all other receipts and revenues generated
during such period by and from the use and operation of the Property or
any part thereof, including base rental income, percentage rental
income, items of expense (including real estate taxes) passed through
and charged to, and/or collected from, tenants, membership fees, dues,
net concession income and other net revenues from the Commercium,
vending machine income, any non-refundable security deposits, charges
for space occupancy, parking revenues, lease termination payments and
the proceeds of any insurance proceeds specifically paid to reimburse
Borrower for loss of business or rental income and not applied by
Holder in reduction of the unpaid principal balance of the Loan; and in
connection with the calculation and determination of Gross Revenues:
(a) Gross Revenues shall be determined in accordance with
the cash basis method of accounting;
(b) Any lease termination payments shall, at the option of
Holder, be included in Gross Revenues for purposes of calculating
Net Operating Income, and available for distribution, in the
calendar months to which they relate (i.e. the termination payment
shall be applied in equal amounts to each month remaining in the
term of the lease had there been no termination) and any advance
rental payments shall, at the option of Holder, be held in the
Lock Box Account to be included in Gross Revenues for purposes of
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calculating Net Operating Income and distributed in the calendar
month or months to which they relate, and such lease termination
payments and advance rental payments shall be held in the Lock Box
Account pending such inclusion; and
(c) There shall be excluded from the determination of
Gross Revenues (i) proceeds of casualty insurance or condemnation
and eminent domain proceedings and (ii) proceeds of any other
indebtedness encumbering the Property or encumbering other
Collateral including Capital Loans.
"HEISE" shall mean RICHARD A. HEISE.
"INTERCREDITOR AGREEMENT" shall mean that certain Subordination
and Intercreditor Agreement of even date herewith between Holder and
Junior Holder.
"INTEREST" shall mean interest accruing hereunder at the Interest
Rate or the Default Rate, as applicable.
"INTEREST RATE" shall mean an annual rate of interest of 7.22%
calculated on the basis of a 360-day year.
"JUNIOR HOLDER" shall mean the holder of the Subordinated Loan
Documents.
"LOAN" shall mean the loan evidenced by this Note.
"LOAN DOCUMENTS" shall mean this Note, the Mortgage, the
Assignment, and all other documents, agreements and instruments
evidencing, securing or in any way relating to the Loan, together with
all amendments thereto which may hereafter exist.
"LOCK BOX ACCOUNT" shall have the meaning set forth in the Lock
Box Agreement.
"LOCK BOX AGREEMENT" shall mean that certain 1998 Lock Box and
Blocked Accounts Agreement of even date herewith among LaSalle National
Bank, Borrower, Beneficiary, Holder and Julian, Toft & Downey, Inc.
"MANAGEMENT AGREEMENT" shall mean the Management Agreement dated
December 12, 1997 among Beneficiary and Manager, together with the
Agreement Pertaining to Management Agreement of even date herewith
among Manager, Beneficiary, and Holder.
"MANAGER" shall mean Prime Realty Services, Inc. or other Manager
approved by or designated by Senior Lender pursuant to the Management
Agreement.
"MATURITY DATE" shall mean January 5, 2013.
"MINIMUM PAYMENT" in respect of a calendar month shall mean the
sum of Four Hundred Sixty-Six Thousand Six Hundred Sixty-Seven Dollars
($466,667).
"MORTGAGE" shall mean the First Mortgage of even date herewith,
made by Borrower in favor of Holder pertaining to the Property.
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"NET OPERATING INCOME" shall mean for any period the amount,if
any, by which Gross Revenues for such period exceed Operating Costs for
such period.
"NOTE" shall mean this Promissory Note, together with all
amendments hereto from time to time.
"OPERATING COSTS" for any period shall mean the normal and
customary operating costs of the Property paid during such period by or
for the account of Borrower, all as determined in accordance with the
cash basis method of accounting; provided that:
(a) If the charges are not usual and customary then, to
constitute an allowable Operating Cost, such items must be
approved by Holder as being permitted Operating Costs for purposes
of calculating Net Operating Income;
(b) Operating Costs shall include, among other things, bona
fide management fees under the Management Agreement and deposits
into the Tax Reserve Account;
(c) If the period for which Operating Costs is being
determined is other than a full year, annual costs, such as
insurance premiums and like costs shall be allocated ratably to
such period;
(d) Operating Costs shall not include:
(i) Any principal, interest or other amounts paid under
any notes secured by liens encumbering the Property or other
Collateral, or any other loan, including the Loan, the
Subordinated Loan and any Capital Loans;
(ii) Leasing commissions, cost of tenant improvements
and other nonrecurring capital items;
(iii)Income taxes;
(iv) Non-cash items, such as depreciation or
amortization;
(v) Real estate taxes upon the Property except to
the extent paid with funds of the Borrower in the event that
funds accumulated in the Tax Reserve Account shall be
insufficient to pay the same; or
(vi) Costs paid directly by tenants, except to the
extent the amount thereof is included in Gross Revenues;
(e) For the purposes of computing Operating Costs, no fees,
commissions, charges, expenses or other amounts paid to any
Affiliated Entity shall constitute an Operating Cost unless such
fees, commissions or other amounts are bona fide costs and
are approved by Holder as a permitted Operating Cost; and
specifically, but without limitation, the term Operating Costs
shall not include without the express written approval of Holder
(i) salaries or other compensation directly or indirectly paid to
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Affiliated Entities other than as expressly provided herein, (ii)
any allocation of expenses of employees, agents or independent
contractors that render services or with respect to properties
other than the Property, nor (iii) any expense that is paid from
proceeds of the Loan or out of reserves established out of Gross
Revenues or otherwise, the amount of which were deducted as
Operating Costs;
"OUTSTANDING BALANCE" shall mean, as of the date of calculation,
the outstanding principal balance of this Note, all accrued interest
thereon, whether or not capitalized, and all other amounts due
hereunder.
"OUTSTANDING PRINCIPAL" shall mean the outstanding principal
amount hereof.
"PARTIES" shall mean Borrower, Beneficiary and Holder.
"PAYMENT DEFAULT" shall meaning set forth in Section 10 of this
Note.
"PREPAYMENT PREMIUM" shall have the meaning set forth in Section 6
of this Note.
"PROPERTY" shall have the meaning assigned in the Mortgage to the
term "Mortgaged Property."
"REMAINING ADJUSTED NET OPERATING INCOME" shall mean Adjusted Net
Operating Income for a calendar month minus the Required Monthly
Payment due in the next succeeding calendar month.
"REQUIRED DEFERRED PAYMENT" shall mean the lesser of (i) the
aggregate of all unpaid Deferred Amounts plus accrued and unpaid
Deferred Amount Interest or (ii) Remaining Adjusted Net Operating
Income.
"REQUIRED MONTHLY PAYMENT" shall mean the sum of (i) the Minimum
Payment plus (ii) the lesser of (a) Seventy-Three Thousand Nine Hundred
Eighty-Nine and 41/100 Dollars ($73,989.41), or (b) the Adjusted
Net Operating Income for the preceding month.
"RESET AMENDMENT" shall have the meaning set forth in the
Intercreditor Agreement.
"RESET DATE" shall mean April 30, 2005.
"SUBORDINATED LOAN" shall mean the loan evidenced by the
Subordinated Loan Documents.
"SUBORDINATED LOAN DOCUMENTS" shall mean the loan documents
listed in SCHEDULE A attached hereto.
"TAX RESERVE ACCOUNT" shall mean the Real Estate Tax Escrow
Account created and maintained pursuant to the Lock Box Agreement.
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"TAX RESERVE PAYMENT" for any calendar month shall mean the
payment made to the Tax Reserve Account pursuant to the Lock Box
Agreement in such month.
2. TERMS OF PAYMENT.
(a) Borrower shall pay to Holder on May 20, 1998, interest
only on the Outstanding Principal, at the Interest Rate, for the
number of days elapsed from and including the date of advancement
of the Loan to and including May 19, 1998; and
(b) Commencing June 20, 1998 and on the twentieth (20th) day
of each calendar month thereafter until the Maturity Date (as
defined herein), Maker shall pay to Holder (i) an installment of
principal and interest accrued on the Outstanding Principal from
time to time equal to the Required Monthly Payment, plus (ii) the
Required Deferred Payment; and
(c) On the Maturity Date, Borrower shall pay to Holder the
entire Outstanding Principal, together with accrued and unpaid
interest thereon at the Interest Rate chargeable hereunder and any
other charges due under this Note, the Mortgage and the other Loan
Documents, and any other amounts due under or secured by the
Mortgage or due under or secured by any of the other Loan
Documents.
Notwithstanding the foregoing, in the event that the due date
of any payment required in this Note is not a Business Day, such payment shall
be due on the next succeeding Business Day, following such due date. Each
payment shall be applied first to accrued interest then to principal.
Notwithstanding the foregoing, any monthly payment or any other payment received
by Holder at a time when an Event of Default exists shall be applied by Holder
to the indebtedness evidenced hereby in such order and manner as Holder may
elect. Net Operating Income and all components thereof shall be subject to audit
and review by Holder and its auditors, at Borrower's expense, and in any such
audit and review, Holder's auditors may adjust and reallocate items of income
and expense, and the timing thereof, as they may deem necessary to accurately
present Net Operating Income and the components thereof on a basis consistent
from year to year or period to period.
3. MATURITY. The entire Outstanding Balance hereof and other
obligations payable pursuant to the M ortgage or other Loan Documents shall be
due and payable to Holder on the Maturity Date.
4. SURVIVAL OF PAYMENT OF OBLIGATIONS. The obligations of
Borrower hereunder shall be secured by the Mortgage and the other Loan Documents
and Collateral and Holder shall be under no obligation to satisfy or otherwise
release the Mortgage and the other recorded Loan Documents until the payment in
full of all amounts payable to Holder under this Note and all other Loan
Documents.
5. PAYMENTS. All payments on account of the Loan or this Note
shall be made not later than noon (Chicago time) on the day when due in lawful
money of the United States in same day or other immediately available funds and
are payable at Holder's office as set forth above, or at such other place as
Holder shall notify the Borrower in writing.
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6. PREPAYMENT. No portion of the principal of the Loan may be
prepaid prior to the end of the Closed Period. Thereafter, the Loan may be
prepaid in full but not in part upon no less than thirty (30) days prior written
notice to Holder and payment to Holder in immediately available funds of all
amounts due hereunder and under the Loan Documents plus the Prepayment Premium
calculated in accordance with SCHEDULE B attached hereto (the "PREPAYMENT
PREMIUM"). Except as may be otherwise provided by the terms of the Loan
Documents, Prepayment Premium shall be payable upon any unscheduled payment of
principal which occurs prior to thirty (30) days prior to the Maturity Date,
whether before or after an Event of Default, whether or not the indebtedness
evidenced hereby shall have been accelerated, whether such unscheduled payment
of the principal is made before or after the commencement of foreclosure
proceedings or for any other reason, which Prepayment Premium shall be paid in
addition to the principal and interest then due and payable and all other
amounts owing to Holder under the Loan Documents and secured by the Mortgage. In
the event of an acceleration of the indebtedness under this Note during the
Closed Period, the Prepayment Premium then due shall be the amount calculated
pursuant to SCHEDULE B plus two percent (2%) of the Outstanding Principal.
Notwithstanding the foregoing provisions of this Section 6, prepayment of the
Loan shall be permitted without Prepayment Penalty to the extent insurance
proceeds or eminent domain awards and compensation are to be or may (at the
option of Senior Lender) be applied to the Loan pursuant to the Mortgage.
7. RESET. Pursuant to the Intercreditor Agreement, the payment
and other terms of this Note will be reset effective on the Reset Date upon the
execution and delivery to Borrower by Junior Holder and Holder of a Reset
Amendment setting forth the terms of this Note for the period on and following
the Reset Date. Borrower irrevocably agrees to countersign and accept such Reset
Amendment provided that in no event shall the Minimum Payment be increased nor
shall the Interest Rate exceed the greater of (i) twenty-five percent (25%) per
annum, or (ii) that annual rate which when multiplied by the Outstanding
Principal would yield a smaller product than an annual rate of twelve and
one-half percent (12-1/2%) multiplied by the outstanding balance (including
principal, capitalized interest and accrued and unpaid interest) of the
Subordinated Loan.
8. APPLICATION OF PAYMENTS.
(a) All payments received by Holder under the Loan shall be
applied first to interest and the balance to principal; and
(b) Notwithstanding anything to the contrary herein
contained, in the event that there shall have occurred an Event of
Default under the Mortgage, Holder, in its discretion, may apply
any payment under this Note to such amounts due hereunder and
under the Loan Documents and in such order as Holder may
determine.
9. LATE PAYMENT. In the event Borrower fails to make any
payment due under this Note, within five (5) days after the same shall become
due, whether by acceleration of payment or otherwise, Holder, in addition to its
rights set forth in Section 10 hereof, may at its option impose a late charge on
Borrower, payable upon demand, equal to the greater of:
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(a) The amount resulting from applying the rate of Default
Rate Interest, computed from the date such payment was due and
payable to the date of receipt of such payment by Holder in good
and immediately available funds, or
(b) An amount equal to four percent (4%) of the amount of
such past due payment notwithstanding the date on which such
payment is actually paid to Holder.
10. ACCELERATION OF INDEBTEDNESS. If the Required Monthly Payment
is not made when due in any month, the Holder may give written notice to the
Borrower stating the deficiency for such month and stating that Borrower will be
in default if the delinquent amount is not paid within ten (10) Business Days.
If Borrower does not pay the delinquent amount before the expiration of the
stated period, it shall be deemed in default under this Note (a "PAYMENT
DEFAULT"). Upon the occurrence of an Event of Default, then and in any such
event, the Outstanding Principal and all interest accrued thereon and all
charges and fees which are part of the Loan and any other sums advanced by
Holder under this Note and the other Loan Documents shall, at the option of
Holder, and without notice, demand or presentment for payment to Borrower or any
other person or entity, at once become due and payable and may be collected
forthwith, regardless of the stipulated date of maturity, anything herein or in
the other Loan Documents to the contrary notwithstanding, all without any relief
whatever from any valuation or appraisement laws and payment thereof may be
enforced and recovered in whole or in part at any time by one or more of the
remedies provided to Holder in this Note, the Mortgage, in any of the other Loan
Documents, or by such other rights and remedies which Holder may have at law,
equity or otherwise. Default Rate Interest shall accrue on the Outstanding
Principal from the date of any default hereunder (so long as such default shall
continue), regardless of whether or not there shall have been an acceleration of
the payment of principal as set forth herein.
11. SECURITY. Payment hereof and all obligations of Borrower and
other parties (other than Holder) to the Loan Documents are secured by the
Mortgage and the other Loan Documents.
12. EXPENSES AND COSTS OF COLLECTION. Borrower shall pay all
costs and expenses of collection incurred by Holder, in addition to principal,
interest and late or delinquency charges (including, without limitation, court
costs and reasonable attorneys' fees and disbursements through and including any
appellate proceedings and any special proceedings) and including all costs and
expenses incurred in connection with the pursuit by Holder of any of its rights
or remedies referred to herein or the protection of or realization of collateral
or in connection with any of Holder's collection efforts, whether or not suit on
this Note, on any of the other Loan Documents or any foreclosure proceeding is
filed, and all such costs and expenses shall be payable on demand and also shall
be secured by the Mortgage and all other collateral at any time held by Holder
as security for Borrower's obligations to Holder.
13. NO WAIVER OR ORAL MODIFICATION. It is agreed that:
(a) No failure on the part of Holder to exercise any right
or remedy hereunder, whether before or after the happening of a
default, shall constitute a waiver of such default, any future
default or of any other default;
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(b) No failure to accelerate the debt evidenced hereby by
reason of default hereunder, or acceptance of a past due
installment, or indulgence granted from time to time shall be
construed to be a waiver of the right to insist upon prompt
payment or to impose late or delinquency charges thereafter or to
impose such charges retroactively, nor shall it be deemed to be
a novation by Holder of this Note or as a reinstatement by Holder
of the debt evidenced hereby or as a waiver of such right of
acceleration or any other right, nor be construed so as to
preclude the exercise of any right which Holder may have, whether
by the laws of the state governing this Note, by agreement or
otherwise, and Borrower and each endorser hereby expressly waives
the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing;
and
(c) This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom such
agreement is sought to be enforced.
14. WAIVER OF CERTAIN NOTICES. To the fullest extent permitted
under applicable law, Borrower, for itself and its successors and assigns, and
each endorser, if any, of this Note, for its heirs, successors and assigns,
hereby waives presentment, protest, notice of protest, demand, diligence, notice
of dishonor and of nonpayment, and waives and renounces all rights to the
benefits of any statute of limitations and any moratorium, appraisement,
exemption and homestead now provided or which may hereafter be provided by any
federal or state statute, including, but not limited to, exemptions provided by
or allowed under any federal or state bankruptcy or insolvency laws, both as to
itself and as to all of its property, whether real or personal, against the
enforcement and collection of the obligations evidenced by this Note and any and
all extensions, renewals and modifications hereof, provided the foregoing waiver
shall not apply to any notice required under any express provision of the Senior
Loan Documents.
15. INTEREST NOT TO EXCEED MAXIMUM PERMITTED BY LAW. It is the
intention of the parties to conform strictly to the usury and other laws
relating to interest from time to time in force, and all agreements between
Borrower and Holder, whether now existing or hereafter arising and whether oral
or written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid to Holder, or collected by Holder or for the
use, forbearance or detention of the money to be loaned hereunder or otherwise,
or for the payment or performance of any covenant or obligation contained
herein, in the Mortgage or in the Assignment, any other Loan Documents or in any
other security agreement given to secure the indebtedness of Borrower to Holder,
or in any other document heretofore, now or hereafter evidencing, securing or
pertaining to the indebtedness evidenced hereby, exceed the maximum amount
permissible under applicable usury or such other laws (the "Maximum Amount");
and without limiting the foregoing:
(a) If under any circumstances whatsoever fulfillment of
any provision hereof or of the Mortgage, or any of the other Loan
Documents, at the time performance of such provision shall be due,
shall involve transcending the Maximum Amount, then IPSO FACTO,
the obligation to be fulfilled shall be reduced to the Maximum
Amount;
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(b) For the purposes of calculating the actual amount of
interest paid and/or payable hereunder, in respect of laws
pertaining to usury or such other laws, all sums paid or agreed
to be paid to the holder hereof for the use, forbearance or
detention of the indebtedness of Borrower evidenced hereby,
outstanding from time to time shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread
from the date of disbursement of the proceeds of this Note until
payment in full of all of such indebtedness, so that the actual
rate of interest on account of such indebtedness is uniform
through the term hereof; and
(c) The terms and provisions of this Section 15 and Section
16 hereof shall control and supersede every other provision of all
agreements between Borrower or any endorser and Holder.
16. PAYMENT IN EXCESS OF MAXIMUM AMOUNT. If under any
circumstances Holder shall ever receive an amount deemed interest by applicable
law, which would exceed the Maximum Amount, such amount that would be excessive
interest under applicable usury laws or such other laws shall be deemed a
payment in reduction of the Outstanding Principal and shall be so applied or
shall be applied to the principal amount of other indebtedness secured by the
Mortgage and not the payment of interest, or if such excessive interest exceeds
the Outstanding Principal, and any other indebtedness of Borrower in favor of
Holder, the excess shall be deemed to have been a payment made by mistake and
shall be refunded to Borrower or to any other person making such payment on
Borrower's behalf.
17. GOVERNING LAW AND CONSENT TO JURISDICTION. Borrower and
Holder agree that, in all respects, including all matters of construction and
performance, the obligations arising under this Note shall be governed by and
construed in accordance with the laws of the State of Illinois. Borrower does
hereby irrevocably and unconditionally submit to the personal jurisdiction of
the courts of the State of Illinois and does further irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Illinois shall (in addition to any jurisdiction of courts of which Holder may
elect to avail itself) have jurisdiction to hear and finally determine any
dispute, claim, controversy or action arising out of or connected (directly or
indirectly) with the Loan and the Loan Documents. Borrower does hereby agree
that final judgments in any action or proceedings shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by law. Nothing in this Note shall affect the right of Holder to
bring an action or proceeding against the undersigned or its property in the
courts of any other jurisdiction. To the extent that Borrower has or hereafter
may acquire any immunity from jurisdiction of any court from legal process
(whether through service or notice, attachment prior to judgment, attachment and
aid of execution, execution or otherwise), with respect to the Borrower's
property, Borrower hereby unconditionally and irrevocably waives such immunity
in respect of its obligations under the Loan and the Loan Documents. The
foregoing consent, in advance, to the jurisdiction of the above-mentioned courts
is a material inducement for Holder to make the Loan.
18. NO JOINT VENTURE; INDEMNITY. Borrower and Holder intend that
the relationship created under this Note, the Mortgage, and all other Loan
Documents be solely that of debtor and creditor or mortgagor and mortgagee, as
the case may be. Nothing herein or in the Mortgage is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship among
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Borrower and/or Beneficiary and Holder, nor to grant Holder any interest in the
Property other than that of creditor or mortgagee, it being the intent of the
parties hereto that Holder shall have no liability whatsoever for any losses
generated by or incurred with respect to the Property nor shall Holder have any
control over the day to day management for operations of the Property. The terms
and provisions of this Section shall control and supersede over every other
provision and all other agreements among Borrower, Beneficiary and Holder.
Borrower hereby agrees to indemnify and hold Holder harmless and defend Holder
against any loss or liability, cost or expense (including, without limitation,
reasonable attorneys' fees and disbursements) and all claims, actions,
procedures and suits arising out of or in connection with any construction of
the relationship of Borrower and Holder as that of joint ventures, partners,
tenants in common, joint tenants or any relationship other than that of debtor
and creditor, or any assertion that such a construction should be made, and
arising out of a claim, assertion or litigation directly or indirectly brought
by, or on behalf of Borrower or Beneficiary, its partners or their partners. The
foregoing indemnity shall survive the repayment of this Note and the
satisfaction of the Mortgage and shall continue so long as any liability for
which the indemnity is given may exist or arise.
19. TIME OF ESSENCE. Time is of the essence of this Note and of
each provision in which time is an element.
20. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE
OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY: THIS WAIVER BEING A MATERIAL INDUCEMENT FOR
HOLDER TO ACCEPT THIS NOTE.
21. DATE OF PERFORMANCE. If the date for the performance of any
term, provision or condition (monetary or otherwise) under this Note shall
happen to fall on a Saturday, Sunday or non-Business Day, the date for the
performance of such term, provision or condition shall, at the option of
Borrower or Holder, be extended to the next succeeding Business Day immediately
thereafter occurring, with interest on the Outstanding Principal at the Interest
Rate provided in this Note to such next succeeding Business Day if such term,
provision or condition shall result in the extension of any monetary payment due
to Holder.
22. RECEIPT OF PAYMENT. Any payment which is made by wire
transfer or other immediately available funds and which is actually received by
Holder prior to 2:00 p.m. shall be deemed to have been received and cleared by
Holder on the date of receipt.
23. BINDING UPON SUCCESSORS AND ASSIGNS. The provisions of this
Note shall bind Borrower and its successors and assigns; provided, however, that
nothing herein shall be construed as permitting Borrower to take any action in
violation of the Mortgage.
24. DISCLAIMER. The Loan Documents are intended solely for the
benefit of Borrower and Holder and their successors and assigns; no third party
shall have any rights or interest in any provisions of the Loan Documents or as
a result of any action or inaction of Holder in connection therewith. Any
actions taken by Holder or any representative of Holder (to review plans and
-11-
<PAGE>
specifications, to inspect the Property or otherwise) are solely for Holder's
protection and neither the Borrower nor any other person shall be entitled to
rely upon any such action.
25. PRIOR AGREEMENTS. The Loan Documents supersede and cancel all
prior loan applications, commitments, agreements and understandings, whether
oral or written, with respect to the Loan, and all prior agreements and
understandings are merged into the Loan Documents.
26. SEVERABILITY. Wherever possible, each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
27. CONSENT TO EXTENSIONS AND RELEASES OF COLLATERAL. The
Borrower and any endorsers, sureties, guarantors and all others who are or may
become liable for the payment hereof (a) expressly consent to all extensions of
time, renewals, postponements of time of payment of this Note or other
modifications hereof from time to time (other than modifications which increase
the amount of the Loan or cause Borrower to incur expenditures) prior to or
after the Maturity Date without notice, consent or consideration to any of the
foregoing, (b) expressly agree to any substitution, exchange, addition or
release of any party or person primarily or secondarily liable hereon, and (c)
expressly agree that Holder shall not be required first to institute any suit,
or to exhaust its remedies against the undersigned or any other person or party
to become liable hereunder or against the other Loan Documents in order to
enforce the payment of this Note.
28. NOTICES. All notices and other communications required or
permitted to be made or given pursuant hereto by one party to another shall in
each case be in writing (except where oral or telephone notice is specifically
permitted pursuant to the provisions hereof or of any other Loan Document) and
shall be deemed effectively made or given when personally delivered, when
transmitted by telecopier (with written confirmation by certified mail, postage
prepaid, return receipt requested on the date the telecopy is sent) on the
Business Day next following prepaid delivery to an overnight messenger service
(such as, by way of example, Federal Express Company, or equivalent) or three
(3) days after having been deposited in the United States Mail, postage prepaid,
certified mail, return, receipt requested, address as follows, or at such other
address as the parties may from time to time by notice direct.
If to Borrower: c/o Continental Towers Associates-I, L.P.
c/o CTA Partner, L.L.C.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Richard S. Curto
Fax: (312) 917-4230
with copy to: Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
Fax: (312) 558-5700
-12-
<PAGE>
if to Holder: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Investment Services, S-319
Fax: (860) 726-6328
with a copy to: Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Stephen B. Bell
Fax: (312) 332-2196
29. LIMITATION OF LIABILITY. The undersigned has executed this
instrument solely in its capacity as trustee, and not personally. No personal
liability shall be asserted against the trustee, personally, arising out of this
instrument, it being understood and agreed that all such liability shall be
limited to Holder's rights against (i) the Beneficiary to the extent herein
provided, (ii) the Property, including the Assignment, and/or (iii) any other
security given for repayment of the Loan. Neither Beneficiary nor any of the
general partners of Beneficiary (collectively called the "Obligated Parties")
shall under any circumstances be personally liable for the repayment of any of
the principal of, interest on, or prepayment fees or late charges, or other
charges or fees, including, without limitation, attorneys' fees, due in
connection with, the Loan or for any deficiency judgment which Holder may obtain
after foreclosure of the Mortgage after default by Borrower; provided, however,
that the Obligated Parties shall be personally liable to the extent more fully
provided in the Mortgage. Nothing herein shall be deemed to be a waiver of any
right which Holder may have under Sections 506(a), 506(b), 1111(b) or any other
provision of the Bankruptcy Reform Act of 1978 or any successor thereto or
similar provisions under applicable state law to file a claim for the full
amount of the debt owing to Holder by Borrower or to require that all collateral
shall continue to secure all of the indebtedness owing to Holder in accordance
with the Loan Documents.
-13-
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument by
its duly authorized signatories on the date first above written.
AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, a national banking association,
not personally, but solely as trustee under
trust agreement dated July 26, 1977 and
known as Trust No. 40935
By \s\ Mark J. De Grazia
--------------------------------------
Its Trust Officer
--------------------------------------
ATTEST:
Attestation not required by
American National Bank and Trust
Company of Chicago Bylaws
- --------------------------------
AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, a national banking association, as
successor trustee to First Bank, N.A., as
successor trustee to National Boulevard
Bank of Chicago, not personally, but solely
as trustee under trust agreement dated
September 27, 1976 and known as Trust
No. 5602
By \s\ Mark J. De Grazia
--------------------------------------
Its Trust Officer
--------------------------------------
ATTEST:
Attestation not required by
American National Bank and Trust
Company of Chicago Bylaws
- --------------------------------
-14-
<PAGE>
SCHEDULE A
SUBORDINATED LOAN DOCUMENTS
1. Loan Modification and Amended and Restated Loan Agreement
dated as of June 1, 1995 (as amended, the "JUNIOR LOAN AGREEMENT"), by and among
American National Bank and Trust Company of Chicago, not personally, but as
Trustee of Trust No. 40935 ("TRUST 40935"), Continental Towers Associates - I
("CTA"), Roland E. Casati ("CASATI"), Richard E. Heise ("HEISE"), Casati-Heise
Partnership ("C/H") and General Electric Capital Corporation ("GECC"), which was
recorded in the office of the Recorder of Deeds, Cook County, Illinois
("RECORDER'S OFFICE") on August 17, 1995 as Doc. No. 95545031.
2. First Amendment to Loan Modification and Amended and Restated
Loan Agreement by and among Trust 40935, CTA, Casati, Heise, C/H and GECC, which
was recorded in the Recorder's Office on December 17, 1997 as Document No.
97947240.
3. Amended and Restated First Mortgage dated as of October 1,
1991 from Trust 40935 and joined in by C/H to GECC and recorded in the
Recorder's Office as Document No. 92001888, as amended by the First Amendment
and the Second Amendment (together with the Supplemental Mortgage and as either
has been amended, the "JUNIOR MORTGAGE").
4. Assignment of Leases and Rents dated as of October 1, 1991,
from Trust 40935 and joined in by C/H to GECC and recorded in the Recorder's
Office as Document 92001889, as amended by the First Amendment and the Second
Amendment.
5. First Amendatory Agreement dated as of April 30, 1993 (the
"FIRST AMENDMENT") executed and delivered by and among the Parties, which First
Amendment was duly filed for record and recorded in the Recorder's Office as
Document No. 93-434372 on June 9, 1993.
6. Second Amendatory Agreement dated as of November 1, 1994
(the "SECOND AMENDMENT") executed and delivered by and among the Parties, which
Second Amendment was duly filed for record and recorded in the Recorder's Office
as Document No. 94084292, on December 30, 1994.
7. Supplemental First Mortgage and Security Agreement dated June
1, 1995, from First Bank, N.A. as successor trustee to National Boulevard Bank
of Chicago, not personally, but solely as Trustee of Trust No. 5602 ("TRUST
5602"), with joinder by CTA, in favor of GECC, which was recorded in the
Recorder's Office on August 17, 1995 as Doc. No. 95545032 (the "SUPPLEMENTAL
MORTGAGE").
8. 1997 Promissory Note ("1997 PROMISSORY NOTE") dated October
1, 1991 Amended and Restated as of the Effective Date December 12, 1997 in the
amount of $163,103,099.24 made by Trust 40935 in favor of GECC.
9. Hazardous Substances Indemnity Agreement dated as of October
1, 1991, as amended by the Loan Agreement.
10. All UCC financing statements executed in connection with any
of the foregoing.
11. 1998 Agreement of even date herewith among Mortgagor,
Beneficiary and Prime.
-1-
<PAGE>
SCHEDULE B
PREPAYMENT PREMIUM
Prepayment Premium is defined as the greater of (A) 1% of the Outstanding
Principal or (B) the sum of the Present Values (defined below) on the date of
repayment of each Monthly Interest Shortfall (defined below) for the period
commencing on the date of repayment of the Outstanding Principal and ending on
the Seventh Anniversary (or, if the Reset Terms have been accepted, ending on
the Maturity Date) (as applicable, the "TERM") discounted at the monthly
Treasury Yield plus 50 basis points.
The Monthly Interest Shortfall is calculated for each monthly scheduled payment
date and is the product of (i) the positive difference, if any, of the
Semi-Annual Equivalent Rate less the Treasury Yield plus 50 basis points,
divided by 12 times (ii) the Outstanding Principal on the first day of the month
for which the calculation is made for each full and partial month remaining in
the Term.
The Present Value is then determined by discounting each Monthly Interest
Shortfall at the Treasury Yield plus 50 basis points divided by twelve.
FOR EXAMPLE: If an investment with an Interest Rate of 9% were prepaid with 24
months remaining in the Term, at a time when Federal Reserve Statistical Release
H.15(519) reported a two-year Treasury Yield of 6.5%, and the outstanding loan
balance was $10,000,000 then:
Semi-Annual Equivalent Rate .0917
Less the Treasury Yield plus 50 basis points (.0700)
------------
Equals the positive rate difference divided by 12 .0217
Equals the monthly rate difference .001808
Times the Outstanding Principal x $10,000,000
------------
Equals the monthly interest shortfall $18,080.00
The sum of the Present Values of each Monthly Interest Shortfall ($18,080)
discounted at the monthly Treasury Yield plus 50 basis points (7% divided by 12
or .58333%) equals $403,818.60.
The "SEMI-ANNUAL EQUIVALENT RATE" in respect of the Interest Rate of 7.22% is
7.329%.
The "TREASURY YIELD" will be determined by reference to Federal Reserve
Statistical Release H.15(519) of Selected Interest Rates (or any similar
successor publication of the Federal Reserve) for the first week ending not less
than two full weeks prior to the prepayment date. If the remaining Term is less
than one year, the Treasury Yield will equal the yield for 1-Year Treasury
Constant Maturities. If the remaining Term is equal to one of the maturities of
the Treasury Constant Maturities (e.g., 1 year, 2-year, etc.), then the Treasury
Yield will equal the yield for the Treasury Constant Maturity with a maturity
equaling the remaining Term. If the remaining Term is longer than one year but
does not equal one of the maturities of the Treasury Constant Maturities, then
the Treasury Yield will equal the yield for the Treasury Constant Maturity
closest to but not exceeding the remaining Term.
-1-
<PAGE>
Notwithstanding the foregoing, if the event giving rise to the payment of
Prepayment Premium occurs during the Closed Period, the Prepayment Premium
calculated pursuant to the foregoing provisions of this Schedule B shall be
increased by an amount equal to 2% of the Outstanding Principal.
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,167
<SECURITIES> 0
<RECEIVABLES> 108,017
<ALLOWANCES> 0
<INVENTORY> 67,570 <F1>
<CURRENT-ASSETS> 0
<PP&E> 846,398
<DEPRECIATION> (12,424)
<TOTAL-ASSETS> 1,022,728
<CURRENT-LIABILITIES> 211,357 <F2>
<BONDS> 452,951
0
60
<COMMON> 156
<OTHER-SE> 358,204
<TOTAL-LIABILITY-AND-EQUITY> 1,022,728
<SALES> 0
<TOTAL-REVENUES> 65,674
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 43,959 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,476
<INCOME-PRETAX> 7,239
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 525
<CHANGES> 0
<NET-INCOME> 6,714
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<FN>
<F1>Amount includes restricted cash escrows ($10,484), net deferred costs
($32,033) and other assets ($25,053).
<F2>Amount includes accrued interest payavle ($1,703), accrued real estate taxes
($25,420), accounts payable and accrued expenses ($17,721), liabilities for
leases assumed ($5,083), dividends declares ($6,597), other liabilities ($5,712)
and minority interest of ($149,121).
<F3>Amount includes property operations ($11,941), real estate taxes ($12,232),
depreciation and amortization ($11,575), general and administrative expenses
($3,044) and minority interest allocation of ($5,167).
</FN>
</TABLE>
