UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________
Commission File Number: 1-13589
PRIME GROUP REALTY TRUST
(Exact name of Registrant as specified in its charter)
Maryland 36-4173047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 West Wacker Drive, Suite 3900, 60601
Chicago, Illinois (Zip Code)
(Address of principal executive offices)
(312) 917-1300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
------------------- -------------------
Common Shares of Beneficial Interest, New York Stock Exchange
$0.01 par value per share
Series B - Cumulative Redeemable New York Stock Exchange
Preferred Shares of Beneficial Interest,
$0.01 par value per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| ______ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ____ ]
The aggregate market value of the Registrant's common shares held by
non-affiliates was approximately $35,370,090 based on the closing price on the
New York Stock Exchange for such shares on March 25, 1999.
The number of the Registrant's common shares outstanding was 15,135,727 as
of March 25, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference from the
definitive Proxy Statement for the Registrant's Annual Meeting of Shareholders,
to be held on May 19, 1999.
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<PAGE>
PART I
ITEM 1. BUSINESS
BACKGROUND AND GENERAL
We are a fully-integrated real estate investment company organized under
Maryland law, providing property management, leasing, marketing, acquisition,
development, redevelopment, construction, finance and other related services. We
have elected to be taxed as a Real Estate Investment Trust ("REIT") for federal
income tax purposes beginning with our taxable period ended December 31, 1997.
As of December 31, 1998, we owned 24 office properties, 46 industrial
properties, one retail center and one parking facility. Our properties are
located primarily in the Chicago metropolitan area. In addition, we own a
mortgage on an office property located at 180 N. LaSalle Street, Chicago,
Illinois.
We also own approximately 225.0 acres of land that we may develop. This
acreage includes a development site which contains approximately 67,000 square
feet located in the Chicago central business district and is held by a joint
venture with a third party. We also have rights to acquire approximately 325.8
acres of developable land, including rights to acquire two sites located in the
Chicago central business district containing approximately 119,000 square feet.
We believe that this land could be developed to have approximately 4.7 million
square feet of additional office space and over 7.6 million square feet of
additional industrial space.
We were formed on July 21, 1997 as a Maryland real estate investment trust
to succeed and expand the office and industrial real estate business of The
Prime Group, Inc. ("PGI"), which was our predecessor. On November 17, 1997, we
sold 12,380,000 of our common shares at a price of $20.00 per share in an
underwritten offering and became a public company. Our executive offices are
located at 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and our
telephone number is (312) 917-1300.
We are the managing general partner of, and currently hold 59.4% of the
economic interests in, Prime Group Realty, L.P., our operating partnership. We
conduct substantially all of our business through this operating partnership,
except for leasing, corporate advisory, construction, architectural and third
party property management services and land sales, which are conducted through
Prime Group Realty Services, Inc., a Maryland corporation and its affiliates
(the "Services Company").
TAX STATUS
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. As a REIT, we will not be subject to
federal income tax at the corporate level on income we distribute to our
shareholders as long as we distribute at least 95% of our taxable income
(excluding any net capital gain) each year. Since our inception, we believe that
we have complied with the tax regulations to maintain our REIT status. If we
fail to qualify as a REIT in any taxable year, we will be subject to federal
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates. Even if we qualify as a REIT, we may be
subject to certain state and local taxes on our income and property.
BUSINESS AND GROWTH STRATEGIES
Our primary business strategy is to achieve our investment and growth
objectives by focusing on the acquisition, development and operation of office
and industrial real estate located in the Chicago metropolitan area and, to a
lesser extent, other midwestern markets. To implement this strategy, we intend
to continue to:
- own, acquire, develop, redevelop, lease, manage and operate Class A
office buildings that have below market rents and, therefore, provide
the opportunity to enhance returns as leases expire or are renewed;
- develop Class A office buildings in prime locations with significant
leasing potential;
- acquire distressed, under-performing and under-managed Class B office
buildings in desirable locations and improve the income potential of
such assets by raising them to a higher operating standard through
value-added renovation programs, professional property management and
aggressive leasing, retenanting and marketing efforts;
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- acquire and develop properties that underutilize their sites or that
have excess land for future development;
- acquire properties or portfolios of properties from tax-sensitive
owners where the properties can be acquired on a tax-deferred basis
using common units of limited partner interests in our operating
partnership, as purchase consideration; and
- own, acquire, develop, redevelop, lease, manage and operate bulk
warehouse/distribution facilities and overhead crane/manufacturing
facilities.
Class A office buildings are centrally located, professionally managed and
maintained, attract high-quality tenants and command upper-tier rental rates and
are modern structures or have been modernized to compete with newer buildings.
Class B office buildings have good location, construction and tenancy and are
sometimes considered to be competitive with the lower spectrum of Class A
buildings.
We believe that we can draw upon our extensive experience and long-term
presence in the Chicago metropolitan area to create a strategic advantage in
competing for future development and acquisition opportunities.
OPERATING STRATEGY. We will focus on enhancing our cash flow per share by:
- engaging in pro-active leasing programs and effective property
management;
- managing operating expenses through the use of in-house management
expertise;
- maintaining and developing long-term relationships with a diverse
tenant group;
- attracting and retaining motivated employees by providing financial
and other incentives;
- continuing to emphasize value-added capital improvements to enhance
our properties' competitive advantages in their submarkets; and
- maximizing the cash flow of our properties.
ACQUISITION STRATEGY. We plan to increase our cash flow per share by
acquiring additional office and industrial properties, including properties
that:
- provide attractive initial yields and significant potential for growth
in cash flow from property operations;
- are well-located, of high quality and competitive in their respective
submarkets;
- are located in our existing submarkets and/or in other strategic
submarkets where the demand for office and industrial space exceeds
available supply; and
- have been under-managed or are otherwise capable of improved
performance through intensive management, marketing and leasing.
We plan to concentrate our acquisition activities in the Chicago
metropolitan area and, to a lesser extent, in other midwestern markets. We
believe that attractive opportunities exist to acquire office and industrial
properties in these markets at prices below replacement cost. Each acquisition
opportunity will be reviewed to evaluate whether it meets one or more of the
following criteria:
- potential for higher occupancy levels and/or rents as well as for
lower tenant turnover and/or operating expenses;
- ability to generate returns in excess of our weighted average cost of
capital, taking into account the estimated costs associated with
renovation and tenant turnover (i.e., tenant improvements and leasing
commissions); and
- purchase prices at or below estimated replacement cost.
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We believe we have certain competitive advantages that enhance our ability
to identify and complete acquisitions on a timely and efficient basis,
including:
- our management's significant local market experience with, and
knowledge of, properties, submarkets and potential tenants;
- our management's long-standing relationships with commercial real
estate brokers and institutional and other owners of commercial real
estate in the Chicago metropolitan area;
- our fully-integrated real estate operations, which allow us to quickly
evaluate and respond to acquisition opportunities;
- our ability to access relatively low-cost financing through the
capital markets;
- our management's reputation as an experienced purchaser of office and
industrial properties with the ability to execute transactions in an
efficient and timely manner; and
- our ability to add a number of office and industrial properties to our
portfolio without the need for a significant increase in general and
administrative expenses, due to our expertise and depth of management.
We also plan to make strategic purchases of land where opportunities exist
for current or future development.
We believe that many of the owners of commercial real estate properties
located in the Chicago metropolitan area have a low tax basis in their
properties and have the corresponding potential for the recognition of
substantial taxable gains as a result of the disposition of such properties. We
believe that our capital structure and ability to acquire properties in exchange
for common units, and thereby defer a seller's potential taxable gain, will
enhance our ability to consummate transactions quickly and to structure more
competitive acquisitions than other real estate companies in the market which
lack our access to capital and ability to acquire property with common units.
DEVELOPMENT STRATEGY. As opportunities arise and where market conditions
support a favorable risk-adjusted return on investment, we intend to pursue
opportunities for growth through the development of new office and industrial
properties. We believe that the strength and experience of our management in the
development of office and industrial properties will provide us with a
competitive advantage in evaluating and pursuing opportunities to develop
additional properties. During the next few years, we expect that most of our
development activities will be focused on Chicago central business district
office and suburban office and industrial properties in the Chicago metropolitan
area.
Based on ongoing marketing activities and discussions with prospective
tenants, we expect that over the next several years there will be significant
demand from several large tenants that are unable to find large blocks of
contiguous Class A office space in downtown Chicago which may lead to office
development opportunities. We believe that our significant land holdings and
land option rights will provide us with a distinct advantage in competing for
future development opportunities.
The Services Company's corporate advisory activities with third parties are
expected to give us further access to future development opportunities for
properties we will build and lease. The Services Company will also continue to
undertake build-to-suit projects for sale to third parties.
FINANCING STRATEGY. During 1998, our Board Trustees modified our financing
policy to specify that we intend to operate with a ratio of debt-to-total market
capitalization at a level below 50.0%.
Our Board further modified our financing policy in December 1998 by
replacing the debt-to-total market capitalization formulation with a series of
financial ratios and other measurements which would better measure our debt
carrying capacity. As modified, our new financing policy has the following
targets in place as of December 31, 1998: (i) a minimum interest coverage ratio
of at least 2.0, (ii) a minimum fixed coverage charge ratio of at least 1.60,
(iii) a ratio of debt-to-net asset value of no more than 50%, and (iv)
unencumbered cash and credit availability of at least $40.0 million, of which
$10.0 million should be cash on hand. The foregoing ratios and measures are
calculated pursuant to detailed definitions set by our Board and, in some
instances, are adjusted over time pursuant to a schedule set by our Board.
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The above targets do not mean that we will operate within each of the
ratios at all time or that our Board will not approve actions which will cause
us to not be in compliance with this policy. Our financing policy may be altered
without the consent of our shareholders, and our organizational documents do not
limit the amount or type of indebtedness that we may incur.
We intend to use one or more sources of capital for future acquisitions and
development activities. These capital sources may include undistributed cash
flow, borrowings under certain credit facilities, property specific non-recourse
debt, proceeds from the issuance of long-term, tax-exempt bonds and other debt
or equity securities and other bank and/or institutional borrowings.
RECENT DEVELOPMENTS
During 1998, we acquired the following eight office properties:
<TABLE>
<CAPTION>
NET
RENTABLE ACQUISITION
SQUARE COST MONTH
PROPERTY LOCATION FEET (IN MILLIONS) ACQUIRED
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
33 North Dearborn Street Chicago, IL 302,818 $ 34.4 January
Commerce Point Arlington Heights, IL 236,642 29.9 February
208 South LaSalle Street Chicago, IL 835,229 61.4 March
122 South Michigan Avenue Chicago, IL 512,369 29.7 April
2100 Swift Drive Oak Brook, IL 58,000 6.3 April
6400 Shafer Court Rosemont, IL 164,958 22.2 May
Two Century Centre Schaumburg, IL 217,960 35.9 June
2000 York Road (1) Oak Brook, IL 200,045 16.2 June
====================================
2,528,021 $ 236.0
====================================
- - --------------------
<FN>
(1) In connection with the acquisition of this building, we completed a
property like-kind-exchange with a previously owned office building located
at 350 N. Mannheim Road in Hillside, Illinois.
</FN>
</TABLE>
During 1998, we acquired the following parcels of land:
<TABLE>
<CAPTION>
ACQUISITION
COST MONTH
PROPERTY LOCATION ACRES (IN MILLIONS) ACQUIRED
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aurora Land - I Aurora, IL 37.3 $ 3.1 June
Aurora Land - II Aurora, IL 17.4 1.4 June
DeKalb Land DeKalb, IL 42.1 0.6 July
Rolling Meadows Land Rolling Meadows, IL 0.6 0.1 July
Libertyville Industrial Land Libertyville, IL 12.8 2.0 July
Libertyville Office Land Libertyville, IL 21.6 3.3 September
====================================
131.8 $ 10.5
====================================
</TABLE>
The Aurora land contracts require us to purchase an additional 132.7 acres
over a three to five year period for additional consideration of $10.4 million.
Certain minimum installment payments are required; however, the timing of
purchases is at our discretion. During 1998, we made two installment payments
totaling $0.4 million.
In July 1998, we began construction of a 242,000 square foot industrial
facility and in September 1998, we began construction of four office buildings
with a total of 180,000 square feet on the Libertyville land parcels listed
above.
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Concurrently with the closing of our initial public offering, we obtained a
secured revolving credit facility from a group of financial institutions with a
maximum commitment of $235.0 million. We used the credit facility to fund
property acquisitions and letters-of-credit that provide credit enhancements on
certain of our bonds payable. The credit facility is also subject to various
financial and other operating covenants. During 1998, the credit facility was
amended to provide that the commitments under the credit facility be reduced to
$80.0 million and the interest rate was modified from LIBOR plus 150 basis
points to LIBOR plus 225 basis points. On February 4, 1999, the credit facility
was further amended and the commitment was reduced to $75.0 million with the
interest rate remaining the same.
On January 1, 1998, we provided the Services Company a $5.0 million
line-of-credit, which (i) accrues interest at LIBOR plus 3%, (ii) requires
monthly principal and interest payments from available cash flow, as defined,
and (iii) matures on December 31, 2000. The line is collateralized by the
Services Company's third party receivables and is subject to various covenants.
As of December 31, 1998, the line-of-credit had $0.6 million outstanding.
In January 1998, we obtained a $15.0 million revolving line-of-credit with
a financial institution. The line-of-credit is collateralized by an industrial
property located at as 475 Superior Avenue in Munster, Indiana. Outstanding
balances under the line-of-credit bear interest at a rate equal to LIBOR plus
195 basis points. In January 1999, we exercised an option to extend the
line-of-credit for one year to January 2000, with the existing terms and subject
to an additional one-year extension at our option. Generally, the covenants
contained in the line-of-credit are identical to the covenants contained in the
above mentioned credit facility. The $15.0 million line-of-credit and the
previously mentioned $75.0 million credit facility are collectively referred to
as the "Credit Facilities."
During 1998, we obtained the following new mortgage indebtedness:
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
BALANCE INTEREST MATURITY
MORTGAGED PROPERTIES(1) (IN MILLIONS) RATE DATE
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
77 West Wacker Drive(2)................ $ 170.0 LIBOR plus 1.0% 10/01/99
Continental Towers(3).................. 75.0 7.22% 1/05/13
Various office and industrial(3)....... 47.0 7.17% 5/01/08
208 South LaSalle Street(3) ........... 45.8 7.785% 4/11/13
Various industrial(3).................. 29.4 6.85% 4/01/08
Two Century Centre(3).................. 20.5 7.375% 11/11/08
180 N. LaSalle Street mortgage
note receivable (3)................. 20.0 LIBOR plus 2.50% 11/11/01
Commerce Point(3)...................... 20.0 7.07% 3/11/08
33 North Dearborn Street(2)............ 18.0 LIBOR plus 1.65% 1/31/00
Various industrial(3).................. 14.6 LIBOR plus 1.5% 5/01/00
6400 Shafer Court(3)................... 14.3 7.09% 6/11/08
2000 York Road(3)...................... 12.0 7.375% 11/11/08
Citibank Office Plaza(3)............... 8.8 7.18% 5/11/08
2100 Swift Drive(3).................... 5.2 7.19% 5/11/08
=============
$ 500.6
=============
- - --------------------
<FN>
(1) All of the mortgage loans are subject to various financial and other
operating covenants.
(2) Interest payable monthly, with principal due at maturity.
(3) Principal and interest payable monthly through maturity.
</FN>
</TABLE>
We used a portion of the proceeds from the mortgage notes listed above to
purchase the above properties, repay previously outstanding mortgage debt of
$83.5 million, and reduce borrowings under the Credit Facilities.
In February 1998, we refinanced $48.8 million of letters-of-credit that
provided credit enhancements on certain of our bonds payable from one of our
Credit Facilities to a separate financing facility provided by a financial
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institution. The new letters-of-credit have an annual 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. This amount was included
in restricted cash escrows at December 31, 1998.
On March 30, 1998, we entered into a joint venture that acquired
approximately 67,000 square feet of vacant land located in the Chicago central
business district. The parcel was acquired for the potential development of a
Class A multi-purpose facility, with approximately 1,000,000 square feet of
office space, approximately 100,000 square feet of retail space and a parking
garage with a capacity for approximately 250 cars. We have economic control of
the joint venture and, therefore, have 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
was to mature on April 1, 1999; however we have exercised a six-month extension
option and extended the maturity to October 1, 1999.
On March 25, 1998, we completed a private placement of 2,579,994 of our
common shares to institutional investors and received net proceeds of
approximately $45.9 million, which were used to fund the acquisition of the
office properties located at 208 South LaSalle Street and 122 South Michigan
Avenue.
On March 31, 1998 and on September 28, 1998, we issued a total of 22,500
common shares granted to two of our officers and 2,500 common shares granted to
one of our board members pursuant to their employment agreements or consulting
agreement, as applicable.
On June 5, 1998, we completed the sale of 4.0 million shares of our Series
B - Cumulative Redeemable Preferred Shares and received net proceeds of
approximately $95.3 million which were used to fund (i) the acquisition of Two
Century Centre and 2000 York Road, and (ii) repay borrowings under the Credit
Facilities. 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 our common shares and our Series A - 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 our option at a redemption price of $25.00
per share plus accrued and unpaid distributions. The redemption price is payable
solely out of the proceeds from the sale of our other capital shares of
beneficial interest.
On July 22, 1998, we entered into a purchase agreement, with an affiliate
of an investor in the operating partnership, to acquire two office buildings,
IBM Plaza (a 1,354,354 square foot office building located in the Chicago
central business district) and National City Center (a 766,965 square foot
office building located in Cleveland, Ohio) for an aggregate purchase price of
approximately $357.0 million. On September 15, 1998, we terminated the purchase
agreement in accordance with the terms of the agreement due to the failure of a
material condition precedent to the closing of these acquisitions. On September
21, 1998, the sellers notified us in writing that they believed they were
entitled to the $20.0 million earnest money provided for by the agreement, and
instructed the earnest money escrow agent to draw the full amount under two
earnest money letters-of-credit we provided under one of the Credit Facilities.
The sellers also filed a complaint against us with the Supreme Court of New
York, New York County alleging that we breached the contract. On October 30,
1998, we filed our answer to the complaint and denied all material allegations
of the complaint. We also filed a counterclaim against the sellers alleging that
the sellers breached the contract and sought the return of the above mentioned
earnest money and other damages.
On February 5, 1999, we entered into an amended option agreement with the
seller of IBM Plaza and an amended purchase agreement with the seller of
National City Center, which have the following terms:
- both the original lawsuit filed by the sellers and our counterclaim
were dismissed;
- we purchased National City Center on February 5, 1999 for a contract
price of $100.0 million; and
- the $20.0 million earnest money escrow described above was released
and credited to the purchase of National City Center and an $8.0
million nonrefundable payment for the option to purchase IBM Plaza.
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The option provides us with the opportunity to purchase IBM Plaza for
$230.0 million (exclusive of the $8.0 million deposit) and expires
October 31, 1999. If the option is exercised, the purchase of the
property must be completed no later than December 20, 1999.
On August 21, 1998, we entered into two treasury lock agreements with two
financial institutions to lock certain debt instruments at the interest rate on
ten-year Treasury Notes effective on the date of the agreements to provide
interest rate protection on future debt financings. One of these agreements was
entered into in anticipation of a planned future securitization of a $170.0
million loan related to the 77 West Wacker Drive building, and had a lock rate
of 5.364%. The other agreement was entered into in anticipation of $160.0
million in debt related to the acquisition of IBM Plaza, had a lock rate of
4.732% and was to expire on March 19, 1999. We made deposits as required by the
agreements, totaling approximately $14.6 million at December 31, 1998 ($5.9
million related to the $170.0 million agreement and $8.7 million related to the
$160.0 million agreement), exclusive of a $2.0 million credit threshold
described below and are included in other assets in our consolidated financial
statements. The $170.0 million agreement was to expire on February 18, 1999, but
was extended to April 15, 1999. At that time, the lock rate was modified to
5.016% and the credit threshold reduced from $2.0 million to $0.5 million. If
the market rate on ten-year Treasury Notes falls below the locked rate and the
difference between $170.0 million and the calculated notional amount is in
excess of the credit threshold, cash deposits are required. On March 1, 1999, we
terminated the $160.0 million treasury lock agreement due to the change in terms
and timing of the IBM Plaza purchase as a result of the amended purchase
agreement. We had approximately $0.6 million on deposit that was forfeited at
the time of termination. During the period January 1, 1999 through March 24,
1999, we received net cash settlements of approximately $9.2 million ($1.0
million related to the $170.0 million agreement, and $8.2 million related to the
$160.0 million agreement) related to both treasury lock agreements. If the yield
on U.S. ten-year Treasury Notes at settlement is less than the locked yield, the
difference between $170.0 million and the calculated notional amount will be
amortized over the terms of the future debt instruments as an adjustment to
interest expense. We intend to consummate debt transactions equal to the
notional value of the remaining agreement.
During the third quarter of 1998, we entered into contracts to acquire two
land parcels and an option to acquire a land parcel, all located in the Chicago
metropolitan area, for a total purchase price of approximately $62.0 million.
The purchase price is subject to an additional $2.2 million based upon the date
the purchase is completed. We were required to make cash escrow deposits of
approximately $25.2 million (including a $25.0 million non-refundable deposit).
As of December 31, 1998, we had made cash escrow deposits of $15.2 million
related to these contracts and the remaining $10.0 million was made in January
1999. We made an additional non-refundable deposit of $0.6 million on March 10,
1999 related to the additional purchase price adjustment. We expect to complete
the acquisitions by the end of the second quarter of 1999. However, the
acquisitions are subject to our completion of due diligence and the satisfaction
of other customary closing conditions. There can be no assurance that any or all
of the acquisitions will be completed.
On September 14, 1998, we established a program to repurchase up to the
lesser of (i) 1,550,000 of our common shares or (ii) $7.5 million for our common
shares in open market and privately negotiated transactions, with share prices
not to exceed $20.00 per common share. As of December 31, 1998, we had
repurchased 474,200 common shares for an aggregate purchase price of
approximately $7.3 million. No additional shares have been repurchased since
December 31, 1998.
As part of an annual incentive award program, on December 17, 1998, our
Board of Trustees granted to nineteen of our officers (two of whom are Board
members) and one Board member, 25,694 common shares. The common share grants
vest 50% on January 15, 1999 and 50% on January 15, 2000.
On January 8, 1999, we filed our initial shelf registration statement on
Form S-3 with the Securities and Exchange Commission to register up to $500.0
million of our equity and debt securities for future sale.
During the period from January 1, 1999 through March 25, 1999, we acquired
the following office and industrial properties:
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<TABLE>
<CAPTION>
NET
RENTABLE ACQUISITION MORTGAGE
SQUARE COSTS DEBT MONTH
PROPERTY LOCATION FEET (IN MILLIONS) (IN MILLIONS) ACQUIRED
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office:
33 West Monroe Street Chicago, IL 846,759 $ 101.3 $ 65.0 January
National City Center (1) (2) Cleveland, OH 766,965 105.0 63.6 February
Industrial:
901 Technology Way (2) Libertyville, IL 68,824 4.1 -- January
=================================================
1,682,548 $ 210.4 $ 128.6
=================================================
<FN>
(1) Acquisition costs and mortgage debt include $2.0 million to adjust an
assumed above market rate mortgage note payable to a current market
interest rate.
(2) These properties were acquired from minority interest unit holders of the
operating partnership or their affiliates.
</FN>
</TABLE>
On February 8, 1999, we signed a contract with a buyer pursuant to which we
will construct an approximately 1,018 space parking garage, with approximately
4,000 square feet of retail space, on approximately 22,700 square feet of land
that we have under option to purchase in the Chicago central business district,
and sell the competed parking garage to the buyer. The sales price is
approximately $34.6 million, plus the value of any of the retail space leased by
us at the time of sale, currently estimated to be approximately $4.0 million. In
addition, we are entitled to an additional $1.0 million from the buyer if,
within 15 years after our sale of the parking garage to the buyer, we
substantially complete an office building containing at least 800,000 square
feet of office space, which is occupied by at least one tenant who is not
affiliated with us. We have acquired this land with the intent to construct an
office building which we will own for lease. The land parcel for the office
building could not be obtained without obtaining the land for the parking
parking garage and in order to construct an office building, parking must be
provided pursuant to zoning requirements.
SEGMENT REPORTING DATA
See Note 15 to our consolidated financial statements for a discussion on
our operating segment data for the year ended December 31, 1998 and for the
period from November 17, 1997 through December 31, 1997.
COMPETITION
We compete with other owners and developers; some of whom may have greater
resources and more experience than we. Additionally, the number of competitive
properties in any particular market or submarket in which our properties are
located could have a material adverse effect on both our ability to lease space
at our properties or any newly-acquired property and on the rents charged at our
properties. We believe that our existing Credit Facilities and our access as a
public company to the capital markets to raise funds during periods when
conventional sources of financing may be unavailable or prohibitively expensive
provide us with substantial competitive advantages. Further, we believe that our
capital structure and ability to acquire properties in exchange for common units
in our operating partnership and, thereby defer a seller's potential taxable
gain, enhance our ability to consummate transactions quickly and to structure
more competitive acquisitions than other real estate companies in the market
which lack our access to capital and ability to acquire property with common
units. See "Business and Growth Strategies-Acquisition Strategy." We believe
that the number of real estate developers has decreased as a result of the
recessionary market conditions and tight credit markets during the early 1990's
as well as the reluctance on the part of more conventional financing sources to
fund development and acquisition projects. In addition, we believe that we are
one of a limited number of publicly-traded real estate companies primarily
focusing on the office and industrial market in the Chicago metropolitan area.
-9-
<PAGE>
SERVICES COMPANY
The Services Company was formed in March 1997 under the laws of the state
of Maryland. The operating partnership owns 100.0% of the nonvoting preferred
stock of the Services Company, representing 95.0% of its economic value and also
has a $4.8 million promissory note issued from Services Company in connection
with its formation. We have also provided a $5.0 million line-of-credit to the
Services Company. The ownership structure permits us to share in the Service
Company's income and also maintain our status as a REIT for federal income tax
purposes. We receive substantially all of the economic benefit of the businesses
carried on by the Services Company because we have the right to receive
dividends through the operating partnership's investment in the preferred stock
and interest payments on the note held by the operating partnership. However, we
do not elect the Services Company's officers or directors and, consequently, do
not have the ability to control the operations of the Services Company or
require the declaration of dividends.
The Services Company provides certain corporate advisory, management,
leasing, tenant improvement construction, painting, contracting and tenant
representation services to buildings owned by others. The Services Company's
leasing division provides leasing services to certain of our properties and
other property owners for fees. The Services Company's construction division
provides construction and construction management services for tenant
improvements, renovations and other construction to the properties owned,
acquired or managed by us. The Services Company also acquires, markets and sells
land.
GOVERNMENT REGULATION
ENVIRONMENTAL MATTERS. All of our properties were subject to Phase I or
similar environmental assessments by independent environmental consultants.
Phase I assessments are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding
properties. Phase I assessments generally include an historical review, a public
records review, an investigation of the surveyed site and surrounding
properties, and the preparation and issuance of a written report, but do not
include soil sampling or subsurface investigations.
We are aware of environmental contamination at certain of our older
industrial properties contributed by PGI. These properties are in remediation
programs sponsored by the appropriate state environmental agencies. PGI has
contractually agreed to retain liability, and indemnify us, for environmental
remediation with regard to these industrial properties, which environmental
consultants have estimated will cost, in the aggregate, up to $3.2 million.
Based on such estimates, certain properties PGI contributed recorded provisions
for environmental remediation costs totaling $3.2 million in 1997 prior to their
contribution. During 1997, PGI initiated lawsuits against a former owner (who is
also a former tenant) of one of the properties and an environmental consultant
to cover the cost of the remedial action plans. On February 20, 1998, PGI
reached an agreement with the former owner and received a $1.8 million
settlement payment, in addition to $0.5 million previously paid as a
reimbursement for costs. In 1998, PGI sued a current tenant of one of the
properties to recover the cost of certain remedial action plans.
We are also aware of contamination at 455 Academy Drive in Northbrook,
Illinois. The current tenant of the property, National Service Industries, has
provided us with an indemnity for all of the costs of environmental remediation
regarding the property they caused either knowingly or unknowingly. In addition,
we are aware of contamination at 1301 E. Tower Road in Schaumburg, Illinois. The
property has been submitted into a remediation program sponsored by the Illinois
Environmental Protection Agency and we are in the process of quantifying the
cost of necessary remedial actions. In connection with 1301 E. Tower Road, the
previous owner and other third parties have placed approximately $0.8 million in
escrow to fund the clean-up of the property. We currently anticipate that this
escrow will be sufficient to fund the necessary remedial action for this
property, although the previous owner and other third parties will not be
responsible for any costs in excess of the amount placed in escrow.
We believe that our other properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. We have not been notified by any
governmental authority, and are not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with any of our other properties. None of our environmental
assessments of the properties have revealed any environmental liability that,
after giving effect to the contractual indemnities and escrows described above,
-10-
<PAGE>
we believe would have a material adverse effect on our financial condition or
results of operations taken as a whole, nor are we aware of any such material
environmental liability. Nonetheless, it is possible that our assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which we are unaware. Moreover, there can be no assurance that
(i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of our
properties will not be affected by tenants, by the condition of land or
operations in the vicinity of our properties (such as the presence of
underground storage tanks) or by third parties unrelated to us. If compliance
with the various laws and regulations, now existing or hereafter adopted,
exceeds our budgets for such items, our ability to make expected distributions
to shareholders could be adversely affected.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Under the ADA,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. Compliance with the ADA requirements
could require removal of access barriers, and noncompliance could result in the
imposition of fines by the federal government or an award of damages to private
litigants. We believe that our properties are substantially in compliance with
these requirements; however, we may incur additional costs to comply with the
ADA. Although we believe that such costs will not have a material adverse effect
on our financial position, if required changes involve a greater amount of
expenditures than we currently anticipate, our ability to make expected
distributions could be adversely affected.
OTHER REGULATIONS. Our properties are also subject to various federal,
state and local regulatory requirements, such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. We believe that our properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require us to make significant unanticipated
expenditures and could have an adverse effect on our Funds from Operations and
expected distributions.
INSURANCE
We believe that our properties are covered by adequate comprehensive
liability, rental loss, and all-risk insurance, provided by reputable companies,
with commercially reasonable deductibles, limits and policy specifications
customarily carried for similar properties. There are, however, certain types of
losses which may be either uninsurable or not economically insurable, such as
losses due to floods, riots or acts of war. Should an uninsured loss occur, we
could lose both our invested capital in, and anticipated profits from, the
property.
EMPLOYEES
As of December 31, 1998, we had approximately 200 full-time employees. We
believe that our relations with our employees are satisfactory.
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1998, we owned 24 office properties (including 1701 Golf
Road, on which we own a second mortgage note, but for which we have consolidated
the property's operations), 46 industrial properties, one retail center and one
parking facility. Our properties are located primarily in the Chicago
metropolitan area. In addition, we own a mortgage on an office property located
at 180 N. LaSalle Street, in the Chicago central business district. In terms of
net rentable square feet, approximately 90.2% of our office properties and 89.7%
of our 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 accounted for approximately 90.8% of
our rental revenue and 98.0% of our tenant reimbursements revenue for the year
ended December 31, 1998.
Our management team has developed or redeveloped, leased and managed 40 of
our 46 industrial properties (85.0% in terms of industrial net rentable square
feet) and 11 of our 24 office properties (47.3% in terms of office net rentable
square feet). In the course of such development and redevelopment, we have
acquired experience across a broad range of development and redevelopment
-11-
<PAGE>
projects. For example, our management team has developed both office properties,
such as the 77 West Wacker Drive building in Chicago, Illinois, and industrial
properties, such as 1001 Technology Way and 801 Technology Way in Libertyville,
Illinois. Our management team also has redeveloped both office properties, such
as 201 4th Avenue in Nashville, Tennessee and industrial properties, such as the
Chicago Enterprise Center, East Chicago Enterprise Center, and Hammond
Enterprise Center in the Chicago metropolitan area. We believe our properties
are well maintained and, based on recent engineering reports, do not require
significant capital improvements.
We own approximately 225.0 acres of land that we may develop. This acreage
includes a development site which contains approximately 67,000 square feet
located in the Chicago central business district and is held by a joint venture
with a third party. We also have rights to acquire approximately 325.8 acres of
developable land, including rights to acquire two sites located in the Chicago
central business district containing approximately 119,000 square feet. We
believe that this land could be developed to have approximately 4.7 million
square feet of additional office space and over 7.6 million square feet of
additional industrial space. Included in the 325.8 acres are 94 acres and an
industrial property currently under development that we are to acquire from
affiliates of a member of our Board of Trustees for a total purchase price of
$20.9 million.
Our office properties are leased to tenants either (i) on a net basis with
tenants obligated to pay their proportionate share of real estate taxes,
insurance, utility and operating expenses or (ii) on a gross basis, with the
landlord responsible for the payment of these expenses up to the amount incurred
during the tenants first year of occupancy ("Base Year") or a negotiated amount
approximating the tenants pro rata share of these expenses ("Expense Stop"). The
tenants pay their pro rata share of increases in expenses above the Base Year or
Expense Stop. Most of the leases for our industrial properties are written on
either a (i) net basis, with tenants paying their proportionate share of real
estate taxes, insurance, utility and other operating expenses as additional rent
or (ii) triple net lease basis with the tenants paying all of the real estate
taxes, insurance, utility and other operating expenses for the property.
PROPERTIES
The following table sets forth certain information relating to each of our
properties as of December 31, 1998, unless indicated otherwise. Through the
operating partnership and other subsidiaries, we own a 100% interest in all of
the office and the industrial properties, except for 1701 Golf Road (we own the
second mortgage note on this property) and 180 N. LaSalle Street (we own the
first mortgage note on this property).
<TABLE>
<CAPTION>
NET PERCENTAGE
YEAR BUILT/ RENTABLE LEASED AS OF
PROPERTY LOCATION RENOVATED SQUARE FEET 12/31/98(%)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
77 West Wacker Drive Chicago, IL 1992 944,556 97.2
1701 Golf Road (Continental Towers) (1) Rolling Meadows, IL 1977/1979/1981 928,766 97.0
208 South LaSalle Street Chicago, IL 1914/1956/1982/ 835,229 93.0
1991
122 South Michigan Avenue Chicago, IL 1910 512,369 54.5
33 North Dearborn Street Chicago, IL 1967/1986 302,818 89.4
201 4th Avenue North (Suntrust Bldg.) Nashville, TN 1968/1985 250,566 81.2
3800 and 3850 North Wilke Road and
3930 Ventura Drive(Commerce Point) Arlington Heights, IL 1987/1989 236,642 97.7
1700 East Golf Road (Two Century Centre) Schaumburg, IL 1989 217,960 100.0
2000 York Road (2000 York Brook) Oak Brook, IL 1960/1986 200,045 99.8
4343 Commerce Court (The Olympian Office
Center) Lisle, IL 1989 167,756 58.9
6400 Shafer Court Rosemont, IL 1980/1990 164,958 94.0
2205-2255 Enterprise Drive (Enterprise
Office Center) Westchester, IL 1987 129,574 98.7
1990 Algonquin Road/2000-2060 Algonquin
Road (Salt Creek Office Center)(2) Schaumburg, IL 1979/1986 125,938 91.8
941-961 Weigel Drive Elmhurst, IL 1989/1994 123,077 100.0
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
YEAR BUILT/ RENTABLE LEASED AS OF
PROPERTY LOCATION RENOVATED SQUARE FEET 12/31/98(%)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES (CONTINUED)
1699 E. Woodfield Road (Citibank
Office Plaza) Schaumburg, IL 1979 105,602 99.1
2675 N. Mayfair (Wauwatosa Bldg.) Wauwatosa, WI 1979 104,031 96.5
620 Market Street (Professional Plaza) Knoxville, TN 1988 93,711 80.9
625 Gay Street (Centre Square II) Knoxville, TN 1988 91,426 87.5
1600-1700 167th Street (Narco River
Business Center) Calumet City, IL 1981 65,394 75.9
280 Shuman Blvd. (Atrium) Naperville, IL 1979 65,273 100.0
2100 Swift Drive Oak Brook, IL 1985/1991 58,000 100.0
1301 E. Tower Road (Narco Tower) Schaumburg, IL 1992 50,400 100.0
4823 Old Kingston Pike (Weston Bldg.) Knoxville, TN 1988 34,638 100.0
4100 West Madison Street Hillside, IL 1978 24,551 42.4
---------------------------------
OFFICE PROPERTIES SUBTOTAL 5,833,280 89.9
---------------------------------
INDUSTRIAL PROPERTIES
Warehouse/Distribution Facilities:
475 Superior Avenue Munster, IN 1989 450,000 100.0
3818 Grandville/1200 Northwestern Gurnee, IL 1961/1990 345,232 100.0
2160 McGaw Road Obetz, OH 1974 310,100 100.0
425 E. Algonquin Road Arlington Heights, IL 1978 304,506 100.0
1001 Technology Way Libertyville, IL 1996 212,831 100.0
11045 Gage Avenue Franklin Park, IL 1970/1992 136,600 100.0
4849 Groveport Road Obetz, OH 1968 132,100 100.0
4248, 4250 and 4300 Madison Street Hillside, IL 1980 127,129 100.0
1051 N. Kirk Road Batavia, IL 1990 120,004 100.0
4211 Madison Street Hillside, IL 1977/1992 90,344 100.0
2400 McGaw Road Obetz, OH 1972 86,400 100.0
5160 Blazer Memorial Parkway (3) Dublin, OH 1983 85,962 66.8
4160-4190 W. Madison Street Hillside, IL 1974/1992 79,532 100.0
555 Huehl Road Northbrook, IL 1987 74,000 100.0
801 Technology Way Libertyville, IL 1997 68,824 100.0
342-346 Carol Lane Elmhurst, IL 1989 67,935 100.0
200 E. Fullerton Avenue Carol Stream, IL 1968/1995 66,254 100.0
370 Carol Lane Elmhurst, IL 1977/1994 60,290 100.0
600 London Road Delaware, OH 1981 52,441 100.0
550 Kehoe Blvd Carol Stream, IL 1997 44,575 100.0
388 Carol Lane Elmhurst, IL 1979 40,920 88.4
306-310 Era Drive Northbrook, IL 1984 36,495 100.0
343 Carol Lane Elmhurst, IL 1989 30,084 100.0
350 Randy Road Carol Stream, IL 1974 25,200 100.0
11039 Gage Avenue Franklin Park, IL 1965/1993 21,935 100.0
1401 S. Jefferson Street Chicago, IL 1965/1985 17,265 100.0
Overhead Crane/Manufacturing Facilities:
Chicago Enterprise Center Chicago, IL 1916/1991-1996
13535-A S. Torrence Avenue 384,806 37.9
13535-B S. Torrence Avenue 239,752 100.0
13535-C S. Torrence Avenue 99,333 100.0
13535-D S. Torrence Avenue 77,325 100.0
13535-E S. Torrence Avenue 57,453 100.0
13535-F S. Torrence Avenue 44,800 100.0
13535-G S. Torrence Avenue 54,743 --
13535-H S. Torrence Avenue 73,612 56.3
East Chicago Enterprise Center East Chicago, IN 1917/1991-1997
Building 2 (4407 Railroad Avenue) 169,435 --
Building 3 (4407 Railroad Avenue) 291,550 100.0
Building 4 (4407 Railroad Avenue) 87,483 98.1
4440 Railroad Avenue (4) 40,000 100.0
4635 Railroad Avenue 14,070 --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
YEAR BUILT/ RENTABLE LEASED AS OF
PROPERTY LOCATION RENOVATED SQUARE FEET 12/31/98(%)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES (CONTINUED)
Hammond Enterprise Center Hammond, IN 1920-1952
4507 Columbia Avenue 256,595 100.0
4527 Columbia Avenue (5) 16,701 55.8
4531 Columbia Avenue 250,266 99.2
1301 Ridgeview Drive McHenry, IL 1995 217,600 100.0
515 Huehl Road/500 Lindberg Northbrook, IL 1988 201,244 100.0
455 Academy Drive Northbrook, IL 1976 105,444 100.0
4411 Marketing Place Groveport, OH 1984 65,804 100.0
---------------------------------
INDUSTRIAL PROPERTIES SUBTOTAL 5,834,974 90.5
=================================
PORTFOLIO TOTAL 11,668,254 90.2
=================================
MORTGAGE NOTE RECEIVABLE:
180 N. LaSalle Street (6) Chicago, IL 1982/1999 728,860 73.7
OTHER PROPERTIES:
398 Unit Parking Facility Knoxville, TN 1981
371-385 N. Gary Avenue (7) Carol Stream, IL 1978 11,276 74.1
<FN>
(1) We hold a mortgage note receivable on the property and have consolidated
the underlying property operations based upon receiving substantially all
of the economic benefits of the property's operations.
(2) This property complex is comprised of 1990 Algonquin Road (a two-story
office building) and 2000-2060 Algonquin Road (seven single-story office
buildings), but is treated as one office property.
(3) This property is a mixed use industrial/office property that has been
classified as an industrial property.
(4) This property is an office building adjacent to the East Chicago Enterprise
Center.
(5) This property is an office building within the Hammond Enterprise Center.
(6) We hold a mortgage note receivable on this office property. The operating
results of this property have not been consolidated.
(7) This is a retail center.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Neither we nor any of our properties are presently subject to any material
litigation nor, to the our knowledge, is any material litigation threatened
against us, other than routine litigation arising in the ordinary course of
business, some of which is expected to be covered by liability insurance and all
of which collectively is not expected to have a material adverse effect on our
consolidated financial statements. Although subsequently settled in February
1999, we were subject to the litigation discussed below as of December 31, 1998.
On July 22, 1998, we entered into a purchase agreement, with an affiliate
of an investor in the operating partnership, to acquire two office buildings,
IBM Plaza (a 1,354,354 square foot office building located in the Chicago
central business district) and National City Center (a 766,965 square foot
office building located in Cleveland, Ohio) for an aggregate purchase price of
approximately $357.0 million. On September 15, 1998, we terminated the purchase
agreement in accordance with the terms of the agreement due to the failure of a
material condition precedent to the closing of these acquisitions. On September
21, 1998, the sellers notified us in writing that they believed they were
entitled to the $20.0 million earnest money provided for by the agreement, and
instructed the earnest money escrow agent to draw the full amount under two
earnest money letters-of-credit we provided under one of the Credit Facilities.
The sellers also filed a complaint against us with the Supreme Court of New
York, New York County alleging that we breached the contract. On October 30,
1998, we filed our answer to the complaint and denied all material allegations
-14-
<PAGE>
of the complaint. We also filed a counterclaim against the sellers alleging that
the sellers breached the contract and sought the return of the above mentioned
earnest money and other damages.
On February 5, 1999, we entered into an amended option agreement with the
sellers of IBM Plaza and an amended purchase agreement with the sellers of
National City Center, which have the following terms:
- both the original lawsuit filed by the sellers and our counterclaim
were dismissed;
- we purchased National City Center on February 5, 1999 for a contract
price of $100.0 million; and
- the $20.0 million earnest money escrow described above was released
and credited to the purchase of National City Center and an $8.0
million nonrefundable payment for the option to purchase IBM Plaza.
The option allows us to purchase IBM Plaza for $238.0 million
(including the $8.0 million deposit) and expires October 31, 1999. If
the option is exercised, the purchase of the property must be
completed no later than December 20, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matters were submitted to vote of securityholders during the fourth
quarter of 1998.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common shares began trading on the New York Stock Exchange ("NYSE") on
November 12, 1997, under the symbol "PGE". On March 25, 1999, the reported
closing sale price on the NYSE was $13.125, and there were 15,135,727 common
shares outstanding held by approximately 3,000 holders of record. The following
table sets forth the high and low closing sales prices per common share reported
on the NYSE and the distributions we paid for the year ended December 31, 1998
and for the period from November 17, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
CASH
DISTRIBUTIONS
HIGH LOW PAID (1)
-----------------------------------------------------
<S> <C> <C> <C>
FISCAL YEAR 1998
First quarter $ 20 7/8 $ 19 5/8 $ 0.3375
Second quarter 21 17 1/8 0.3375
Third quarter 19 15/16 13 1/16 0.3375
Fourth quarter 16 5/8 13 9/16 (2)
FISCAL YEAR 1997
November 12, 1997 through
December 31, 1997 20 5/16 19 1/2 0.1664 (3)
- - --------------------
<FN>
(1) All distributions are per common share and common unit.
(2) On December 31, 1998, our Board of Trustees declared a dividend of $0.3375
per common share and common unit for the fourth quarter of 1998 to holders
of record on December 31, 1998. These dividends were paid January 20, 1999.
(3) This distribution was for a partial quarter. It is equivalent to a
quarterly distribution of $0.3375 per common share and common unit.
</FN>
</TABLE>
We currently make quarterly distributions to holders of our common shares
and operating partnership common units. Distributions on the common shares and
common units are not permitted unless all current and any accumulated
distributions on our Series A - cumulative convertible preferred shares, our
Series B - Cumulative Redeemable Preferred Shares and the related preferred
units in the operating partnership have been paid in full or set aside for
payment. Future distributions by us will be at the direction of our Board of
Trustees. These distributions will depend on the actual cash available for
distribution, our financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Internal Revenue Code
and such other factors as our Board of Trustees deems relevant.
Concurrently with the completion of our initial public offering, the
operating partnership issued 9,994,310 common units to PGI, the Primestone
Investment Partners L. P. (a joint venture of PGI and a third party), other
contributors and certain members of management in exchange for property
contributions and cash. In addition, the operating partnership has issued
323,590 common units through December 31, 1998 as partial consideration for its
acquisition of the first mortgage note of 180 N. LaSalle Street. Holders of
9,390,800 of the above mentioned common units may redeem part or all of the
common units for common shares on a one-for-one basis, or at our option, cash
equal to the fair market value of a common share at the time of exchange.
Also concurrently with the completion of our initial public offering, we
issued 2,000,000 of our Series A - Cumulative Convertible Preferred Shares of
Beneficial Interest, $0.01 par value per share, in a private placement to an
institutional investor for an aggregate purchase price of $40.0 million. Holders
of our Series A - Cumulative Convertible Preferred Shares can convert them to
our common shares.
On March 25,1998, we issued 2,579,994 of our common shares in a private
placement. In addition, during 1998, we granted 50,694 of our common shares to
certain of our officers and board members. See "Business - Recent Developments."
The issuance of 2,579,994 of our common shares, the common share grants
described above to certain of our employees and trustees, the common units
described above and our Series A - Cumulative Convertible Preferred Shares
constituted private placements of securities which are exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our ("PGRT") and the predecessor's selected
consolidated/combined financial data and should be read in conjunction with our
and the predecessor's consolidated/combined financial statements included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share data)
--------------------------------------------------------------------------------------------------
PGRT - CONSOLIDATED HISTORICAL PREDECESSOR - COMBINED HISTORICAL
-------------------------------- ---------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1, 1997
YEAR ENDED 1997 THROUGH THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, NOVEMBER 16, ---------------------------------------------
1998 1997 1997 1996 1995 1994
-------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenue:
Rental....................... $ 97,212 $ 7,293 $ 27,947 $ 30,538 $ 33,251 $ 30,352
Tenant reimbursements........ 37,545 2,041 12,490 14,225 14,382 12,451
Mortgage note interest....... 5,866 248 -- -- -- --
Insurance settlement......... -- -- -- -- 7,257 --
Other........................ 6,978 248 1,515 3,397 2,715 3,170
-------------------------------- ---------------------------------------------------------------
Total revenue.................. 147,601 9,830 41,952 48,160 57,605 45,973
Expenses:
Property operations.......... 29,598 2,213 8,622 9,767 9,479 8,852
Real estate taxes............ 25,077 1,765 8,575 9,383 9,445 9,057
Depreciation and amortization 25,447 2,478 11,241 12,409 12,646 11,624
Interest..................... 30,901 1,680 24,613 26,422 27,671 25,985
Interest-affiliates.......... -- -- 9,804 10,795 8,563 7,402
General and administrative... 5,712 267 2,414 4,927 4,508 3,727
Financing fees............... -- -- 1,180 1,232 -- --
Property and asset management
fees-affiliate............. -- -- 1,348 1,561 1,496 1,388
Provision for environmental
remediation costs.......... -- -- 3,205 -- -- --
Write-off of deferred tenant -- -- -- 3,081 13,373 --
costs......................
-------------------------------- ---------------------------------------------------------------
Total expenses................. 116,735 8,403 71,002 79,577 87,181 68,035
-------------------------------- ---------------------------------------------------------------
Income (loss) before minority
interests and extraordinary
item....................... 30,866 1,427 (29,050) (31,417) (29,576) (22,062)
Minority interests........... (9,368) (635) 666 894 3,281 5,393
-------------------------------- ---------------------------------------------------------------
Net income (loss) before
extraordinary items.......... 21,498 792 (28,384) (30,523) (26,295) (16,669)
Extraordinary (loss) gain on
early extinguishment of debt,
net of minority interests'
share in the amount of $878
in 1998 and $1,127 in 1997... (1,253) - 65,990 -- -- --
-------------------------------- ---------------------------------------------------------------
Net income (loss).............. 20,245 792 $ 37,606 $ (30,523) $ (26,295) $ (16,669)
===============================================================
Net income allocated to
preferred shareholders....... (7,971) (345)
--------------------------------
Net income available to
common shareholders...... $ 12,274 $ 447
================================
Earnings per weighted
average common share - basic
and diluted (1):
Income before extraordinary
items....................... $ 0.91 $ 0.04
Extraordinary items......... (0.08) --
================================
Net income.................... $ 0.83 $ 0.04
================================
</TABLE>
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<PAGE>
<TABLE>
(In Thousands)
-----------------------------------------------------------------------------
PGRT - CONSOLIDATED HISTORICAL PREDECESSOR - COMBINED HISTORICAL
DECEMBER 31, DECEMBER 31,
------------------------------ --------------------------------------------
1998 1997 1996 1995 1994
------------------------------ --------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets, exclusive of property
under development and before accumulated
depreciation................................. $ 843,031 $ 589,279 $ 291,757 $ 289,558 $ 285,687
Total assets................................... 1,164,514 741,468 325,230 343,641 356,421
Mortgage notes payable, credit facilities and
bonds payable................................ 593,168 328,044 421,983 405,562 388,309
Total liabilities.............................. 668,728 370,192 447,927 434,993 421,257
Minority interests............................. 145,781 147,207 (6,905) (6,047) 886
Shareholders' equity (partners' deficit)....... 350,005 224,069 (115,792) (85,305) (65,722)
</TABLE>
<TABLE>
<CAPTION>
(Dollars In Thousands)
--------------------------------------------------------------------------------------------------
PGRT - CONSOLIDATED HISTORICAL PREDECESSOR - COMBINED HISTORICAL
-------------------------------- ---------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1, 1997
YEAR ENDED 1997 THROUGH THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, NOVEMBER 16, ---------------------------------------------
1998 1997 1997 1996 1995 1994
-------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from operations(2)..... $ 46,762 $ 3,619 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by
(used in):
Operating activities....... $ 53,525 $ 6,706 $ (4,241) $ (3,165) $ (1,259) $ (13,875)
Investing activities....... (361,384) (353,864) (3,926) 1,126 (9,176) (6,495)
Financing activities....... 342,390 355,390 6,331 5,733 10,873 15,422
Ratio of earnings to
combined fixed charges
and preferred share 1.48 1.50 -- -- -- --
distributions(3) ..........
Office Properties:
Square footage............. 5,833,280 4,073,722 2,353,759 1,414,897 1,414,897 1,414,897
Occupancy (%).............. 89.9 91.9 88.0 92.5 95.8 93.7
Industrial Properties:
Square footage............. 5,834,974 5,832,974 5,696,355 2,462,430 2,551,624 2,547,388
Occupancy (%).............. 90.5 87.9 87.9 73.5 72.9 62.3
- - --------------------
</TABLE>
(1) Net income available per weighted-average common share of beneficial
interest-basic and diluted equals net income divided by 14,862,958 and
12,593,000 common shares for the year ended December 31, 1998 and for the
period from November 17, 1997 through December 31, 1997, respectively. See
Note 8 to our consolidated financial statements for further information.
(2) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), Funds from Operations represents net income (loss) before
minority interest of holders of Common Units (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Non-cash adjustments to
Funds from Operations were as follows: in all periods, depreciation and
amortization, for the period from January 1, 1997 through November 16,
1997, provision for environmental remediation cost, for the years ended
December 31, 1996, 1995, 1994, gains on the sale of real estate, for the
years ended December 31, 1996 and 1995, write-off of deferred tenant costs,
and for the year ended December 31, 1995, excess proceeds from insurance
claims. Management considers Funds from Operations an appropriate measure
of performance of an office and/or industrial REIT because industry
analysts have accepted it as such. We compute Funds from Operations in
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<PAGE>
accordance with standards established by the Board of Governors of NAREIT
in its March 1995 White Paper (with the exception that we report rental
revenues on a cash basis (based on contractual lease terms), rather than a
straight-line GAAP basis, which we believe results in a more accurate
presentation of our actual operating activities), which may differ from the
methodology for calculating Funds from Operations used by other REITs and,
accordingly, may not be comparable to such other REITs. Further, Funds from
Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
repayment obligations, or other commitments and uncertainties. Funds from
Operations should not be considered as an alternative for net income as a
measure of profitability nor is it comparable to cash flows provided by
operating activities determined in accordance with GAAP.
(3) The ratios of earnings to combined fixed charges and preferred share
distributions were computed by dividing earnings by combined fixed charges
and preferred share distributions. For this purpose, earnings consist of
income (loss) before minority interest, plus combined fixed charges.
Combined fixed charges consist of interest expense, amortization of debt
issuance costs, and preferred share distributions. The Predecessor's
historical earnings were insufficient to cover fixed charges by
approximately $29.1 million, $31.4 million, $29.6 million and $22.1 million
for the period from January 1, 1997 through November 16, 1997 and for the
years ended December 31, 1996, 1995, and 1994, respectively.
The following is our consolidated quarterly summary of operations.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
YEAR ENDED DECEMBER 31, 1998 1997
----------------------------------------------------------------------- THROUGH
FOURTH THIRD SECOND FIRST DECEMBER 31,
TOTAL QUARTER QUARTER QUARTER QUARTER 1997
----------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................... $ 147,601 $ 40,675 $ 41,252 $ 36,923 $ 28,751 $ 9,830
Total expenses........................... 116,735 31,904 31,563 29,708 23,560 8,403
----------------------------------------------------------------------------------------
Income before minority interests and
extraordinary item................... 30,866 8,771 9,689 7,215 5,191 1,427
Income allocated to minority interests... (9,368) (2,347) (2,704) (2,352) (1,965) (635)
----------------------------------------------------------------------------------------
Income before extraordinary items........ 21,498 6,424 6,985 4,863 3,226 792
Extraordinary items - loss on early
extinguishment of debt, net of
minority interests in the amount
$503 in the fourth quarter and $375
in the second quarter................ (1,253) (728) -- (525) -- --
----------------------------------------------------------------------------------------
Net income............................... 20,245 5,696 6,985 4,338 3,226 792
Net income allocated to preferred
shareholders......................... (7,971) (2,980) (2,950) (1,341) (700) (345)
========================================================================================
Net income applicable to common shares... $ 12,274 $ 2,716 $ 4,035 $ 2,997 $ 2,526 $ 447
========================================================================================
Earnings per common share - basic and
diluted:
Income before extraordinary items... $ 0.91 $ 0.23 $ 0.26 $ 0.22 $ 0.19 $ 0.04
Extraordinary items................. (0.08) (0.05) -- (0.03) -- --
========================================================================================
Net income.............................. $ 0.83 $ 0.18 $ 0.26 $ 0.19 $ 0.19 $ 0.04
========================================================================================
Weighted average common shares
outstanding............................ 14,875 15,137 15,535 15,572 13,181 12,593
========================================================================================
Distributions paid per common share...... $ 1.1789 $ 0.3375 $ 0.3375 $ 0.3375 $ 0.1664 $ --
========================================================================================
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with our historical
consolidated financial statements and the predecessor's combined financial
statements and related notes thereto included elsewhere in this Form 10-K.
We are a fully-integrated real estate investment company organized under
Maryland law, providing property management, leasing, marketing, acquisition,
development, redevelopment, construction, finance and other related services. As
of December 31, 1998, we owned 24 office properties (eight were acquired during
1998 and the remaining were owned at December 31, 1997), 46 industrial
properties (all were owned at December 31, 1997), one retail center, and one
parking facility. Our properties are located primarily in the Chicago
metropolitan area. In addition, we own a mortgage on an office property located
at 180 N. LaSalle Street, Chicago, Illinois.
As of December 31, 1998, in terms of net rentable square feet,
approximately 90.2% of our office properties and 89.7% of our industrial
properties were 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 90.8% of our rental revenue
and 98.0% of our tenant reimbursements revenue for the year ended December 31,
1998. Our remaining office properties are located in the Nashville, Tennessee;
Knoxville, Tennessee; and Milwaukee, Wisconsin metropolitan areas. Our remaining
industrial properties are located in the Columbus, Ohio metropolitan area.
Our income is derived primarily from rental revenue (including tenant
reimbursements) from our properties supplemented by interest income on the
mortgage note owned. We expect that revenue growth over the next several years
will come from a combination of additional acquisitions and revenue generated
through increased rental and occupancy rates in the current portfolio.
CAUTIONARY STATEMENTS
The following discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which reflect management's current views with respect to future events and
financial performance. Such forward-looking statements are subject to certain
risks and uncertainties; including, but not limited to, the effects of future
events on our financial performance; the risk that we may be unable to finance
our planned acquisition and development activities; risks related to the
industrial and office industry in which our 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 our 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 our properties.
RESULTS OF OPERATIONS
The following analysis provides a comparison of our operations for the
years ended December 31, 1998 and 1997. The period from January 1, 1997 through
November 16, 1997 represents the activity of the Predecessor's properties and
the period from November 17, 1997 through December 31, 1998 represents our
activity.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
In analyzing the operating results for the year ended December 31, 1998,
the changes in rental and reimbursable revenue, 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 our initial public offering as well as properties acquired
after our initial public offering through December 31, 1998.
The Predecessor's properties currently owned by us consisted of five office
properties, 17 industrial properties, and a parking facility. At the time of our
initial public offering, nine additional office properties, 29 additional
industrial properties and one retail center were contributed or acquired. After
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<PAGE>
the date of our initial public offering and through December 31, 1998, we
acquired ten additional office properties and a first mortgage note encumbering
an office property as described in the footnotes to our consolidated financial
statements contained elsewhere in this Form 10-K.
For the year ended December 31, 1998, rental revenue and tenant
reimbursements income increased $85.0 million, or 170.7%, to $134.8 million, and
other revenue increased $5.5 million, or 372.4%, to $7.0 million, property
operating expenses and real estate tax expense increased $33.5 million, or
158.2%, to $54.7 million, and depreciation and amortization expense increased
$11.7 million, or 85.5%, to $25.4 million as compared to the year ended December
31, 1997. The primary reason for the increases in the above revenue and expense
categories was the contribution and acquisition of new office and industrial
properties we have made since our initial public offering. The additional office
and industrial properties resulted in increased total rental revenue and tenant
reimbursements income of $88.6 million, other revenue of $5.0 million, property
operating expenses and real estate tax expense of $35.4 million and depreciation
and amortization expense of $11.9 million for the year ended December 31, 1998.
Included in the rental revenue increase for 1998 is $4.1 million related to
lease terminations. Rental revenue and tenant reimbursement revenue for the
Predecessor's properties increased $0.6 million for the year ended December 31,
1998 compared to the same period in 1997. Depreciation and amortization expense
for the Predecessor's properties increased $0.7 million for the year ended
December 31, 1998 compared to the same period in 1997.
Mortgage note interest income increased by $5.6 million to $5.9 million due
to the acquisition of the first mortgage note encumbering the property known as
180 North LaSalle Street in December 1997.
Interest expense had a net increase of $4.6 million, or 17.5%, to $30.9
million during the year ended December 31, 1998. The increase was due to a $36.2
million increase due to mortgages obtained on certain of the properties which
were contributed or acquired after our initial public offering, as well as our
Credit Facilities borrowings used to fund property acquisitions, offset by a
$31.6 million decrease as a result of the repayment of debt with proceeds from
our initial public offering or debt forgiveness in 1997.
General and administrative expense increased $3.0 million during the year
ended December 31, 1998, reflecting costs related to our new public status and
increased size.
The $1.2 million decrease in financing fees and the $1.3 million decrease
in property and asset management fees are due to these fees being incurred by
the Predecessor under their previous ownership and are costs we no longer incur.
In 1997, the Predecessor recorded a provision for environmental remediation
costs of $3.2 million, which represents the estimated costs to be incurred for
the clean-up of environmental contamination of certain industrial properties.
PGI has contractually agreed to indemnify us from any environmental liabilities
we may incur. No additional provision was deemed necessary in 1998.
Income allocated to minority interests increased $9.4 million to $9.4
million for the year ended December 31, 1998 compared to the same period in 1997
due to an increase in income before minority interest of $58.5 million, or
212.0%, to $30.9 million due to the changes in revenue and expenses described
above and a change in the ownership structure. The increase in income before
minority interests is due to additional properties either being contributed or
acquired and the effects they had on revenue and expenses described above. The
change in ownership structure is due to certain ownership percentages changing
do to our initial public offering.
Extraordinary gain on extinguishment of debt decreased $67.2 million to a
$1.3 million extraordinary loss in 1998, due to the gain in 1997 related to the
forgiveness of debt principal net of the write-off of various deferred costs,
while the loss in 1998 represents only the write-off deferred costs for mortgage
indebtness that was repaid or refinanced and a reduction in the maximum balance
that can be drawn on one of our Credit Facilities.
Net income decreased $18.2 million, or 47.3%, to $20.2 million for the year
ended December 31, 1998 compared to the same period in 1997 due to the changes
in revenue, expenses, minority interest, and extraordinary items described
above.
The following analysis provides a comparison of the property operations for
the years ended December 31, 1997 and 1996. The period from January 1, 1997
through November 16, 1997 and the year ended December 31, 1996 represents the
activity of the Predecessors properties and the period from November 17, 1997
through December 31, 1997 represents our activity.
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<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996.
Total revenue increased $3.6 million, or 7.5%, to $51.8 million for the
year ended December 31, 1997 compared to $48.2 million for the year ended
December 31, 1996 primarily due to the addition of the properties acquired and
contributed at our initial public offering. Rental revenue increased $4.7
million, or 15.4%, to $35.2 million in 1997 from $30.5 million in 1996. In 1997,
rental revenue from our office properties increased $3.2 million, or 13.0%, to
$27.9 million from $24.7 million in 1996. In 1997, rental revenue from our
industrial properties increased $1.5 million, or 25.9%, to $7.3 million from
$5.8 million in 1996. Tenant reimbursements revenue increased $0.3 million, or
2.1%, to $14.5 million in 1997 from $14.2 million in 1996. Tenant reimbursements
revenue from our office properties remained consistent at $12.1 million for both
1997 and 1996. During 1996 a significant tenant of the 77 West Wacker building
paid no tenant reimbursements until a final restructuring agreement was reached
in late 1996. During 1997, the above mentioned tenant paid $0.6 million of
tenant reimbursements. Tenant reimbursements from our industrial properties
increased $0.3 million, or 14.3%, to $2.4 million in 1997 from $2.1 million in
1996. Other nonrecurring items recorded in 1996 resulted in a net decrease of
$1.4 million, or 41.2%, in all other revenue to $2.0 million in 1997 from $3.4
million in 1996. Included in our historical financials, related to the period
from November 17, 1997 to December 31, 1997 are rental revenues of $3.5 million,
tenant revenue reimbursements of $0.8 million and $0.4 million of other revenue
related to the non-Predecessor properties contributed or acquired during that
period
Total expenses decreased $0.2 million, or 0.3%, to $79.4 million for the
year ended December 31, 1997 compared to $79.6 million for the year ended
December 31, 1996. Property operating expenses increased $1.0 million, or 11.2%,
to $10.8 million in 1997 from $9.8 million in 1996. In 1997, property operating
expenses from our office properties increased $1.6 million, or 19.5%, to $9.8
million for the year ended December 31, 1997 compared to $8.2 million for the
year ended December 31, 1996. The property operating expenses from our
industrial properties decreased $0.6 million, or 37.5%, to $1.0 million for the
year ended December 31, 1997 compared to $1.6 million for the year ended
December 31, 1996. In 1997, real estate tax expenses increased $1.0 million, or
10.6%, to $10.4 million from $9.4 million in 1996 primarily due to higher
property assessments in 1997. In 1997, total interest expense decreased $1.1
million, or 3.0%, to $36.1 million from $37.2 million in 1996 primarily due to
the paydown of a mortgage note collateralized by the 77 West Wacker Drive
building. In 1997, general and administrative expenses decreased $2.2 million,
or 44.5%, to $2.7 million from $4.9 million in 1996 primarily due to the
nonrecurring expenses recorded in the last six months of 1996. In 1997, the
Predecessor recorded a provision for environmental remediation costs of $3.2
million, which represents the probable costs to be incurred for the clean-up of
environmental contamination at certain industrial properties. PGI has
contractually agreed to indemnify us from any environmental liabilities we may
incur. Other expenses decreased $2.1 million on a net basis in 1997 from $18.3
million in 1996 compared to $16.2 million in 1997 primarily due to the write-off
of deferred tenant costs in 1996. Included in our historical financials related
to the period from November 17, 1997 to December 31, 1997, are property
operating expenses of $0.6 million, real estate tax expense of $0.6 million,
interest expense of $1.3 million and general and administrative expense of $0.7
million related to the non Predecessor properties contributed of acquired during
the period.
In 1997, net loss allocated to minority interests decreased $0.8 million,
or 88.9%, to $0.1 million from $0.9 million in 1996, primarily due to the
changes described above and an overall change in minority interests ownership
due to our initial public offering.
In 1997, net income of $38.4 million was reported compared to a loss of
$30.5 million in 1996, primarily due to the changes described above and the
extraordinary gain on early extinguishment of debt of $66.0 million, net of
minority interests, recorded in 1997.
LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITIES. Our Credit Facilities, with a maximum loan availability
totaling $90.0 million, have been provided by various financial institutions,
and are collateralized by first mortgages on certain properties owned by the
operating partnership. Subject to our compliance with the applicable loan
covenants, the Credit Facilities may be used to provide funds for acquisitions
and development activities and to provide the replacement letters-of-credit for
the $26.9 million of tax-exempt bonds. No amounts were drawn on Credit
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<PAGE>
Facilities at December 31, 1998 (except for the letters-of-credit impact on
current availability). See Note 4 to our consolidated financial statements for
further information. In January and February 1999, we drew $30.0 million from
our Credit Facilities to acquire two office buildings.
MORTGAGE NOTES. We have financed a portion of our acquisitions with
proceeds from mortgage notes payable from various financial institutions, with
fixed and variable interest rates and maturities of 1999 through 2013. We feel
that our properties have excess value that may be utilized for additional
mortgage borrowing or debt securitizations. See Note 4 to our consolidated
financial statements for further information.
FUTURE OFFERINGS. On January 8, 1999, we filed our initial shelf
registration statement on Form S-3 with the Securities and Exchange Commission
to register up to $500.0 million of our equity and debt securities for future
sale.
We intend to fund future acquisitions and development with a combination of
advances from our Credit Facilities, additional mortgage notes payable and
future equity and debt offerings.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES.
We expect to meet our short-term liquidity requirements through net cash
provided by operations. Our properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvements.
During 1998, our tenant improvements and leasing commissions averaged $18.04 per
square foot of newly leased office space, $3.85 per square foot of renewal
leased office space, and $4.53 per square foot of newly leased industrial space.
Our estimated annual cost of recurring tenant improvements and leasing
commissions is approximately $8.6 million based upon average annual square feet
for leases expiring during the years ending December 31, 1999 and 2000. Our cost
of general capital improvements to our properties average approximately $3.0
million annually based upon an estimate of $0.26 per square foot.
We expect to meet our long-term liquidity requirements for the funding of
property development, property acquisitions and other non-recurring capital
improvements through a combination of net cash from operations, long-term
secured and unsecured indebtedness (including the Credit Facilities) and the
issuance of additional equity securities. The terms of the Credit Facilities and
our preferred shares impose restrictions on our ability to incur indebtedness
and issue additional preferred shares.
HISTORICAL CASH FLOWS
Historically, we have generated positive cash flows from operations to fund
distributions to our shareholders and have funded our expansion primarily
through equity offerings and mortgage debt financing. Historically, the
Predecessor's principal sources of funding for operations and capital
expenditures were from mortgage debt financing.
We had consolidated net cash provided by operating activities of $53.5
million for the year ended December 31, 1998. We and the Predecessor had
consolidated and combined net cash provided by operating activities of $2.5
million for the year ended December 31, 1997 and the Predecessor had combined
net cash used in operating activities of $2.5 million for the year ended
December 31, 1996. The $51.0 million increase in net cash provided by operating
activities for the year ended December 31, 1998 from the year ended December 31,
1997 was primarily due to a $67.2 million decrease in extraordinary items, a
$9.4 million increase in income allocated to minority interests, a $11.7 million
increase in depreciation and amortization, a $4.6 million increase in other
liabilities, a $3.8 million increase in accrued real estate taxes, a $2.5
million increase in accrued interest payable, and a $0.3 million decrease in
gain of sale of real estate, offset by a $18.2 million decrease in net income, a
$11.7 million increase in other assets, a $9.8 million decrease in interest
added to principal on mortgage note payable affiliate, a $3.1 million decrease
in accounts payable and accrued expenses, a $2.5 million increase in tenant
receivables, a $1.9 million decrease in deferred rent receivable, a $1.0 million
increase in interest income and developer fees added to mortgage note receivable
principal and a $0.5 million decrease in standby loan fee-affiliate added to
principal on mortgage note payable affiliate. The $4.9 million increase in net
cash provided by operating activities for the year ended December 31, 1997 from
the year ended December 31, 1996 was primarily due to a $68.9 million increase
in net income, a $1.3 million decrease in deferred tenant receivables, a $0.6
million decrease in gain on sale of real estate, a $1.3 million increase in
depreciation and amortization expense, a $0.9 million decrease in loss allocated
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<PAGE>
to minority interest, a $7.7 million increase in accrued real estate taxes and a
$9.3 million increase in accounts payable and accrued expenses, offset by a $0.2
million decrease in interest added to principal, a $3.1 million decrease in the
write-off of deferred tenant costs, a $66.0 million increase in extraordinary
gain, a $2.9 million increase in tenant receivables, a $10.1 million increase in
other assets, a $1.6 million decrease in accrued interest and a $1.1 million
decrease in other liabilities.
We had consolidated net cash used in investing activities of $361.4 million
for the year ended December 31, 1998. We and the Predecessor had consolidated
and combined net cash used in investing activities of ($357.8 million) for the
year ended December 31, 1997 and the Predecessor had combined net cash provided
by investing activities of $0.4 million for the year ended December 31, 1996.
The $3.6 million increase in net cash used in investing activities for the year
ended December 31, 1998 from the year ended December 31, 1997 was primarily due
to a $46.2 million decrease in advances on mortgage note receivable, a $1.6
million decrease in expenditures for real estate and equipment, a $1.2 million
decrease in due from affiliates and a $0.4 million decrease in cash contributed
to the Services Company, offset by a $50.7 million increase in restricted cash
escrows, a $1.3 million increase in deferred leasing costs, a $0.6 million
increase in loans provided to the Service Company and a $0.3 million decrease in
proceeds from sale of real estate. The $358.2 million increase in net cash used
in investing activities for the year ended December 31, 1997 from the year ended
December 31, 1996 was primarily due to a $1.8 million decrease in proceeds from
the sale of real estate, a $298.8 million increase in real estate expenditures,
a $51.2 million purchase of a mortgage note receivable, a $0.8 million increase
in deferred costs, a $5.2 million increase in amounts due from affiliates and a
$0.4 million cash contribution to the Services Company.
We had consolidated net cash provided by financing activities of $342.4
million for the year ended December 31, 1998. We and the Predecessor had
consolidated and combined net cash provided by financing activities of $361.7
million for the year ended December 31,1997 and the Predecessor had combined net
cash provided by financing activities of $5.7 million for the year ended
December 31, 1996. The $19.3 million decrease in net cash provided by financing
activities for the year ended December 31, 1998 from the year ended December 31,
1997 was primarily due to a $215.7 million net decrease in the net proceeds from
the sale of our preferred and common shares and operating partnership units, a
$7.3 million increase in cash used to repurchase our common shares, a $43.3
million increase in the repayment of mortgage notes payable and net repayment of
credit facilities, a $35.2 million increase in distributions to our preferred
and common shareholders and the operating partnership's minority interest unit
holders, a $19.1 million increase in financings costs, a $5.6 million decrease
in proceeds from mortgage note payable affiliates, and a $44.3 million decrease
in contributions from predecessor partners offset by a $305.4 million increase
in proceeds from mortgage notes payable and net proceeds from credit facilities,
a $42.3 million decrease in the repayment of mortgage notes payable from
affiliates, a $0.7 million decrease in due from affiliates, a $1.0 million
contribution from minority interest - other and a $1.7 million decrease in debt
termination fees. The $356.0 million increase in net cash provided by financing
activities for the year ended December 31, 1997 from the year ended December 31,
1996 was primarily due to $272.0 million in net proceeds from our initial public
offering, private placement, $85.0 million from the sale of operating
partnership units, a $242.4 million increase in proceeds from mortgage notes
payable, and a $44.3 million increase in contributions from Predecessor
partners, offset by a $236.6 million increase in the repayment of mortgage notes
payable, a $45.1 million increase in the repayment of mortgage notes payable
affiliates, the payment of $5.0 million of deferred financing costs and debt
termination fees and a $0.5 million decrease in due to affiliates.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations, as defined by
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. We believe
that in order to facilitate a clear understanding of our consolidated historical
operating results and the Predecessor's combined historical operating results,
Funds from Operations should be examined in conjunction with net income (loss)
as presented in audited combined financial statements and selected financial
data included elsewhere in this Form 10-K. We compute Funds from Operations in
accordance with standards established by the Board of Governors of NAREIT in its
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<PAGE>
March 1995 White Paper (with the exception that we report rental revenues on a
cash basis (based on contractual lease terms), rather than a straight-line GAAP
basis, which we believe results in a more accurate presentation of our actual
operating activities), which may differ from the methodology for calculating
Funds from Operations used by other REITs and, accordingly, may not be
comparable to such other REITs. As a result of our reporting rental revenues on
a cash basis for Funds from Operations, 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 our performance or to
cash flows as a measure of liquidity or the ability to pay dividends or make
distributions.
The following is our consolidated quarterly summary of Funds From
Operations.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
YEAR ENDED DECEMBER 31, 1998 1997
----------------------------------------------------------------------- THROUGH
FOURTH THIRD SECOND FIRST DECEMBER 31,
TOTAL QUARTER QUARTER QUARTER QUARTER 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income allocated to common $ 12,274 $ 2,716 $ 4,035 $ 2,997 $ 2,526 $ 447
shareholders...........................
FFO adjustments:
Real estate depreciation and
amortization (1)..................... 23,964 7,009 6,106 5,834 5,015 2,215
Amortization of costs for leases
assumed.............................. 1,137 285 286 275 291 142
Straight-line rental revenue
adjustments.......................... (1,234) (181) (531) (494) (28) 180
Minority interests..................... 9,368 2,347 2,704 2,352 1,965 635
Extraordinary loss..................... 1,253 728 -- 525 -- --
========================================================================================
Funds from operations.................. $ 46,762 $ 12,904 $ 12,600 $ 11,489 $ 9,769 $ 3,619
========================================================================================
Other data:
Net cash provided by (used in)
operating activities................. $ 53,525 $ (133) $ 36,442 $ 9,214 $ 8,002 $ 6,706
Net cash used in investing activities.. (361,384) (25,803) (68,245) (91,645) (175,691) (353,864)
Net cash provided by financing
activities........................... 342,390 64,298 26,774 86,011 165,307 355,390
- - --------------------
<FN>
(1) Excludes the amortization of deferred financing costs and non- real estate
related depreciation.
</FN>
</TABLE>
YEAR 2000
The year 2000 ("Y2K") issue refers generally to computer applications using
only the last two digits to refer to a year rather than all four digits. As a
result, these applications could fail or create erroneous results if they
recognize "00" as the year 1900 rather than the year 2000. We have taken Y2K
initiatives in the following three general areas:
INFORMATION TECHNOLOGY
We have focused our efforts on the high-risk areas of the corporate office
computer hardware, operating systems and software applications. The principal
risks relating to our information technology are failure to correctly bill
tenants and pay invoices. Our assessment and testing of existing equipment
revealed that our hardware, network operating systems, secondary information
systems and desktop software applications are Y2K compliant. However, we
currently have four accounting and property management systems that are not Y2K
compliant. We initiated a comprehensive corporation wide plan in mid-1998 to
-25-
<PAGE>
completely replace our financial and operational systems by the fourth quarter
of 1999 in order to facilitate our future growth and to improve operational
controls. We anticipate the total cost of this effort will be $3.5 million to
$4.0 million and will have the additional benefit of making our financial and
operational systems Y2K compliant. Of the total project costs, we estimate
approximately $3.2 million to $3.7 million is attributable to the purchase and
implementation of new software and equipment which will be capitalized and the
remainder related to the assessment, modifications to existing hardware and
software, and training which will be expensed as incurred. We also believe that
some of our telecommunication systems may not be Y2K compliant. We are currently
assessing these systems and, where material, plan to replace, modify or upgrade
these systems, as appropriate, by the end of the second quarter of 1999.
NON-INFORMATION TECHNOLOGY
Non-information technology consists mainly of facilities management systems
such as telephone, utility, and security systems for the corporate office and
owned properties. Based on our current efforts, the corporate office's
non-information technology is expected to be Y2K compliant by mid-1999. We are
in the process of identifying date sensitive systems and equipment at our
properties. To date, we have not identified any critical non-compliant systems.
Assessment and testing of non-information technology at our properties is
expected to be competed by mid-1999.
THIRD PARTIES
We have third-party relationships with tenants, suppliers and contractors.
Many of these third parties are publicly traded corporations and subject to
disclosure requirements. We have begun assessment of major third parties' Y2K
readiness including tenants, key suppliers of outsourced services including
stock transfer, debt servicing, banking collection and disbursement, payroll and
benefits, while simultaneously responding to their inquiries regarding our
readiness. The principal risks to us in our relationships with third parties are
the failure of third-party systems used to conduct business such as (i) tenants
being unable to efficiently conduct their business, (ii) banks being unable to
process receipts and disbursements, (iii) vendors being unable to supply needed
materials and services to the properties, and (iv) processing of outsourced
payroll. Based on Y2K compliance work done to date, we have no reason to believe
that key tenants, banks and suppliers will not be Y2K compliant in all material
respects or cannot be replaced within an acceptable time frame. Additionally, we
have obtained or are in the process of obtaining compliance certification from
suppliers of key services.
We do not believe that the impact of the Y2K problem will have a material
adverse effect on our financial condition and results of operations. Such belief
is based on our analysis of our risks related to both our own potential Y2K
problems discussed above and our assessment of the Y2K problems of our vendors,
suppliers and customers. However, the description of our Y2K compliance is based
upon information obtained by management through evaluations of internal business
systems from inquiries of key tenants and major vendors concerning their
compliance efforts. If key tenants or major vendors with whom we do business
fail to adequately address their Y2K issues, our financial position or results
from operations could be materially adversely affected.
We currently do not have a contingency plan in place. Once we have
proceeded further in the completion of steps outlined above, contingency plans
will be developed.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. We expect to adopt the new
Statement effective January 1, 2000. The Statement will require us to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If a derivative is a
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. We do not anticipate
that the adoption of this Statement will have a significant effect on our
results of operations or financial position.
-26-
<PAGE>
INFLATION
Substantially all of our office and industrial leases require tenants to
pay, as additional rent, a portion of any increases in real estate taxes and
operating expenses over a base amount. In addition, many of the office and
industrial leases provide for fixed increases in base rent or indexed
escalations (based on the Consumer Price Index or other measures). We believe
that inflationary increases in expenses will be offset, in part, by the expense
reimbursements and contractual rent increases described above.
As of December 31, 1998, approximately $310.6 million of our outstanding
indebtedness (including our Credit Facilities) was subject to interest at
floating rates and future indebtedness may also be subject to floating rate
interest. Inflation, and its impact on floating interest rates, could affect the
amount of interest payments due on such indebtedness.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For our mortgage note receivable, mortgage notes payable and
bonds payable (no amounts were drawn on our Credit Facilities at December 31,
1998), the table presents principal cash flows and related weighted-average
interest rates by expected maturity dates. For treasury lock agreements, the
table presents notional amounts to be entered into and the related
weighted-average lock rate by the maturity dates.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
- - ------------------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
----------------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage note receivable (1) -- -- -- -- -- $ 63.3 $ 63.3
Fixed interest rate -- -- -- -- -- 9.64%
LIABILITIES
Mortgage notes payable (2):
Fixed rate $ 3.6 $ 3.8 $ 4.2 $ 4.5 $ 4.8 $ 261.7 $ 282.6
Average interest rate 7.25% 7.25% 7.26% 7.26% 7.25% 7.29%
Variable rate $ 183.5 $ 32.6 $ 20.0 -- -- -- $ 236.1
Average interest rate (3) 6.15% 6.66% 7.58% -- -- --
Bonds payable (2):
Variable rate -- -- -- $ 48.2 -- $ 26.3 $ 74.5
Average interest rate (3) -- -- -- 4.13% -- 3.55%
TREASURY LOCK AGREEMENTS RELATED
TO ANTICIPATED LONG-TERM DEBT ISSUANCE
Treasury Lock Agreements (2), (4):
Pay fixed $ 330.0 -- -- -- -- -- $ 330.0
Average lock rate 5.05% -- -- -- -- --
- - --------------------
</TABLE>
(1) See Note 2 to our consolidated financial statements for additional
information.
(2) See Note 4 to our consolidated financial statements for additional
information.
(3) Based upon the rates in effect at December 31, 1998. The weighted-average
interest rate on our mortgage notes payable and bonds payable at December
31, 1998 were 6.62% and 3.92%, respectively. If interest rates on our
variable rate debt increased by one percentage point, our annual interest
expense would increase by $3.1 million.
-27-
<PAGE>
(4) At December 31, 1998, we made deposits totaling $14.6 million related to
treasury lock agreements of $170.0 million and $160.0 million, which were
to expire in 1999. The average lock rate reflected is based upon the
agreements in effect as of December 31, 1998 (5.364% for the $170.0 million
agreement and 4.732% for the $160.0 million agreement). During the period
from January 1, 1999 through March 25, 1999, we have received net cash
settlements of approximately 9.2 million ($1.0 million related to the
$170.0 million agreement, $8.2 million related to the $160.0 million
agreement). On March 1, 1999, we terminated the $160.0 million treasury
lock agreement due to the change in the terms and timing of the IBM Plaza
purchase as a result of the amended purchase agreement (we had
approximately $0.6 million on deposit related to this agreement that was
forfeited the time of the termination).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-28-
<PAGE>
PART III
Certain information required by Part III is omitted from this Report as we
will file a definitive proxy statement within 120 days after the end of our
fiscal year pursuant to Regulation 14A for our Annual Meeting of Shareholders to
be held on May 19, 1999 (the "Proxy Statement") and the information included
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the section captioned "Election of Trustees"
of the Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Compensation of
Executives" and "Executive Officers" of the Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the section captioned "Principal Security
Holders of the Company" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Proxy Statement is incorporated herein by
reference.
-29-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Prime Group Realty Trust and the Predecessor:
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheets of Prime Group Realty
Trust as of December 31, 1998 and 1997............................. F-3
Consolidated Statements of Operations of Prime Group Realty Trust
for the year ended December 31, 1998 and for the period from
November 17, 1997 through December 31, 1997 and Combined
Statements of Operations of the Predecessor for the period from
January 1, 1997 through November 16, 1997 and for the year ended
December 31, 1996.................................................. F-4
Consolidated Statements of Changes in Shareholders' Equity of Prime
Group Realty Trust for the year ended December 31, 1998 and for
the period from November 17, 1997 to December 31, 1997............. F-5
Combined Statements of Changes in Predecessors' Deficit for the
period from January 1, 1997 through November 16, 1997 and for
the year ended December 31, 1996................................... F-6
Consolidated Statements of Cash Flows of Prime Group Realty Trust
for the year ended December 31, 1998 and for the period
from November 17, 1997 through December 31, 1997 and the
Combined Statements of Cash Flows of the Predecessor for the
period from January 1, 1997 through November 16, 1997 and for
the year ended December 31, 1996................................... F-7
Notes to Consolidated and Combined Financial Statements............... F-10
2. Financial Statement Schedule
The following financial statement schedule is included in
Item 14(d)
Report of Independent Auditors on Schedule (included with consent
filed as Exhibit 23.1)
Schedule III - Real Estate and Accumulated Depreciation of Prime
Group Realty Trust as of December 31, 1998......................... F-29
All other schedules for which provision is made in the applicable
accounting regulation of the Securities Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
-30-
<PAGE>
(3) Exhibits
EXHIBIT
NO. DESCRIPTION
- - ------- ----------------------------------------------------------------------
3.1 Articles of Amendment and Restatement of Declaration of Trust of Prime
Group Realty Trust as filed as an exhibit to Prime's 1997 Annual
Report on Form 10-K and incorporated herein by reference
3.2 Articles Supplementary to the Articles of Amendment and Restatement of
Declaration of Trust of Prime Group Realty Trust as filed as an
exhibit to Prime's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference
3.3 Articles Supplementary to the Articles of Amendment and Restatement of
Declaration of Trust or Prime Group Realty Trust dated as of December
29, 1998
3.4 Amended and Restated Bylaws of Prime Group Realty Trust as filed as an
exhibit to Prime's 1997 Annual Report on Form 10-K and incorporated
herein by reference
3.5 Amended and Restated Agreement of Limited Partnership of Prime Group
Realty, L.P. (the "Amended and Restated Agreement of Limited
Partnership") as filed as an exhibit to Prime's 1997 Annual Report on
Form 10-K and incorporated herein by reference
3.6 Amendment No. 1 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.7 Amendment No. 2 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.8 Amendment No. 3 to the Amended and Restated Agreement of Limited
Partnership dated as of January 15, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.9 Amendment No. 4 to the Amended and Restated Agreement of Limited
Partnership dated as of February 13, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.10 Amendment No. 5 to the Amended and Restated Agreement of Limited
Partnership dated as of March 13, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.11 Amendment No. 6 to the Amended and Restated Agreement of Limited
Partnership dated as of March 25, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.12 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 Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.13 Amendment No. 8 to the Amended and Restated Agreement of Limited
Partnership dated as of May 15, 1998 as filed as an exhibit to
Amendment No. 2 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.14 Amendment No. 9 to the Amended and Restated Agreement of Limited
Partnership dated as of June 5, 1998 as filed as an exhibit to Prime's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference
3.15 Amendment No. 10 to the Amended and Restated Agreement of Limited
Partnership dated as of June 15, 1998 as filed as an exhibit to
Prime's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference
-31-
<PAGE>
EXHIBIT
NO. DESCRIPTION
- - ------- ----------------------------------------------------------------------
3.16 Amendment No. 11 to the Amended and Restated Agreement of Limited
Partnership dated as of July 15, 1998 as filed as an exhibit to
Post-Effective Amendment No. 1 to Prime's Registration Statement on
Form S-11 (No. 333-51935) and incorporated herein by reference
3.17 Amendment No. 12 to the Amended and Restated Agreement of Limited
Partnership dated as of August 14, 1998 as filed as an exhibit to
Post-Effective Amendment No. 1 to Prime's Registration Statement on
Form S-11 (No. 333-51935) and ncorporated herein by reference
3.18 Amendment No. 13 to the Amended and Restated Agreement of Limited
Partnership dated as of September 15, 1998 as filed as an exhibit to
Amendment No. 1 to Post-Effective Amendment No. 1 to Prime's
Registration Statement on Form S-11 (No. 333-51935) and incorporated
herein by reference
3.19 Amendment No. 14 to the Amended and Restated Agreement of Limited
Partnership dated as of October 15, 1998 as filed as an exhibit to
Amendment No. 2 to Prime's Registration Statement on Form S-3 (No.
333-64973) and incorporated herein by reference
3.20 Amendment No. 15 to the Amended and Restated Agreement of Limited
Partnership dated as of November 16, 1998 as filed as an exhibit to
Amendment No. 1 to Prime's Registration Statement on Form S-3 (No.
333-64973) and incorporated herein by reference
3.21 Amendment No. 16 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998 as filed as an exhibit to
Post-Effective Amendment No. 3 to Prime's Registration Statement on
Form S-3 (Registration No. 333-51935) and incorporated herein by
reference
10.1 Amendment No. 2 to the Credit Facility dated as of March 16, 1998 as
filed as an exhibit to Amendment No. 1 to Prime's Registration
Statement on Form S-11 (No. 333-51599) as filed with the Securities
and Exchange Commission on May 14, 1998 and incorporated herein by
reference
10.2 Amendment No. 3 to the Credit Facility dated as of March 30, 1998 as
filed as an exhibit to Amendment No. 1 to Prime's Registration
Statement on Form S-11 (No. 333-51599) as filed with the Securities
and Exchange Commission on May 14, 1998 and incorporated herein by
reference
10.3 Purchase Agreement dated as of March 25, 1998 between Prime Group
Realty Trust and the purchasers thereto as filed as an exhibit to
Amendment No.1 to Prime's Registration Statement on Form S-11 (No.
333-51599) as filed with the Securities and Exchange Commission on May
14, 1998 and incorporated herein by reference
10.4 Registration Rights Agreement dated as of March 25, 1998 between Prime
Group Realty Trust and the other parties thereto as filed as an
exhibit to Amendment No. 1 to Prime's Registration Statement on Form
S-11 (No. 333-51599) as filed with the Securities and Exchange
Commission on May 14, 1998 and incorporated herein by reference
10.5 Limited Liability Company Agreement of Prime/Beitler Development
Company, L.L.C. dated as of March 30, 1998 between Penny Beitler
L.L.C. and Prime Group Realty, L.P. as filed as an exhibit to
Amendment No.1 to Prime's Registration Statement on Form S-11 (No.
333-51599) as filed with the Securities and Exchange Commission on May
14, 1998 and incorporated herein by reference
10.6 Amendment No. 4 to the Credit Facility dated as of April 24, 1998 as
filed as an exhibit to Amendment No. 1 to Prime's Registration
Statement on Form S-11 (No. 333-51599) as filed with the Commission on
May 14, 1998 and incorporated herein by reference
10.7 Subordination and Intercreditor Agreement made as of May 14, 1998
among Connecticut General Life Insurance Company and Prime Group
Realty, L.P. as filed as an exhibit to Prime's Quarterly Report for
the quarter ended June 30, 1998 as filed with the Commission on August
14, 1998 and incorporated herein by reference
-32-
<PAGE>
EXHIBIT
NO. DESCRIPTION
- - ------- ----------------------------------------------------------------------
10.8 Employment Agreement dated as of May 6, 1998 by and between Prime and
Louis Conforti as filed as an exhibit to Prime's Quarterly Report for
the quarter ended June 30, 1998 as filed with the Commission on August
14, 1998 and incorporated herein by reference
10.9 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
ersonally, 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 as filed as an exhibit to
Prime's Quarterly Report for the quarter ended June 30, 1998 as filed
with the Commission on August 14, 1998 and incorporated herein by
reference
10.10 Loan Agreement, dated October 1, 1998, between 77 West Wacker Limited
Partnership and Lehman Brothers Holdings, Inc., doing business as
Lehman Capital, a division of Lehman Brothers Holdings, Inc.
10.11 Amended and Restated Loan Agreement, dated as of October 1, 1998,
among Prime Group Realty, L.P., Prime Group Realty Trust and LaSalle
National Bank
10.12 Fifth Amendment to Credit Agreement, dated as of October 1, 1998,
among Prime Group Realty, L.P., Prime Group Realty Trust, BankBoston,
N.A. and the other lenders party thereto
10.13 Loan Agreement, dated October 21, 1998, between 2000 York Road, L.L.C.
and The Capital Company of America
10.14 Loan Agreement, dated October 21, 1998, between Two Century Centre,
L.L.C. and The Capital Company of America
10.15 Loan Agreement, dated October 21, 1998, between 180 N. LaSalle, L.L.C.
and The Capital Company of America
12.1 Computation of ratios of earning to combined fixed changes and
preferred share distributions.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K or Form 8-KA during the fourth
quarter of 1998.
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March ____, 1999.
PRIME GROUP REALTY TRUST
Dated: March 31, 1999
/s/ Richard S. Curto
-------------------------------------
Richard S. Curto
President and Chief
Executive Officer
Dated: March 31, 1999
/s/ William M. Karnes
-------------------------------------
William M. Karnes
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Michael W. Reschke
- - -----------------------------
Michael W. Reschke Chairman of the Board March 31, 1999
and Trustee
/s/ Richard S. Curto
- - -----------------------------
Richard S. Curto President, Chief Executive March 31, 1999
Officer and Trustee
/s/ William M. Karnes
- - -----------------------------
William M. Karnes Executive Vice President March 31, 1999
and Chief Financial
Officer
/s/ Roy P. Rendino
- - -----------------------------
Roy P. Rendino Senior Vice President - March 31, 1999
Finance and Chief
Accounting Officer
/s/ Stephen J. Nardi
- - -----------------------------
Stephen J. Nardi Trustee March 31, 1999
/s/ James R. Thompson
- - -----------------------------
James R. Thompson Trustee March 31, 1999
/s/ Jacque M. Ducharme
- - -----------------------------
Jacque M. Ducharme Trustee March 31, 1999
/s/ Christopher J. Nassetta
- - -----------------------------
Christopher J. Nassetta Trustee March 31, 1999
/s/ Thomas J. Saylak
- - -----------------------------
Thomas J. Saylak Trustee March 31, 1999
-34-
<PAGE>
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Financial Statements
Prime Group Realty Trust and the Predecessor:
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets of Prime Group Realty Trust as of December
31, 1998 and 1997....................................................... F-3
Consolidated Statements of Operations of Prime Group Realty Trust for
the year ended December 31, 1998 and for the period from November 17,
1997 through December 31, 1997 and Combined Statements of Operations
of the Predecessor for the period from January 1, 1997 through
November 16, 1997 and for the year ended December 31, 1996.............. F-4
Consolidated Statements of Changes in Shareholders' Equity of Prime
Group Realty Trust for the year ended December 31, 1998 and for the
period from November 17, 1997 to December 31, 1997...................... F-5
Combined Statements of Changes in Predecessors' Deficit for the period
from January 1, 1997 through November 16, 1997 and for the year ended
December 31, 1996....................................................... F-6
Consolidated Statements of Cash Flows of Prime Group Realty Trust for
the year ended December 31, 1998 and for the period from November 17,
1997 through December 31, 1997 and the Combined Statements of Cash
Flows of the Predecessor for the period from January 1, 1997 through
November 16, 1997 and for the year ended December 31, 1996.............. F-7
Notes to Consolidated and Combined Financial Statements................... F-10
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation of Prime
Group Realty Trust as of December 31, 1998.............................. F-29
F-1
<PAGE>
Report of Independent Auditors
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying consolidated balance sheets of Prime Group
Realty Trust as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1998 and for the period from November 17, 1997 (date of formation)
through December 31, 1997. We have also audited the accompanying combined
statements of operations, changes in predecessors' deficit, and cash flows of
the Predecessor for the period from January 1, 1997 through November 16, 1997
and for the year ended December 31, 1996. These financial statements are the
responsibility of Prime Group Realty Trust's and Predecessor's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prime Group
Realty Trust at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1998 and for the
period from November 17, 1997 through December 31, 1997, and the Predecessor's
combined results of operations and its cash flows for the period from January 1,
1997 through November 16, 1997 and for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 24, 1999
F-2
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share amounts)
<CAPTION>
PRIME GROUP REALTY TRUST
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS
Real estate at cost:
Land...................................... $ 139,505 $ 92,330
Building and improvements................. 630,518 432,693
Tenant improvements ..................... 73,008 64,256
------------------------------
843,031 589,279
Accumulated depreciation.................... (24,756) (2,338)
------------------------------
818,275 586,941
Property under development.................. 51,376 --
------------------------------
869,651 586,941
Mortgage note receivable.................... 63,270 56,511
Cash and cash equivalents................... 46,500 11,969
Tenant receivables.......................... 7,288 3,820
Restricted cash escrows...................... 53,820 3,175
Deferred rent receivable..................... 39,062 37,828
Deferred costs - net......................... 32,891 28,472
Loans receivable from services company....... 7,055 5,258
Other........................................ 44,977 7,494
------------------------------
Total assets................................. $ 1,164,514 $ 741,468
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable...................... $ 518,718 $ 90,610
Credit facilities........................... - 159,000
Mortgage note payable - affiliate........... - 3,984
Bonds payable............................... 74,450 74,450
Accrued interest payable.................... 2,440 1,245
Accrued real estate taxes................... 29,657 17,915
Accounts payable and accrued expenses....... 26,068 13,903
Liabilities for leases assumed.............. 4,792 5,758
Dividends payable........................... 8,080 2,505
Other....................................... 4,523 822
------------------------------
Total liabilities........................... 668,728 370,192
Commitments and contingencies -- --
Minority interests:
Operating partnership..................... 144,781 147,207
Other..................................... 1,000 --
Shareholders' equity:
Preferred Shares, $0.01 par value;
30,000,000 shares authorized:
Series B - Cumulative Redeemable
Preferred Shares, 4,000,000 shares
designated, issued and outstanding
at December 31, 1998.................. 40 --
Series A - Cumulative Convertible
Preferred Shares, 2,000,000 shares
designated, issued and outstanding
at December 31, 1998 and 1997......... 20 20
Common Shares: $0.01 par value;
100,000,000 shares authorized;
15,110,794 and 12,980,000 shares
issued and outstanding at December 31,
1998 and 1997, respectively............. 151 130
Additional paid-in capital................ 360,017 225,632
Distributions in excess of earnings....... (10,223) (1,713)
------------------------------
Total shareholders' equity.................. 350,005 224,069
==============================
Total liabilities and shareholders' equity.. $ 1,164,514 $ 741,468
==============================
See accompanying notes.
</TABLE>
F-3
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE PRIME GROUP REALTY
TRUST AND COMBINED STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(Dollars in thousands, except for per share amounts)
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR
------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 16, DECEMBER 31,
1998 1997 1997 1996
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Revenue
Rental.................................... $ 97,212 $ 7,293 $ 27,947 $ 30,538
Tenant reimbursements..................... 37,545 2,041 12,490 14,225
Mortgage note interest.................... 5,866 248 -- --
Gain on sale of assets.................... -- -- 286 846
Other..................................... 6,978 248 1,229 2,551
------------------------------ --------------------------------
Total revenue............................. 147,601 9,830 41,952 48,160
Expenses
Property operations....................... 29,598 2,213 8,622 9,767
Real estate taxes......................... 25,077 1,765 8,575 9,383
Depreciation and amortization............. 25,447 2,478 11,241 12,409
Interest.................................. 30,901 1,680 24,613 26,422
Interest - affiliates..................... -- -- 9,804 10,795
General and administrative................ 5,712 267 2,414 4,927
Financing fees............................ -- -- 1,180 1,232
Property and asset management fees -
Affiliates.............................. -- -- 1,348 1,561
Provision for environmental remediation
costs................................... -- -- 3,205 --
Write-off deferred tenant costs........... -- -- -- 3,081
------------------------------ --------------------------------
Total expenses............................ 116,735 8,403 71,002 79,577
------------------------------ --------------------------------
Income (loss) before minority interests
and extraordinary items................... 30,866 1,427 (29,050) (31,417)
Minority interests.......................... (9,368) (635) 666 894
------------------------------ --------------------------------
Income (loss) before extraordinary items.... 21,498 792 (28,384) (30,523)
Extraordinary items; (loss) gain on
extinguishment of debt, net of minority
interests in the amount of $878 for the
year ended December 31, 1998 and $1,127
for the period from January 1, 1997
through November 16, 1997................. (1,253) -- 65,990 --
------------------------------ --------------------------------
Net income (loss)........................... 20,245 792 $ 37,606 $ (30,523)
================================
Net income allocated to preferred
shareholders.............................. (7,971) (345)
==============================
Net income available to common
shareholders.............................. $ 12,274 $ 447
==============================
Earnings per weighted-average common
share - basic and diluted:
Income before extraordinary items....... $ 0.91 $ 0.04
Extraordinary items..................... (0.08) --
==============================
Net income.................................. $ 0.83 $ 0.04
==============================
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
OF PRIME GROUP REALTY TRUST FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM NOVEMBER 17, 1997 THROUGH DECEMBER 31, 1997
(Dollars in thousands, except for per share amounts)
<CAPTION>
Preferred Shares Additional Distributions
------------------------ Common Paid-In in Excess of
Series B Series A Shares Capital Earnings Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 2,000,000 Series A -
preferred shares......................... $ -- $ 20 $ -- $ 39,580 $ -- $ 39,600
Issuance of 12,980,000 common shares........ -- -- 130 232,222 -- 232,352
Step-up in basis from the purchase of
third-party owner's interest in
predecessor............................... -- -- -- 1,430 -- 1,430
Reclassification of predecessor's minority
interest.................................. -- -- -- (6,564) -- (6,564)
Reclassification of net deficit of
predecessor............................... -- -- -- (33,976) -- (33,976)
Additional contribution by predecessor...... -- -- -- 11,873 -- 11,873
Contribution of net liabilities to service
company................................... -- -- -- 380 -- 380
Additional paid-in capital allocated to
minority interest......................... -- -- -- (19,313) -- (19,313)
Net income.................................. -- -- -- -- 792 792
Series A-preferred share dividends
declared ($0.173 per share)............... -- -- -- -- (345) (345)
Common share dividends declared
($0.166 per share)........................ -- -- -- -- (2,160) (2,160)
-----------------------------------------------------------------------------------
Balance at December 31, 1997................ -- 20 130 225,632 (1,713) 224,069
Issuance of 2,579,994 common shares......... -- -- 26 45,904 -- 45,930
Issuance of 4,000,000 Series B - preferred
shares.................................... 40 95,285 -- 95,325
Issuance of 25,000 common shares
granted during the year................... -- -- -- 458 -- 458
Repurchase of 474,200 common shares......... -- -- (5) (7,262) -- (7,267)
Net income.................................. -- -- -- -- 20,245 20,245
Series B-preferred share dividends
declared ($1.29 per share)................ -- -- -- -- (5,141) (5,141)
Series A-preferred share dividends
declared ($1.42 per share)................ -- -- -- -- (2,830) (2,830)
Common share dividends declared
($1.35 per share)......................... -- -- -- -- (20,784) (20,784)
===================================================================================
Balance at December 31, 1998................ $ 40 $ 20 $ 151 $ 360,017 $ (10,223) $ 350,005
===================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
COMBINED STATEMENTS OF CHANGES IN PREDECESSORS' DEFICIT
PERIOD FROM JANUARY 1, 1997 THROUGH NOVEMBER 16, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in thousands)
<S> <C>
Balance at January 1, 1996...................................... $ (85,305)
Contributions................................................... 40
Distributions................................................... (4)
Net loss........................................................ (30,523)
----------
Balance at December 31, 1996.................................... (115,792)
Contributions................................................... 44,330
Distributions................................................... (120)
Net income...................................................... 37,606
==========
Balance at November 16, 1997.................................... $ (33,976)
==========
See accompanying notes.
</TABLE>
F-6
<PAGE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
AND COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(Dollars in thousands)
<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR
------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 16, DECEMBER 31,
1998 1997 1997 1996
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................... $ 20,245 $ 792 $ 37,606 $ (30,523)
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)............ 1,137 142 1,022 1,244
Interest income and developer fees
added to mortgage note receivable
principal............................... (1,010) -- -- --
Gain on sale of real estate............... -- -- (286) (846)
Depreciation and amortization............. 25,447 2,478 11,241 12,409
Interest added to principal on mortgage
note payable affiliate.................. -- -- 9,772 10,002
Standby loan fee-affiliate added to
principal on mortgage note payable
affiliate............................... -- -- 460 522
Write-off of deferred tenant costs........ -- -- -- 3,081
Minority interests........................ 9,368 635 (666) (894)
Extraordinary items, net of minority
interest................................ 1,253 -- (65,990) --
Changes in operating assets and
liabilities:
(Increase) decrease in tenant
receivables.......................... (3,468) (15) (916) 1,990
(Increase) decrease in deferred rent
receivable........................... (1,234) 180 487 (645)
(Increase) decrease in other assets..... (21,184) (10,032) 506 566
Increase (decrease) in accrued interest
payable.............................. 1,195 (175) (1,118) 316
Increase in accrued real estate taxes... 11,742 7,556 415 251
Increase in accounts payable and
accrued expenses..................... 7,299 7,202 3,498 1,380
Decrease in liabilities for leases
assumed.............................. (966) (350) (1,049) (1,532)
Increase (decrease) in other
liabilities.......................... 3,701 (1,707) 777 217
-------------------------------------------------------------------
Net cash provided by (used in) operating
activities.............................. 53,525 6,706 (4,241) (2,462)
</TABLE>
F-7
<PAGE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
AND COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR
------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 16, DECEMBER 31,
1998 1997 1997 1996
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES
Expenditures for real estate and equipment.. $ (301,068) $ (297,019) $ (5,659) $ (3,842)
Proceeds from sale of real estate........... -- -- 298 2,110
Purchase of and additional advances on
mortgage note receivable.................. (4,943) (51,163) -- --
Increase in restricted cash escrows......... (50,736) -- -- --
Leasing costs............................... (2,840) (48) (1,459) (703)
Loans provided to services company.......... (1,797) (5,258) -- --
Cash contributed to services company........ -- (376) -- --
Decrease in due from affiliates............. -- -- 2,894 2,858
------------------------------ -------------------------------
Net cash (used in) provided by investing
activities................................ (361,384) (353,864) (3,926) 423
FINANCING ACTIVITIES
Net proceeds from the sale of preferred
shares.................................... 95,325 39,600 -- --
Net proceeds from the sale of common shares. 45,930 232,352 -- --
Common share repurchases.................... (7,267) -- -- --
Proceeds from sale of operating partnership
units..................................... -- 85,000 -- --
Financing costs............................. (7,785) (3,328) -- (10)
Deposits under treasury lock agreements..... (14,641) -- -- --
Proceeds from mortgage notes payable........ 514,065 84,198 480 1,239
Proceeds from mortgage notes payable -
affiliates................................ -- -- 5,647 5,891
Net (repayment of) proceeds from credit
facilities................................ (159,000) 159,000 -- --
Repayment of mortgage notes payable......... (85,957) (236,537) (119) (83)
Repayment of mortgage notes payable
- affiliates.............................. (3,984) (4,895) (41,367) (1,150)
Decrease in due to affiliates............... -- -- (708) (226)
Contribution from minority interests
- other................................... 1,000 -- -- --
Distributions to minority interest
- operating partnership................... (12,116) -- (120) --
Dividends paid to Series B - preferred
shareholders.............................. (2,891) -- -- --
Dividends paid to Series A - preferred
shareholders.............................. (2,445) -- -- --
Dividends paid to common shareholders....... (17,844) -- -- --
Contributions from partners................. -- -- 44,330 80
Distributions to partners................... -- -- (120) (8)
Debt termination fees....................... -- -- (1,692) --
------------------------------ -------------------------------
Net cash provided by financing activities... 342,390 355,390 6,331 5,733
------------------------------ -------------------------------
Net increase (decrease) in cash and cash
equivalents............................... 34,531 8,232 (1,836) 3,694
Cash and cash equivalents at beginning of
period.................................... 11,969 3,737 5,573 1,879
============================== ===============================
Cash and cash equivalents at end of period.. $ 46,500 $ 11,969 $ 3,737 $ 5,573
============================== ===============================
</TABLE>
F-8
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
AND COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(Dollars in thousands)
Supplemental disclosure of non-cash investing and financing
activities:
<S> <C>
The following represents noncash activity for the year
ended December 31, 1998:
Accounts payable and accrued expenses for property under
development................................................. $ 4,060
Accounts payable and accrued expenses for mortgage note
receivable advances................................... 806
Issuance of partnership units and common share grants......... 1,658
==========
$ 6,524
==========
Accounts payable and accrued expenses......................... $ 4,866
Partnership units issued to minority interest - operating
partnership................................................. 1,200
Issuance of common share grants (additional paid-in capital).. 458
==========
$ 6,524
==========
The following assets and liabilities (Includes $12,000 of bonds receivable
which have been netted against the corresponding bonds payable contributed by
the Predecessor. Also includes cash of $376, net equipment of $83 and accounts
payable of $839 which the Company immediately contributed to the Services
Company.) were contributed by certain minority interest partners to the Company
on November 17, 1997:
Real estate, net................................................ $ 243,637
Cash and cash equivalents....................................... 3,737
Tenant receivable............................................... 41,813
Deferred costs, net............................................. 25,270
Other assets.................................................... 885
----------
Total assets.................................................... 315,342
Mortgage notes payable.......................................... 241,432
Bonds payable................................................... 74,450
Accrued interest payable........................................ 1,420
Accrued real estate taxes....................................... 10,359
Accounts payable and accrued expenses........................... 7,711
Liabilities for leases assumed.................................. 6,108
Other liabilities............................................... 2,529
Minority interests.............................................. (6,564)
----------
Total liabilities and minority interests........................ 337,445
==========
Predecessor's net contribution.................................. $ (22,103)
==========
The following represents our noncash activity during the period from
November 17, 1997 through December 31, 1997:
Mortgage note receivable........................................ $ 5,100
Real estate..................................................... 48,814
==========
$ 53,914
==========
Debt assumed.................................................... $ 10,396
Partnership units issued to minority interest................... 42,088
Step-up in basis from purchase of third-party owner's interest
in the Predecessor........................................... 1,430
==========
$ 53,914
==========
See accompanying notes.
</TABLE>
F-9
<PAGE>
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share and per unit amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION AND ORGANIZATION OF THE COMPANY
Prime Group Realty Trust (the "Company") was organized in Maryland on July
21, 1997 to continue the business of The Prime Group, Inc. and certain of its
affiliates (collectively "PGI"). The Company qualified as a real estate
investment trust ("REIT") beginning with the period ended December 31, 1997,
under the Internal Revenue Code of 1986, as amended, for Federal income tax
purposes. On November 17, 1997, the Company completed its initial public
offering with the sale of 12,380,000 of its common shares of beneficial interest
at $20.00 per share and the private placement of 2,000,000 of the Company's
Series A-cumulative convertible preferred shares of beneficial interest at
$20.00 per share. The Company contributed the initial net proceeds from the
offering and private placement in exchange for 12,380,000 common units of
partnership interest and 2,000,000 preferred units of partnership interest in
Prime Group Realty, L.P. (the "Operating Partnership"). Subsequent to the
initial public offering, the Company issued an additional 3,204,994 of its
common shares (sold 600,000 common shares in 1997, sold 2,579,994 common shares
in 1998 and granted 25,000 shares in 1998) and 4,000,000 of its Series
B-cumulative redeemable preferred shares and contributed the net proceeds to the
Operating Partnership in exchange for the same number of common units and
preferred units of partnership interest. In addition, during 1998, the Company
repurchased 474,200 of its common shares for an aggregate purchase price of
$7,267, pursuant to a common share repurchase program the Company established in
September 1998. (Repurchase the lesser of 1,550,000 common shares or spend
$7,500 with share prices not to exceed $20.00 per common share.)
The Company is the managing general partner of the Operating Partnership
and owns all of the preferred units and 59.4% and 55.9% of the common units
issued at December 31, 1998 and 1997, respectively. Each common unit entitles
the Company to receive distributions from the Operating Partnership.
Distributions declared or paid to holders of common shares and preferred shares
are based upon such distributions the Company receives with respect to its
common units and preferred units.
In conjunction with the Company's initial contribution to the Operating
Partnership, PGI contributed its interest in 23 partnerships that owned various
office and industrial properties (represents the Predecessor's operations) to
the Operating Partnership in exchange for 3,465,000 common units (PGI
contributed 3,375,000 of these common units to Primestone Investment Partners
L.P. described below) and received approximately $6,487 for the reimbursement of
the Company's formation costs advanced by PGI. The Operating Partnership was
required to acquire a third-party ownership interest in certain of the
Predecessor's properties for $1,797, resulting in a step-up in the basis of real
estate of $3,227. Certain other individuals contributed their ownership
interests in various properties, including the related debt, to the Operating
Partnership in exchange for cash of approximately $15,761 and 1,849,417 common
units valued at $20.00 per unit (total value of $36,988). In addition,
Primestone Investment Partners L.P., an entity in which PGI has a 60% ownership
interest, acquired 4,569,893 common units from the Operating Partnership for
$85,000 (PGI directly or indirectly owns 31.6% and 34.7% of the Operating
Partnership at December 31, 1998 and 1997, respectively.) These properties
(including the Predecessor's properties), along with other acquired properties,
are controlled by the Operating Partnership. PGI, the other contributors and
Primestone Investment Partners L.P. have been reflected as minority interest -
Operating Partnership in the consolidated financial statements.
BASIS OF PRESENTATION
The Company's consolidated financial statements include all of its
accounts, including, the Operating Partnership and the other entities in which
the Company has control. The combined financial statements of the Predecessor
include the accounts of the partnerships in which the Predecessor had majority
interest, control or managed. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-10
<PAGE>
Investments in corporations and partnerships in which the Company does not
have operational control or a majority interest are accounted for on the equity
method of accounting.
Significant intercompany accounts and transactions have been eliminated in
consolidation and combination.
Certain amounts in the prior period consolidated and combined financial
statements have been reclassified to conform to the current period presentation,
with no effect on the Company's consolidated or the Predecessor's combined
financial position or results of operations.
On December 15, 1997, the Company acquired the first mortgage note
encumbering an office property known as Continental Towers for $108,870, with a
face value of $157,161. On May 15, 1998, the Company sold $75,000 of the note to
a third-party bank and the note became subordinate to the third-party note. The
note has a base interest rate of 6.5% per annum payable monthly, and a
contingent interest rate of 6.5% per annum, payable from available cash flow as
defined. All unpaid interest is added to principal. The note matures January
2013. The Company will receive all of the economic benefits from its interest in
the property and therefore, has consolidated the operations of the property from
the acquisition date.
On November 17, 1997, the Operating Partnership acquired the assets and
business of two property management and realty services companies from a third
party and contributed these entities and certain other assets to a newly formed
corporation, Prime Group Realty Services, Inc. (the "Services Company"). In
exchange for its contribution, the Operating Partnership received 100% of the
non-voting preferred stock of the Services Company and a note receivable in the
amount of $4,800 (See Note 10). Certain members of the Company's management own
100% of the voting common stock. The Services Company was formed primarily to
operate our business lines that are not directly associated with the collection
of rents. The Services Company is subject to federal, state and local taxes. The
Company records its ownership in the Services Company using the equity method of
accounting.
REAL ESTATE
Depreciation is calculated on the straight-line method over the estimated
useful lives of assets, which are as follows:
Building and improvements 40 years
Tenant improvements Term of related leases
Furniture and equipment 3-7 years
Development costs, which include land acquisition costs, fees and other
costs incurred in developing new properties, are capitalized as incurred. Upon
completion of construction, development costs are included in buildings and
improvements and are depreciated over the useful lives of the respective
properties on a straight-line basis. Interest, financing costs and other direct
costs incurred during development periods are capitalized as a component of the
building costs.
Real estate is carried at depreciated cost. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. Significant
renovations and improvements which improve and/or extend the useful life of the
asset are capitalized and depreciated over their estimated useful life.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
DEFERRED COSTS
Costs incurred in connection with financings, refinancings or debt
modifications are capitalized as deferred financing costs and are amortized on
the straight-line method over the lives of the related loans. Leasing
commissions and other leasing costs directly attributable to tenant leases are
capitalized as deferred leasing costs and are amortized on the straight-line
method over the terms of the related lease agreements.
LEASES ASSUMED
In connection with certain tenant leases, the Company has assumed the
liability for the remaining terms of the tenants' existing leases in their
previous location. The Company has recorded a liability for the difference
F-11
<PAGE>
between total remaining costs for leases assumed and the expected benefits from
subleases of the assumed lease properties. The related incentive to lessee has
been capitalized as a deferred charge and is being amortized to rental revenue
over the life of the respective lease. The deferred charge and related liability
are adjusted for changes in the expected benefits from subleases. During the
year ended December 31, 1998, the Company assumed additional liability of
$1,357. During the period from January 1, 1997 through November 16, 1997 and for
the year ended December 31, 1996, the Predecessor wrote off $1,049 and $3,893,
respectively, of deferred charges and reduced the related liability due to
changes in the estimated benefits from subleases. No amounts were written off
during the year ended December 31, 1998 or during the period from November 17,
1997 through December 31, 1997.
RENTAL REVENUE
Rental revenue is recorded on the straight-line method over the terms of
the related lease agreements. Differences between rental revenue earned and
amounts due per the respective lease agreements are credited or charged, as
applicable, to deferred rent receivable. Rental payments received prior to their
recognition as income are classified as rent received in advance.
TREASURY LOCK AGREEMENTS
The Company uses treasury lock agreements to synthetically manage the
interest rate characteristics of its outstanding debt to a more desirable fixed
or variable rate basis or to limit the Company's exposure to rising interest
rates. Interest rate differentials to be paid or received as a result of
treasury lock agreements are accrued and recognized as an adjustment of interest
expense related to the designated debt. The fair values of treasury lock
agreements are not recognized in the financial statements.
Amounts related to treasury lock agreement deposits (See Note 4) are
deferred and amortized as an adjustment to interest expense over the period of
interest exposure, provided the related designated long-term borrowings
liability continues to exist or is probable of occurring. Realized and
unrealized changes in fair value of treasury lock agreements designated with
long-term borrowings that no longer exist or are no longer probable of occurring
are recorded as a component of the gain or loss arising from the disposition of
the designated long-term borrowings.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income
available to common shareholders by the weighted average number of shares
outstanding during the period. Diluted EPS includes the potentially dilutive
effect, if any, which would occur if outstanding (i) common stock options were
exercised, (ii) common units were converted into shares of common share, (iii)
share grants were fully-vested, and (iv) convertible preferred shares were
converted into common shares.
STOCK BASED COMPENSATION
The Company accounts for share option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for the share
option grants because the exercise price of the options equals the market price
of the underlying share at the date of grant.
INCOME TAXES
Commencing with the period ended December 31, 1997, the Company elected to
be taxed as a 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.
As of December 31, 1998, for income tax purposes, the Company's real estate
had a gross and net basis of $751,142 and $735,283 respectively, mortgage notes
receivable had a basis of $172,149, deferred costs had a gross and net basis of
$37,920 and $33,614 respectively, and deferred rent receivable had no tax basis.
The Predecessor paid no income taxes, and the income or loss from its
partnerships is included on the respective income tax returns of the
Predecessor's partners.
F-12
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
The Company expects to adopt the new Statement effective January 1, 2000. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position.
2. MORTGAGE NOTE RECEIVABLE
On December 16, 1997, the Company acquired for approximately $51,163 in
cash and $5,100 in common units, the first mortgage note encumbering the office
property known as 180 North LaSalle Street, which is a 39-story office building,
located in Chicago, Illinois, (containing 728,860 square feet of rentable space
and is approximately 73.7% leased at December 31, 1998). During 1998, the
Company made additional advances of $4,943, which were used to fund improvements
to the building and pay various operating expenses. The Company anticipates
providing additional advances of $11,600 to complete the building improvements.
The note requires principal payments due at maturity on January 15, 2004. The
note has a face value of $69,277 and $62,518 at December 31, 1998 and 1997,
respectively.
The note provides for interest at an accrual rate of 9.64% per annum, and a
minimum pay rate at the lower of 8.25% per annum, or $2,400 annually, as
defined, payable monthly. During 1998, the Company received interest income
payments of $5,373. No payments were received during the period from November
17, 1997 through December 31, 1997. During the year ended December 31, 1998 and
the period from November 17, 1997 through December 31, 1997, $258 and $248,
respectively, of interest income was added to the principal balance.
Included in the purchase was a non-refundable option, exercisable until
July 30, 2000, to acquire the existing $85,000 second mortgage on the property
for $4,400 in common units (annually $1,200) of the Operating Partnership
(amount included in minority interest-operating partnership), valued at the
lower of $20.00 per unit or the Company's common share price at the date issued
(5,000 common units if the Company's common share market value is equal to or
greater than $20.00 per share or $100 in common units per month if the Company's
common share market value is below $20.00 per share; 67,018 common units were
issued during the year ended December 31, 1998), subject to certain adjustments,
as defined. At December 31, 1998, $1,300 is included in other assets related to
the options. In addition, the Company has an option to purchase the equity
ownership of the property during the period from January 15, 2004 to February
15, 2004 for a price equal to the greater of the fair market value of the
interest or $2,000.
During 1998, the Company provided construction management services of $752
to the property, which have been added to the principal balance. The Services
Company provides property management and leasing services for the property
pursuant to a 10-year management and leasing contract.
3. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
Financing costs............................. $ 10,964 $ 5,572
Leasing costs............................... 26,022 23,182
------------------------------
36,986 28,754
Less: Accumulated amortization............. (4,095) (282)
------------------------------
$ 32,891 $ 28,472
==============================
</TABLE>
F-13
<PAGE>
4. MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE
Mortgage notes payable, credit facilities and bonds payable consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
MORTGAGE NOTES PAYABLE (A), (B):
Mortgage notes payable to various financial
institutions, collateralized by various
properties, interest at fixed rates
ranging from 6.85% to 7.785 (weighted
average rate at December 31, 1998 - 7.29%)
per annum, with principal and interest
payable through dates ranging from 2008
through 2013.............................. $ 282,618 $ 89,912
Mortgage notes payable to various financial
institutions, collateralized by various
properties, interest at variable rates
ranging from LIBOR (5.08% at December 31,
1998) plus 100 basis points to LIBOR plus
250 basis points (weighted average rate
at December 31, 1998 - 6.34%) per annum
with principal and interest payable
monthly through dates ranging from 1999
through 2001.............................. 236,100 698
==============================
Total mortgage notes payable................ $ 518,718 $ 90,610
==============================
CREDIT FACILITIES (A), (B):
Line-of-credit with various financial
institutions, collateralized by various
properties with a maximum draw of $80,000,
interest at rates ranging from the higher
of prime or federal funds rate plus 50
basis points to LIBOR plus 225 basis
points, per annum, as defined, with
interest payable monthly and principal
due November 2000 (D)..................... $ -- $ 159,000
Line-of-credit with a financial institution,
collateralized by an industrial property
with a maximum draw of $15,000, interest
at LIBOR plus 195 basis points, per
annum as defined, with interest payable
monthly and principal due January 2000,
with an option to extend the line for
one year.................................. -- --
==============================
Total credit facilities.................... $ -- $ 159,000
==============================
BONDS PAYABLE:
Variable rate taxable and tax-exempt bonds
issued by various state and local
government authorities (B), (C), (D)...... $ 74,450 $ 74,450
==============================
</TABLE>
(A) The above mortgage notes payable and credit facilities are subject to
various operating and financial covenants, which the Company is in
compliance with at December 31, 1998.
(B) The majority of the Company's real estate assets and its mortgage note
receivable have been pledged as collateral for its mortgage notes payable,
credit facilities and bonds payable. In addition, the Company had a $12,000
cash collateral account (amount included in restricted cash at December 31,
1998) on deposit with a financial institution related to the $80,000
line-of-credit. Subsequent to December 31, 1998, the Company provided
replacement collateral in the form of mortgages on two office buildings and
the cash collateral account was released.
F-14
<PAGE>
(C) Permanent financing for the development of certain industrial properties
has been provided by $48,150 of tax exempt industrial development revenue
bonds that mature on June 1, 2022. On December 13, 1995, and on May 20,
1996, the bonds were acquired by independent third party financial
institutions from an affiliate of PGI.
Under the terms of the bond loan agreements, the Company makes
interest-only payments monthly, calculated using a floating rate determined
by the remarketing agent of the bonds. The rates ranged from 2.97% to 4.50%
during 1998, 3.35% to 4.75% during 1997 and 2.85% to 4.40% during 1996. The
rate at December 31, 1998 was 4.13%.
The maximum annual interest rate on the bonds is 13%. Under certain
conditions, the interest rate on the bonds may be converted to a fixed rate
at the Company's request.
Beginning February 1998, the bonds were collateralized by letters of credit
totaling $48,800 from a financial institution which expire February 2002
(the bonds become due on this date unless replacement collateral is
obtained.) The letters of credit are collateralized by mortgages on the
related industrial facilities and a $5,000 cash collateral account and have
an annual fee of 1.4% of the letters of credit face amounts. From November
17, 1997 through February 1998, the bonds were collateralized by letters of
credit totaling $48,000 from our $80,000 line-of-credit. From May 1996 to
November 16, 1997, the bonds were collateralized by letters of credit that
required the Predecessor to pay financing fees of 1.75% per annum of the
face amount, payable quarterly in advance.
The bondholders may tender bonds on any business day during the variable
interest rate period discussed above and receive principal, plus accrued
interest through the tender date. Upon tender, the remarketing agent will
immediately remarket the bonds. In the event the remarketing agent fails to
remarket any bonds, the Company is obligated to purchase those bonds. The
remarketing agent receives a fee of 0.11% per annum of the outstanding
bonds balance, payable quarterly in advance.
(D) Permanent financing for the development of certain office properties has
been provided by $26,300 of tax-exempt industrial revenue bonds. The bonds
mature on December 1, 2014. Under the terms of the bond agreements, the
Company makes interest-only payments monthly, calculated using a floating
rate determined by the remarketing agent of the bonds. The rates ranged
from 3.40% to 4.00% during 1998, 3.35% to 3.85% during 1997, and 3.40% to
4.05% during 1996. The rate at December 31, 1998 was 3.55%.
Under certain conditions, the interest rates on the bonds may be converted
to a fixed rate at the Company's request.
The bonds are collateralized by letters of credit totaling $26,930 from our
$80,000 line-of-credit, which are subject to an annual fee of 2.25% of the
amount outstanding.
Under the terms of the bond agreements, the bondholders have the option to
require the Company to purchase any of their bonds on the 15th day of any
month while the bonds are outstanding. Upon the exercise of the
bondholders' option to purchase the bonds, the remarketing agent will
immediately remarket the bonds. In the event the remarketing agent fails to
remarket the bonds, the Company is obligated to purchase those bonds. The
remarketing agent receives a fee of 0.10% per annum of the outstanding
bonds balance, payable quarterly in advance.
During the year ended December 31, 1998, the Company wrote-off net deferred
financing costs of $900, net of accumulated amortization of $32, related to
mortgage notes and bonds payable that were repaid or refinanced during the
year, $1,140, net of accumulated amortization of $321, and $91 of other
fees related to the reduction in the maximum balance that can be drawn on
the $80,000 line-of-credit (reduced from $235,000 to $80,000 during 1998).
The total of these write-offs has been reflected as an extraordinary loss
in the 1998 statement of operations, net of amounts allocated to minority
interests of $878.
The Predecessor had entered into a mortgage note agreement with a
consortium of commercial lenders providing a maximum loan of $230,000
collateralized by a first mortgage on the 77 West Wacker Drive building. The
loan was repaid with proceeds from the initial public offering. Under the terms
of the loan, the Predecessor made monthly interest-only payments, calculated
F-15
<PAGE>
using certain variable rate indices, as defined. To reduce the impact of
increases in interest rates, the Predecessor also entered into an interest rate
swap agreement with affiliates of one of 77 West Wacker Drive building's third
party owners (Counterparties) for the outstanding loan principal balance. Under
the terms of the interest rate swap agreement, the Predecessor paid the
Counterparties interest monthly at a fixed rate of 10% per annum. The
Predecessor was to receive monthly interest payments from the Counterparties at
the variable rate and was then responsible for making the monthly interest
payments required under the terms of the loan. The Predecessor incurred $692 of
fees to terminate the swap agreement, which have been reflected in the
extraordinary item extinguishment of debt in the period from January 1, 1997
through November 16, 1997.
Total interest paid on the mortgage notes payable, credit facilities and
bonds payable was $32,204 and $1,855, $25,731, and $25,643 for the year ended
December 31, 1998, the period from November 17, 1997 through December 31, 1997,
the period from January 1, 1997 through November 16, 1997, and for the year
ended December 31, 1996, respectively. During the year ended December 31, 1998,
the Company incurred interest expense of $33,399 of which $2,498 was capitalized
related to development projects (no interest was capitalized in the previous
periods.)
On August 21, 1998, the Company into two treasury lock agreements with two
financial institutions to lock certain debt instruments at the interest rate on
ten-year Treasury Notes effective on the date of the agreements to provide
interest rate protection on future debt financings. One of these agreements was
entered into in anticipation of a planned future securitization of a $170,000
loan related to the 77 West Wacker Drive building, and had a lock rate of
5.364%. The other agreement was entered into in anticipation of $160,000 in debt
related to the acquisition of IBM Plaza, had a lock rate of 4.732% and was to
expire on March 19, 1999. The Company made deposits as required by the
agreements, totaling approximately $14,641 at December 31, 1998 ($5,922 related
to the $170,000 agreement and $8,719 related to the $160,000 agreement), which
are included in other assets in the consolidated financial statements. The
deposits are exclusive of a $2,000 credit threshold described below. The
$170,000 agreement was to expire on February 18, 1999, but was extended to April
15, 1999. At that time, the lock rate was modified to 5.016% and the credit
threshold reduced from $2,000 to $500. If the market rate on ten-year Treasury
Notes falls below the locked rate and the difference between $170,000 and the
calculated notional amount is in excess of the credit threshold, cash deposits
are required. On March 1, 1999, the Company terminated the $160,000 treasury
lock agreement due to the change in terms and timing of the IBM Plaza purchase
as a result of the amended purchase agreement. Approximately $557 on deposit was
forfeited at the time of termination. During the period January 1, 1999 through
March 24, 1999, the Company received net cash settlements of approximately
$9,215 ($1,053 related to the $170,000 agreement, and $8,162 related to the
$160,000 agreement) related to both treasury lock agreements. If the yield on
U.S. ten-year Treasury Notes at settlement is less than the locked yield, the
difference between $170,000 and the calculated notional amount will be amortized
over the terms of the future debt instruments as an adjustment to interest
expense. The Company intends to consummate debt transactions equal to the
notional value of the remaining agreement.
The following represents the Company's future minimum principal payments
due on its mortgage notes payable, credit facilities and bonds payable
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Year ending December Amount
-----------------------------------------------------------------------
<S> <C>
1999........................................................ $ 187,098
2000........................................................ 36,427
2001........................................................ 24,159
2002........................................................ 52,623
2003........................................................ 4,811
Thereafter.................................................. 288,050
---------
$ 593,168
=========
</TABLE>
F-16
<PAGE>
5. MORTGAGE NOTES AND BONDS PAYABLE-AFFILIATES
Mortgage note payable -affiliate consisted of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
Mortgage note payable-limited partner,
collateralized an industrial property,
interest at 7.0% per annum, was repaid
on January 2, 1998........................ $ -- $ 3,984
==============================
</TABLE>
The Predecessor had an 11% subordinate loan agreement with affiliates of a
former third party owner of the 77 West Wacker Drive building for a maximum
disbursement amount of $60,000. A portion of the loan was repaid ($4,895) with
proceeds of the initial public offering, and a portion was considered repaid
from the swap agreement between PGI and a third party related to the loan
described in Note 4 ($42,584 was recorded as a contribution from PGI in the
period from January 1, 1997 through November 17, 1997) and the remainder was
forgiven ($67,847), as of November 16, 1997 and included in the extraordinary
item-extinguishment of debt in the period from January 1, 1997 through November
16, 1997. The third party owner had provided a guarantee of 77 West Wacker Drive
building's first mortgage note payable and charged the Predecessor a standby
loan fee, as defined, which was included as a component of interest expense.
Standby loan fees incurred were $460 for the period from January 1, 1997 to
November 16, 1997 and $522 for the year ended December 31, 1996, (unpaid
interest expense is included in general and administrative expenses in the
Predecessor's combined statements of operations). Under the terms of the
subordinate loan agreement, the Predecessor was not required to make any
periodic principal or interest payments prior to the date of stabilization, as
defined; unpaid interest was added to the principal balance monthly. Included in
the extraordinary item-extinguishment of debt in the period from January 1, 1997
through November 16, 1997 is $1,000 in loan termination fees paid to an
affiliate of the third party owner and the write-off of unamortized deferred
financing fees of $165.
Permanent financing for the development of certain industrial properties
has been provided by $12,000 of taxable debt industrial development revenue
bonds and held by an affiliate of PGI. The bonds mature on June 1, 2022. On
November 17, 1997, PGI contributed the related bond receivables as part of its
contribution to us. The bonds payable and related receivable have been
eliminated in the Company's consolidated financial statements. The bonds have
the same terms as the bonds described in letter (C) of Note 4.
Total interest paid on the mortgage notes payable and bonds payable to
affiliates was $33, $32 and $1,256 for the year ended December 31, 1998, for the
period from January 1, 1997 through November 16, 1997 and for the year ended
December 31, 1996, respectively. No interest was paid for the period from
November 17, 1997 to December 31, 1997.
6. FUTURE MINIMUM LEASE INCOME AND PAYMENTS
The Company has entered into lease agreements with tenants with lease terms
ranging from one year to twenty years. The leases generally provide for tenants
to share in increases in operating expenses and real estate taxes in excess of
specified base amounts.
Approximately 16%, 39%, 57%, and 60%, of rental revenue for the year ended
December 31, 1998, the period from November 17, 1997 through December 31, 1997,
the period from January 1, 1997 through November 16, 1997, and for the year
ended December 31, 1996, respectively, was received from four tenants (only
three of these tenants for the year ended December 31, 1998 and for the period
from November 17, 1997 through December 31, 1997).
The total future minimum rentals to be received by the Company under such
noncancelable operating leases in effect at December 31, 1998, exclusive of
tenant reimbursements and contingent rentals, are as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
Year ending December Amount
-----------------------------------------------------------------------
<S> <C>
1999........................................................ $ 95,555
2000........................................................ 84,943
2001........................................................ 74,644
2002........................................................ 65,205
2003........................................................ 54,180
Thereafter.................................................. 183,218
---------
$ 557,745
=========
</TABLE>
Future minimum rentals include amounts to be received from PGI and certain
affiliates totaling $4,738.
In addition, as a part of lease agreements entered into with certain
tenants, the Company assumed the tenants' leases at their previous locations and
subsequently executed subleases for certain of the assumed lease space. Future
minimum rental payments to be paid by the Company under leases assumed, net of
subleases executed through December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year ending December Amount
-----------------------------------------------------------------------
<S> <C>
1999........................................................ $ 1,303
2000........................................................ 1,320
2001........................................................ 1,353
2002........................................................ 726
2003........................................................ 90
---------
$ 4,792
=========
</TABLE>
During the year ended December 31, 1998, the Company recognized lease
termination income of $4,124, which is included in rental revenue.
During 1995, a tenant of the 77 West Wacker Drive building experienced
financial difficulties and in 1997 defaulted on certain 1997 rental payments. As
a result of the default, the Predecessor as of December 31, 1996, wrote-off
$3,081 of deferred tenant costs, representing $940 of tenant receivables related
to straight-lining of the tenant's rental revenue and $2,141 of deferred leasing
costs. In early November 1997, the Predecessor reached an agreement with the
tenant to terminate the lease. During the period from January 1, 1997 through
November 16, 1997, the Predecessor recognized revenue from this tenant only to
the extent cash was received.
7. PREFERRED SHARES
The Company is authorized to issue up to 30,000,000 of non-voting preferred
shares of beneficial interest in one or more series. At December 31, 1998 and
1997, the Company had 2,000,000 Series A-Cumulative Convertible Preferred Shares
of beneficial interest ("Series A - preferred shares") with a $0.01 par value
designated, issued and outstanding. On June 5, 1998, the Company completed the
sale of 4,000,000 Series B-Cumulative Redeemable Preferred Shares of beneficial
interest ("Series B - preferred shares") with a $0.01 par value, which were
designated issued and outstanding at December 31, 1998.
Distributions on the Series B-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-preferred share). The Series
B-preferred shares rank senior to the Company's common shares and Series A
preferred shares as to the payment of dividends and as to the distribution of
assets. On and after June 5, 2003, the Series B-preferred shares may be redeemed
at the Company's option at a redemption price of $25.00 per share plus accrued
and unpaid distributions. The redemption price is payable solely out of the
proceeds from the sale of other Company capital shares of beneficial interest.
F-18
<PAGE>
Distributions on the Series A-preferred shares are payable quarterly on or
about the last day of March, June, September and December of each year, at a
rate of 7.5% (Equivalent of $1.50 per annum per Series A-preferred share
starting November 17, 1998, prior to November 17, 1998, equivalent of $1.40 per
annum per Series A - preferred share.). The Series A-preferred shares rank
senior to the Company's common shares as to the payment of dividends and as to
the distribution of assets. Series A-preferred shareholders can convert their
preferred shares into the Company's common shares based on a conversion price,
as defined. The Company has the option to redeem the Series A-preferred shares
beginning on and after November 17, 2007, in cash equal to the original issue
price ($20.00) plus any accrued and unpaid dividends. The holders of the Series
A-preferred shares have the right to elect two additional members to the
Company's Board of Directors if the equivalent of two quarterly dividends are in
arrears. Each of such two directors will be elected to serve until the earlier
of: (1) the election and qualification of such directors' successor, or (2) the
payment of the dividend arrearage.
8. EARNINGS PER SHARE
The following table sets forth the computation of the Company's basic and
diluted net income available per weighted-average common share of beneficial
interest for the year ended December 31, 1998 and for the period from November
17, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
Period from
November 17,
Year ended 1997 through
December 31, December 31,
1998 1997
------------------------------
<S> <C> <C>
Numerator:
Net income available to common shares
before extraordinary items.............. $ 13,527 $ 447
Extraordinary items....................... (1,253) --
------------------------------
Numerator for basic and diluted earnings
per share-income available to common
shares.................................. $ 12,274 $ 447
==============================
Denominator:
Denominator for basic earnings per
share-weighted average common
shares.................................. 14,862,958 12,593,000
Effect of dilutive securities:
Employee stock options.................... 11,100 --
Employee stock grants..................... 977 --
------------------------------
Denominator for diluted earnings per share
- adjusted weighted average common shares
and assumed conversions ................ 14,875,035 12,593,000
==============================
Basic and diluted earnings available to
common shares per weighted average
common share:
Net income before extraordinary items... $ 0.91 $ 0.04
Extraordinary items..................... (0.08) --
------------------------------
Net income per common share................. $ 0.83 $ 0.04
==============================
</TABLE>
All of the Company's options during the second and third quarters of 1998,
1,150,000 options during the fourth quarter and all options during the period
from November 17, 1997 through December 31, 1997 were not included in the
computation of diluted earnings per share because the conversion would have been
antidilutive.
The minority interest in the Operating Partnership had 10,282,521 and
10,250,882 weighted average common units outstanding during the year ended
December 31, 1998 and for the period from November 17, 1997 through December 31,
1997, respectively, of which 9,355,421 and 9,323,782, respectively, may be
F-19
<PAGE>
converted into common shares at the Company's option on a one for one basis. The
convertible common units were not included in the computation of diluted
earnings per share because the conversion would have been antidilutive.
The Company had 2,000,000 Series A-cumulative convertible preferred shares
outstanding during the year ended December 31, 1998 and for the period from
November 17, 1997 through December 31, 1997. The Series A-convertible preferred
shares were not included in the computation of diluted earnings per share
because the conversion would have been antidilutive.
9. EMPLOYEE BENEFIT PLANS
On November 17, 1997, the Company established a Share Incentive Plan (the
"Plan") which permits the grant of stock options, stock appreciation rights,
restricted stock, restricted units and performance units to officers and other
key employees and to officers and employees of subsidiaries, the Operating
Partnership, the Services Company and other-owned partnerships. The Plan also
permits the grant of stock options to non-employee Trustees.
Under the Plan, up to 1,850,000 of the Company's common shares may be
issued or transferred to participants. The maximum aggregate number of common
shares and share equivalent units that may be subject to awards granted during
any calendar year to any one participant under the Plan, regardless of the type
of awards, is 200,000. This limit applies regardless of whether such
compensation is paid in common shares or share equivalent units.
Under the Plan, each of the seven Trustees as of November 17, 1997 received
options to acquire 5,000 of the Company's common shares at $20.00 per share (the
closing price on the day of the grant of the options). Stock options granted to
the Trustees have a term of 10 years and will vest and be exercisable at the
rate of 33.3% per year over three years commencing on the first anniversary of
their date of grant.
The Company's Board of Directors (the "Board") administers the Plan and has
the authority to determine, among other things, subject to the terms and
conditions of the Plan, the individuals to be granted options, the exercise
price at which shares may be acquired, the number of shares subject to options,
the vesting requirements and the exercise period of each option. The Board is
granted discretion to determine the term of each option granted under the Plan
to employees, executives and Trustees, but in no event will the term exceed ten
years and one day from the date of the grant. The Board has delegated to the
Compensation Committee of the Board the authority take to such actions on behalf
of the full Board. On November 17, 1997, the Board granted options to purchase a
total of 1,160,500 of the Company's common shares (including the 75,000 options
granted to Board members described below) at an exercise price of $20.00 per
share to various executives and employees of the Company. During 1998, the Board
granted options to purchase a total of 132,000 (exclusive of options described
below as part of the Company's annual incentive award program) of the Company's
common shares at exercise prices ranging from $14.00 to $21.00 per share (the
closing price on the day before the grant of the options) to various employees
and executives of the Company hired during 1998. In addition, during 1998,
117,500 options expired as the result of employees or executive, who held
options, resigning from the Company (exercise prices ranging from $20.00 to
$20.44 per share). Options for these shares granted under the plan to executives
and employees have a term of 10 years and will be exercisable and vest in
installments as follows: (i) 33.3% of the number of shares commencing in the
first anniversary of the date of grant; (ii) an additional 33.3% for the shares
commencing on the second anniversary of the date of the grant; and (iii) the
remainder of the shares commencing on the third anniversary of the date of
grant.
Under a consulting agreement with one of the members of the Board, the
Board granted on November 17, 1997, options to purchase 75,000 of the Company's
common shares at an exercise price of $20.00 per share. Pursuant to the
agreement, the options granted have a term of 10 years and will be exercisable
and vest at the rate of 33.3% per year over three years commencing on the first
anniversary of their date of grant.
During 1998, the Company issued a total of 22,500 common shares granted to
two of its officers and 2,500 common shares granted to one of its Board members
pursuant to their employment agreements or consulting agreement, as applicable,
valued at the market price of the Company's common shares at the date of grant,
totaling $458.
As part of an annual incentive award program, on December 17, 1998, the
Board granted certain executives 25,694 shares of the Company's common shares
and options to purchase 538,889 of the Company's common shares at an exercise
F-20
<PAGE>
price of $14.00 per share. The common share grants vest 50% on January 15, 1999
and 50% on January 15, 2000 and the options vested on January 15, 1999. The
Board also granted certain executives options to purchase 254,000 of the
Company's common shares, at an exercise price of $14.00 per share, as part of a
long-term incentive program. These options vest at the rate of 25.0% per year
over four years commencing on January 15, 1999. As the total options granted to
date exceed that authorized under the plan, the excess options are subject to
the Company's shareholders' approval.
The unaudited pro forma information regarding net income and earnings per
share is required by SFAS No. 123, "Accounting for Stock-Based Compensation",
and has been determined as if the Company had accounted for its options under
the fair value method of that statement. The fair value for the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1998 and 1997; respectively, risk
free interest rate of 5.01% in 1998 and 5.41% in 1997, expected dividend yield
of 6.7%; volatility factor of the expected market price of our common stock of
0.339 in 1998 and 0.156 in 1997; and a weighted-average expected life of the
options of three years for both periods. The unaudited pro forma expense would
be $1,174 ($0.08 per basic and diluted common share) for the year ended December
31, 1998 and $69 ($0.01 per basic and diluted common share) for the period from
November 17, 1997 through December 31, 1997. The effects on unaudited pro forma
net income and pro forma earnings per common share for the year ended December
31, 1998 and for the period from November 17, 1997 to December 31, 1997 of
amortizing to expense the estimated fair value of stock options are not
necessarily representative of the effects on net income to be reported in future
years due to such things as the vesting period of the stock options, and the
potential for issuance of additional stock options in future years. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in the Company's management opinion the existing
models do not necessarily provide a reliable single measure of the fair value of
the options granted under the plan.
The following is a summary of the Company's stock option activity, and
related information for the year ended December 31, 1998 and for the period from
November 17, 1997 through December 31, 1997 follows:
<TABLE>
<CAPTION>
Shares Weighted
Subject to Average Exercise
Option Price Per Share
---------------- ----------------
<S> <C> <C>
Initial options granted............... 1,160,500 $ 20.00
Options canceled...................... -- --
----------------
Balance at December 31, 1997........... 1,160,500 20.00
Additional options granted............. 924,889 14.77
Options canceled....................... (117,500) 20.01
================
Balance at December 31, 1998.......... 1,967,889 17.54
================
</TABLE>
At December 31, 1998, 350,167 shares were exercisable at a weighted average
exercise price of $20.00 per share. No options were exercised and no options on
shares were available for future grant at December 31, 1998. The remaining
weighted-average contractual life of these options was 8.99 years. The
weighted-average grant date fair value of all options granted during the year
ended December 31, 1998 and the period from November 17, 1997 through December
31, 1997 was $2.49 and $1.39, respectively.
10. RELATED PARTY TRANSACTIONS
The Company owns 100% of the nonvoting preferred stock of the Services
Company which has an initial carrying value of $425 and the Company provided a
loan in the amount of $4,800 to the Services Company (unpaid interest expense is
included in due from affiliates at December 31, 1998 and 1997), with interest at
11% per annum, payable quarterly and principal due November 2007. On January
F-21
<PAGE>
1, 1998, the Company provided the Services Company a $5,000 line-of-credit, with
interest at LIBOR plus 3%, principal and interest payable monthly from available
cash flow, as defined, and matures on December 31, 2000. The line is
collateralized by the Services Company's third party receivables and is subject
to various covenants. As of December 31, 1998, the line-of-credit balance was
$600 and is included in loans receivable from Services Company. Also included in
loans receivable from the Services Company at December 31, 1998 is accrued
interest of $594 related to the above loans and other advances of $1,061.
During the year ended December 31, 1998 and for the period from November
17, 1997 through December 31, 1997, the Company recorded $133 and ($19),
respectively, representing its share of the Services Company's income (loss)
from operations (net of interest income realted to the previously described
loans). The Company also paid general and administrative expenses (primarily
rent, salaries and benefits) of $233 on behalf of the Services Company. No
amounts were paid for the period from November 17, 1997 through December 31,
1997.
During the year ended December 31, 1998 (no services were provided for the
period from November 17, 1997 through December 31, 1997), the Services Company
provided the Company with development, acquisition due diligence, construction,
construction management, leasing and property management services, which are
summarized as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1998
-------------
<S> <C>
Development, construction and construction management........... $ 2,639
Acquisition due diligence....................................... 182
Leasing......................................................... 361
Property management............................................. 301
</TABLE>
The Company has lease agreements with PGI and certain affiliates, from
which it recognized rental revenue of $933 and $85 and tenant reimbursements
revenue of $644 and $46 for the year ended December 31, 1998 and for the period
from November 17, 1997 through December 31, 1997, respectively. In addition, in
1998 the Company provided $452 to one of the PGI affiliates for tenant
improvements (included in tenant improvements at December 31, 1998.).
In connection with the leasing and management of the Predecessor's
properties, PGI was entitled to payments and fees for services performed. Such
amounts incurred during the period from January 1, 1997 through November 16,
1997, and for the year ended December 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
Period from
November 17,
1997 through Year ended
December 31, December 31,
1997 1996
------------------------------
<S> <C> <C>
Property management fee (a)................. $ 1,238 $ 1,429
Administration fees (b)..................... 463 468
Construction management (c)................. -- 102
Legal fees (d).............................. 271 127
Leasing fees (e)............................ 2 19
Reimbursables (f)........................... 252 184
Asset management fee (g).................... 110 132
</TABLE>
- - --------------------
(a) PGI was entitled to a property management fee ranging from 2.5% to 4% of
gross receipts, payable monthly in arrears. Amounts are included in
property and asset management fees to affiliates in the combined financial
statements of the Predecessor.
(b) PGI was entitled to an annual administration fee as defined in the
Partnership agreement. Amounts are included in general and administrative
expenses in the combined financial statements of the Predecessor.
(c) PGI was entitled to a construction management fee equal to 3% of
construction costs.
F-22
<PAGE>
(d) PGI was reimbursed for reasonable legal and accounting expenses incurred in
connection with the operations of the Predecessor partnerships. Amounts are
included in general and administrative expenses in the combined financial
statements of the Predecessor.
(e) PGI was entitled to leasing commissions for all leases signed. The
commissions are equal to 1.5% to 3% of rent, exclusive of tenant
reimbursements, during the base term of the lease; commissions were payable
upon commencement of the respective leases.
(f) PGI was entitled to reimbursement for expenses paid for the benefit of the
Predecessor partnerships. Amounts are included in general and
administrative expenses in the combined financial statements of the
Predecessor.
(g) PGI was entitled to annual fees for providing asset management services to
the Predecessor partnerships which was payable from available cash flows.
Amounts are included in property and asset management fees to affiliates in
the combined financial statements of the Predecessor.
Predecessor amounts due to affiliates are for amounts due for advances made
by affiliates and amounts due from affiliates were for advances made by the
Predecessor partnerships to affiliates. Predecessor amounts due from and due to
affiliates incurred interest at prime plus 2% and were payable upon demand. Any
unpaid amounts due to affiliates or amounts due from affiliates as of November
16, 1997, have been reflected as distributions to or contributions from PGI in
the combined financial statements of the Predecessor.
Average balances of amounts due from (including loans receivable from
Services Company) and due to affiliates for the year ended December 31, 1998,
for the period from November 17, 1998 through December 31, 1997, for the period
from January 1, 1997 through November 16, 1997 and for the year ended December
31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR
------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 16, DECEMBER 31,
1998 1997 1997 1996
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Due from affiliates......................... $ 6,441 $ 5,029 $ 1,447 $ 4,323
Due to affiliates........................... -- -- 354 821
</TABLE>
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" and
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments" require disclosure of the fair value of certain on-and
off-balance sheet financial instruments for which it is practicable to estimate.
Fair value is defined by SFAS No. 107 as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
The Company used the following methods and assumptions in estimating the
fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ESCROWS
The carrying amount of cash and cash equivalents and restricted cash
escrows reported in the consolidated and combined balance sheets approximates
their fair value.
The Company maintains its cash and cash equivalents and restricted cash
escrows at various financial institutions. The combined account balances at each
institution periodically exceed FDIC insurance coverage, and as a result, there
is a concentration of credit risk related to amounts on deposit in excess of
FDIC insurance coverage. The Company believes that the risk is not significant.
F-23
<PAGE>
MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE
The carrying amount of the Company's variable and fixed rate borrowings
(including accrued interest) approximates fair value based on the current
borrowing rate for similar types of borrowing arrangements.
12. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in legal actions arising during the normal
course of business. The Company believes that the ultimate outcome of those
actions will not materially affect its consolidated financial position.
All of the Company's properties were subject to Phase I or similar
environmental assessment by independent environmental consultants which were
intended to discover information regarding, and to evaluate the environmental
condition of, the surveyed property and surrounding properties. The Company is
aware of contamination at certain of the industrial properties included in the
Predecessor properties, which are already in remediation programs sponsored by
the state in which they are located. The Phase I assessments estimate that
remedial action plans will have a probable cost of approximately $3,205. During
1997, PGI initiated lawsuits against a former environmental consultant and a
former tenant of one of these properties for damages to cover the cost of the
remedial action plans. During 1997, the Predecessor recorded a liability of
$3,205 (included in accounts payable and accrued expenses at December 31, 1998
and 1997). PGI has contractually agreed to indemnify the Company from any
environmental liabilities the Company may incur. On February 20, 1998, PGI
reached an agreement with the former tenant and received a $1,822 settlement
payment. The Company is also aware of contamination at two other properties; one
of the properties the tenant has provided the Company with an indemnity for all
the cost associated with the environmental remediation, the second property is
in the remediation program sponsored by the state in which it is located with a
remedial action plan and the previous owner has provided the Company with an
escrow account of $760 (maximum cost the previous owner has agreed to pay),
which the Company will use in the clean-up of the property.
On July 22, 1998, the Company entered into a purchase agreement, with
affiliates of a limited partner of the Operting Partnership (the "Sellers"), to
acquire two office buildings, IBM Plaza (a 1,354,354 square foot office building
located in the Chicago central business district) and National City Center (a
766,965 square foot office building located in Cleveland, Ohio), for an
aggregate purchase price of approximately $357,000. On September 15, 1998, the
Company terminated the purchase agreement in accordance with the terms of the
agreement, because the Sellers were unable to satisfy a material condition
precedent to the closing of these acquisitions. On September 21, 1998, the
Sellers notified the Company in writing that they believed they were entitled to
the $20,000 (amount included in restricted cash at December 31, 1998) earnest
money provided for by the agreement, and instructed the earnest money escrow
agent to draw the full amount under two earnest money letters-of-credit the
Company provided under one of the Credit Facilities, and also filed a complaint
against the Company alleging that it breached the contract. On October 30, 1998,
the Company filed its answer to the above complaint and denied all material
allegations of the complaint. The Company also filed a counterclaim against the
Sellers alleging that the Sellers breached the contract and sought the return of
the above mentioned earnest money and other damages. On February 5, 1999, the
Company entered into an amended purchase agreement and an option agreement with
the Seller with the following terms:
- Both the original lawsuit filed by the Sellers and the Company's
counterclaim were dismissed.
- The Company purchased National City Center on February 5, 1999 for a
contract price of $100,000.
- The $20,000 earnest money escrow was released and the Company used it
to fund the purchase of National City Center and an $8,000
nonrefundable payment for the option to purchase IBM Plaza. The option
provides the Company with the opportunity to purchase IBM Plaza for
$230,000 (exclusive of the $8,000 nonrefundable deposit) and expires
October 31, 1999. If the option is exercised, the purchase of the
property must be completed no later than December 20, 1999.
The Company has contracts to acquire parcels of land and an industrial
property from affiliates of a member of the Board for a total purchase price of
approximately $20,856, $12,284 of which is payable in Operating Partnership
common units. The contracts require the Company to acquire minimum portions of
the land on an annual basis until all of the parcels are acquired by 2002.
F-24
<PAGE>
During 1998, the Company entered into contracts to acquire three parcels of
land totaling 233.5 acres, of which 100.8 acres was purchased in June 1998. The
remaining 132.7 acres must be purchased, at the Company's discretion, over the
next three to five years for approximately $11,224. The Company is required to
make periodic installment payments, of which $400 was made as of December 31,
1998 (amount included in other assets). In addition during 1998, the Company
entered into contracts to acquire two land parcels and an option to acquire a
land parcel, all located in the Chicago metropolitan area, for a total purchase
price of approximately $62,000, subject to an additional $2,162 based upon the
date the purchase is completed. The Company made cash escrow deposits of
approximately $15,200 ($15,000 is non-refundable) as of December 31, 1998
(amount included in other assets at December 31, 1998) and an additional $10,600
($10,000 is non-refundable) in January and March 1999 related to these
contracts.
13. PROPERTY ACQUISITIONS
The following operating properties were acquired in 1998. The results of
their operations are included in the Company's 1998 consolidated statement of
operations from their respective dates of acquisitions
<TABLE>
<CAPTION>
ACQUISITION MONTH
PROPERTY LOCATION COST ACQUIRED
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
33 North Dearborn Street Chicago, IL $ 34,425 January
Commerce Point Arlington Heights, IL 29,971 February
208 South LaSalle Street Chicago, IL 61,352 March
122 South Michigan Avenue Chicago, IL 29,680 April
2100 Swift Drive Oak Brook, IL 6,253 April
6400 Shafer Court Rosemont, IL 22,228 May
Two Century Centre Schaumburg, IL 35,886 June
2000 York Road Oak Brook, IL 16,232 June
==========
$ 236,027
==========
</TABLE>
14. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations are presented as if, at January 1, 1997, (i) the Company had
completed its initial public offering and its 1998 common share and preferred
share offerings and contributed the net proceeds to the Operating Partnership,
(ii) PGI and the other contributors had contributed certain of their respective
properties and operations to the Operating Partnership, (iii) the Operating
Partnership had completed the sale of common units to Primestone Investment
Partners, L.P., (iv) the Operating Partnership acquired various office and
industrial properties and the Services Company from various third parties, and
(v) the Operating Partnership repaid debt on certain of the contribution
properties. In the Company's management opinion, all adjustments necessary to
reflect the effects of the above transactions have been made.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are
not necessarily indicative of what the actual results of operations would have
been assuming the above mentioned transactions had occurred at the dates
indicated above, nor do they purport to represent the Company's future results
of operations.
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Year ended December 31,
1998 1997
------------------------------
<S> <C> <C>
Total revenue............................... $ 160,069 $ 141,121
==============================
Net income.................................. $ 23,757 $ 18,556
==============================
Net income available to common
shareholders.............................. $ 11,757 $ 6,556
==============================
Earnings per diluted common share........... $ 0.79 $ 0.44
==============================
</TABLE>
F-25
<PAGE>
15. SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of 1998. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. The Company's chief operating decision makers
manage its operating segments separately because each operating segment
represents a strategic business unit that has different issues and serve
different markets. The Company's reportable operating segments include its
office division and industrial division, with properties principally located in
the mid-western portion of the United States. The Company evaluates its office
and industrial divisions operations principally on their contribution to overall
net income and funds from operations.
The following summarizes the Company's historical segment operating results
for the year ended December 31, 1998 and for the period from November 17, 1997
through December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------
ORPORATE/
OPERATING
OFFICE INDUSTRIAL PARTNERSHIP TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rent...................................... $ 76,754 $ 20,458 $ -- $ 97,212
Tenant reimbursements..................... 31,960 5,585 -- 37,545
Mortgage note interest.................... 5,866 -- -- 5,866
Other..................................... 3,838 266 2,874 6,978
-----------------------------------------------------------------
Total revenue............................... 118,418 26,309 2,874 147,601
Expenses:
Property operations....................... 26,838 2,760 -- 29,598
Real estate taxes......................... 19,858 5,219 -- 25,077
Depreciation and amortization............. 17,854 6,724 869 25,447
Interest.................................. -- -- 30,901 30,901
General and administrative................ -- -- 5,712 5,712
-----------------------------------------------------------------
Total expenses.............................. 64,550 14,703 37,482 116,735
-----------------------------------------------------------------
Income (loss) before minority interests
and extraordinary items................... 53,868 11,606 (34,608) 30,866
FFO adjustments (unaudited):
Real estate depreciation and amortization. 17,610 6,354 -- 23,964
Amortization of costs for leases assumed.. 1,137 -- -- 1,137
Straight-line rental revenue adjustments.. (525) (709) -- (1,234)
Net income allocated to preferred
shareholders............................ -- -- (7,971) (7,971)
-----------------------------------------------------------------
Funds from operations....................... $ 72,090 $ 17,251 $ (42,579) $ 46,762
=================================================================
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 17, 1997
THROUGH DECEMBER 31, 1997
-----------------------------------------------------------------
CORPORATE/
OPERATING
OFFICE INDUSTRIAL PARTNERSHIP TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rent...................................... $ 5,025 $ 2,268 $ -- $ 7,293
Tenant reimbursements..................... 1,663 378 -- 2,041
Mortgage note interest.................... 248 -- -- 248
Other..................................... 87 -- 161 248
-----------------------------------------------------------------
Total revenue............................... 7,023 2,646 161 9,830
Expenses:
Property operations....................... 1,815 338 60 2,213
Real estate taxes......................... 1,479 286 -- 1,765
Depreciation and amortization............. 1,582 803 93 2,478
Interest.................................. -- -- 1,680 1,680
General and administrative................ -- -- 267 267
----------------------------------------------------------------
Total expenses 4,876 1,427 2,100 8,403
----------------------------------------------------------------
Income (loss) before minority interests
and extraordinary items................... 2,147 1,219 (1,939) 1,427
FFO adjustments (unaudited):
Real estate depreciation and amortization. 1,470 745 -- 2,215
Amortization of costs for leases assumed.. 142 -- -- 142
Straight-line rental revenue adjustments.. 180 -- -- 180
Net income allocated to preferred
shareholders............................ -- -- (345) (345)
=================================================================
Funds from operations $ 3,939 $ 1,964 $ (2,284) $ 3,619
=================================================================
</TABLE>
The following summarizes the Company's segment assets and activity as of
December 31, 1998 and 1997 and for the periods then ended.
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------
<S> <C> <C>
Segment assets:
Office.................................... $ 827,872 $ 541,382
Industrial................................ 180,116 180,682
Corporate/operating partnership (includes
property under development)............. 156,526 19,404
------------------------------
Total consolidated assets.................. $ 1,164,514 $ 741,468
==============================
</TABLE>
<TABLE>
<CAPTION>
Period from
November 17,
Year ended 1997 through
December 31, December 31,
1998 1997
------------------------------
<S> <C> <C>
Expenditures for real estate:
Office.................................... $ 250,854 $ 417,802
Industrial................................ 2,898 171,477
Corporate/operating partnership
(primarily property under development).. 47,316 --
------------------------------
Total expenditures for real estate......... $ 301,068 $ 589,279
==============================
</TABLE>
F-27
<PAGE>
16. SUBSEQUENT EVENTS
On January 8, 1999, the Company filed its initial shelf registration
statement on Form S-3 with the Securities and Exchange Commission to register up
to $500,000 of its equity and debt securities for future sales.
On January 20, 1999, the Company paid distributions of $ 0.3649 per Series
A-preferred share, and $0.3375 per common share per and on January 29, 1999 paid
distributions of $0.5625 per Series B-preferred share to shareholders of record
on December 31, 1998.
In January and February, 1999, the Company acquired the following office
and industrial properties:
<TABLE>
<CAPTION>
NET
RENTABLE
SQUARE ACQUISITION MORTGAGE MONTH
PROPERTY LOCATION FEET COSTS DEBT ACQUIRED
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office:
33 West Monroe Street Chicago, IL 846,759 $ 101,293 $ 65,000 January
National City Center (1), (2), (3) Cleveland, OH 766,965 105,035 63,621 February
Industrial:
901 Technology Way (3) Libertyville, IL 68,824 4,126 -- January
===============================================
1,682,548 $ 210,454 $ 128,621
===============================================
</TABLE>
- - --------------------
(1) The Company funded a portion of the acquisition costs with $30,000 in
advances from its credit facilities (See Note 4).
(2) Acquisition costs and mortgage debt include $2,044 to adjust an assumed
above mortgage rate mortgage note payable to a current market rate.
(3) These properties were acquired from minority interest unit holders of the
Operating Partnership or their affiliates.
On February 8, 1999, the Company signed a contract with a buyer pursuant to
which it will construct an approximately 1,018 space parking garage, with
approximately 4,000 square feet of retail space, on approximately 22,000 square
feet of land that the Company has under option to purchase in the Chicago
central business district, and sell the completed parking garage to such buyer.
The sales price is approximately $34,600, plus the value of any of the retail
space leased by the Company at the time of sale up to a maximum of $4,000. In
addition, the Company is entitled to an additional $1,000 from the buyer if,
within 15 years after the sale of the parking garage to the buyer, the Company
substantially completes an office building containing at least 800,000 square
feet of office space, which is occupied by at least one tenant who is not
affiliated with the Company. The Company has acquired this land with the intent
to construct an office building which the Company will own for lease. The land
parcel for the office building could not be obtained without obtaining the land
for the parking garage and in order to construct an office building, parking
must be provided pursuant to zoning requirements.
F-28
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(Dollars in Thousands)
<CAPTION>
ENCUM- COST CAPITALIZED
BRANCES SUBSEQUENT TO GROSS AMOUNT CARRIED
(1) INITIAL COST ACQUISITION AT DECEMBER 31, 1998
--------- -------------------- -------------------- -------------------------------
BUILD- BUILD- BUILD- ACCUMULATED
INGS INGS INGS DEPRECIATION DATE OF
DECEMBER AND AND AND AT ACQUISITION(A)
31, IMPROVE- IMPROVE- IMPROVE- DECEMBER 31, CONTRIBUTION
1998 LAND MENTS LAND MENTS LAND MENTS TOTAL 1998 (2) (C)
--------- -------------------- -------------------- ------------------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
77 W. Wacker Bldg... $ 170,000 $ 17,595 $ 162,755 $ -- $ 980 $ 17,595 $ 163,735 $ 181,330 $ 7,774 Nov. 1997(C)
201 4th Ave N (4)... 4,800 1,530 7,072 85 1,334 1,615 8,406 10,021 240 Nov. 1997(C)
620 Market St. (4).. 9,000 -- 7,090 -- 951 -- 8,041 8,041 514 Nov. 1997(C)
4823 Old Kingston
Pike (4).......... 3,500 378 2,808 19 209 397 3,017 3,414 177 Nov. 1997(C)
625 Gay St.(4)...... 9,000 -- 7,379 -- 1,138 -- 8,517 8,517 559 Nov. 1997(C)
Triad Parking
Facility (4)...... -- 507 1,046 24 64 531 1,110 1,641 33 Nov. 1997(C)
1990 Algonquin Road. -- 1,550 6,375 -- -- 1,550 6,375 7,925 209 Nov. 1997(A)
2010 Algonquin Road. -- 508 2,044 -- 14 508 2,058 2,566 60 Nov. 1997(A)
1699 Woodfield Road. 8,716 1,962 7,853 16 134 1,978 7,987 9,965 225 Nov. 1997(A)
2205-2255
Enterprise Drive.. -- 2,304 9,259 3 80 2,307 9,339 11,646 276 Nov. 1997(A)
280 Shuman Blvd (5). -- 1,261 5,056 -- 61 1,261 5,117 6,378 146 Nov. 1997(A)
1701 Golf Road...... 74,363 21,780 87,324 -- 1,043 21,780 88,367 110,147 2,312 Dec. 1997(A)
2675 N. Mayfair (5). -- 1,613 6,443 1 -- 1,614 6,443 8,057 163 Dec. 1997(A)
4343 Commerce
Court(3).......... -- 5,370 21,394 192 1,755 5,562 23,149 28,711 565 Nov. 1997(A)
941-961 Wiegel
Drive(3).......... -- 3,234 12,926 -- -- 3,234 12,926 16,160 364 Nov. 1997(A)
1600-1700 167th
Street(3)......... -- 1,073 4,291 70 414 1,143 4,705 5,848 131 Nov. 1997(A)
1301 E. Tower
Road(3)........... -- 1,005 4,020 60 561 1,065 4,581 5,646 126 Nov. 1997(A)
4100 W. Madison
Street............ -- 41 169 -- 6 41 175 216 5 Nov. 1997(A)
371-385 N. Gary
Avenue(3)......... -- 218 871 5 26 223 897 1,120 36 Nov. 1997(A)
33 North Dearborn... 18,000 6,904 27,521 -- 214 6,904 27,735 34,639 674 Jan. 1998(A)
3800 North Wilke
Road.............. 19,817 5,994 23,977 23 106 6,017 24,083 30,100 643 Feb. 1998(A)
208 South LaSalle
Street............ 45,553 12,310 49,042 -- 818 12,310 49,860 62,170 970 Mar. 1998(A)
122 South Michigan
Ave............... -- 5,952 23,728 -- 573 5,952 24,301 30,253 474 Apr. 1998(A)
2100 Swift Drive.... 5,183 1,391 4,862 -- 727 1391 5,589 6,980 90 Apr. 1998(A)
6400 Shafer Court... 14,300 4,385 17,843 -- 258 4,385 18,101 22,486 272 May 1998 (A)
1700 East Golf Road. 20,478 7,258 28,628 -- 2,194 7,258 30,822 38,080 422 June 1998(A)
2000 York Road...... 12,000 3,234 12,998 -- 367 3,234 13,365 16,599 197 June 1998(A)
--------- -------------------- -------------------- ------------------------------- ----------
Total office...... 414,710 109,357 544,774 498 14,027 109,855 558,801 668,656 17,657
--------- -------------------- -------------------- ------------------------------- ----------
INDUSTRIAL
East Chicago
Enterprise
Center (5)........ -- 27 533 -- 7 27 540 567 48 Nov. 1997(C)
EC I................ 2,900 18 577 -- 4 18 581 599 37 Nov. 1997(C)
EC II............... 5,000 18 2,360 -- 978 18 3,338 3,356 239 Nov. 1997(C)
EC III.............. 4,500 20 7,038 -- 102 20 7,140 7,160 514 Nov. 1997(C)
EC IV............... 2,600 11 1,217 -- 2 11 1,219 1,230 117 Nov. 1997(C)
Hammond Enterprise
Center (5)........ -- 26 614 -- 73 26 687 713 70 Nov. 1997(C)
EC V................ 5,000 81 2,883 -- 294 81 3,177 3,258 324 Nov. 1997(C)
EC VI............... 4,900 101 2,936 -- 1,360 101 4,296 4,397 325 Nov. 1997(C)
</TABLE>
F-29
<PAGE>
<TABLE>
PRIME GROUP REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1998
(Dollars in Thousands)
<CAPTION>
ENCUM- COST CAPITALIZED
BRANCES SUBSEQUENT TO GROSS AMOUNT CARRIED
(1) INITIAL COST ACQUISITION AT DECEMBER 31, 1998
--------- -------------------- -------------------- -------------------------------
BUILD- BUILD- BUILD- ACCUMULATED
INGS INGS INGS DEPRECIATION DATE OF
DECEMBER AND AND AND AT ACQUISITION(A)
31, IMPROVE- IMPROVE- IMPROVE- DECEMBER 31, CONTRIBUTION
1998 LAND MENTS LAND MENTS LAND MENTS TOTAL 1998 (2) (C)
--------- -------------------- -------------------- ------------------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL (CONTINUED)
Chicago Enterprise
Center (5)........ $ -- $ 748 $ 975 $ $ 34 $ 748 $ 1,009 $ 1,757 $ 247 Nov. 1997(C)
EC VII.............. 7,200 517 4,968 -- 90 517 5,058 5,575 357 Nov. 1997(C)
EC VIII............. 7,000 124 2,493 -- 44 124 2,537 2,661 792 Nov. 1997(C)
EC IX............... 4,750 269 1,127 -- 18 269 1,145 1,414 88 Nov. 1997(C)
EC X................ 4,300 248 2,836 -- 49 248 2,885 3,133 293 Nov. 1997(C)
Arlington Heights I
(5)............... -- 617 2,638 -- 18 617 2,656 3,273 259 Nov. 1997(C)
Arlington Heights
II(5)............. -- 456 2,062 -- 14 456 2,076 2,532 136 Nov. 1997(C)
Arlington Heights
III(5)............ -- 452 1,938 -- 12 452 1,950 2,402 128 Nov. 1997(C)
2160 McGraw Rd...... -- 904 3,617 -- 373 904 3,990 4,894 151 Nov. 1997(A)
4849 Groveport...... -- 507 2,014 -- 26 507 2,040 2,547 76 Nov. 1997(A)
2400 McGraw Rd...... -- 348 1,382 -- 18 348 1,400 1,748 53 Nov. 1997(A)
5160 Blazer
Memorial Pkwy..... -- 470 1,866 -- 24 470 1,890 2,360 71 Nov. 1997(A)
600 London Rd....... -- 223 885 -- 11 223 896 1,119 33 Nov. 1997(A)
4411 Marketing Pl... -- 445 1,767 -- 23 445 1,790 2,235 67 Nov. 1997(A)
1001 Technology Way. 6,308 1,909 7,637 17 65 1,926 7,702 9,628 231 Nov. 1997(A)
801 Technology Way
(3)............... -- 813 3,236 -- 17 813 3,253 4,066 98 Nov. 1997(A)
475 Superior Ave.
(6)............... -- 2,700 10,801 -- 112 2,700 10,913 13,613 299 Nov. 1997(A)
3818 Grandville/1200
Northwestern (3).. -- 2,125 8,465 -- 42 2,125 8,507 10,632 254 Nov. 1997(A)
306-310 Era Dr.(3).. -- 719 2,863 -- 15 719 2,878 3,597 87 Nov. 1997(A)
1301 Ridgeview
Drive(3).......... -- 2,287 9,100 -- 48 2,287 9,148 11,435 276 Nov. 1997(A)
515 Huehl Road/500
Lindburg(3)....... -- 1,775 7,062 -- 37 1,775 7,099 8,874 214 Nov. 1997(A)
455 Academy Drive... -- 754 2,997 -- 16 754 3,013 3,767 91 Nov. 1997(A)
1051 N. Kirk Rd.(3). -- 911 3,325 -- 7 911 3,332 4,243 98 Nov. 1997(A)
4211 Madison St.(3). -- 690 2,745 -- -- 690 2,745 3,435 78 Nov. 1997(A)
555 Huehl Road(3)... -- 1,291 5,137 -- 27 1,291 5,164 6,455 155 Nov. 1997(A)
200 E. Fullerton(3). -- 525 2,100 -- 10 525 2,110 2,635 60 Nov. 1997(A)
350 Randy Road(3)... -- 267 1,063 -- 23 267 1,086 1,353 31 Nov. 1997(A)
4300,4248,4250
Madison Street(3). -- 1,147 4,588 -- 31 1,147 4,619 5,766 131 Nov. 1997(A)
370 Carol Lane(3)... -- 527 2,107 9 47 536 2,154 2,690 60 Nov. 1997(A)
388 Carol Lane(3)... -- 332 1,329 -- 25 332 1,354 1,686 37 Nov. 1997(A)
342-346 Carol
Lane(3)........... -- 600 2,398 -- 56 600 2,454 3,054 67 Nov. 1997(A)
343 Carol Lane(3)... -- 350 1,398 6 16 356 1,414 1,770 40 Nov. 1997(A)
11039 Gage Ave.(3).. -- 191 767 -- 10 191 777 968 22 Nov. 1997(A)
11045 Gage Ave.(3).. -- 1,274 5,092 -- 215 1,274 5,307 6,581 143 Nov. 1997(A)
1401 S. Jefferson
(3)............... -- 171 685 -- 20 171 705 876 20 Nov. 1997(A)
4160-4190 W. Madison
Street(3)........ -- 931 3,708 -- 169 931 3,877 4,808 104 Nov. 1997(A)
550 Kehoe Blvd.(3).. -- 686 2,743 13 71 699 2,814 3,513 78 Nov. 1997(A)
--------- --------- ---------- --------- ------------------- --------------------------------
Total Industrial.. 54,458 29,605 140,072 45 4,653 29,650 144,725 174,375 7,099
--------- --------- ---------- --------- ------------------- --------------------------------
Total.............. $ 469,168 $ 138,962 $ 684,846 $ 543 $ 18,680 $ 139,505 $ 703,526 $843,031 $ 24,756
========= ========= ========== ========= =================== ================================
</TABLE>
- - --------------------
F-30
<PAGE>
PRIME GROUP REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1998
(Dollars in Thousands)
(1) The Company has a $20,000 mortgage note payable that is collateralized by a
mortgage note receivable and a $13,500 mortgage note payable that is
collateralized by property under development. See Note 4 to the Company's
consolidated financial statements for a description of its mortgage notes
payable, credit facilities and bonds payable.
(2) Depreciation is calculated on the straight-line method over the estimated
useful lives of assets, which are as follows:
Building and improvements 40 years
Tenant improvements Term of related leases
Furniture and equipment (included in
buildings and improvements) 3-7 years
(3) These properties are collateral for $90,500 in various mortgage notes
payable.
(4) These properties are collateral for a $80,000 line-of-credit, which had no
amount drawn at December 31, 1998.
(5) These properties are collateral for letters-of-credit that support certain
industrial revenue bonds on other properties reflected in this table.
(6) This property is collateral for a $15,000 line-of-credit, which had no
amount drawn at December 31, 1998.
The aggregate gross cost of the properties included above, for federal
income tax purposes, approximated $751,142 as of December 31, 1998. The Company
has $51,376 in property under development at December 31, 1998, all of which was
added during 1998 (same basis for federal income tax purposes).
The following table reconciles our historical cost for the year ended
December 31, 1998 and for the period from November 17, 1997 through December 31,
1997.
<TABLE>
<CAPTION>
Period from
November 17,
Year ended 1997 through
December 31, December 31,
1998 1997
------------------------------
<S> <C> <C>
Balance, beginning of period................ $ 589,279 $ --
Additions during period..................... 253,752 589,279
Disposals during the period................. -- --
------------------------------
Balance, close of period.................... $ 843,031 $ 589,279
==============================
</TABLE>
The following table reconciles the accumulated depreciation for the year
ended December 31, 1998 and for the period from November 17, 1997 through
December 31, 1997.
<TABLE>
<CAPTION>
Period from
November 17,
Year ended 1997 through
December 31, December 31,
1998 1997
------------------------------
<S> <C> <C>
Balance at beginning of period.............. $ 2,338 $ --
Depreciation and amortization for the
period.................................... 22,418 2,338
Disposals during the period................. -- --
------------------------------
Balance, close of period.................... $ 24,756 $ 2,338
==============================
</TABLE>
F-31
EXHIBIT 3.3
PRIME GROUP REALTY TRUST
ARTICLES SUPPLEMENTARY
Prime Group Realty Trust, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the State Department of Assessments and Taxation
of the State of Maryland pursuant to Section 8-203(b) of Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland that:
FIRST: Under a power set forth in Section 3.5 of the declaration of trust
of the Trust (the "Declaration of Trust"), the Board of Trustees of the Trust by
resolution duly adopted at a meeting of the Board of Trustees held on December
17, 1998, reclassified 600,000 unissued shares of the Trust's 9% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01
per share, as authorized but unissued preferred shares of beneficial interest,
par value $0.01 per share.
SECOND: The reclassification of authorized but unissued shares of
beneficial interest as set forth in these Articles Supplementary does not
increase the authorized capital of the Trust or the aggregate par value thereof.
THIRD: These Articles Supplementary have been approved by the Board of
Trustees of the Trust in the manner prescribed by the Declaration of Trust and
Maryland law.
IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be
executed in its name and on its behalf on this 29th day of December, 1998, by
its Executive Vice President and Chief Financial Officer and to be attested by
its Secretary, and the Executive Vice President and Chief Financial Officer of
the Trust acknowledges that these Articles Supplementary are the act of the
Trust and that, to the best of his knowledge, information and belief and under
penalties for perjury, all matters and facts set forth herein with respect to
authorization and approval are true in all material respects.
ATTEST: PRIME GROUP REALTY TRUST
/s/ James F. Hoffman By: /s/ William M. Karnes(SEAL)
- - -------------------- ----------------------
James F. Hoffman William M. Karnes
Secretary Executive Vice President and
Chief Financial Officer
EXHIBIT 10.10
================================================================================
LOAN AGREEMENT
Dated as of October 1, 1998
Between
77 West Wacker Limited Partnership
as Borrower
and
LEHMAN BROTHERS HOLDINGS INC.,
DOING BUSINESS AS LEHMAN CAPITAL,
A DIVISION OF LEHMAN BROTHERS HOLDINGS INC.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................... 1
Section 1.1 Definitions............................................ 1
Section 1.2 Principles of Construction............................. 10
II. GENERAL TERMS......................................................... 10
Section 2.1 Loan Commitment; Disbursement to Borrower.............. 10
2.1.1 The Loan............................................... 10
2.1.2 Disbursement to Borrower............................... 11
2.1.3 The Note, Mortgage and Loan Documents.................. 11
2.1.4 Use of Proceeds........................................ 11
Section 2.2 Interest; Loan Payments; Late Payment Charge........... 11
2.2.1 Interest Generally..................................... 11
2.2.2 Interest Calculation................................... 11
2.2.3 Determination of Interest Rate......................... 11
2.2.4 Payments of Interest................................... 13
2.2.5 Payment on Maturity Date............................... 13
2.2.6 Payments after Default................................. 13
2.2.7 Late Payment Charge.................................... 13
2.2.8 Usury Savings.......................................... 14
Section 2.3 Prepayments............................................ 14
2.3.1 Voluntary Prepayments.................................. 14
2.3.2 Mandatory Prepayments.................................. 14
Section 2.4 Intentionally Omitted.................................. 14
Section 2.5 Release of Property.................................... 14
Section 2.6 Manner of Making Payments; Cash Management............. 15
2.6.1 Deposits into Lockbox Account.......................... 15
2.6.2 Making of Payments..................................... 15
2.6.3 Payments Received in the Lockbox Account............... 15
2.6.4 No Deductions, etc..................................... 15
III.CONDITIONS PRECEDENT.................................................. 16
Section 3.1 Conditions Precedent to Closing........................ 16
3.1.1 Representations and Warranties; Compliance with
Conditions............................................. 16
3.1.2 Loan Agreement and Note................................ 16
3.1.3 Delivery of Loan Documents; Title Insurance; Reports;
Leases................................................. 16
3.1.4 Related Documents...................................... 17
3.1.5 Delivery of Organizational Documents................... 17
3.1.6 Opinions of Borrower's Counsel......................... 17
3.1.7 Budgets................................................ 18
3.1.8 Basic Carrying Costs................................... 18
3.1.9 Intentionally Omitted.................................. 18
3.1.10 Payments............................................... 18
3.1.11 Intentionally Omitted.................................. 18
3.1.12 Tenant Estoppels....................................... 18
3.1.13 Transaction Costs...................................... 18
3.1.14 Material Adverse Change................................ 18
3.1.15 Leases and Rent Roll................................... 19
3.1.16 Subordination and Attornment........................... 19
3.1.17 Tax Lot................................................ 19
3.1.18 Physical Conditions Reports............................ 19
3.1.19 Management Agreement................................... 19
3.1.20 Appraisal.............................................. 19
3.1.21 Financial Statements................................... 19
3.1.22 Further Documents...................................... 19
-i-
<PAGE>
Page
----
IV. REPRESENTATIONS AND WARRANTIES........................................ 19
Section 4.1 Borrower Representations............................... 19
4.1.1 Organization........................................... 20
4.1.2 Proceedings............................................ 20
4.1.3 No Conflicts........................................... 20
4.1.4 Litigation............................................. 20
4.1.5 Agreements............................................. 20
4.1.6 Title.................................................. 21
4.1.7 No Bankruptcy Filing................................... 21
4.1.8 Full and Accurate Disclosure........................... 21
4.1.9 No Plan Assets......................................... 22
4.1.10 Compliance............................................. 22
4.1.11 Financial Information.................................. 22
4.1.12 Condemnation........................................... 22
4.1.13 Federal Reserve Regulations............................ 22
4.1.14 Utilities and Public Access............................ 23
4.1.15 Not a Foreign Person................................... 23
4.1.16 Separate Lots.......................................... 23
4.1.17 Assessments............................................ 23
4.1.18 Enforceability......................................... 23
4.1.19 No Prior Assignment.................................... 23
4.1.20 Insurance.............................................. 23
4.1.21 Use of Property........................................ 24
4.1.22 Licenses............................................... 24
4.1.23 Flood Zone............................................. 24
4.1.24 Physical Condition..................................... 24
4.1.25 Boundaries............................................. 24
4.1.26 Leases................................................. 24
4.1.27 Intentionally Omitted.................................. 25
4.1.28 Loan to Value.......................................... 25
4.1.29 Filing and Recording Taxes............................. 25
4.1.30 Single Purpose Entity/Separateness..................... 25
4.1.31 Management Agreement................................... 28
4.1.32 Ground Lease........................................... 28
4.1.33 Illegal Activity....................................... 30
4.1.34 No Change in Facts or Circumstances; Disclosure........ 30
Section 4.2 Survival of Representations............................ 30
V. BORROWER COVENANTS.................................................... 30
Section 5.1 Affirmative Covenants.................................. 30
Section 5.2 Negative Covenants..................................... 37
VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS................... 40
Section 6.1 Insurance.............................................. 40
Section 6.2 Casualty............................................... 43
Section 6.3 Condemnation........................................... 43
Section 6.4 Restoration............................................ 44
VII.RESERVE FUNDS......................................................... 48
Section 7.1 Intentionally Omitted.................................. 48
Section 7.2 Tax Escrow Fund........................................ 48
Section 7.3 Intentionally Deleted.................................. 49
Section 7.4 Termination Account.................................... 49
Section 7.5 Reserve Funds, Generally............................... 49
VIII. DEFAULTS............................................................ 49
Section 8.1 Event of Default....................................... 49
Section 8.2 Remedies............................................... 51
Section 8.3 Remedies Cumulative; Waivers........................... 52
IX. SPECIAL PROVISIONS.................................................... 53
Section 9.1 Sale of Notes and Securitization....................... 53
Section 9.2 Securitization Indemnification......................... 56
Section 9.3 Intentionally Omitted.................................. 56
Section 9.4 Exculpation............................................ 56
Section 9.5 Termination of Manager................................. 58
Section 9.6 Servicer............................................... 58
-ii-
<PAGE>
Page
----
X. MISCELLANEOUS......................................................... 58
Section 10.1 Survival............................................... 58
Section 10.2 Lender's Discretion.................................... 59
Section 10.3 Governing Law.......................................... 59
Section 10.4 Modification, Waiver in Writing........................ 60
Section 10.5 Delay Not a Waiver..................................... 60
Section 10.6 Notices................................................ 60
Section 10.7 Trial by Jury.......................................... 61
Section 10.8 Headings............................................... 62
Section 10.9 Severability........................................... 62
Section 10.10 Preferences............................................ 62
Section 10.11 Waiver of Notice....................................... 62
Section 10.12 Remedies of Borrower................................... 63
Section 10.13 Expenses; Indemnity.................................... 63
Section 10.14 Schedules Incorporated................................. 64
Section 10.15 Offsets, Counterclaims and Defenses.................... 64
Section 10.16 No Joint Venture or Partnership; No Third Party
Beneficiaries.......................................... 64
Section 10.17 Publicity.............................................. 65
Section 10.18 Waiver of Marshalling of Assets;....................... 65
Section 10.19 Waiver of Counterclaim................................. 65
Section 10.20 Conflict; Construction of Documents; Reliance.......... 65
Section 10.21 Brokers and Financial Advisors......................... 66
Section 10.22 Prior Agreements....................................... 66
SCHEDULES
---------
Schedule I - Rent Roll
-iii-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of October 1, 1998 (as amended, restated,
replaced, supplemented or otherwise modified from time to time, this
"Agreement"), between LEHMAN BROTHERS HOLDINGS INC., doing business as Lehman
Capital, a division of Lehman Brothers Holdings Inc., having an address at Three
World Financial Center, New York, New York 10285 ("Lender") and 77 WEST WACKER
LIMITED PARTNERSHIP, an Illinois limited partnership, having an address at 77
West Wacker Drive, Suite 3900, Chicago, Illinois 60601 ("Borrower").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from
Lender; and
WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents (as
hereinafter defined).
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly required
or unless the context clearly indicates a contrary intent:
"ACQUIRED PROPERTY" shall have the meaning set forth in Section 9.1(e)(i)
hereof.
"ACQUIRED PROPERTY STATEMENTS" shall have the meaning set forth in Section
9.1(e)(i) hereof.
"AFFILIATE" shall mean, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or executive officer of such Person or of an
Affiliate of such Person.
"AGENT" shall mean LaSalle National Bank, N.A. or any successor thereto
acting as Agent under the Cash Management Agreement.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"ANNUAL BUDGET" shall mean the operating budget, including all planned
capital expenditures, for the Property prepared by Borrower for the applicable
Fiscal Year or other period.
"APPLICABLE INTEREST RATE" shall mean six and three-eighths percent
(6.375%) for the initial Interest Period, and thereafter shall mean a
fluctuating rate per annum equal to LIBOR plus one hundred (100) basis points,
as such rate may change on each Determination Date for the next succeeding
Interest Period (or the Substitute Rate, if applicable).
"ASSIGNMENT OF LEASES" shall mean that certain first priority Assignment of
Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to
Lender, as assignee, assigning to Lender all of Borrower's interest in and to
the Leases and Rents of the Property as security for the Loan, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to
time.
"ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain Assignment of
Management Agreement and Subordination of Management Fees dated the date hereof
among Lender, Borrower and Manager, as the same may amended, restated, replaced,
supplemented or otherwise modified from time to time.
"AWARD" shall mean any compensation paid by any Governmental Authority in
connection with a Condemnation in respect of all or any part of the Property.
-1-
<PAGE>
"BASIC CARRYING COSTS" shall mean, the sum of the following costs
associated with the Property for the relevant Fiscal Year or payment period: (i)
Taxes and (ii) Insurance Premiums.
"BORROWER" shall mean 77 West Wacker Limited Partnership, an Illinois
limited partnership, together with its successors and assigns.
"BREAKAGE COSTS" shall have the meaning set forth in 2.2.3(d) hereof.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in New York, New York are not open for
business.
"CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for
items capitalized under GAAP.
"CASH MANAGEMENT AGREEMENT" shall mean that certain Cash Management
Agreement by and among Borrower, Manager, Agent and Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time, relating to funds deposited in the Lockbox Account.
"CASUALTY" shall have the meaning specified in Section 6.2 hereof.
"CASUALTY CONSULTANT" shall have the meaning set forth in Section
6.4(b)(iii) hereof.
"CASUALTY RETAINAGE" shall have the meaning set forth in Section 6.4(b)(iv)
hereof.
"CLOSING DATE" shall mean the date of the funding of the Loan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may
be further amended from time to time, and any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"CONDEMNATION" shall mean a temporary or permanent taking by any
Governmental Authority as the result or in lieu or in anticipation of the
exercise of the right of condemnation or eminent domain, of all or any part of
the Property, or any interest therein or right accruing thereto, including any
right of access thereto or any change of grade affecting the Property or any
part thereof.
"DEBT" shall mean the outstanding principal amount set forth in, and
evidenced by, this Agreement and the Note together with all interest accrued and
unpaid thereon and all other sums due to Lender in respect of the Loan under the
Note, this Agreement, the Mortgage or any other Loan Document.
"DEBT SERVICE" shall mean, with respect to any particular period of time,
scheduled principal and/or interest payments under the Note.
"DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal
to the lesser of (a) the maximum rate permitted by applicable law, or (b) three
percent (3%) above the Applicable Interest Rate.
"DETERMINATION DATE" shall mean, with respect to any Interest Period, the
date that is (2) London Business Days prior to the beginning of such Interest
Period.
"ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental and
Hazardous Substance Indemnification Agreement executed by Borrower in connection
with the Loan for the benefit of Lender, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a)
hereof.
"EVEREN LEASE" shall mean that certain Lease between Borrower and Everen
Securities, Inc., formerly Kemper Securities Group, Inc. for approximately
241,225 square feet of office space at the Property.
"EXCHANGE ACT FILING" shall have the meaning set forth in Section
9.1(e)(vi) hereof.
-2-
<PAGE>
"EXCULPATED PARTIES" shall have the meaning set forth in Section 9.4.
"EXTRAORDINARY EXPENSE" shall have the meaning set forth in Section
5.1.11(e) hereof.
"FISCAL YEAR" shall mean each twelve (12) month period commencing on
January 1 and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial statement.
"GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission,
office or other authority of any nature whatsoever for any governmental unit
(federal, state, county, district, municipal, city or otherwise) whether now or
hereafter in existence.
"GROSS INCOME FROM OPERATIONS" shall mean all income, computed in
accordance with GAAP, derived from the ownership and operation of the Property
from whatever source, including, but not limited to, Rents, utility charges,
escalations, forfeited security deposits, interest on credit accounts, service
fees or charges, license fees, parking fees, rent concessions or credits, and
other required pass-throughs but excluding sales, use and occupancy or other
taxes on receipts required to be accounted for by Borrower to any Governmental
Authority, refunds or other reimbursements required to be made to tenants and
uncollectible accounts, sales of furniture, fixtures and equipment, Insurance
Proceeds (other than business interruption or other loss of income insurance),
Awards, unforfeited security deposits, utility and other similar deposits and
any disbursements to Borrower from the Reserve Funds. Gross income shall not be
diminished as a result of the Mortgage or the creation of any intervening estate
or interest in the Property or any part thereof.
"GROUND LEASE" shall mean that certain Lease executed by American National
Bank and Trust Company, as Trustee Under Trust Agreement Dated November 26, 1985
and known as Trust Number 66121, as Lessor, and Borrower, as Lessee, dated March
7, 1991, which Lease was recorded on March 18, 1991 as Document 91119739.
"IMPROVEMENTS" shall have the meaning set forth in the granting clause of
the Mortgage.
"INDEBTEDNESS" of a Person, at a particular date, means the sum (without
duplication) at such date of (a) indebtedness or liability for borrowed money;
(b) obligations evidenced by bonds, debentures, notes, or other similar
instruments; (c) obligations for the deferred purchase price of property or
services (including trade obligations); (d) obligations under letters of credit;
(e) obligations under acceptance facilities; (f) all guaranties, endorsements
(other than for collection or deposit in the ordinary course of business) and
other contingent obligations to purchase, to provide funds for payment, to
supply funds, to invest in any Person or entity, or otherwise to assure a
creditor against loss; and (g) obligations secured by any Liens, whether or not
the obligations have been assumed.
"INDEPENDENT DIRECTOR" shall have the meaning set forth in Section
4.1.30(p).
"INSOLVENCY OPINION" shall mean that certain opinion letter dated the date
hereof delivered by Winston & Strawn in connection with the Loan.
"INSURANCE PREMIUMS" shall have the meaning set forth in Section 6.1(b)
hereof.
"INSURANCE PROCEEDS" shall have the meaning set forth in Section 6.4(b)
hereof.
"INTEREST PERIOD" shall mean (a) the period commencing on the date hereof
and ending on October 31, 1998 for the first period hereunder, and (b) for each
period thereafter, the period commencing on the first (1st) day of each calendar
month during the term of the Loan and ending on the last day of such calendar
month.
"LEASE" shall mean any lease, sublease or subsublease, letting, license,
concession or other agreement (whether written or oral and whether now or
hereafter in effect) pursuant to which any person is granted a possessory
interest in, or right to use or occupy all or any portion of any space in the
Property, and every modification, amendment or other agreement relating to such
lease, sublease, subsublease, or other agreement entered into in connection with
-3-
<PAGE>
such lease, sublease, subsublease, or other agreement and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"LEGAL REQUIREMENTS" shall mean all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of Governmental Authorities affecting the
Property or any part thereof, or the construction, use, alteration or operation
thereof, or any part thereof, whether now or hereafter enacted and in force, and
all permits, licenses and authorizations and regulations relating thereto, and
all covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Borrower, at any time in force
affecting the Property or any part thereof, including, without limitation, any
which may (a) require repairs, modifications or alterations in or to the
Property or any part thereof, or (b) in any way limit the use and enjoyment
thereof.
"LENDER" shall mean Lehman Brothers Holdings Inc., doing business as Lehman
Capital, a division of Lehman Brothers Holdings Inc., together with its
successors and assigns.
"LENDER'S NOTICE" shall have the meaning set forth in Section 2.2.3(b)
hereof.
"LIABILITIES" shall have the meaning set forth in Section 9.2(a) hereof.
"LIBOR" shall mean, with respect to each Interest Period, the rate
(expressed as a percentage per annum and rounded upward, if necessary, to the
next nearest 1/1000 of 1%) for deposits in U.S. dollars, for a one-month period,
that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m.,
London time, on the related Determination Date. If such rate does not appear on
Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date,
LIBOR shall be the arithmetic mean of the offered rates (expressed as a
percentage per annum) for deposits in U.S. dollars for a one-month period that
appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such
Determination Date, if at least two such offered rates so appear. If fewer than
two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m.,
London time, on such Determination Date, Lender shall request the principal
London Office of any four major reference banks in the London interbank market
selected by Lender to provide such bank's offered quotation (expressed as a
percentage per annum) to prime banks in the London interbank market for deposits
in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such
Determination Date for the amounts of not less than U.S. $1,000,000. If at least
two such offered quotations are so provided, LIBOR shall be the arithmetic mean
of such quotations. If fewer than two such quotations are so provided, Lender
shall request any three major banks in New York City selected by Lender to
provide such bank's rate (expressed as a percentage per annum) for loans in U.S.
dollars to leading European banks for a one-month period as of approximately
11:00 a.m., New York City time on the applicable Determination Date for amounts
of not less than U.S. $1,000,000. If at least two such rates are so provided,
LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined by
Lender or its agent.
"LICENSES" shall have the meaning set forth in Section 4.1.22 hereof.
"LIEN" shall mean any mortgage, deed of trust, lien, pledge, hypothecation,
assignment, security interest, or any other encumbrance, charge or transfer of,
on or affecting Borrower, the Property, any portion thereof or any interest
therein, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, the filing of any financing statement, and
mechanic's, materialmen's and other similar liens and encumbrances.
"LOAN" shall mean the loan made by Lender to Borrower pursuant to this
Agreement.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the
Mortgage, the Assignment of Leases, the Environmental Indemnity, the
Subordination of Management Agreement, the Cash Management Agreement and all
other documents executed and/or delivered in connection with the Loan.
"LOCKBOX ACCOUNT" shall mean the account, if any, specified in the Cash
Management Agreement for deposit of Rents and other receipts from the Property.
"LONDON BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
any other day on which commercial banks in London, England are not open for
business.
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"MANAGEMENT AGREEMENT" shall mean the management agreement entered into by
and between Borrower and the Manager, pursuant to which the Manager is to
provide management and other services with respect to the Property.
"MANAGER" shall mean Prime Group Realty, L.P., or any permitted successor
managers of the Property.
"MATURITY DATE" shall mean October 1, 1999, or such other date on which the
final payment of principal of the Note becomes due and payable as therein or
herein provided, whether at such stated maturity date, by declaration of
acceleration, or otherwise.
"MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the indebtedness evidenced by the Note and as
provided for herein or the other Loan Documents, under the laws of such state or
states whose laws are held by any court of competent jurisdiction to govern the
interest rate provisions of the Loan.
"MORTGAGE" shall mean that certain first priority Mortgage and Security
Agreement, dated the date hereof, executed and delivered by Borrower as security
for the Loan and encumbering the Property, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"NET CASH FLOW" for any period shall mean the amount obtained by
subtracting Operating Expenses and Capital Expenditures for such period from
Gross Income from Operations for such period.
"NET CASH FLOW AFTER DEBT SERVICE" for any period shall mean the amount
obtained by subtracting Debt Service for such period from Net Cash Flow for such
period.
"NET OPERATING INCOME" means the amount obtained by subtracting Operating
Expenses from Gross Income from Operations.
"NET PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof.
"NOTE" shall mean that certain note of even date herewith in the principal
amount of One Hundred Seventy Million and No/100 Dollars ($170,000,000), made by
Borrower in favor of Lender, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"OFFERING DOCUMENT" shall have the meaning set forth in Section 9.1(e)(iv)
hereof.
"OFFERING DOCUMENT DATE" shall have the meaning set forth in Section
9.1(e)(iv) hereof.
"OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by
Borrower which is signed by an authorized executive officer of the general
partner of Borrower.
"OPERATING EXPENSES" shall mean the total of all expenditures, computed in
accordance with GAAP, of whatever kind relating to the operation, maintenance
and management of the Property that are incurred on a regular monthly or other
periodic basis, including without limitation, utilities, ordinary repairs and
maintenance, insurance, license fees, property taxes and assessments,
advertising expenses, management fees, payroll and related taxes, computer
processing charges, operational equipment lease payments or other lease
payments, and other similar costs, but excluding depreciation, Debt Service,
Capital Expenditures and contributions to the Reserve Funds.
"OTHER CHARGES" shall mean all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Property, now or hereafter levied or assessed or
imposed against the Property or any part thereof.
"PAYMENT DATE" shall mean the first (1st) day of each calendar month during
the term of the Loan or, if such day is not a Business Day, the immediately
succeeding Business Day.
"PERMITTED ENCUMBRANCES" shall mean collectively, (a) the Liens and
security interests created by the Loan Documents, (b) all Liens, encumbrances
and other matters disclosed in the Title Insurance Policy, (c) Liens, if any,
for Taxes imposed by any Governmental Authority not yet due or delinquent, and
(d) such other title and survey exceptions as Lender has approved or may approve
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in writing in Lender's sole discretion, which Permitted Encumbrances in the
aggregate do not materially adversely affect the value or use of the Property or
Borrower's ability to repay the Loan.
"PERSONAL PROPERTY" shall have the meaning set forth in the granting clause
of the Mortgage.
"PHYSICAL CONDITIONS REPORT" shall mean a report prepared by a company
satisfactory to Lender regarding the physical condition of the Property,
satisfactory in form and substance to Lender in its reasonable discretion.
"POLICIES" shall have the meaning specified in Section 6.1(b) hereof.
"PRIME ENTITIES" shall have the meaning set forth in Section 4.1.30(p)(iii)
hereof.
"PROPERTY" shall mean the parcel of real property, the Improvements thereon
and all personal property owned by Borrower and encumbered by the Mortgage,
together with all rights pertaining to such property and Improvements, as more
particularly described in the Granting Clauses of the Mortgage and referred to
therein as the "Property".
"PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1(a)
hereof.
"RATING AGENCIES" shall mean each of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch IBCA, Inc., or any other nationally-recognized
statistical rating agency which has been approved by Lender.
"RENTS" shall mean all rents, rent equivalents, moneys payable as damages
or in lieu of rent or rent equivalents, royalties (including, without
limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including, without limitation,
security, utility and other deposits), accounts, cash, issues, profits, charges
for services rendered, and other consideration of whatever form or nature
received by or paid to or for the account of or benefit of Borrower or its
agents or employees from any and all sources arising from or attributable to the
Property, and proceeds, if any, from business interruption or other loss of
income insurance.
"RESERVE FUNDS" shall mean the Tax Escrow Fund and any other escrow fund
established by the Loan Documents.
"RESTORATION" shall have the meaning set forth in Section 6.2 hereof.
"SECURITIES" shall have the meaning set forth in Section 9.1 hereof.
"SECURITIZATION" shall have the meaning set forth in Section 9.1 hereof.
"SERVICER" shall have the meaning set forth in Section 9.6 hereof.
"SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6
hereof.
"SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(c)
hereof.
"SPC PARTY" shall have the meaning set forth in Section 4.1.30(o) hereof.
"STATE" shall mean the State or Commonwealth in which the Property or any
part thereof is located.
"SUBSTITUTE RATE" shall have the meaning set forth in Section 2.2.3(b)
hereof.
"SURVEY" shall mean a survey of the Property prepared by a surveyor
licensed in the State and satisfactory to Lender and the company or companies
issuing the Title Insurance Policy, and containing a certification of such
surveyor satisfactory to Lender.
"TAX ESCROW FUND" shall have the meaning set forth in Section 7.2 hereof.
"TAXES" shall mean all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against the Property or part thereof.
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"TERMINATION ACCOUNT" shall have the meaning set forth in Section 7.4
hereof.
"TITLE INSURANCE POLICY" shall mean an ALTA mortgagee title insurance
policy in the form (acceptable to Lender) (or, if the Property is in a State
which does not permit the issuance of such ALTA policy, such form as shall be
permitted in such State and acceptable to Lender) issued with respect to the
Property and insuring the lien of the Mortgage.
"UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the State.
"U.S. OBLIGATIONS" shall mean direct non-callable obligations of the United
States of America.
Section 1.2 PRINCIPLES OF CONSTRUCTION.
All references to sections and schedules are to sections and schedules in
or to this Agreement unless otherwise specified. All uses of the word
"including" shall mean "including, without limitation" unless the context shall
indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise specified, all meanings attributed to defined terms
herein shall be equally applicable to both the singular and plural forms of the
terms so defined.
II. GENERAL TERMS
Section 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER.
2.1.1 THE LOAN. Subject to and upon the terms and conditions set forth
herein, Lender hereby agrees to make and Borrower hereby agrees to accept the
Loan on the Closing Date.
2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one
borrowing hereunder in respect of the Loan and any amount borrowed and repaid
hereunder in respect of the Loan may not be reborrowed.
2.1.3 THE NOTE, MORTGAGE AND LOAN DOCUMENTS. The Loan shall be evidenced by
the Note and secured by the Mortgage, the Assignment of Leases and the other
Loan Documents.
2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to (a)
repay and discharge any existing loans relating to the Property, (b) pay all
past-due Basic Carrying Costs, if any, in respect of the Property, (c) make
deposits into the Reserve Funds on the Closing Date in the amounts provided
herein, (d) pay costs and expenses incurred in connection with the Closing of
the Loan, as approved by Lender, (e) fund any working capital requirements of
the Property, and (f) distribute the balance, if any, to Borrower, which may be
distributed to its partners.
Section 2.2 INTEREST; LOAN PAYMENTS; LATE PAYMENT CHARGE.
2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of
the Loan shall accrue from the Closing Date to but excluding the Maturity Date
at the Applicable Interest Rate.
2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance
of the Loan shall be calculated by multiplying (a) the actual number of days
elapsed in the period for which the calculation is being made by (b) the
Applicable Interest Rate divided by three hundred sixty (360) by (c) the
outstanding principal balance.
2.2.3 DETERMINATION OF INTEREST RATE.
(a) Subject to the terms and conditions of this Section 2.2.3 Borrower
shall pay interest on the outstanding principal amount of the Loan at LIBOR plus
one hundred (100) basis points for each Interest Period following the initial
Interest Period. Each determination by Lender of the Applicable Interest Rate
shall be conclusive and binding for all purposes, absent manifest error.
(b) If any requirement of law or any change therein or in the
interpretation or application thereof which is imposed or occurs after the date
hereof shall make it unlawful for Lender to make or maintain the LIBOR rate as
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contemplated hereunder and such unlawfulness cannot be avoided by Lender through
reasonable efforts, Lender shall, by notice to Borrower ("Lender's Notice"),
offer to establish an interest rate at Lender's then customary spread, taking
into account the size of the Loan, the Net Operating Income from the Property
and the creditworthiness of Borrower, above a published index used for variable
rate loans as reasonably determined by Lender (the "Substitute Rate"). By
written notice to Lender within thirty (30) days of receipt of Lender's Notice,
Borrower may accept such offer in which case the Applicable Interest Rate shall
be a rate equal to the Substitute Rate in effect from time to time until such
illegality or condition shall cease to exist, in Lender's good faith
determination. If Borrower does not timely accept such offer, interest shall
accrue at the Substitute Rate and Borrower shall, within ninety (90) days of
Lender's Notice, pay to Lender on a Payment Date the entire outstanding
principal of the Loan, the accrued and unpaid interest and all other amounts
then due and payable under the Loan.
(c) In the event that Lender shall have determined (which determination
shall be conclusive and binding upon Borrower absent manifest error) that (a) by
reason of circumstances affecting the interbank eurodollar market, adequate and
reasonable means do not exist for ascertaining the LIBOR rate, and (b) the LIBOR
rate determined pursuant to the terms and provisions of this Agreement for the
Interest Period does not accurately reflect the cost to Lender of making or
maintaining the amount of the Loan, then Lender shall by a Lender's Notice offer
a Substitute Rate. By written notice to Lender within thirty (30) days of
receipt of Lender's Notice, Borrower may accept such offer in which case the
Libor Rate shall be a rate equal to the Substitute Rate in effect from time to
time until such circumstances shall cease to exist, in Lender's good faith
determination. If Borrower does not timely accept such offer, interest shall
accrue at the Substitute Rate and Borrower shall, within ninety (90) days of
Lender's Notice, pay to Lender on a Payment Date the entire outstanding
principal of the Loan, the accrued and unpaid interest and all other amounts
then due and payable under the Loan.
(d) Borrower agrees to indemnify Lender and to hold Lender harmless from
any loss or expense which Lender sustains or incurs as a consequence of (i) any
default by Borrower in payment of the principal of or interest at the LIBOR
rate, including, without limitation, any such loss or expense arising from
interest or fees payable by Lender to lenders of funds obtained by it in order
to maintain the Loan at the LIBOR rate, (ii) any prepayment (whether voluntary
or mandatory) of the Loan on a day that (A) is not the Payment Date immediately
following the last day of an Interest Period with respect thereto or (B) is the
Payment Date immediately following the last day of an Interest Period with
respect thereto if Borrower did not give the prior written notice of such
prepayment required pursuant to the terms of this Agreement, including, without
limitation, such loss or expense arising from interest or fees payable by Lender
to lenders of funds obtained by it in order to maintain the LIBOR rate hereunder
and (iii) the conversion (for any reason whatsoever, whether voluntary or
involuntary) of the Applicable Interest Rate to the Substitute Rate, including,
without limitation, such loss or expenses arising from interest or fees payable
by Lender to lenders of funds obtained by it in order to maintain the Loan at
the LIBOR rate (the amounts referred to in clauses (i), (ii) and (iii) are
herein referred to collectively as "Breakage Costs"). This provision shall
survive payment of the Note in full and the satisfaction of all other
obligations of Borrower under this Agreement and the other Loan Documents.
2.2.4 PAYMENTS OF INTEREST. Borrower shall pay to Lender (a) on the first
Payment Date following the Closing Date, an amount equal to interest only on the
outstanding principal balance of the Loan from the Closing Date up to but not
including such Payment Date and (b) on each Payment Date thereafter up to but
not including the Maturity Date, an amount equal to interest only on the
outstanding principal balance of the Loan from the prior Payment Date up to but
not including such Payment Date, in each case calculated in accordance with the
provisions of this Section 2.2.
2.2.5 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the
Maturity Date the outstanding principal balance, all accrued and unpaid interest
and all other amounts due hereunder and under the Note, the Mortgage and the
other Loan Documents.
2.2.6 PAYMENTS AFTER EVENT OF DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, (a) interest on the outstanding principal
balance of the Loan and, to the extent permitted by law, overdue interest and
other amounts due in respect of the Loan, shall accrue at the Default Rate,
calculated from the date such payment was due without regard to any grace or
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cure periods contained herein and (b) Lender shall be entitled to receive and
Borrower shall pay to Lender on each Payment Date an amount equal to the Net
Cash Flow After Debt Service for the prior month, such amount to be applied by
Lender to the payment of the Debt in such order as Lender shall determine in its
sole discretion, including, without limitation, alternating applications thereof
between interest and principal. Interest at the Default Rate and Net Cash Flow
After Debt Service shall both be computed from the occurrence of the Event of
Default until the actual receipt and collection of the Debt (or that portion
thereof that is then due). To the extent permitted by applicable law, interest
at the Default Rate shall be added to the Debt, shall itself accrue interest at
the same rate as the Loan and shall be secured by the Mortgage. This paragraph
shall not be construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy accruing to
Lender by reason of the occurrence of any Event of Default; the acceptance of
any payment of Net Cash Flow After Debt Service shall not be deemed to cure or
constitute a waiver of any Event of Default; and Lender retains its rights under
this Note to accelerate and to continue to demand payment of the Debt upon the
happening of any Event of Default, despite any payment of Net Cash Flow After
Debt Service.
2.2.7 LATE PAYMENT CHARGE. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Mortgage and the
other Loan Documents to the extent permitted by applicable law.
2.2.8 USURY SAVINGS. This Agreement and the Note are subject to the express
condition that at no time shall Borrower be obligated or required to pay
interest on the principal balance of the Loan at a rate which could subject
Lender to either civil or criminal liability as a result of being in excess of
the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan
Documents, Borrower is at any time required or obligated to pay interest on the
principal balance due hereunder at a rate in excess of the Maximum Legal Rate,
the Applicable Interest Rate or the Default Rate, as the case may be, shall be
deemed to be immediately reduced to the Maximum Legal Rate and all previous
payments in excess of the Maximum Legal Rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the sums due under the Loan, shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term of the Loan until payment in full so that the
rate or amount of interest on account of the Loan does not exceed the Maximum
Legal Rate of interest from time to time in effect and applicable to the Loan
for so long as the Loan is outstanding.
Section 2.3 PREPAYMENTS.
2.3.1 VOLUNTARY PREPAYMENTS. Borrower may, at its option and upon ten (10)
Business Days prior written notice from Borrower to Lender, prepay in whole or
in part the Debt without payment of any prepayment premium or consideration.
Such payment, if not paid on a Payment Date, shall include interest that would
have accrued on such prepayment through the next Payment Date and any applicable
Breakage Costs.
2.3.2 MANDATORY PREPAYMENTS. On each date on which Borrower actually
receives any Net Proceeds, if Lender is not obligated to make such Net Proceeds
available to Borrower for the restoration of the Property, Borrower shall prepay
the outstanding principal balance of the Note in an amount equal to one hundred
percent (100%) of such Net Proceeds on the next Payment Date. Any partial
prepayment under this Section shall be applied to the last payments of principal
due under the Loan.
Section 2.4 INTENTIONALLY OMITTEd.
Section 2.5 RELEASE OF PROPERTY. Except as set forth in this Section 2.5,
no repayment or prepayment or defeasance of all or any portion of the Note shall
cause, give rise to a right to require, or otherwise result in, the release of
any Lien of the Mortgage on the Property. Lender shall, upon the written request
and at the expense of Borrower, upon payment in full of all principal and
interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms and provisions of the Note and this Loan
Agreement, release the Lien of the Mortgage on the Property. Borrower shall
deliver to Lender a statutory release form appropriate in the jurisdiction in
which the Property is located.
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Section 2.6 MANNER OF MAKING PAYMENTS; CASH MANAGEMENT.
2.6.1 DEPOSITS INTO LOCKBOX ACCOUNT. Borrower shall cause all Rents from
the Property to be deposited into the Lockbox Account in accordance with the
Cash Management Agreement. Without limitation of the foregoing, Borrower shall,
and shall cause Manager to, (a) deliver irrevocable written instructions to all
Tenants under Leases to deliver all Rents payable thereunder directly to the
Lockbox Account, and (b) deposit all amounts received by Borrower or Manager
constituting Rents or other revenue of any kind from the Property into the
Lockbox Account within one (1) Business Day of receipt thereof. Disbursements
from the Lockbox Account will be made in accordance with the terms and
conditions of this Agreement and the Cash Management Agreement. Lender shall
have sole dominion and control over the Lockbox Account and, after deposits for
all reserves as set forth in the Cash Management Agreement, Borrower shall have
the right to make withdrawals therefrom as provided in the Cash Management
Agreement.
2.6.2 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the
Note shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender by 2:00
p.m., New York City time, on the date such payment is due, to Lender by deposit
to such account as Lender may designate by written notice to Borrower. Whenever
any payment hereunder or under the Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the first Business Day
succeeding such scheduled due date.
2.6.3 PAYMENTS RECEIVED IN THE LOCKBOX ACCOUNT. Notwithstanding anything to
the contrary contained in this Agreement or the other Loan Documents, and
provided no Event of Default has occurred and is continuing, Borrower's
obligations with respect to the monthly payment of principal and interest and
amounts due for the Reserve Funds shall be deemed satisfied to the extent
sufficient amounts are deposited in the Lockbox Account to satisfy such
obligations on the dates each such payment is required, regardless of whether
any of such amounts are so applied by Lender.
2.6.4 NO DEDUCTIONS, ETC. All payments made by Borrower hereunder or under
the Note or the other Loan Documents shall be made irrespective of, and without
any deduction for, any setoff, defense or counterclaims.
III. CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO CLOSING.
The obligation of Lender to make the Loan hereunder is subject to the
fulfillment by Borrower or waiver by Lender of the following conditions
precedent no later than the Closing Date:
3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Event of Default shall have occurred and be continuing; and Borrower
shall be in compliance in all material respects with all terms and conditions
set forth in this Agreement and in each other Loan Document on its part to be
observed or performed.
3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.
3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; LEASES.
(a) Mortgage, Assignment of Leases. Lender shall have received from
Borrower fully executed and acknowledged counterparts of the Mortgage and the
Assignment of Leases and evidence that counterparts of the Mortgage and
Assignment of Leases have been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create upon such
recording valid and enforceable Liens upon the Property, of the requisite
priority, in favor of Lender (or such other trustee as may be required or
desired under local law), subject only to the Permitted Encumbrances and such
other Liens as are permitted pursuant to the Loan Documents. Lender shall have
also received from Borrower fully executed counterparts of the Environmental
Indemnity, Cash Management Agreement and Assignment of Management Agreement.
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(b) Title Insurance. Lender shall have received a Title Insurance Policy
issued by a title company acceptable to Lender and dated as of the Closing Date,
with letter confirmation of reinsurance reasonably acceptable to Lender. Such
Title Insurance Policy shall (i) provide coverage in amounts satisfactory to
Lender, (ii) insure Lender that the Mortgage creates a valid lien on the
Property of the requisite priority, free and clear of all exceptions from
coverage other than Permitted Encumbrances and standard exceptions and
exclusions from coverage (as modified by the terms of any endorsements), (iii)
contain such endorsements and affirmative coverages as Lender may reasonably
request, and (iv) name Lender as the insured. The Title Insurance Policy shall
be assignable. Lender also shall have received evidence that all premiums in
respect of such Title Insurance Policy have been paid.
(c) Survey. Lender shall have received a current title survey for the
Property, certified to the title company and Lender and their successors and
assigns, in form and content satisfactory to Lender and prepared by a
professional and properly licensed land surveyor satisfactory to Lender in
accordance with the 1992 Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys. The survey shall meet the classification of an "Urban Survey" and
the following additional items from the list of "Optional Survey
Responsibilities and Specifications" (Table A) should be added to each survey:
2, 3, 4, 6, 8, 9, 10, 11 and 13. Such survey shall reflect the same legal
description contained in the Title Insurance Policy referred to in clause (ii)
above and shall include, among other things, a metes and bounds description of
the real property comprising part of the Property reasonably satisfactory to
Lender. The surveyor's seal shall be affixed to the survey and the surveyor
shall provide a certification for each survey in form and substance acceptable
to Lender.
(d) Insurance. Lender shall have received valid certificates of insurance
for the policies of insurance required hereunder, satisfactory to Lender in its
reasonable discretion, and evidence of the payment of all premiums payable in
accordance with the premium payment schedule.
(e) Environmental Reports. Lender shall have received an environmental
report in respect of the Property satisfactory to Lender.
(f) Zoning. Lender shall have received, at Lender's option, an ALTA 3.1
zoning endorsement for the Title Insurance Policy.
(g) Intentionally Omitted.
3.1.4 RELATED DOCUMENTS. Each additional document not specifically
referenced herein, but relating to the transactions contemplated herein, shall
have been duly authorized, executed and delivered by all parties thereto and
Lender shall have received and approved certified copies thereof.
3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the Closing Date,
Borrower shall deliver or cause to be delivered to Lender copies certified by
Borrower of all organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or qualification to do
business, as Lender may request in its sole discretion, including, without
limitation, good standing certificates, qualifications to do business in the
appropriate jurisdictions, resolutions authorizing the entering into of the Loan
and incumbency certificates as may be requested by Lender.
3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received opinions
of Borrower's counsel (a) with respect to non-consolidation, true sale or true
contribution, and fraudulent transfer issues, and (b) with respect to due
execution, authority, enforceability of the Loan Documents and such other
matters as Lender may require, all such opinions containing customary
assumptions and qualifications and otherwise in form, scope and substance
satisfactory to Lender and Lender's counsel in their reasonable discretion.
3.1.7 BUDGETS. Borrower shall have delivered, and Lender shall have
approved, the Annual Budget for the current Fiscal Year.
3.1.8 BASIC CARRYING COSTS. Borrower shall have paid all Basic Carrying
Costs relating to the Property which are in arrears, including without
limitation, (a) accrued but unpaid insurance premiums relating to the Property,
(b) currently due Taxes (including any in arrears) relating to the Property, and
(c) currently due Other Charges relating to the Property, which amounts shall be
funded with proceeds of the Loan.
3.1.9 INTENTIONALLY OMITTED.
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3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or
established by Borrower under this Agreement, the Note and the other Loan
Documents on or before the Closing Date shall have been paid or paid from Loan
proceeds.
3.1.11 INTENTIONALLY OMITTED.
3.1.12 TENANT ESTOPPELS. Lender shall have received an executed tenant
estoppel letter, which shall be in form and substance satisfactory to Lender,
from, (a) each tenant paying base rent in an amount equal to or exceeding five
percent (5%) of the Gross Income from Operations from the Property and (b)
disregarding the area leased by those described in clause (a) lessees of not
less than seventy-five percent (75%) of the remaining gross leasable area of the
Property.
3.1.13 TRANSACTION COSTS. Borrower shall have paid or reimbursed Lender for
all title insurance premiums, recording and filing fees, costs of environmental
reports, Physical Conditions Reports, appraisals and other reports, the fees and
costs of Lender's counsel and all other third party out-of-pocket expenses
incurred in connection with the origination of the Loan.
3.1.14 MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the financial condition or business condition of Borrower or the
Property since the date of the most recent financial statements delivered to
Lender. The income and expenses of the Property, the occupancy leases thereof,
and all other features of the transaction shall be as represented to Lender
without material adverse change. Neither Borrower nor any of its general
partners shall be the subject of any bankruptcy, reorganization, or insolvency
proceeding.
3.1.15 LEASES AND RENT ROLL. Lender shall have received copies of all
tenant leases, certified copies of any tenant leases as requested by Lender and
certified copies of all ground leases affecting the Property. Lender shall have
received a current certified rent roll of the Property, reasonably satisfactory
in form and substance to Lender.
3.1.16 SUBORDINATION AND ATTORNMENT. Lender shall have received appropriate
instruments acceptable to Lender subordinating the following three (3) Leases
affecting the Property: Jones, Day, Reavis and Pogue; Everen Securities, Inc.;
and R.R. Donnelley & Sons Company.
3.1.17 TAX LOT. Lender shall have received evidence that the Property
constitutes one (1) or more separate tax lots, which evidence shall be
reasonably satisfactory in form and substance to Lender.
3.1.18 PHYSICAL CONDITIONS REPORTS. Lender shall have received a Physical
Conditions Report with respect to the Property, which report shall be reasonably
satisfactory in form and substance to Lender.
3.1.19 MANAGEMENT AGREEMENT. Lender shall have received a certified copy of
the Management Agreement with respect to the Property which shall be
satisfactory in form and substance to Lender.
3.1.20 APPRAISAL. Lender shall have received an appraisal of the Property,
which shall be satisfactory in form and substance to Lender.
3.1.21 FINANCIAL STATEMENTS. Lender shall have received a balance sheet
with respect to the Property for the two most recent Fiscal Years and statements
of operations with respect to the Property for the three most recent Fiscal
Years.
3.1.22 FURTHER DOCUMENTS. Lender or its counsel shall have received such
other and further approvals, opinions, documents and information as Lender or
its counsel may have reasonably requested including the Loan Documents in form
and substance satisfactory to Lender and its counsel.
IV. REPRESENTATIONS AND WARRANTIES
Section 4.1 BORROWER REPRESENTATIONS.
Borrower represents and warrants as of the date hereof and as of the
Closing Date that:
4.1.1 ORGANIZATION. Borrower has been duly organized and is validly
existing and in good standing with requisite power and authority to own its
properties and to transact the businesses in which it is now engaged. Borrower
is duly qualified to do business and is in good standing in each jurisdiction
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where it is required to be so qualified in connection with its properties,
businesses and operations. To the best of Borrower's knowledge, Borrower
possesses all rights, licenses, permits and authorizations, governmental or
otherwise, necessary to entitle it to own its properties and to transact the
businesses in which it is now engaged, and the sole business of Borrower is the
ownership, management and operation of the Property.
4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and such other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective terms, subject only 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).
4.1.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the other Loan Documents by Borrower at closing will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other agreement or instrument to
which Borrower is a party or by which any of Borrower's property or assets is
subject, nor will such action result in any violation of the provisions of any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over Borrower or any of Borrower's properties or
assets, and any consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory authority or other
governmental agency or body required for the execution, delivery and performance
by Borrower of this Agreement or any other Loan Documents has been obtained and
is in full force and effect.
4.1.4 LITIGATION. To the best of Borrower's knowledge, there are no
actions, suits or proceedings at law or in equity by or before any Governmental
Authority or other agency now pending or threatened against or affecting
Borrower or the Property, which actions, suits or proceedings, if determined
against Borrower or the Property, might materially adversely affect the
condition (financial or otherwise) or business of Borrower or the condition or
ownership of the Property.
4.1.5 AGREEMENTS. Borrower is not a party to any agreement or instrument or
subject to any restriction which might materially and adversely affect Borrower
or the Property, or Borrower's business, properties or assets, operations or
condition, financial or otherwise. Borrower has not received written notice that
it is in default in any material respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party or by which Borrower or the
Property is bound. Borrower has no material financial obligation under any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Borrower is a party or by which Borrower or the Property is
otherwise bound, other than (a) obligations incurred in the ordinary course of
the operation of the Property and (b) obligations under the Loan Documents.
4.1.6 TITLE. As evidenced by the Title Policy delivered to Lender at
Closing, Borrower will have good, marketable and insurable title to the real
property and leasehold estate comprising part of the Property and good title to
the balance of the Property, free and clear of all Liens whatsoever except the
Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. As evidenced by the Title
Policy delivered to Lender at Closing, the Mortgage, when properly recorded in
the appropriate records, together with any Uniform Commercial Code financing
statements required to be filed in connection therewith, will create (a) a
valid, perfected lien on the Property, subject only to Permitted Encumbrances
and the Liens created by the Loan Documents and (b) perfected security interests
in and to, and perfected collateral assignments of, all personalty (including
the Leases), all in accordance with the terms thereof, in each case subject only
to any applicable Permitted Encumbrances, such other Liens as are permitted
pursuant to the Loan Documents and the Liens created by the Loan Documents. As
evidenced by the Title Policy delivered to Lender at Closing, and except for the
Permitted Encumbrances (including mechanics' lien claims which have been
disclosed to Lender and with respect to which the Title Company has issued an
endorsement omitting or insuring over same), there will be no claims for payment
for work, labor or materials affecting the Property which are or may become a
lien prior to, or of equal priority with, the Liens created by the Loan
Documents.
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4.1.7 NO BANKRUPTCY FILING. Neither Borrower nor any of its constituent
general or limited partners are contemplating either the filing of a petition by
it under any state or federal bankruptcy or insolvency laws or the liquidation
of all or a major portion of Borrower's assets or property, and Borrower has no
knowledge of any Person contemplating the filing of any such petition against it
or such general or limited partners.
4.1.8 FULL AND ACCURATE DISCLOSURE. To the best of Borrower's knowledge, no
statement of fact made by Borrower in this Agreement or in any of the other Loan
Documents contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained herein or therein not
misleading. There is no material fact presently known to Borrower which has not
been disclosed to Lender which adversely affects, nor as far as Borrower can
reasonably foresee, might adversely affect, the Property or the business,
operations or condition (financial or otherwise) of Borrower.
4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as
defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the
assets of Borrower constitutes or will constitute "plan assets" of one or more
such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a)
Borrower is not a "governmental plan" within the meaning of Section 3(32) of
ERISA and (b) transactions by or with Borrower are not subject to state statutes
regulating investment of, and fiduciary obligations with respect to,
governmental plans similar to the provisions of Section 406 of ERISA or Section
4975 of the Code currently in effect, which prohibit or otherwise restrict the
transactions contemplated by this Loan Agreement.
4.1.10 COMPLIANCE. To the best of Borrower's knowledge, Borrower and the
Property and the use thereof comply in all material respects with all applicable
Legal Requirements, including, without limitation, building and zoning
ordinances and codes. Borrower has not received any notice of default or
violation of any order, writ, injunction, decree or demand of any Governmental
Authority. To the best of Borrower's knowledge, there has not been committed by
Borrower any act or omission affording the federal government or any other
Governmental Authority the right of forfeiture as against the Property or any
part thereof or any monies paid in performance of Borrower's obligations under
any of the Loan Documents, nor has Borrower received written notice of any such
act or omission by any other Person in occupancy of or involved with the
operation or use of the Property.
4.1.11 FINANCIAL INFORMATION. All financial data, including, without
limitation, the statements of operations, that have been delivered to Lender in
respect of the Property (i) are true, complete and correct in all material
respects, (ii) accurately represent the financial condition of the Property as
of the date of such reports in all material respects, and (iii) with respect to
the audited financial statements, to the extent prepared or audited by an
independent certified public accounting firm, to the best of Borrower's
knowledge have been prepared in accordance with GAAP throughout the periods
covered, except as disclosed therein. Borrower does not have any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments that are known
to Borrower and reasonably likely to have a materially adverse effect on the
Property or the operation thereof as an office building, except as referred to
or reflected in said financial statements. To the best of Borrower's knowledge,
since the date of such financial statements, there has been no materially
adverse change in the financial condition, operations or business of Borrower
from that set forth in said financial statements.
4.1.12 CONDEMNATION. Borrower has received no written notice that any
condemnation or other proceeding has been commenced or, to Borrower's best
knowledge, is contemplated with respect to all or any portion of the Property or
for the relocation of roadways providing access to the Property.
4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan
will be used for the purpose of purchasing or acquiring any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System or for any other purpose which would be inconsistent with such
Regulation U or any other Regulations of such Board of Governors, or for any
purposes prohibited by Legal Requirements or by the terms and conditions of this
Agreement or the other Loan Documents.
4.1.14 UTILITIES AND PUBLIC ACCESS. To the best of Borrower's knowledge:
(a) the Property has rights of access to public ways and is served by water,
sewer, sanitary sewer and storm drain facilities adequate to service the
Property for its intended uses, (b) all public utilities necessary or convenient
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to the full use and enjoyment of the Property are located either in the public
right-of-way abutting such (which are connected so as to serve the Property
without passing over other property) or in recorded easements serving the
Property and such easements are set forth in and insured by the Title Insurance
Policy, and (c) all roads necessary for the use of the Property for its current
purposes have been completed and dedicated to public use and accepted by all
Governmental Authorities.
4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the
meaning ofss.1445(f)(3) of the Code.
4.1.16 SEPARATE LOTS. The Property is comprised of one (1) or more parcels
which constitute a separate tax lot or lots and does not constitute a portion of
any other tax lot not a part of the Property.
4.1.17 ASSESSMENTS. Borrower has received no notice of any pending or
proposed special or other assessments for public improvements or otherwise
affecting the Property, nor has Borrower received notice of any contemplated
improvements to the Property that may result in such special or other
assessments.
4.1.18 ENFORCEABILITY. To the best of Borrower's knowledge, the Loan
Documents are not subject to any right of rescission, set-off, counterclaim or
defense by Borrower, including the defense of usury, nor would the operation of
any of the terms of the Loan Documents, or the exercise of any right thereunder,
render the Loan Documents unenforceable, and Borrower has not asserted any right
of rescission, set-off, counterclaim or defense with respect thereto.
4.1.19 NO PRIOR ASSIGNMENT. As of the Closing Date there will be no prior
assignments of the Leases or any portion of the Rents due and payable or to
become due and payable which are presently outstanding.
4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender
certified copies of all insurance policies currently in effect and covering the
Property reflecting the insurance coverages, amounts and other requirements set
forth in this Agreement. No claims have been made under any such policy, and, to
the best of Borrower's knowledge, no Person, including Borrower, has done, by
act or omission, anything which would impair the coverage of any such policy.
4.1.21 USE OF PROPERTY. The Property is used exclusively for office
purposes and other appurtenant and related uses (including a fitness center).
4.1.22 LICENSES. To the best of Borrower's knowledge, all certifications,
permits, licenses and approvals, including without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Property as an office building complex (collectively, the
"Licenses"), have been obtained and are in full force and effect. Borrower shall
keep and maintain all licenses necessary for the operation of the Property as an
office building.
4.1.23 FLOOD ZONE. To the best of Borrower's knowledge, none of the
Improvements on the Property are located in an area as identified by the Federal
Emergency Management Agency as an area having special flood hazards.
4.1.24 PHYSICAL CONDITION. To the best of Borrower's knowledge: (a) the
Property, including, without limitation, all buildings, improvements, parking
facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC
systems, fire protection systems, electrical systems, equipment, elevators,
exterior sidings and doors, landscaping, irrigation systems and all structural
components, are in good condition, order and repair in all material respects;
(b) there exists no structural or other material defects or damages in the
Property, whether latent or otherwise, and (c) Borrower has not received notice
from any insurance company or bonding company of any defects or inadequacies in
the Property, or any part thereof, which would adversely affect the insurability
of the same or cause the imposition of extraordinary premiums or charges thereon
or of any termination or threatened termination of any policy of insurance or
bond.
4.1.25 BOUNDARIES. As evidenced by the Survey (a) all of the improvements
which were included in determining the appraised value of the Property lie
wholly within the boundaries and building restriction lines of the Property, and
no improvements on adjoining properties encroach upon the Property, and (b) no
easements or other encumbrances upon the Property encroach upon any of the
improvements, so as to affect the value or marketability of the Property except
those which are insured against by title insurance.
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4.1.26 LEASES. The Property is not subject to any Leases other than the
Leases described in Schedule I attached hereto and made a part hereof. No Person
has any possessory interest in the Property or right to occupy the same except
under and pursuant to the provisions of the Leases. The current Leases are in
full force and effect and, to the best of Borrower's knowledge, there are no
defaults thereunder by either party except as disclosed to Lender. No Rent
(including security deposits) has been paid more than one (1) month in advance
of its due date. All work to be performed by Borrower under each Lease has been
performed as required and has been accepted by the applicable tenant, and any
payments, free rent, partial rent, rebate of rent or other payments, credits,
allowances or abatements required to be given by Borrower to any tenant has
already been received by such tenant, except as set forth on Schedule I. There
has been no prior sale, transfer or assignment, hypothecation or pledge of any
Lease or of the Rents received therein. Except as set forth on Schedule I,
Borrower has not consented to any assignment by any tenant of its Lease or any
sublease of all or any portion of the premises demised thereby, no such tenant
holds its leased premises under assignment or sublease, nor does anyone except
such tenant and its employees occupy such leased premises. No tenant under any
Lease has a right or option pursuant to such Lease or otherwise to purchase all
or any part of the leased premises or the building of which the leased premises
are a part. No tenant under any Lease has any right or option for additional
space in the Improvements except as set forth in the Lease. To the best of
Borrower's knowledge, no hazardous wastes or toxic substances, as defined by
applicable federal, state or local statutes, rules and regulations, have been
disposed, stored or treated by any tenant under any Lease on or about the leased
premises in violation of applicable environmental laws nor does Borrower have
any knowledge of any tenant's intention to use its leased premises for any
activity which, directly or indirectly, involves the use, generation, treatment,
storage, disposal or transportation of any petroleum product or any toxic or
hazardous chemical, material, substance or waste in violation of applicable
Environmental Laws.
4.1.27 INTENTIONALLY OMITTED.
4.1.28 LOAN TO VALUE. The maximum principal amount of the Loan does not
exceed one hundred twenty-five percent (125%) of the fair market value of the
Property.
4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of the Property to Borrower have been paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including, without
limitation, the Mortgage, have been paid, and, under current Legal Requirements,
the Mortgage is enforceable in accordance with its terms by Lender (or any
subsequent holder thereof).
4.1.30 SINGLE PURPOSE ENTITY/SEPARATENESS. Borrower represents, warrants
and covenants as follows:
(a) The purpose for which Borrower is organized is and shall be limited
solely to (i) owning, holding, selling, leasing, transferring, exchanging,
operating and managing the Property and transacting any and all lawful business
for which Borrower may be organized under its constitutive law that is incident,
necessary and appropriate to accomplish the foregoing.
(b) Borrower does not own and will not own any asset or property other than
(i) the Property, and (ii) incidental personal property necessary for and used
or to be used in connection with the ownership or operation of the Property.
(c) Borrower will not engage in any business other than the ownership,
management and operation of the Property.
(d) Borrower will not enter into any contract or agreement with any
Affiliate of Borrower, any constituent party of Borrower, any owner of Borrower,
any guarantors of the obligations of Borrower or any Affiliate of any
constituent party, owner or guarantor (collectively, the "Related Parties"),
except upon terms and conditions that are intrinsically fair, commercially
reasonable and substantially similar to those that would be available on an
arms-length basis with third parties not so affiliated with Borrower or such
Related Parties.
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(e) Borrower has not incurred and will not incur any Indebtedness other
than (i) the Loan, (ii) Indebtedness incurred in the financing of equipment and
other personal property used on the Property, trade and operational debt
incurred in the ordinary course of business with trade creditors in amounts as
are normal and reasonable under the circumstances, provided such debt is not
evidenced by a note and is not in excess of sixty (60) days past due and does
not exceed in the aggregate the amount of Three Million and No/100 Dollars
($3,000,000). No Indebtedness other than the Debt may be secured (senior,
subordinate or pari passu) by the Property (provided that the fee owner of the
portion of the Property demised by the Ground Lease may encumber its interests
therein).
(f) Borrower has not made and will not make any loans or advances to any
Person and shall not acquire obligations or securities of any Related Party.
(g) Borrower is and will remain solvent and Borrower will pay its debts and
liabilities (including, as applicable, shared personnel and overhead expenses)
from its assets as the same shall become due.
(h) Borrower has done or caused to be done and will do all things necessary
to observe organizational formalities and preserve its existence, and Borrower
will not, nor will Borrower permit any SPC to, amend, modify or otherwise change
the partnership certificate, partnership agreement, articles of incorporation
and bylaws, operating agreement, trust or other organizational documents of
Borrower or such SPC without the prior written consent of Lender.
(i) Borrower will maintain separate financial statements, showing its
assets and liabilities separate and apart from those of any other person or
entity and will not have its assets listed on the financial statements of any
other Person except the consolidated financial statements of the REIT, which
statements shall contain footnotes or other information to the effect that the
assets are owned by the Single Purpose Entity and are not available to pay
creditors of the REIT. Borrower shall maintain its books, records, resolutions
and agreements as official records.
(j) Borrower will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other Person (including any
Affiliate or other Related Party), shall correct any known misunderstanding
regarding its status as a separate entity, and shall conduct business in its own
name and from its own office, shall not identify itself or any of its Affiliates
as a division or part of the other and shall maintain and utilize a separate
telephone number and separate stationery, invoices and checks; provided that
business correspondence and other communications of Borrower may also be made by
its managing partner from its office when the managing partner is acting on
behalf of Borrower.
(k) Borrower will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations.
(l) Neither Borrower nor any SPC will seek the dissolution, winding up,
liquidation, consolidation or merger in whole or in part, or the sale of
material assets of Borrower.
(m) Borrower will not commingle its assets with those of any other Person
and will hold all of its assets in its own name;
(n) Borrower will not guarantee or become obligated for the debts of any
other Person and does not and will not hold itself out as being responsible for
the debts or obligations of any other Person.
(o) If Borrower is a limited partnership or a limited liability company, at
least one general partner or member, or if Borrower is a general partnership at
least two general partners (an "SPC Party") shall be a corporation whose sole
asset is its interest in Borrower and such SPC Party will at all times comply,
and will cause Borrower to comply, with each of the representations, warranties,
and covenants contained in this Section 4.1.30 as if such representation,
warranty or covenant was made directly by such SPC Party. Upon the withdrawal or
the disassociation of the SPC Party from Borrower, Borrower shall immediately
appoint a new member whose articles of incorporation are substantially similar
to those of the SPC Party and deliver a new Insolvency Opinion to the Rating
Agency or Rating Agencies, as applicable, with respect to the new SPC Party and
its equity owners.
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(p) Borrower shall at all times cause there to be at least one duly
appointed member of the board of directors (an "Independent Director") of
Borrower (if a corporation) or of each SPC Party reasonably satisfactory to
Lender who is not at the time of initial appointment or while serving as
Independent Director and has not been, at any time during the preceding five (5)
years, a stockholder, director (other than an Independent Director), officer,
employee, partner, attorney or counsel of (i) the Prime Group, Inc., an Illinois
corporation, or any of its Affiliates; (ii) the Operating Partnership or any of
its Affiliates (except as an independent director on the board of directors of
Finance and certain other corporations, each a single purpose entity); (iii)
Finance, the Partnership or any of their Affiliates (except as an independent
director on the board of directors of Finance and certain other corporations,
each a single purpose entity (collectively, the "Prime Entities"); (iv) a
customer, supplier or other Person who derives more than 10% of its purchases or
revenues from its activities with any of the Prime Entities, Borrower or such
SPC Party or any Affiliate of either of them; (v) a Person controlling,
controlled by, or under common control with any such stockholder, partner,
customer, supplier or other Person; or (vi) a member of the immediate family of
any Person described in clauses (i), (ii) or (iii). (As used herein, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of management, policies or activities of a Person,
whether through ownership of voting securities, by contract or otherwise.)
(q) Borrower shall not cause or permit the board of directors of an SPC
Party to take any action which, under the terms of any certificate of
incorporation, by-laws or any voting trust agreement with respect to any common
stock, requires the vote of any SPC Party unless at the time of such action
there shall be at least one member who is an Independent Director.
(r) Borrower shall allocate fairly and reasonably any overhead expenses
that are shared with an Affiliate, including paying for office space and
services performed by any employee of an Affiliate or Related Party.
(s) Borrower shall not pledge its assets for the benefit of any other
Person other than with respect to the Loan except as permitted in Section
4.1.30(e).
(t) Borrower shall maintain a sufficient number of employees in light of
its contemplated business operations and pay the salaries of its own employees
from its own funds.
(u) Borrower shall conduct its business so that the assumptions made with
respect to Borrower in the Insolvency Opinion shall be true and correct in all
respects.
4.1.31 MANAGEMENT AGREEMENT. The Management Agreement is in full force and
effect and, to the best of Borrower's knowledge there is no default thereunder
by any party thereto and no event has occurred that, with the passage of time
and/or the giving of notice would constitute a default thereunder.
4.1.32 GROUND LEASE. Borrower hereby represents and warrants to Lender the
following with respect to the Ground Lease:
(a) Recording; Modification. A memorandum of the Ground Lease has been duly
recorded. The Ground Lease permits the interest of Borrower to be encumbered by
a mortgage or the ground lessor has approved and consented to the encumbrance of
the Property by the Mortgage. There have not been amendments or modifications to
the terms of the Ground Lease since its recordation, with the exception of
written instruments which have been recorded. The Ground Lease may not be
canceled, terminated, surrendered or amended by Borrower without the prior
written consent of Lender.
(b) No Liens. Except for the Permitted Encumbrances, Borrower's interest in
the Ground Lease is not subject to any Liens or encumbrances superior to, or of
equal priority with, the Mortgage other than the ground lessor's related fee
interest and the existing mortgage on the ground lessor's fee interest.
(c) Ground Lease Assignable. Borrower's interest in the Ground Lease is
assignable to Lender upon notice to, but without the consent of, the ground
lessor (or, if any such consent is required, it has been obtained prior to the
Closing Date). The Ground Lease contains no restrictions on assignment by
Lender, its successors and assigns.
(d) Default. As of the date hereof, the Ground Lease is in full force and
effect and no default has occurred under the Ground Lease and, to the best of
Borrower's knowledge, there is no existing condition which, but for the passage
of time or the giving of notice, could result in a default under the terms of
the Ground Lease.
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(e) Notice. The Ground Lease requires the ground lessor to give notice of
any default by Borrower to Lender. The Ground Lease, or estoppel letters
received by Lender from the ground lessor, further provides that notice of
termination given under the Ground Lease is not effective against Lender unless
a copy of the notice has been delivered to Lender in the manner described in the
Ground Lease.
(f) Cure. Lender is permitted the opportunity to cure any default under the
Ground Lease, which is curable after the receipt of notice of any of the default
before the ground lessor thereunder may terminate the Ground Lease in accordance
with Article XI of the Ground Lease.
(g) Term. The Ground Lease has a term which extends not less than ten (10)
years beyond the Maturity Date.
(h) New Lease. The Ground Lease (together with an estoppel received from
the ground lessor) provides, in accordance with Article XI thereof, that the
ground lessor shall enter into a new lease upon termination of the Ground Lease
for any reason, including rejection of the Ground Lease in a bankruptcy
proceeding.
(i) Insurance Proceeds. Under the terms of the Ground Lease and the
Mortgage, taken together, any related insurance and condemnation proceeds will
be applied either to the repair or restoration of all or part of the Property,
with Lender having the right to hold and disburse the proceeds payable to
Borrower in accordance with Article XI thereof as the repair or restoration
progresses, or to the payment of the outstanding principal balance of the Loan
together with any accrued interest thereon.
(j) Subleasing. Subject to the provisions of Articles XXI and XXXI of the
Ground Lease, Borrower may enter into subleases from time to time for all or any
portion of the property demised thereby.
4.1.33 ILLEGAL ACTIVITY. To the best of Borrower's knowledge no portion of
the Property has been or will be purchased with proceeds of any illegal
activity.
4.1.34 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. To the best of
Borrower's knowledge, all information submitted by Borrower to Lender and in all
financial statements, rent rolls, reports, certificates and other documents
submitted in connection with the Loan or in satisfaction of the terms thereof
and all statements of fact made by Borrower in this Agreement or in any other
Loan Document, are accurate, complete and correct in all material respects.
There has been no material adverse change in any condition, fact, circumstance
or event that would make any such information inaccurate, incomplete or
otherwise misleading in any material respect or that otherwise materially and
adversely affects or might materially and adversely affect the Property or the
business operations or the financial condition of Borrower. Borrower has
disclosed to Lender all material facts and has not failed to disclose any
material fact that could cause any representation or warranty made herein to be
materially misleading.
Section 4.2 SURVIVAL OF REPRESENTATIONS.
Borrower agrees that all of the representations and warranties of Borrower
set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan
Documents shall survive for so long as any amount remains owing to Lender under
this Agreement or any of the other Loan Documents by Borrower. All
representations, warranties, covenants and agreements made in this Agreement or
in the other Loan Documents by Borrower shall be deemed to have been relied upon
by Lender notwithstanding any investigation heretofore or hereafter made by
Lender or on its behalf.
V. BORROWER COVENANTS
Section 5.1 AFFIRMATIVE COVENANTS.
From the date hereof and until payment and performance in full of all
obligations of Borrower under the Loan Documents or the earlier release of the
Lien of the Mortgage (and all related obligations) in accordance with the terms
of this Agreement and the other Loan Documents, Borrower hereby covenants and
agrees with Lender that:
5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTs; INSURANCE. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
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and comply with all Legal Requirements applicable to it and the Property. There
shall never be committed by Borrower or any other person in occupancy of or
involved with the operation or use of the Property any act or omission affording
the federal government or any state or local government the right of forfeiture
as against the Property or any part thereof or any monies paid in performance of
Borrower's obligations under any of the Loan Documents. Borrower hereby
covenants and agrees not to commit, permit or suffer to exist any act or
omission affording such right of forfeiture. Borrower shall at all times
maintain, preserve and protect all franchises and trade names and preserve all
the remainder of its property used or useful in the conduct of its business and
shall keep the Property in good working order and repair, and from time to time
make, or cause to be made, all reasonably necessary repairs, renewals,
replacements, betterments and improvements thereto, all as more fully provided
in the Mortgage. Borrower shall keep the Property insured at all times by
financially sound and reputable insurers, to such extent and against such risks,
and maintain liability and such other insurance, as is more fully provided in
this Agreement.
5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay all Taxes and Other
Charges now or hereafter levied or assessed or imposed against the Property or
any part thereof as the same become due and payable; provided, however,
Borrower's obligation to directly pay Taxes shall be suspended for so long as
Borrower complies with the terms and provisions of Section 7.2 hereof. Borrower
will deliver to Lender receipts for payment or other evidence satisfactory to
Lender that the Taxes and Other Charges have been so paid or are not then
delinquent no later than ten (10) days prior to the date on which the Taxes
and/or Other Charges would otherwise be delinquent if not paid. Borrower shall
furnish to Lender receipts for the payment of the Taxes and the Other Charges
prior to the date the same shall become delinquent (provided, however, that
Borrower is not required to furnish such receipts for payment of Taxes in the
event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof).
Borrower shall not suffer and shall promptly cause to be paid and discharged any
Lien or charge whatsoever which may be or become a Lien or charge against the
Property, and shall promptly pay for all utility services provided to the
Property. After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any Taxes, Liens or Other Charges, provided that (i) no
Event of Default has occurred and remains uncured; (ii) Borrower is permitted to
do so under the provisions of any mortgage or deed of trust superior in lien to
the Mortgage; (iii) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder and such proceeding shall
be conducted in accordance with all applicable statutes, laws and ordinances;
(iv) neither the Property nor any part thereof or interest therein will be in
danger of being sold, forfeited, terminated, canceled or lost; (v) Borrower
shall promptly upon final determination thereof pay the amount of any such
Taxes, Liens, or Other Charges, together with all costs, interest and penalties
which may be payable in connection therewith; (vi) such proceeding shall suspend
the collection of such contested Taxes or Other Charges from the Property; and
(vii) Borrower shall furnish such security as may be required in the proceeding,
or as may be requested by Lender, to insure the payment of any such Taxes or
Other Charges, together with all interest and penalties thereon. Lender may pay
over any such cash deposit or part thereof held by Lender to the claimant
entitled thereto at any time when, in the judgment of Lender, the entitlement of
such claimant is established.
5.1.3 LITIGATION. Borrower shall give prompt written notice to Lender of
any litigation or governmental proceedings pending or threatened against
Borrower which might materially adversely affect Borrower's condition (financial
or otherwise) or business or the Property.
5.1.4 ACCESS TO PROPERTY. Borrower shall permit agents, representatives and
employees of Lender to inspect the Property or any part thereof at reasonable
hours upon reasonable advance notice.
5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Event of Default of which Borrower has knowledge.
5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate fully with
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the other Loan Documents
and, in connection therewith, permit Lender, at its election, to participate in
any such proceedings.
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5.1.7 PERFORM LOAN DOCUMENTS. Subject to the limitations on liability set
forth in Section 9.4 hereof, Borrower shall observe, perform and satisfy all the
terms, provisions, covenants and conditions of, and shall pay when due all
costs, fees and expenses to the extent required under the Loan Documents
executed and delivered by, or applicable to, Borrower.
5.1.8 INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any Insurance Proceeds lawfully or equitably payable
in connection with the Property, and Lender shall be reimbursed for any
reasonable expenses incurred in connection therewith (including reasonable
attorneys' fees and disbursements, and the payment by Borrower of the expense of
an appraisal on behalf of Lender in case of a fire or other casualty affecting
the Property or any part thereof) out of such Insurance Proceeds.
5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and
expense:
(a) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure the obligations of Borrower under the Loan
Documents, as Lender may reasonably require; and
(b) do and execute all and such further lawful and reasonable acts,
conveyances and assurances for the better and more effective carrying out of the
intents and purposes of this Agreement and the other Loan Documents, as Lender
shall reasonably require from time to time.
5.1.10 MORTGAGE TAXES. As of the date hereof, Borrower represents that it
has paid all state, county and municipal recording and all other taxes imposed
upon the execution and recordation of the Mortgage.
5.1.11 FINANCIAL REPORTING.
(a) Borrower will keep and maintain or will cause to be kept and maintained
on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis
acceptable to Lender), proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Property. Lender shall have the
right from time to time at all times during normal business hours upon
reasonable notice to examine such books, records and accounts at the office of
Borrower or other Person maintaining such books, records and accounts and to
make such copies or extracts thereof as Lender shall desire. After the
occurrence of an Event of Default, Borrower shall pay any costs and expenses
incurred by Lender to examine Borrower's accounting records with respect to the
Property, as Lender shall determine to be necessary or appropriate in the
protection of Lender's interest.
(b) Borrower will furnish to Lender annually within ninety (90) days
following the end of each Fiscal Year of Borrower, a complete copy of Borrower's
annual financial statements audited by a "Big Five" accounting firm or other
independent certified public accountant acceptable to Lender (Ernst & Young is
hereby approved) in accordance with GAAP (or such other accounting basis
acceptable to Lender) covering the Property for such Fiscal Year and containing
statements of operations for Borrower and a balance sheet for Borrower. Such
statements shall set forth the financial condition and the results of operations
for the Property for such Fiscal Year. Borrower's annual financial statements
shall be accompanied by (i) a comparison of the budgeted income and expenses and
the actual income and expenses for the prior Fiscal Year, (ii) a certificate
executed by the chief financial officer of Borrower or the general partner of or
the general partner of the general partner of Borrower, as applicable, stating
that each such annual financial statement presents fairly the financial
condition and the results of operations of Borrower and the Property being
reported upon and has been prepared in accordance with GAAP and (iii) an
unqualified opinion on Borrower's annual financial statements of a "Big Five"
(Ernst & Young is hereby approved) accounting firm or other independent
certified public accountant reasonably acceptable to Lender. Together with
Borrower's annual financial statements, Borrower shall furnish to Lender an
Officer's Certificate certifying as of the date thereof whether there exists an
event or circumstance which constitutes a Default or Event of Default under the
Loan Documents executed and delivered by, or applicable to, Borrower, and if
such Default or Event of Default exists, the nature thereof, the period of time
it has existed and the action then being taken to remedy the same.
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(c) Borrower will furnish, or cause to be furnished, to Lender on or before
forty-five (45) days after the end of each quarter the following items,
accompanied by a certificate of the chief financial officer of Borrower or the
general partner or the general partner of the general partner of Borrower, as
applicable, stating that such items are true, correct, accurate, and complete
and fairly present the financial condition and results of the operations of
Borrower and the Property (subject to normal year-end adjustments): (i) a rent
roll for the subject quarter accompanied by an Officer's Certificate with
respect thereto; (ii) quarterly and year-to-date operating statements (including
Capital Expenditures) prepared for each quarter in Borrower's standard form.
(d) For the partial year period commencing on the date hereof, and for each
Fiscal Year thereafter, Borrower shall submit to Lender an Annual Budget not
later than thirty (30) days prior to the commencement of such period or Fiscal
Year in form reasonably satisfactory to Lender.
(e) In the event that Borrower must incur an extraordinary operating
expense or capital expense not set forth in the Annual Budget (each an
"Extraordinary Expense"), then Borrower shall promptly deliver to Lender a
reasonably detailed explanation of such proposed Extraordinary Expense.
(f) Borrower shall furnish to Lender, within ten (10) Business Days after
request (or as soon thereafter as may be reasonably possible), such further
detailed information with respect to the operation of the Property and the
financial affairs of Borrower as may be reasonably requested by Lender so long
as such information is customarily available to Borrower.
(g) Any reports, statements or other information required to be delivered
under this Agreement shall be delivered in Borrower's customary format.
5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to engage in the
businesses presently conducted by it as and to the extent the same are necessary
for the ownership, maintenance, management and operation of the Property.
Borrower will qualify to do business and will remain in good standing under the
laws of the jurisdiction as and to the extent the same are required for the
ownership, maintenance, management and operation of the Property.
5.1.13 INTENTIONALLY DELETED.
5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the Mortgage is
foreclosed in whole or in part or that the Mortgage is put into the hands of an
attorney for collection, suit, action or foreclosure, (b) of the foreclosure of
any mortgage prior to or subsequent to the Mortgage in which proceeding Lender
is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or any of its general partners or an
assignment by Borrower or any of its general partners for the benefit of its
creditors, Borrower, its successors or assigns, shall be chargeable with and
agrees to pay all costs of collection and defense, including reasonable
attorneys' fees and costs, incurred by Lender or Borrower in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, together with all required service or use taxes.
5.1.15 ESTOPPEL STATEMENT. (a) After request by either party, the other
party shall within ten (10) days furnish the requesting party with a statement,
duly acknowledged and certified, setting forth (i) the amount of the original
principal amount of the Note, (ii) the unpaid principal amount of the Note,
(iii) the Applicable Interest Rate of the Note, (iv) the date installments of
interest and/or principal were last paid, (v) any offsets or defenses to the
payment of the Debt, if any, and (vi) that the Note, this Agreement, the
Mortgage and the other Loan Documents are valid, legal and binding obligations
and have not been modified or if modified, giving particulars of such
modification.
(b) Borrower shall deliver to Lender upon request, tenant estoppel
certificates from each commercial tenant leasing space at the Property in form
and substance reasonably satisfactory to Lender (or in the form required in such
tenant's Lease if a form is specified in such Lease) provided that Borrower
shall not be required to deliver such certificates more frequently than one (1)
time in any calendar year.
5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received
by it on the Closing Date only for the purposes set forth in Section 2.1.4.
5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe,
perform and fulfill each and every covenant, term and provision of each Loan
Document executed and delivered by, or applicable to, Borrower, and shall not
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enter into or otherwise suffer or permit any amendment, waiver, supplement,
termination or other modification of any Loan Document executed and delivered
by, or applicable to, Borrower without the prior written consent of Lender.
5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in
connection with any Securitization, (a) one or more Officer's Certificates
certifying as to the accuracy of all representations made by Borrower in the
Loan Documents as of the date of the closing of such Securitization in all
relevant jurisdictions or stating in such Certificate the manner in which any
representation is no longer true, and (b) certificates of the relevant
Governmental Authorities in all relevant jurisdictions indicating the good
standing and qualification of Borrower and its general partner as of the date of
the Securitization.
5.1.19 NO JOINT ASSESSMENT. Except to the extent required by law, Borrower
shall not suffer, permit or initiate the joint assessment of the Property (a)
with any other real property constituting a tax lot separate from the Property,
and (b) which constitutes real property with any portion of the Property which
may be deemed to constitute personal property, or any other procedure whereby
the lien of any taxes which may be levied against such personal property shall
be assessed or levied or charged to such real property portion of the Property.
5.1.20 LEASING MATTERS. Any Leases with respect to the Property written
after the date hereof, for more than 15,000 square feet and any Leases to
Affiliates of Borrower shall be approved by Lender, which approval shall not be
unreasonably withheld, conditioned or delayed and which approval shall be deemed
given if Lender does not respond within five (5) Business Days after receipt of
such proposed Lease, provided that the notice requesting such approval shall
contain a legend stating that Lender's approval shall be deemed given if Lender
fails to respond within such five (5) Business Day period. Upon request,
Borrower shall furnish Lender with executed copies of all Leases. All renewals
of Leases and all proposed Leases shall provide for rental rates comparable to
existing local market rates, as reasonably determined by Borrower. All proposed
Leases shall be on commercially reasonable terms and shall not contain any terms
which would materially and adversely affect Lender's rights under the Loan
Documents. All Leases executed after the date hereof shall provide that they are
subordinate to the Mortgage and that the lessee agrees to attorn to Lender or
any purchaser at a sale by foreclosure. Borrower (i) shall observe and perform
the obligations imposed upon the lessor under the Leases in a commercially
reasonable manner; (ii) shall enforce and may amend or terminate the terms,
covenants and conditions contained in the Leases upon the part of the lessee
thereunder to be observed or performed in a commercially reasonable manner and
in a manner not to materially impair the value of the Property involved except
that no termination by Borrower or acceptance of surrender by a tenant of any
Leases shall be permitted unless by reason of a tenant default and then only in
a commercially reasonable manner to preserve and protect the Property provided,
however, that no such termination or surrender of any Lease covering more than
15,000 square feet will be permitted without the written consent of Lender;
(iii) shall not collect any of the rents more than one (1) month in advance
(other than security deposits); (iv) shall not execute any other assignment of
lessor's interest in the Leases or the Rents (except as contemplated by the Loan
Documents); (v) shall not alter, modify or change the terms of the Leases in a
manner inconsistent with the provisions of the Loan Documents; and (vi) shall
execute and deliver at the request of Lender all such further assurances,
confirmations and assignments in connection with the Leases as Lender shall from
time to time reasonably require.
5.1.21 ALTERATIONS. Borrower shall obtain Lender's prior written consent to
any alterations to any Improvements, which consent shall not be unreasonably
withheld or delayed except with respect to alterations that may have a material
adverse effect on Borrower's financial condition, the value of the Property or
the Net Operating Income. Notwithstanding the foregoing, Lender's consent shall
not be required in connection with any alterations that will not have a material
adverse effect on Borrower's financial condition, the value of the Property or
the Net Operating Income, provided that such alterations are made in connection
with (a) tenant improvement work performed pursuant to the terms of any Lease
executed on or before the date hereof, (b) tenant improvement work performed
pursuant to the terms and provisions of a Lease and not adversely affecting any
structural component of any Improvements, any utility or HVAC system contained
in any Improvements or the exterior of any building constituting a part of any
Improvements, or (c) alterations performed in connection with the restoration of
the Property after the occurrence of a casualty in accordance with the terms and
provisions of this Agreement. If the total unpaid amounts due and payable with
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respect to alterations to the Improvements at the Property (other than such
amounts to be paid or reimbursed by tenants under the Leases) shall at any time
exceed Seven Million Two Hundred Thousand and 00/100 Dollars ($7,200,000) (the
"Threshold Amount"), Borrower shall promptly deliver to Lender as security for
the payment of such amounts and as additional security for Borrower's
obligations under the Loan Documents any of the following: (A) cash, (B) U.S.
Obligations, (C) other securities having a rating acceptable to Lender and that
the applicable Rating Agencies have confirmed in writing will not, in and of
itself, result in a downgrade, withdrawal or qualification of the initial, or,
if higher, then current ratings assigned in connection with any Securitization,
or (D) a completion bond or letter of credit issued by a financial institution
having a rating by Standard & Poor's Ratings Group of not less than A-1+ if the
term of such bond or letter of credit is no longer than three (3) months or, if
such term is in excess of three (3) months, issued by a financial institution
having a rating that is acceptable to Lender and that the applicable Rating
Agencies have confirmed in writing will not, in and of itself, result in a
downgrade, withdrawal or qualification of the initial, or, if higher, then
current ratings assigned in connection with any Securitization. Such security
shall be in an amount equal to the excess of the total unpaid amounts with
respect to alterations to the Improvements on the Property (other than such
amounts to be paid or reimbursed by tenants under the Leases) over the Threshold
Amount and applied from time to time at the option of Lender to Pay for such
alterations or to terminate any of the alterations and restore the Property to
the extent necessary to prevent any material adverse effect on the value of the
Property.
Section 5.2 NEGATIVE COVENANTS.
From the date hereof until payment and performance in full of all
obligations of Borrower under the Loan Documents or the earlier release of the
Lien of the Mortgage in accordance with the terms of this Agreement and the
other Loan Documents, Borrower covenants and agrees with Lender that it will not
do, directly or indirectly, any of the following:
5.2.1 OPERATION OF PROPERTY. Borrower shall not, without the prior consent
of Lender (which consent shall not be unreasonably withheld), terminate the
Management Agreement or otherwise replace the Manager or enter into any other
management agreement with respect to the Property.
5.2.2 LIENS. Borrower shall not, without the prior written consent of
Lender, create, incur, assume or suffer to exist any Lien on any portion of the
Property or permit any such action to be taken, except:
(i) Permitted Encumbrances;
(ii) Liens created by or permitted pursuant to the Loan Documents;
(iii) Liens for Taxes or Other Charges not yet due; and
(iv) Liens which are contested by Borrower in accordance with the terms of
the Loan Documents.
5.2.3 DISSOLUTION. Borrower shall not (a) engage in any dissolution,
liquidation or consolidation or merger with or into any other business entity,
(b) engage in any business activity not related to the ownership and operation
of the Property, (c) transfer, lease or sell, in one transaction or any
combination of transactions, the assets or all or substantially all of the
properties or assets of Borrower except to the extent permitted by the Loan
Documents, (d) modify, amend, waive or terminate its organizational documents or
its qualification and good standing in any jurisdiction or (e) cause the SPC
Party to (i) dissolve, wind up or liquidate or take any action, or omit to take
an action, as a result of which the SPC Party would be dissolved, wound up or
liquidated in whole or in part, or (ii) amend, modify, waive or terminate the
certificate of incorporation or bylaws of the SPC Party, in each case, without
obtaining the prior written consent of Lender or Lender's designee.
5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any line of
business other than the ownership and operation of the Property, or make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.
5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or
release any claim or debt (other than termination of Leases in accordance
herewith) owed to Borrower by any Person, except for adequate consideration and
in the ordinary course of Borrower's business.
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5.2.6 AFFILIATE TRANSACTIONS. Borrower shall not enter into, or be a party
to, any transaction with an Affiliate of Borrower or any of the partners of
Borrower except in the ordinary course of business and on terms which are fully
disclosed to Lender in advance and are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arm's-length transaction with
an unrelated third party.
5.2.7 ZONING. Borrower shall not initiate or consent to any zoning
reclassification of any portion of the Property or seek any variance under any
existing zoning ordinance or use or permit the use of any portion of the
Property in any manner that could result in such use becoming a non-conforming
use under any zoning ordinance or any other applicable land use law, rule or
regulation, without the prior consent of Lender.
5.2.8 ASSETS. Borrower shall not purchase or own any property other than
the Property.
5.2.9 DEBT. Borrower shall not create, incur or assume any Indebtedness
other than the Debt except to the extent expressly permitted hereby.
5.2.10 NO JOINT ASSESSMENT. Except as required by law, Borrower shall not
suffer, permit or initiate the joint assessment of the Property with (a) any
other real property constituting a tax lot separate from the Property, or (b)
any portion of the Property which may be deemed to constitute personal property,
or any other procedure whereby the Lien of any taxes which may be levied against
such personal property shall be assessed or levied or charged to the Property.
5.2.11 PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its principal
place of business set forth on the first page of this Agreement without first
giving Lender written notice of such change.
5.2.12 ERISA. (a) Borrower shall not engage in any transaction which would
cause any obligation, or action taken or to be taken, hereunder (or the exercise
by Lender of any of its rights under the Note, this Agreement or the other Loan
Documents) to be a non-exempt (under a statutory or administrative class
exemption) prohibited transaction under ERISA.
(b) Borrower further covenants and agrees to deliver to lender such
certifications or other evidence from time to time throughout the term of the
Loan, as requested by Lender in its sole discretion, that (A) Borrower is not
and does not maintain an "employee benefit plan" as defined in Section 3(3) of
ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(3) of ERISA; (B) Borrower is not subject to state statutes
regulating investments and fiduciary obligations with respect to governmental
plans; and (C) one or more of the following circumstances is true;
(i) Equity interests in Borrower are publicly offered securities,
within the meaning of 29 C.F.R. ss.2510.3 101(b)(2);
(ii) Less than twenty-five percent (25%) of each outstanding class of
equity interests in Borrower are held by "benefit plan investors" within the
meaning of 29 C.F.R. ss.2510.3 101(f)(2); or
(iii) Borrower qualifies as an "operating company" or a "real estate
operating company" within the meaning of 29 C.F.R. ss.2510.3 101(c) or (e).
5.2.13 TRANSFERS. Except as set forth in the Mortgage, without the prior
written consent of Lender, neither Borrower nor any other Person having an
ownership or beneficial interest, direct or indirect, in Borrower or the SPC
Party shall (a) directly or indirectly sell, transfer, convey, mortgage, pledge,
or assign the Property, any part thereof or any interest therein (including any
ownership interest in Borrower or the SPC Party), (b) further encumber,
alienate, grant a Lien or grant any other interest in the Property or any part
thereof (including any ownership interest in Borrower and the SPC Party),
whether voluntarily or involuntarily or (c) enter into any easement or other
agreement granting rights in or restricting the use or development of the
Property.
VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS
Section 6.1 INSURANCE.
(a) Borrower shall obtain and maintain, or cause to be maintained,
insurance for Borrower and the Property providing at least the following
coverages:
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(i) comprehensive all risk insurance on the Improvements and the
Personal Property, including contingent liability from Operation of Building
Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each
case (A) in an amount equal to one hundred percent (100%) of the "Full
Replacement Cost," which for purposes of this Agreement shall mean actual
replacement value (exclusive of costs of excavations, foundations, underground
utilities and footings) with a waiver of depreciation, but the amount shall in
no event be less than the outstanding principal balance of the Loan; (B)
containing an agreed amount endorsement with respect to the Improvements and
Personal Property waiving all co-insurance provisions; (C) providing for no
deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such
insurance coverage; and (D) containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if any of the Improvements or the use of the Property
shall at any time constitute legal non-conforming structures or uses. In
addition, Borrower shall obtain: (y) if any portion of the Improvements is
currently or at any time in the future located in a federally designated
"special flood hazard area", flood hazard insurance in an amount equal to the
lesser of (1) the outstanding principal balance of the Note or (2) the maximum
amount of such insurance available under the National Flood Insurance Act of
1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance
Reform Act of 1994, as each may be amended or such greater amount as Lender
shall require; and (z) earthquake insurance in amounts and in form and substance
satisfactory to Lender in the event the Property is located in an area with a
high degree of seismic activity, provided that the insurance pursuant to clauses
(y) and (z) hereof shall be on terms consistent with the comprehensive all risk
insurance policy required under this subsection (i).
(ii) commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage occurring upon, in or
about the Property, such insurance (A) to be on the so-called "occurrence" form
with a combined limit, including umbrella coverage, of not less than Two Hundred
Twenty Million and No/100 Dollars ($220,000,000) or, if any of the Improvements
contain elevators, Two Hundred Twenty Million and No/100 Dollars ($220,000,000);
(B) to continue at not less than the aforesaid limit until reasonably required
to be changed by Lender in writing by reason of changed economic conditions
making such protection inadequate and any new limits shall not exceed limits for
similar properties in similar location; and (C) to cover at least the following
hazards: (1) premises and operations; (2) products and completed operations on
an "if any" basis; (3) independent contractors; (4) blanket contractual
liability for all legal contracts; and (5) contractual liability covering the
indemnities contained in Article 9 of the Mortgage to the extent the same is
available;
(iii) business income insurance (A) with loss payable to Lender;
(B) covering all risks required to be covered by the insurance provided for in
subsection (i) above; (C) containing an extended period of indemnity endorsement
which provides that after the physical loss to the Improvements and Personal
Property has been repaired, the continued loss of income will be insured until
such income either returns to the same level it was at prior to the loss, or the
expiration of eighteen (18) months from the date that the Property is repaired
or replaced and operations are resumed, whichever first occurs, and
notwithstanding that the policy may expire prior to the end of such period; and
(D) in an amount equal to one hundred percent (100%) of the projected gross
income from the Property for a period of eighteen (18) months from the date that
the Property is repaired or replaced and operations are resumed. The amount of
such business income insurance shall be determined prior to the date hereof and
at least once each year thereafter based on Borrower's reasonable estimate of
the gross income from the Property for the succeeding eighteen (18) month
period. All proceeds payable to Lender pursuant to this subsection shall be held
by Lender and shall be applied to the obligations secured by the Loan Documents
from time to time due and payable hereunder and under the Note; provided,
however, that nothing herein contained shall be deemed to relieve Borrower of
its obligations to pay the obligations secured by the Loan Documents on the
respective dates of payment provided for in the Note and the other Loan
Documents except to the extent such amounts are actually paid out of the
proceeds of such business income insurance;
(iv) at all times during which structural construction, repairs
or alterations are being made with respect to the Improvements, and only if the
Property coverage form does not otherwise apply, (A) owner's contingent or
protective liability insurance covering claims not covered by or under the terms
or provisions of the above mentioned commercial general liability insurance
policy; and (B) the insurance provided for in subsection (i) above written in a
so-called builder's risk completed value form (1) on a non-reporting basis, (2)
against all risks insured against pursuant to subsection (i) above, (3)
including permission to occupy the Property, and (4) with an agreed amount
endorsement waiving co-insurance provisions;
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(v) workers' compensation, subject to the statutory limits of the
State, and employer's liability insurance with a limit of at least Five Hundred
Thousand and No/100 Dollars ($500,000) per accident and per disease per
employee, and Five Hundred Thousand and No/100 Dollars ($500,000) for disease
aggregate in respect of any work or operations on or about the Property, or in
connection with the Property or its operation (if applicable);
(vi) comprehensive boiler and machinery insurance, if applicable,
in amounts as shall be reasonably required by Lender on terms consistent with
the commercial property insurance policy required under subsection (i) above;
(vii) umbrella liability insurance in an amount not less than Two
Hundred Twenty Million and No/100 Dollars ($220,000,000) per occurrence on terms
consistent with the commercial general liability insurance policy required under
subsection (ii) above;
(viii) motor vehicle liability coverage for all owned and
non-owned vehicles, including rented and leased vehicles containing minimum
limits per occurrence, including umbrella coverage, of One Million and No/100
Dollars ($1,000,000); and
(ix) upon sixty (60) days' written notice, such other reasonable
insurance and in such reasonable amounts as Lender from time to time may
reasonably request against such other insurable hazards which at the time are
commonly insured against for property similar to the Property located in or
around the region in which the Property is located.
(b) All insurance provided for in Section 6.1(a) shall be obtained under
valid and enforceable policies (collectively, the "Policies" or in the singular,
the "Policy") and shall be subject to approval of lender as to deductibles. The
Policies shall be issued by financially sound and responsible insurance
companies authorized to do business in the State and having a claims paying
ability rating of "AA" or better by Standard & Poor's Ratings Group or, if the
insurance companies do not have claims paying ability rating of "AA" or better
by Standard & Poor's Ratings Group, a reinsurance endorsement shall be provided
by an insurance company satisfying such requirement. The Policies described in
Section 6.1 (other than those strictly limited to liability protection) shall
designate Lender as loss payee. Not less than ten (10) days prior to the
expiration dates of the Policies theretofore furnished to Lender, certificates
of insurance evidencing the Policies accompanied by evidence satisfactory to
Lender of payment of the premiums due thereunder (the "Insurance Premiums"),
shall be delivered by Borrower to Lender.
(c) Any blanket insurance Policy shall specifically allocate to the
Property the amount of coverage from time to time required hereunder and shall
otherwise provide the same protection as would a separate Policy insuring only
the Property in compliance with the provisions of Section 6.1(a).
(d) All Policies of insurance provided for or contemplated by Section
6.1(a), except for the Policy referenced in Section 6.1(a)(v), shall name
Borrower, as the insured and Lender as the additional insured, as its interests
may appear, and in the case of property damage, boiler and machinery, flood and
earthquake insurance, shall contain a standard non-contributing mortgagee clause
in favor of Lender providing that the loss thereunder shall be payable to
Lender.
(e) All Policies of insurance provided for in Section 6.1(a)(v) shall
contain clauses or endorsements to the effect that:
(i) no act or negligence of Borrower, or anyone acting for Borrower,
or of any Tenant or other occupant, or failure to comply with the provisions of
any Policy, which might otherwise result in a forfeiture of the insurance or any
part thereof, shall in any way affect the validity or enforceability of the
insurance insofar as Lender is concerned;
(ii) the Policy shall not be materially changed (other than to
increase the coverage provided thereby) or canceled without at least thirty (30)
days' written notice to Lender and any other party named therein as an
additional insured;
(iii) the issuers thereof shall give written notice to Lender if the
Policy has not been renewed fifteen (15) days prior to its expiration; and
(iv) Lender shall not be liable for any Insurance Premiums thereon or
subject to any assessments thereunder.
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(f) If at any time Lender is not in receipt of written evidence that all
insurance required hereunder is in full force and effect, Lender shall have the
right, without notice to Borrower, to take such action as Lender deems necessary
to protect its interest in the Property, including, without limitation, the
obtaining of such insurance coverage as Lender in its sole discretion deems
appropriate. All premiums incurred by Lender in connection with such action or
in obtaining such insurance and keeping it in effect shall be paid by Borrower
to Lender upon demand and, until paid, shall be secured by the Mortgage and
shall bear interest at the Default Rate.
Section 6.2 CASUALTY. If the Property shall be damaged or destroyed, in
whole or in part, by fire or other casualty (a "Casualty"), Borrower shall give
prompt notice of such damage to Lender and, provided that the Net Proceeds are
made available for restoration, shall promptly commence and diligently prosecute
the completion of the repair and restoration of the Property as nearly as
possible to the condition the Property was in immediately prior to such fire or
other casualty, with such alterations as may be reasonably approved by Lender (a
"Restoration") and otherwise in accordance with Section 6.4. Borrower shall pay
all costs of such Restoration whether or not such costs are covered by
insurance. Lender may, but shall not be obligated to make proof of loss if not
made promptly by Borrower. If Lender should elect to apply the insurance
proceeds it receives to the payment of the Debt without first making such
insurance proceeds available for the full restoration of the Property, then
notwithstanding anything to the contrary contained herein, Borrower shall be
excused from any obligation to restore the Property following an insured
casualty and such failure to restore shall not constitute a default or an Event
of Default.
Section 6.3 CONDEMNATION. Borrower shall promptly give Lender notice of the
actual or threatened commencement of any proceeding for the Condemnation of the
Property and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Lender may participate in any such
proceedings, and Borrower shall from time to time deliver to Lender all
instruments reasonably requested by it to permit such participation. Borrower
shall, at its expense, diligently prosecute any such proceedings, and shall
consult with Lender, its attorneys and experts, and cooperate with them in the
carrying on or defense of any such proceedings. Notwithstanding any taking by
any public or quasi-public authority through Condemnation or otherwise
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of such taking), Borrower shall continue to pay the Debt at the
time and in the manner provided for its payment in the Note and in this
Agreement and the Debt shall not be reduced until any Award shall have been
actually received and applied by Lender, after the deduction of expenses of
collection, to the reduction or discharge of the Debt. Lender shall not be
limited to the interest paid on the Award by the condemning authority but shall
be entitled to receive out of the Award interest at the rate or rates provided
herein or in the Note. If the Property or any portion thereof is taken by a
condemning authority, Borrower shall, provided the Net Proceeds are made
available for Restoration, promptly commence and diligently prosecute the
Restoration of the Property and otherwise comply with the provisions of Section
6.4. If the Property is sold, through foreclosure or otherwise, prior to the
receipt by Lender of the Award, Lender shall have the right, whether or not a
deficiency judgment on the Note shall have been sought, recovered or denied, to
receive the Award, or a portion thereof sufficient to pay the Debt.
Section 6.4 RESTORATION. The following provisions shall apply in connection
with the Restoration of the Property:
(a) If the Net Proceeds shall be less than Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000) and the costs of completing the
Restoration shall be less than Two Million Five Hundred Thousand and No/100
Dollars ($2,500,000), the Net Proceeds will be disbursed by Lender to Borrower
upon receipt, provided that all of the conditions set forth in Section 6.4(b)(i)
are met and Borrower delivers to Lender a written undertaking to expeditiously
commence and to satisfactorily complete with due diligence the Restoration in
accordance with the terms of this Agreement.
(b) If the Net Proceeds are equal to or greater than Two Million Five
Hundred Thousand and No/100 Dollars ($2,500,000) or the costs of completing the
Restoration is equal to or greater than Five Hundred Thousand and No/100 Dollars
($500,000) Lender shall make the Net Proceeds available for the Restoration in
accordance with the provisions of this Section 6.4. The term "Net Proceeds" for
purposes of this Section 6.4 shall mean: (i) the net amount of all insurance
proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi) and (ix)
as a result of such damage or destruction, after deduction of its reasonable
costs and expenses (including, but not limited to, reasonable counsel fees), if
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any, in collecting same ("Insurance Proceeds"), or (ii) the net amount of the
Award, after deduction of its reasonable costs and expenses (including, but not
limited to, reasonable counsel fees), if any, in collecting same ("Condemnation
Proceeds"), whichever the case may be.
(i) The Net Proceeds shall be made available to Borrower for
Restoration provided that each of the following conditions are met:
(A) no Event of Default shall have occurred and be continuing;
(B) (1) in the event the Net Proceeds are Insurance Proceeds,
less than twenty-five percent (25%) of the total floor area of the
Improvements on the Property has been damaged, destroyed or rendered
unusable as a result of such fire or other casualty or (2) in the
event the Net Proceeds are Condemnation Proceeds, less than ten
percent (10%) of the land constituting the Property is taken, and such
land is located along the perimeter or periphery of the Property, and
no material portion of the Improvements is located on such land;
(C) Leases demising in the aggregate a percentage amount
equal to or greater than the Rentable Space Percentage of the
total rentable space in the Property which has been demised under
executed and delivered Leases in effect as of the date of the
occurrence of such fire or other casualty or taking, whichever
the case may be, shall remain in full force and effect during and
after the completion of the Restoration. The term "Rentable Space
Percentage" shall mean a percentage amount equal to seventy-five
percent (75%);
(D) Borrower shall commence the Restoration as soon as
reasonably practicable (but in no event later than sixty (60)
days after such damage or destruction or taking, whichever the
case may be, occurs) and shall diligently pursue the same to
satisfactory completion;
(E) Lender shall be satisfied that any operating deficits,
including all scheduled payments of principal and interest under
the Note, which will be incurred with respect to the Property as
a result of the occurrence of any such fire or other casualty or
taking, whichever the case may be, will be covered out of (1) the
Net Proceeds, (2) the insurance coverage referred to in Section
6.1(a)(iii), if applicable, or (3) by other funds of Borrower;
(F) Lender shall be satisfied that the Restoration will be
completed on or before the earliest to occur of (1) the Maturity
Date, (2) the earliest date required for such completion under
the terms of any Major Leases, (3) such time as may be required
under applicable zoning law, ordinance, rule or regulation in
order to repair and restore the Property to the condition it was
in immediately prior to such fire or other casualty or to as
nearly as possible the condition it was in immediately prior to
such taking, as applicable or (4) the expiration of the insurance
coverage referred to in Section 6.1(a)(iii);
(G) the Property and the use thereof after the Restoration
will be in compliance with and permitted under all applicable
zoning laws, ordinances, rules and regulations;
(H) the Restoration shall be done and completed by Borrower
in a diligent fashion and in compliance with all applicable
governmental laws, rules and regulations (including, without
limitation, all applicable environmental laws); and
(I) such fire or other casualty or taking, as applicable,
does not result in the loss of access to the Property or the
related Improvements; and
(J) the Casualty Consultant shall have determined that the
Net Proceeds are sufficient to fully pay for the Restoration.
(ii) The Net Proceeds shall be held by Lender in an interest-bearing
account and, until disbursed in accordance with the provisions of this
Section 6.4(b), shall constitute additional security for the Debt and other
obligations under the Loan Documents. The Net Proceeds shall be disbursed
by Lender to, or as directed by, Borrower from time to time during the
course of the Restoration, upon receipt of evidence satisfactory to Lender
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that (A) all materials installed and work and labor performed (except to
the extent that they are to be paid for out of the requested disbursement)
in connection with the Restoration have been paid for in full, and (B)
there exist no notices of pendency, stop orders, mechanic's or
materialman's liens or notices of intention to file same, or any other
liens or encumbrances of any nature whatsoever on the Property which have
not either been fully bonded to the satisfaction of Lender and discharged
of record or in the alternative fully insured to the satisfaction of Lender
by the title company issuing the Title Insurance Policy.
(iii) All plans and specifications required in connection with the
Restoration shall be subject to prior review and acceptance in all respects
by Lender and by an independent consulting engineer selected by Lender (the
"Casualty Consultant"). Lender shall have the use of the plans and
specifications and all permits, licenses and approvals required or obtained
in connection with the Restoration. The identity of the contractors,
subcontractors and materialmen engaged in the Restoration, as well as the
contracts under which they have been engaged, shall be subject to prior
review and acceptance by Lender and the Casualty Consultant. All reasonable
costs and expenses incurred by Lender in connection with making the Net
Proceeds available for the Restoration including, without limitation,
reasonable counsel fees and disbursements and the Casualty Consultant's
fees, shall be paid by Borrower.
(iv) In no event shall Lender be obligated to make disbursements of
the Net Proceeds in excess of an amount equal to the costs actually
incurred from time to time for work in place as part of the Restoration, as
certified by the Casualty Consultant, minus the Casualty Retainage. The
term "Casualty Retainage" shall mean an amount equal to ten percent (10%)
(with release of retainage for subcontract where work is completed) of the
costs actually incurred for work in place as part of the Restoration, as
certified by the Casualty Consultant, until the Restoration has been
completed. The Casualty Retainage shall in no event, and notwithstanding
anything to the contrary set forth above in this Section 6.4(b), be less
than the amount actually held back by Borrower from contractors,
subcontractors and materialmen engaged in the Restoration. The Casualty
Retainage shall not be released until the Casualty Consultant certifies to
Lender that the Restoration has been completed in accordance with the
provisions of this Section 6.4(b) and that all approvals necessary for the
re-occupancy and use of the Property have been obtained from all
appropriate governmental and quasi-governmental authorities, and Lender
receives evidence satisfactory to Lender that the costs of the Restoration
have been paid in full or will be paid in full out of the Casualty
Retainage; provided, however, that Lender will release the portion of the
Casualty Retainage being held with respect to any contractor, subcontractor
or materialman engaged in the Restoration as of the date upon which the
Casualty Consultant certifies to Lender that the contractor, subcontractor
or materialman has satisfactorily completed all work and has supplied all
materials in accordance with the provisions of the contractor's,
subcontractor's or materialman's contract, the contractor, subcontractor or
materialman delivers the lien waivers and evidence of payment in full of
all sums due to the contractor, subcontractor or materialman as may be
reasonably requested by Lender or by the title company issuing the Title
Insurance Policy, and Lender receives an endorsement to the Title Insurance
Policy insuring the continued priority of the lien of the Mortgage and
evidence of payment of any premium payable for such endorsement. If
required by Lender, the release of any such portion of the Casualty
Retainage shall be approved by the surety company, if any, which has issued
a payment or performance bond with respect to the contractor, subcontractor
or materialman.
(v) Lender shall not be obligated to make disbursements of the Net
Proceeds more frequently than once every calendar month.
(vi) If at any time the Net Proceeds or the undisbursed balance
thereof shall not, in the opinion of Lender in consultation with the
Casualty Consultant, be sufficient to pay in full the balance of the costs
which are estimated by the Casualty Consultant to be incurred in connection
with the completion of the Restoration, no further disbursements shall be
made until such time as such deficiency shall no longer exist.
(vii) The excess, if any, of the Net Proceeds deposited with Lender
after the Casualty Consultant certifies to Lender that the Restoration has
been completed in accordance with the provisions of this Section 6.4(b),
and the receipt by Lender of evidence satisfactory to Lender that all costs
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incurred in connection with the Restoration have been paid in full, shall
be remitted by Lender to Borrower, provided no Event of Default shall have
occurred and shall be continuing under the Note, this Agreement or any of
the other Loan Documents.
(c) All Net Proceeds not required (i) to be made available for the
Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant
to Section 6.4(b)(vii) may be retained and applied by Lender toward the payment
of the Debt whether or not then due and payable in such order, priority and
proportions as Lender in its sole discretion shall deem proper, or, at the
discretion of Lender, the same may be paid, either in whole or in part, to
Borrower for such purposes as Lender shall designate, in its discretion.
(d) In the event of foreclosure of the Mortgage with respect to the
Property, or other transfer of title to the Property in extinguishment in whole
or in part of the Debt all right, title and interest of Borrower in and to the
Policies that are not blanket Policies then in force concerning the Property and
all proceeds payable thereunder shall thereupon vest in the purchaser at such
foreclosure or Lender or other transferee in the event of such other transfer of
title.
VII. RESERVE FUNDS
Section 7.1 INTENTIONALLY OMITTED.
Section 7.2 TAX ESCROW FUND.
On each Payment Date, Borrower shall deposit with Agent in accordance with
the Cash Management Agreement (a) one-twelfth of the Taxes that Lender estimates
will be payable during the next ensuing twelve (12) months in order to
accumulate with Lender sufficient funds to pay all such Taxes at least thirty
(30) days prior to their respective due dates (said amounts in (a) hereinafter
called the "Tax Escrow Fund"). Lender will apply the Tax Escrow Fund to payments
of Taxes required to be made by Borrower pursuant to Section 5.1.2 hereof and
under the Mortgage. In making any payment relating to the Tax Escrow Fund,
Lender may do so according to any bill, statement or estimate procured from the
appropriate public office (with respect to Taxes), without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount
of the Tax Escrow Fund shall exceed the amounts due for Taxes pursuant to
Section 5.1.2 hereof, Lender shall, in its sole discretion, return any excess to
Borrower or credit such excess against future payments to be made to the Tax
Escrow Fund. Any amount remaining in the Tax Escrow Fund after the Debt has been
paid in full shall be returned to Borrower. In allocating such excess, Lender
may deal with the Person shown on the records of Lender to be the Owner of the
Property. If at any time Lender reasonably determines that the Tax Escrow Fund
is not or will not be sufficient to pay Taxes and Insurance Premiums by the
dates set forth in (a) and (b) above, Lender shall notify Borrower of such
determination and Borrower shall increase its monthly payments to Lender by the
amount that Lender estimates is sufficient to make up the deficiency at least
thirty (30) days prior to delinquency of the Taxes and/or thirty (30) days prior
to expiration of the Policies, as the case may be.
Section 7.3 INTENTIONALLY DELETED.
Section 7.4 TERMINATION ACCOUNT.
In the event that any termination payments are paid pursuant to Section 35
of the Everen Lease, all such amounts shall be delivered to Lender and deposited
into a segregated account with Agent (the "Termination Account"). All amounts
deposited into the Termination Account shall be invested in accordance with
Section 35 of the Lease and shall constitute additional security for payment of
the Debt; provided, however, that if an Event of Default shall occur, Lender
shall not apply such amounts to the payment of the Debt until the occurrence of
the Early Termination Date (as defined in the Everen Lease).
Section 7.5 RESERVE FUNDS, GENERALLY.
7.5.1 Borrower grants to Lender a first-priority perfected security
interest in each of the Reserve Funds and any and all monies now or hereafter
deposited in each Reserve Fund as additional security for payment of the Debt.
Until expended or applied in accordance herewith, the Reserve Funds shall
constitute additional security for the Debt.
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7.5.2 Upon the occurrence of an Event of Default, Lender may, in addition
to any and all other rights and remedies available to Lender, apply any sums
then present in any or all of the Reserve Funds to the payment of the Debt in
any order in its sole discretion.
7.5.3 Borrower shall not, without obtaining the prior written consent of
Lender, further pledge, assign or grant any security interest in any Reserve
Fund or the monies deposited therein or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
7.5.4 Lender shall not be liable for any loss sustained on the investment
of any funds constituting the Reserve Funds.
VIII. DEFAULTS
Section 8.1 EVENT OF DEFAULT.
(a) Each of the following events shall constitute an event of default
hereunder (an "Event of Default"):
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid when the same
are due and payable unless sufficient escrows are deposited for the payment
thereof in accordance with the provisions of Article VII and the Cash Management
Agreement;
(iii) if the Policies are not kept in full force and effect, or if
certified copies of the Policies are not delivered to Lender within ten (10)
days after request;
(iv) if Borrower transfers or encumbers any portion of the Property
without Lender's prior written consent or otherwise violates the provisions of
Article 6 of the Mortgage;
(v) if any representation or warranty made by Borrower herein or in
any other Loan Document, or in any report, certificate, financial statement or
other instrument, agreement or document furnished to Lender shall have been
false or misleading in any material respect as of the date the representation or
warranty was made;
(vi) if Borrower shall make an assignment for the benefit of
creditors;
(vii) if a receiver, liquidator or trustee shall be appointed for
Borrower shall be adjudicated a bankrupt or insolvent, or if any petition for
bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or
any similar federal or state law, shall be filed by or against, consented to, or
acquiesced in by, Borrower or such guarantor, or if any proceeding for the
dissolution or liquidation of Borrower or such guarantor shall be instituted;
provided, however, if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower or such guarantor, upon the same
not being discharged, stayed or dismissed within sixty (60) days;
(viii) if Borrower attempts to assign its rights under this Agreement
or any of the other Loan Documents or any interest herein or therein in
contravention of the Loan Documents;
(ix) if Borrower breaches any of its respective negative covenants
contained in Section 5.2 or any covenant contained in Section 4.1.30 hereof;
(x) with respect to any term, covenant or provision set forth herein
which specifically contains a notice requirement or grace period, if Borrower
shall be in default under such term, covenant or condition after the giving of
such notice or the expiration of such grace period;
(xi) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsections (i) to (x) above, for ten (10) days after notice to Borrower from
Lender, in the case of any Default which can be cured by the payment of a sum of
money, or for thirty (30) days after notice from Lender in the case of any other
Default; provided, however, that if such non-monetary Default is susceptible of
cure but cannot reasonably be cured within such 30-day period and provided
further that Borrower shall have commenced to cure such Default within such
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30-day period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for such time as is reasonably
necessary for Borrower in the exercise of due diligence to cure such Default,
such additional period not to exceed sixty (60) days; or
(xii) if there shall be default under any of the other Loan Documents
beyond any applicable cure periods contained in such documents, whether as to
Borrower or the Property, or if any other such event shall occur or condition
shall exist, if the effect of such event or condition is to accelerate the
maturity of any portion of the Debt or to permit Lender to accelerate the
maturity of all or any portion of the Debt.
(b) Upon the occurrence of an Event of Default (other than an Event of
Default described in clauses (vi), (vii) or (viii) above) and at any time
thereafter Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, Lender may take such action, without notice or demand, that Lender deems
advisable to protect and enforce its rights against Borrower and in the
Property, including, without limitation, declaring the Debt to be immediately
due and payable, and Lender may enforce or avail itself of any or all rights or
remedies provided in the Loan Documents against Borrower and the Property,
including, without limitation, all rights or remedies available at law or in
equity; and upon any Event of Default described in clauses (vi), (vii) or (viii)
above, the Debt and all other obligations of Borrower hereunder and under the
other Loan Documents shall immediately and automatically become due and payable,
without notice or demand, and Borrower hereby expressly waives any such notice
or demand, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
Section 8.2 REMEDIES.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents executed and
delivered by, or applicable to, Borrower or at law or in equity may be exercised
by Lender at any time and from time to time, whether or not all or any of the
Debt shall be declared due and payable, and whether or not Lender shall have
commenced any foreclosure proceeding or other action for the enforcement of its
rights and remedies under any of the Loan Documents with respect to the
Property. Any such actions taken by Lender shall be cumulative and concurrent
and may be pursued independently, singly, successively, together or otherwise,
at such time and in such order as Lender may determine in its sole discretion,
to the fullest extent permitted by law, without impairing or otherwise affecting
the other rights and remedies of Lender permitted by law, equity or contract or
as set forth herein or in the other Loan Documents. Without limiting the
generality of the foregoing, Borrower agrees that if an Event of Default is
continuing (i) Lender is not subject to any "one action" or "election of
remedies" law or rule, and (ii) all liens and other rights, remedies or
privileges provided to Lender shall remain in full force and effect until Lender
has exhausted all of its remedies against the Property and the Mortgage has been
foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or
the Debt has been paid in full.
(b) Lender shall have the right from time to time to partially foreclose
the Mortgage in any manner and for any amounts secured by the Mortgage then due
and payable as determined by Lender in its sole discretion including, without
limitation, the following circumstances: (i) in the event Borrower defaults
beyond any applicable grace period in the payment of one or more scheduled
payments of principal and interest, Lender may foreclose the Mortgage to recover
such delinquent payments, or (ii) in the event Lender elects to accelerate less
than the entire outstanding principal balance of the Loan, Lender may foreclose
the Mortgage to recover so much of the principal balance of the Loan as Lender
may accelerate and such other sums secured by the Mortgage as Lender may elect.
Notwithstanding one or more partial foreclosures, the Property shall remain
subject to the Mortgage to secure payment of sums secured by the Mortgage and
not previously recovered.
(c) Lender shall have the right from time to time to sever the Note and the
other Loan Documents into one or more separate notes, mortgages and other
security documents (the "Severed Loan Documents") in such denominations as
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrower shall execute and
deliver to Lender from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall request in order to
effect the severance described in the preceding sentence, all in form and
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substance reasonably satisfactory to Lender. After the occurrence of an Event of
Default, Borrower hereby absolutely and irrevocably appoints Lender as its true
and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the aforesaid severance,
Borrower ratifying all that its said attorney shall do by virtue thereof;
provided, however, Lender shall not make or execute any such documents under
such power until three (3) days after notice has been given to Borrower by
Lender of Lender's intent to exercise its rights under such power. Except as may
be required in connection with a securitization pursuant to Section 9.1 hereof,
(i) Borrower shall not be obligated to pay any costs or expenses incurred in
connection with the preparation, execution, recording or filing of the Severed
Loan Documents, and (ii) the Severed Loan Documents shall not contain any
representations, warranties or covenants not contained in the Loan Documents and
any such representations and warranties contained in the Severed Loan Documents
will be given by Borrower only as of the Closing Date.
Section 8.3 REMEDIES CUMULATIVE; WAIVERS.
The rights, powers and remedies of Lender under this Agreement shall be
cumulative and not exclusive of any other right, power or remedy which Lender
may have against Borrower pursuant to this Agreement or the other Loan
Documents, or existing at law or in equity or otherwise. Lender's rights, powers
and remedies may be pursued singly, concurrently or otherwise, at such time and
in such order as Lender may determine in Lender's sole discretion. No delay or
omission to exercise any remedy, right or power accruing upon an Event of
Default shall impair any such remedy, right or power or shall be construed as a
waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of one Default or
Event of Default with respect to Borrower shall not be construed to be a waiver
of any subsequent Default or Event of Default by Borrower or to impair any
remedy, right or power consequent thereon.
IX. SPECIAL PROVISIONS
Section 9.1 SALE OF NOTES AND SECURITIZATION.
At the request of the holder of the Note and, to the extent not already
required to be provided by Borrower under this Agreement, Borrower shall use
reasonable efforts to satisfy the market standards to which the holder of the
Note customarily adheres or which may be reasonably required in the marketplace
or by the Rating Agencies in connection with the sale of the Note or
participations therein or the first successful securitization (such sale and/or
securitization, the "Securitization") of rated single or multi-class securities
(the "Securities") secured by or evidencing ownership interests in the Note and
the Mortgage, including, without limitation, to:
(a) (i) provide such financial and other information with respect to the
Property, Borrower and the Manager which is customarily maintained by Borrower,
(ii) provide budgets relating to the Property which is customarily maintained by
Borrower and (iii) at Lender's expense, to perform or permit or cause to be
performed or permitted such site inspection, appraisals, market studies,
environmental reviews and reports (Phase I's and, if appropriate, Phase II's),
engineering reports and other due diligence investigations of the Property, as
may be reasonably requested by the holder of the Note or the Rating Agencies or
as may be necessary or appropriate in connection with the Securitization (the
"Provided Information"), together, if customary, with appropriate verification
and/or consents of the Provided Information through letters of auditors or
opinions of counsel of independent attorneys acceptable to Lender and the Rating
Agencies;
(b) at Lender's expense, cause counsel to render opinions, which may be
relied upon by the holder of the Note, the Rating Agencies and their respective
counsel, agents and representatives, as to non-consolidation, fraudulent
conveyance, and true sale and/or lease or any other opinion customary in
securitization transactions, which counsel and opinions shall be reasonably
satisfactory to the holder of the Note and the Rating Agencies;
(c) update such representations and warranties made in the Loan Documents
as of the closing date of the Securitization with respect to the Property,
Borrower, and the Loan Documents as are customarily provided in securitization
transactions and as may be reasonably requested by the holder of the Note or the
Rating Agencies; and
(d) execute such amendments to the Loan Documents and organizational
documents, enter into a lockbox or similar arrangement with respect to the Rents
as may be requested by the holder of the Note or the Rating Agencies or
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otherwise to effect the Securitization; provided, however, that Borrower shall
not be required to modify or amend any Loan Document if such modification or
amendment would (i) change the interest rate, the stated maturity or the
amortization of principal set forth in the Note, or (ii) modify or amend any
other material economic term of the Loan or materially increase any liability,
indemnity or other obligation.
(e) If requested by Lender, Borrower shall provide Lender with the
following financial statements (it being understood that Lender shall request
such financial statements if it anticipates that the principal amount of the
Loan at the time of Securitization may, or if the principal amount of the Loan
at any time during which the Loan is included in a Securitization does, equals
or exceeds 20% of the aggregate principal amount of all mortgage loans included
in the Securitization), and summaries of such financial statements if the
principal amount of the Loan at any such time equals or exceeds 10% of such
aggregate principal amount:
(i) As of the Closing Date, a balance sheet with respect to the
Property for the two most recent fiscal years, meeting the requirements of
Section 210.3-01 of Regulation S-X of the Securities Act of 1933, as
amended, and statements of income and statements of cash flows with respect
to the Property for the three most recent fiscal years, meeting the
requirements of Section 210.3-02 of Regulation S-X, and, to the extent that
such balance sheet is more than 135 days old as of the Closing Date,
interim financial statements of the Property meeting the requirements of
Section 210.3-01 and 210.3-02 of Regulation S-X (all of such financial
statements, collectively, the "Standard Statements"); provided, however,
that if the Property would be deemed to constitute a business and not real
estate under Regulation S-X that has been acquired by Borrower from an
unaffiliated third party (an "Acquired Property"), as to which the other
conditions set forth in Section 210.3-05 of Regulation S-X for provision of
financial statements in accordance with such Section have been met, in lieu
of the Standard Statements otherwise required by this paragraph, Borrower
shall instead provide the financial statements acquired by such Section
210.3-05 of Regulation S-X ("Acquired Property Statements").
(ii) Not later than thirty-eight (38) days after the end of each
fiscal quarter following the Closing Date, a balance sheet of the Property
as of the end of such fiscal quarter, meeting the requirements of Section
210.3-01 of Regulation S-X, and statements of income and statements of cash
flows of the Property for the period commencing following the last day of
the most recent fiscal year and ending on the date of such balance sheet
and for the corresponding period of the most recent fiscal year, meeting
the requirements of Section 210.3-02 of Regulation S-X (provided, that if
for such corresponding period of the most recent fiscal year Acquired
Property Statements were permitted to be provided hereunder pursuant to
Section 9.1(e)(i) above, Borrower shall instead provide Acquired Property
Statements for such corresponding period). If requested by Lender, Borrower
shall also provide "summarized financial information," as defined in
Section 210.1-02(bb) of Regulation S-X, with respect to such quarterly
financial statements.
(iii) Not later than eighty-three (83) days after the end of each
fiscal year following the Closing Date, a balance sheet of the Property as
of the end of such fiscal year, meeting the requirements of Section
210.3-01 of Regulation S-X, and statements of income and statements of cash
flows of the Property for such fiscal year, meeting the requirements of
Section 210.3-02 of Regulation S-X. If requested by Lender, Borrower shall
provide summarized financial information with respect to such annual
financial statements.
(iv) Within ten (10) Business Days after notice from Lender in
connection with the Securitization of this Loan, such additional financial
statements, such that, as of the date (each an "Offering Document Date") of
each prospectus, private placement memorandum, offering circular or other
offering document for such Securitization (each an "Offering Document"),
Borrower shall have provided Lender with all financial statements as
described in Section 9.1(e)(i) above; provided that the fiscal year and
interim periods for which such financial statements shall be provided shall
be determined as of such Offering Document Date.
(v) In the event Lender determines, in connection with a
Securitization, that the financial statements required in order to comply
with Regulation S-X or Legal Requirements are other than as provided
herein, then notwithstanding the provisions of this Section, Lender may
request, and Borrower shall promptly provide, such combination of Acquired
Property Statements and/or Standard Statements as may be necessary for such
compliance.
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(vi) Any other or additional financial statements, or financial,
statistical or operating information, as shall be required pursuant to
Regulation S-X or other Legal Requirements in connection with any Offering
Document or any filing under or pursuant to the Securities Exchange Act in
connection with or relating to a Securitization (hereinafter an "Exchange
Act Filing") or as shall otherwise be reasonably requested by Lender to
meet disclosure, rating agency or marketing requirements.
(vii) All financial statements provided by Borrower hereunder shall be
prepared in accordance with generally accepted accounting principles, and
shall meet the requirements of Regulation S-X and other applicable Legal
Requirements. All financial statements relating to a fiscal year shall be
audited by the independent accountants in accordance with generally
accepted auditing standards, Regulation S-X and all other applicable Legal
Requirements, shall be accompanied by the manually executed report of the
independent accountants thereon, which report shall meet the requirements
of Regulation S-X and all other applicable Legal Requirements, and shall be
further accompanied by a manually executed written consent of the
independent accountants, in form and substance acceptable to Lender, to the
inclusion of such financial statements in any offering document and any
Exchange Act Filing and to the use of the name of such independent
accountants and the reference to such independent accountants as "experts"
in any offering document and Exchange Act Filing, all of which shall be
provided at the same time as the related financial statements are required
to be provided, provided however that Lender timely provides to such
accountants such information as is required by such accountants to render
such consent. All other quarterly financial statements which are not
certified by Ernst & Young shall be certified by the chief financial
officer of Borrower, which certification shall state that such financial
statements to such person's knowledge meet the requirements set forth in
the first sentence of this paragraph.
Borrower shall not be obligated to pay any third party costs or expenses in
connection with a Securitization other than (i) costs relating to the
indemnification obligations set forth herein and (ii) costs relating to items
already required to be provided by Borrower under this Agreement.
Section 9.2 SECURITIZATION INDEMNIFICATION.
(a) In connection with a Securitization, Borrower agrees (i) to indemnify
Lender and its Affiliates for any losses, claims, damages or liabilities
(collectively, the "Liabilities") to which Lender or its Affiliates may become
subject insofar as the Liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact in the Provided
Information or arise out of or are based upon the omission or alleged omission
to state in the Provided Information a material fact required to be stated in
the Provided Information necessary in order to make the statements in the
Provided Information, in light of the circumstances under which they were made
not misleading and (ii) to reimburse Lender and its Affiliates for any legal or
other expenses reasonably incurred by Lender or its Affiliates in connection
with defending or investigating the Liabilities.
(b) The liabilities and obligations of both Borrower and Lender under this
Section 9.2 shall survive the termination of this Agreement and the satisfaction
and discharge of the Debt.
Section 9.3 INTENTIONALLY OMITTED.
Section 9.4 EXCULPATION.
Subject to the qualifications below, Lender shall not enforce the liability
and obligation of Borrower to perform and observe the obligations contained in
the Note, this Agreement, the Mortgage or the other Loan Documents by any action
or proceeding wherein a money judgment shall be sought against Borrower, its
partners, officers, directors, employees or agents (the "Exculpated Parties"),
except that Lender may bring a foreclosure action, an action for specific
performance or any other appropriate action or proceeding to enable Lender to
enforce and realize upon its interest under the Note, this Agreement, the
Mortgage and the other Loan Documents, or in the Property, the Rents, or any
other collateral given to Lender pursuant to the Loan Documents; provided,
however, that, except as specifically provided herein, any judgment in any such
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Property, in the Rents and in any other collateral
given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgage
and the other Loan Documents, agrees that it shall not sue for, seek or demand
any deficiency judgment against the Exculpated Parties in any such action or
proceeding under or by reason of or under or in connection with the Note, this
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Agreement, the Mortgage or the other Loan Documents. The provisions of this
section shall not, however, (a) constitute a waiver, release or impairment of
any obligation evidenced or secured by any of the Loan Documents; (b) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under any of the Mortgage; (c) impair the right of Lender
to obtain the appointment of a receiver; (d) impair the enforcement of the
Assignment of Leases; (e) constitute a prohibition against Lender to commence
any other appropriate action or proceeding in order for Lender to exercise its
remedies against the Property (y) as set forth in the Loan Documents or (z) as
are available under applicable law; or (f) constitute a waiver of the right of
Lender to enforce the liability and obligation of Borrower, by money judgment or
otherwise, to the extent of any actual loss, damage, cost, expense, liability,
claim or other obligation incurred by Lender (including attorneys' fees and
costs reasonably incurred) arising out of or in connection with the following:
(i) fraud or intentional misrepresentation by Borrower or any guarantor in
connection with the Loan which has a material adverse effect of the
Borrower;
(ii) the gross negligence or willful misconduct of Borrower;
(iii)the breach of any covenant or indemnification provision in the
Environmental Indemnity or in the Mortgage concerning environmental
laws, hazardous substances and asbestos and any indemnification of
Lender with respect thereto in either document;
(iv) the removal or disposal by Borrower or its affiliates of any portion
of the Property after an Event of Default;
(v) the misapplication or conversion by Borrower of (A) any insurance
proceeds paid by reason of any loss, damage or destruction to the
Property, (B) any awards or other amounts received in connection with
the condemnation of all or a portion of the Property, or (C) any Rents
following an Event of Default;
(vi) failure to pay charges for labor or materials or other charges that
can create liens on any portion of the Property;
(vii)any security deposits, advance deposits or any other deposits
collected with respect to the Property which are not delivered to
Lender upon a foreclosure of the Property or action in lieu thereof,
except to the extent any such security deposits were applied in
accordance with the terms and conditions of any of the Leases prior to
the occurrence of the Event of Default that gave rise to such
foreclosure or action in lieu thereof; and
(viii) Borrower's indemnifications of Lender set forth in Section 9.2
hereof.
Notwithstanding anything to the contrary in this Agreement, the Note or any
of the Loan Documents, (A) Lender shall not be deemed to have waived any right
which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the Debt secured by the Mortgage or to require that all collateral shall
continue to secure all of the Debt owing to Lender in accordance with the Loan
Documents, and (B) the Debt shall be fully recourse to Borrower in the event
that: (i) Borrower fails to obtain Lender's prior written consent to any
subordinate financing or other voluntary Lien encumbering the Property; or (ii)
Borrower fails to obtain Lender's prior written consent to any assignment,
transfer, or conveyance of the Property or any interest therein as required by
the Mortgage or hereunder.
Section 9.5 TERMINATION OF MANAGER.
If (a) the Manager shall default after applicable notice and cure periods
have expired under the Management Agreement, (b) the amounts evidenced by the
Note have been accelerated pursuant to Section 8.1(b) hereof, (c) at the
Maturity Date, the Debt is not repaid in full, or (d) the Manager shall become
insolvent, Borrower shall, at the request of Lender, terminate the Management
Agreement and replace the Manager with a manager approved by Lender on terms and
conditions reasonably satisfactory to Lender, it being understood and agreed
that the management fee for such replacement manager shall not exceed then
prevailing market rates.
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Section 9.6 SERVICER.
At the option of Lender, the Loan may be serviced at no cost to Borrower by
a servicer/trustee (the "Servicer") selected by Lender and Lender may delegate
all or any portion of its responsibilities under this Agreement and the other
Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing
Agreement") between Lender and Servicer.
X. MISCELLANEOUS
Section 10.1 SURVIVAL.
This Agreement and all covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making by Lender of the Loan and the execution and delivery to
Lender of the Note, and shall continue in full force and effect so long as all
or any of the Debt is outstanding and unpaid unless a longer period is expressly
set forth herein or in the other Loan Documents. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the legal representatives, successors and assigns of such party. All covenants,
promises and agreements in this Agreement, by or on behalf of Borrower, shall
inure to the benefit of the legal representatives, successors and assigns of
Lender.
Section 10.2 LENDER'S DISCRETION.
Whenever pursuant to this Agreement, Lender exercises any right given to it
to approve or disapprove, or any arrangement or term is to be satisfactory to
Lender, the decision of Lender to approve or disapprove or to decide whether
arrangements or terms are satisfactory or not satisfactory shall (except as is
otherwise specifically herein provided) be in the sole discretion of Lender and
shall be final and conclusive.
Section 10.3 GOVERNING LAW.
(A) THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF
NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED
FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND
THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND
ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE
PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIEN AND
SECURITY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE
IN WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD
THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE
STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF
ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER.
TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT MAY AT LENDER'S OPTION BE INSTITUTED IN ANY
FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO
SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY
OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON
CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING.
(C) NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 10.3, ANY
ACTION TO ENFORCE OR FORECLOSE THE LIENS AND SECURITY INTERESTS CREATED PURSUANT
HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE INSTITUTED IN THE STATE
IN WHICH THE PROPERTY IS LOCATED.
Section 10.4 MODIFICATION, WAIVER IN WRITING.
No modification, amendment, extension, discharge, termination or waiver of
any provision of this Agreement, or of the Note, or of any other Loan Document,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
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in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to, or demand on Borrower, shall
entitle Borrower to any other or future notice or demand in the same, similar or
other circumstances.
Section 10.5 DELAY NOT A WAIVER.
Neither any failure nor any delay on the part of Lender in insisting upon
strict performance of any term, condition, covenant or agreement, or exercising
any right, power, remedy or privilege hereunder, or under the Note or under any
other Loan Document, or any other instrument given as security therefor, shall
operate as or constitute a waiver thereof, nor shall a single or partial
exercise thereof preclude any other future exercise, or the exercise of any
other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, the Note or any other Loan Document, Lender shall not be deemed
to have waived any right either to require prompt payment when due of all other
amounts due under this Agreement, the Note or the other Loan Documents, or to
declare a default for failure to effect prompt payment of any such other amount.
Section 10.6 NOTICES.
All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing and shall
be effective for all purposes if hand delivered or sent by (a) certified or
registered United States mail, postage prepaid, return receipt requested or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, addressed as follows (or at such
other address and person as shall be designated from time to time by any party
hereto, as the case may be, in a written notice to the other parties hereto in
the manner provided for in this Section):
If to Lender: Lehman Brothers Holdings Inc.,
Three World Financial Center, 12th Floor
Commercial Mortgage Surveillance Group
New York, New York 10285
Attention: Scott Weiner
with a copy to: Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: John M. Zizzo, Esq.
If to Borrower: 77 West Wacker Limited Partnership
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Louis Conforti
with a copy to: 77 West Wacker Limited Partnership
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: James Hoffman, Esq.
and with a copy to: Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9703
Attention: Wayne Boberg, Esq.
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery, upon the first delivery on a Business Day.
Section 10.7 TRIAL BY JURY.
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT
ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS,
OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER,
AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO
WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY BORROWER.
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<PAGE>
Section 10.8 HEADINGS.
The Article and/or Section headings and the Table of Contents in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 10.9 SEVERABILITY.
Wherever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
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 Agreement.
Section 10.10 PREFERENCES.
Lender shall have the continuing and exclusive right to apply or reverse
and reapply any and all payments by Borrower to any portion of the obligations
of Borrower hereunder. To the extent Borrower makes a payment or payments to
Lender, which payment or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the obligations hereunder or part thereof intended
to be satisfied shall be revived and continue in full force and effect, as if
such payment or proceeds had not been received by Lender.
Section 10.11 WAIVER OF NOTICE.
Borrower shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Agreement or the other Loan
Documents specifically and expressly provide for the giving of notice by Lender
to Borrower and except with respect to matters for which Borrower is not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice. Borrower hereby expressly waives the right to receive any notice from
Lender with respect to any matter for which this Agreement or the other Loan
Documents do not specifically and expressly provide for the giving of notice by
Lender to Borrower.
Section 10.12 REMEDIES OF BORROWER.
In the event that a claim or adjudication is made that Lender or its agents
have acted unreasonably or unreasonably delayed acting in any case where by law
or under this Agreement or the other Loan Documents, Lender or such agent, as
the case may be, has an obligation to act reasonably or promptly, Borrower
agrees that neither Lender nor its agents shall be liable for any monetary
damages, and Borrower's sole remedies shall be limited to commencing an action
seeking injunctive relief or declaratory judgment. The parties hereto agree that
any action or proceeding to determine whether Lender has acted reasonably shall
be determined by an action seeking declaratory judgment.
Section 10.13 EXPENSES; INDEMNITY.
(a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to
reimburse, Lender upon receipt of written notice from Lender for all reasonable
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by Lender in connection with (i) the preparation, negotiation,
execution and delivery of this Agreement and the other Loan Documents and the
consummation of the transactions contemplated hereby and thereby and all the
costs of furnishing all opinions by counsel for Borrower (including without
limitation any opinions reasonably requested by Lender as to any legal matters
arising under this Agreement or the other Loan Documents with respect to the
Property); (ii) Borrower's ongoing performance of and compliance with Borrower's
respective agreements and covenants contained in this Agreement and the other
Loan Documents on its part to be performed or complied with after the Closing
Date; (iv) the negotiation, preparation, execution, delivery and administration
of any consents, amendments, waivers or other modifications to this Agreement
and the other Loan Documents and any other documents or matters requested by
Lender; (v) securing Borrower's compliance with any requests made pursuant to
the provisions of this Agreement; (vi) the filing and recording fees and
expenses, title insurance and reasonable fees and expenses of counsel for
providing to Lender all required legal opinions, and other similar expenses
incurred in creating and perfecting the Lien in favor of Lender pursuant to this
Agreement and the other Loan Documents; (vii) enforcing or preserving any
rights, in response to third party claims or the prosecuting or defending of any
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<PAGE>
action or proceeding or other litigation, in each case against, under or
affecting Borrower, this Agreement, the other Loan Documents, the Property, or
any other security given for the Loan; and (viii) enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other
Loan Documents or with respect to the Property or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any
cost and expenses due and payable to Lender may be paid from any amounts in the
Lockbox Account.
(b) Borrower shall indemnify, defend and hold harmless Lender from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for Lender in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
Lender shall be designated a party thereto), that may be imposed on, incurred
by, or asserted against Lender in any manner relating to or arising out of (i)
any breach by Borrower of its obligations under, or any material
misrepresentation by Borrower contained in, this Agreement or the other Loan
Documents, or (ii) the use or intended use of the proceeds of the Loan
(collectively, the "Indemnified Liabilities"); provided, however, that Borrower
shall not have any obligation to Lender hereunder to the extent that such
Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or
willful misconduct of Lender. To the extent that the undertaking to indemnify,
defend and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion that it is permitted to pay and satisfy under applicable law
to the payment and satisfaction of all Indemnified Liabilities incurred by
Lender.
Section 10.14 SCHEDULES INCORPORATED.
The Schedules annexed hereto are hereby incorporated herein as a part of
this Agreement with the same effect as if set forth in the body hereof.
Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES.
Any assignee of Lender's interest in and to this Agreement, the Note and
the other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to such documents which Borrower
may otherwise have against any assignor of such documents, and no such unrelated
counterclaim or defense shall be interposed or asserted by Borrower in any
action or proceeding brought by any such assignee upon such documents and any
such right to interpose or assert any such unrelated offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 10.16 NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY
BENEFICIARIES.
(a) Borrower and Lender intend that the relationships created hereunder and
under the other Loan Documents be solely that of borrower and lender. Nothing
herein or therein is intended to create a joint venture, partnership,
tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor
to grant Lender any interest in the Property other than that of mortgagee,
beneficiary or lender.
(b) This Agreement and the other Loan Documents are solely for the benefit
of Lender and Borrower and nothing contained in this Agreement or the other Loan
Documents shall be deemed to confer upon anyone other than Lender and Borrower
any right to insist upon or to enforce the performance or observance of any of
the obligations contained herein or therein. All conditions to the obligations
of Lender to make the Loan hereunder are imposed solely and exclusively for the
benefit of Lender and no other Person shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled to
assume that Lender will refuse to make the Loan in the absence of strict
compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender if, in Lender's sole
discretion, Lender deems it advisable or desirable to do so.
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<PAGE>
Section 10.17 PUBLICITY.
All news releases, publicity or advertising by Borrower or their Affiliates
through any media intended to reach the general public which refers to the Loan
Documents or the financing evidenced by the Loan Documents, to Lender, Lehman
Brothers Holdings Inc., or any of their Affiliates shall be subject to the prior
review and approval of Lender, such approval not to be unreasonably withheld.
Section 10.18 WAIVER OF MARSHALLING OF ASSETS.
To the fullest extent permitted by law, Borrower, for itself and its
successors and assigns, waives all rights to a marshalling of the assets of
Borrower, Borrower's partners and others with interests in Borrower, and of the
Property, and agrees not to assert any right under any laws pertaining to the
marshalling of assets, the sale in inverse order of alienation, homestead
exemption, the administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of Lender under the Loan
Documents to a sale of the Property for the collection of the Debt without any
prior or different resort for collection or of the right of Lender to the
payment of the Debt out of the net proceeds of the Property in preference to
every other claimant whatsoever.
Section 10.19 WAIVER OF COUNTERCLAIM.
Borrower hereby waives the right to assert a counterclaim, other than a
compulsory counterclaim, in any action or proceeding brought against it by
Lender or its agents.
SECTION 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE.
In the event of any conflict between the provisions of this Loan Agreement
and any of the other Loan Documents, the provisions of this Loan Agreement shall
control. The parties hereto acknowledge that they were represented by competent
counsel in connection with the negotiation, drafting and execution of the Loan
Documents and that such Loan Documents shall not be subject to the principle of
construing their meaning against the party which drafted same. Borrower
acknowledges that, with respect to the Loan, Borrower shall rely solely on its
own judgment and advisors in entering into the Loan without relying in any
manner on any statements, representations or recommendations of Lender or any
parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any
limitation whatsoever in the exercise of any rights or remedies available to it
under any of the Loan Documents or any other agreements or instruments which
govern the Loan by virtue of the ownership by it or any parent, subsidiary or
Affiliate of Lender of any equity interest any of them may acquire in Borrower,
and Borrower hereby irrevocably waives the right to raise any defense or take
any action on the basis of the foregoing with respect to Lender's exercise of
any such rights or remedies. Borrower acknowledges that Lender engages in the
business of real estate financings and other real estate transactions and
investments which may be viewed as adverse to or competitive with the business
of Borrower or its Affiliates.
Section 10.21 BROKERS AND FINANCIAL ADVISORs.
Borrower hereby represents that it has dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement. Borrower hereby agrees to
indemnify, defend and hold Lender harmless from and against any and all claims,
liabilities, costs and expenses of any kind (including Lender's attorneys' fees
and expenses) in any way relating to or arising from a claim by any Person that
such Person acted on behalf of Borrower in connection with the transactions
contemplated herein. The provisions of this Section 10.21 shall survive the
expiration and termination of this Agreement and the payment of the Debt.
Section 10.22 PRIOR AGREEMENTS.
This Agreement and the other Loan Documents contain the entire agreement of
the parties hereto and thereto in respect of the transactions contemplated
hereby and thereby, and all prior agreements among or between such parties,
whether oral or written, between Borrower and Lender are superseded by the terms
of this Agreement and the other Loan Documents.
[NO FURTHER TEXT ON THIS PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
77 WEST WACKER LIMITED PARTNERSHIP,
an Illinois limited partnership
By: PRIME GROUP REALTY, L.P.
a Delaware limited partnership,
its Managing Partner
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment trust,
its Managing General Partner
By: /s/ Louis G. Conforti
------------------------------------
Name: Louis G. Conforti
Title:Senior Vice President
Lehman Brothers Holdings Inc., doing business
as Lehman Capital, a division of Lehman Brothers
Holding Inc.
By: /s/ Larry Kravetz
----------------------------------------------
Name: Larry Kravetz
Title:
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<PAGE>
SCHEDULE I
----------
RENT ROLL
[Exhibit Omitted]
-44-
EXHIBIT 10.11
================================================================================
AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of October 1, 1998
among
PRIME GROUP REALTY, L.P.,
as Borrower
and
PRIME GROUP REALTY TRUST
and
LASALLE NATIONAL BANK
as Lender
================================================================================
<PAGE>
INDEX
-----
Page No.
--------
1. DEFINITIONS...................................................... 1
1.1 General Terms........................................ 1
1.2 Accounting Terms..................................... 9
1.3 Certain Matters of Construction...................... 9
2. LOANS; FEES; TERMS OF PAYMENT.................................... 9
2.1 Revolving Credit Facility. .......................... 9
2.2 Borrowing Procedures................................. 10
2.3 Payments and Prepayments............................. 10
2.4 Intentionally Deleted. .............................. 11
2.5 Interest............................................. 11
2.6 Fees................................................. 13
2.7 Payment Dates........................................ 14
2.8 Intentionally Deleted. .............................. 14
2.9 Renewals; Conversion and Continuation of Loans....... 14
2.10 Indemnity............................................ 15
2.11 Change in Legality................................... 15
2.12 Unavailability of Deposits or Inability to
Ascertain, or Inadequacy of Libor Rate.............. 16
2.13 Increased Cost and Reduced Return.................... 16
2.14 Discretion of the Lender as to Manner of Funding..... 17
3. TERM OF THIS AGREEMENT; PREPAYMENTS.............................. 17
3.1 Term................................................. 17
3.2 Prepayment; Termination.............................. 18
3.3 Mandatory Prepayment................................. 18
3.4 Collateral Security.................................. 18
4. CONDITIONS PRECEDENT............................................. 19
4.1 Closing; Conditions to Initial Loan and Closing...... 19
4.2 Condition to All Loans............................... 21
5. GENERAL CONTINUING WARRANTIES AND REPRESENTATIONS................ 22
5.1 Office............................................... 22
5.2 Existence............................................ 23
5.3 Authority............................................ 23
5.4 No Breach............................................ 23
5.5 Solvency............................................. 24
5.6 Compliance With Laws. ............................... 25
5.7 Actions or Proceedings............................... 25
5.8 Trademarks, Licenses, etc............................ 25
5.9 Financial Statements................................. 25
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Page No.
--------
5.10 Conduct of Business.................................. 26
5.11 Environmental Laws................................... 26
5.12 Permits and Licenses................................. 27
5.13 ERISA................................................ 28
5.14 Intentionally Deleted................................ 28
5.15 Tax Obligations. ................................... 28
5.16 Employee Controversies............................... 29
5.17 Full Disclosure. .................................... 29
5.18 Bank Boston Credit Agreement......................... 29
6. INCORPORATION OF NEGATIVE COVENANTS.............................. 29
6.1-6.9Incorporation of Negative Covenants.................. 29
6.10 Independent Enforcement of Negative Covenants by
the Lender........................................... 30
6.11 Leases............................................... 30
7. INCORPORATION OF AFFIRMATIVE COVENANTS - GENERAL................. 30
7.1-7.17Incorporation of Affirmative Covenants.............. 30
7.18 Independent Enforcement of Affirmative Covenants
by the Lender........................................ 30
7.19 Use of Proceeds...................................... 31
7.19 Leases, Lease Approvals.............................. 31
8. AFFIRMATIVE COVENANTS - REPORTING................................ 31
8.1 Reports, Covenant Compliance Certificates............ 31
8.2 Intentionally Deleted................................ 31
8.3 Other Information and Changes........................ 31
8.4 Confidentiality...................................... 32
9. COVENANTS - FINANCIAL............................................ 32
9.1 Incorporation of Financial Covenants................. 32
9.2 Independent Enforcement of Financial Covenants
by the Lender........................................ 32
10. EVENTS OF DEFAULT................................................ 32
10.1 Payment.............................................. 33
10.2 Breach of Covenants.................................. 33
10.3 Breach of Representation............................. 33
10.4 Attachment or Levy................................... 33
10.5 Voluntary Insolvency................................. 33
10.6 Involuntary Insolvency............................... 33
10.7 Injunction........................................... 34
10.8 Governmental Lien.................................... 34
10.9 Judgment............................................. 34
10.10 Other Indebtedness................................... 34
10.11 Bank Boston Credit Agreement......................... 34
10.12 ERISA Reportable Event............................... 34
10.13 Breach of Covenants.................................. 35
11. RIGHTS AND REMEDIES.............................................. 35
11.1 Rights and Remedies Generally........................ 35
11.2 Rights Cumulative.................................... 36
12. TAXES AND EXPENSES............................................... 36
13. CERTAIN WAIVERS.................................................. 36
13.1 Application of Payments.............................. 36
13.2 Demand, etc. ....................................... 37
14. NOTICES.......................................................... 37
15. CHOICE OF LAW AND VENUE.......................................... 38
16. INDEMNITY........................................................ 38
17. GENERAL PROVISIONS............................................... 39
17.1 Acceptance........................................... 39
17.2 Binding Agreement.................................... 39
17.3 Section Headings..................................... 40
17.4 Construction......................................... 40
17.5 Severability......................................... 40
17.6 Entire Agreement..................................... 40
17.7 No Fiduciary Relationship or Joint Venture........... 40
17.8 Publicity............................................ 40
17.9 Counterparts......................................... 40
17.10 Conflict............................................. 41
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<PAGE>
Page No.
--------
18. WAIVER OF JURY TRIAL............................................. 41
19. PARTNER LIABILITY................................................ 41
19.1 Limited Recourse to Company.......................... 41
19.2 Limited Recourse to Partners of Borrower other
than Company......................................... 41
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<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of October 1, 1998, is
entered into by and between the "Lender" and "Borrower" and "Company"
(hereinafter defined).
R E C I T A L S:
----------------
A. The Lender has made certain revolving financing accommodations available
to the Borrower pursuant to that certain Loan Agreement dated as of January 28,
1998 between Lender, Borrower and Company ("Existing Agreement"); and
B. The Borrower has requested that Lender make certain modifications to the
Existing Agreement and the Lender is willing to make such modifications upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the parties' mutual agreements
contained herein, the parties hereby agree that effective upon the date hereof
the Existing Agreement is amended and restated in its entirety as follows:
1. DEFINITIONS
1.1 General Terms
As used in this Agreement, the following terms shall have the following
definitions:
"AFFILIATE" shall mean any Person (a) that directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with Borrower, (b) that directly or beneficially owns or holds five
percent (5%) or more of any class of the interests of Borrower, (c) five percent
(5%) or more of whose voting stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest or economic value
of which) is owned directly or beneficially or held by Borrower, or (d) five
percent (5%) or more of whose voting stock (or in case of a Person which is not
a corporation, five percent (5%) or more of the equity interest or economic
value of which) is owned directly or beneficially or held by a Person referred
to in (a), (b) or (c) above.
"AGREEMENT" shall mean this Amended and Restated Loan Agreement, any and
all exhibits or schedules thereto, any and all concurrent or subsequent riders
to this Loan Agreement and any extensions, supplements, amendments,
modifications or restatements to or of this Loan Agreement and/or to or of any
such rider.
"ASSIGNMENT OF LEASES AND RENTS" shall mean that certain Assignment of
Leases and Rents dated as of January 28, 1998, as amended from time to time from
the Mortgagor to Lender pursuant to which the Borrower shall grant and assign
Lender a security interest and assignment of Mortgagor's interest as lessor with
respect to all leases and rents of all or any part of the Indiana Property,
including without limitation, the Indiana Property Lease, as security for the
Obligations.
"AUTHORIZED REPRESENTATIVE" shall mean W. Michael Karnes and any other
corporate officer designated in writing to Lender by any of the aforementioned
officers.
"BANK BOSTON CREDIT AGREEMENT" shall mean that certain Credit Agreement by
and among Borrower, Company, Bank Boston, N.A. and Prudential Securities Credit
Corporation dated November 17, 1997, as amended by that certain First Amendment
to Credit Agreement dated as of December 15, 1997, and by that certain Second
Amendment to Credit Agreement dated as of March 16, 1998, as amended and
restated by that certain Third Amendment to Credit Agreement dated as of March
30, 1998, and as amended by that certain Fourth Amendment to Credit Agreement
dated as of September 24, 1998 and that certain Fifth Amendment to Credit
Agreement dated as of October __, 1998, a copy of which Third Amendment, Fourth
Amendment and Fifth Amendment is attached hereto as Exhibit B.
"BENEFIT PLAN" shall mean an employee pension benefit plan of Borrower or
an ERISA Affiliate, as defined in Section 3(2) of ERISA, which is subject to
Title IV of ERISA.
"BORROWER" shall mean Prime Group Realty, L.P., a Delaware limited
partnership, with its chief executive office and principal place of business at
77 West Wacker Drive, Suite 3900, Chicago, Illinois, 60601.
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<PAGE>
"BORROWER'S BOOKS" shall mean all of Borrower's books and records
including, but not limited to: minute books; ledgers; records indicating,
summarizing, or evidencing Borrower's assets, liabilities, and all information
relating thereto; records indicating, summarizing, or evidencing Borrower's
business operations or financial condition; records indicating, summarizing, or
evidencing Borrower's compliance with or problems or activities concerning Laws;
and all computer programs, disc or tape files, printouts, runs, and other
computer prepared information and the equipment containing such information and
any software necessary to operate the same.
"BORROWER'S LOAN ACCOUNT" shall mean a loan account maintained by Lender on
its books in which shall be recorded (i) all loans and advances made by Lender
to Borrower pursuant to this Agreement, (ii) all payments made by Borrower on
all such loans and advances, and (iii) all other appropriate debits and credits
as provided in this Agreement, including, without limitation, all Out-of-Pocket
Fees and Costs and interest; all such entries shall be made by Lender in
accordance with Lender's customary accounting practices as in effect from time
to time.
"BUSINESS DAY" shall mean (a) any day other than a Saturday, Sunday, or
other day on which banks in Illinois are required to be closed, and (b) relative
to the making of Eurodollar Loans, any day on which dealings in Dollars are
carried on in the interbank Eurodollar market which also satisfies the criteria
set forth in (a) above.
"CAPITAL EXPENDITURES" shall mean, with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including expenditures for capitalized lease obligations) by Borrower during
such period that are required by Generally Accepted Accounting Principles to be
included in or reflected by the property, plant, or equipment or similar fixed
asset accounts in the balance sheet of Borrower.
"CLOSING" shall have the meaning set forth in Section 4.1 hereof.
"CODE" shall mean the Uniform Commercial Code of the State of Illinois as
in effect from time to time during the term hereof and any and all terms used in
this Agreement which are not otherwise defined herein but are defined in the
Code shall be construed and defined in accordance with the meaning and
definition ascribed to such terms under the Code.
"COMMITMENT" shall mean the Lender's commitment to make Loans to the
Borrower in an aggregate amount not to exceed the Maximum Facility.
"COMMON SHARES" shall have the same meaning as set forth in the Bank Boston
Credit Agreement.
"COMMON UNITS" shall have the same meaning as set forth in the Bank Boston
Credit Agreement.
"COMPANY" shall mean Prime Group Realty Trust, a Maryland trust.
"CONTRIBUTING SPONSOR" shall mean any person described in Section
4001(a)(13) of ERISA with respect to a Benefit Plan.
"DEFAULT RATE" shall have the meaning set forth in Section 2.5(b) hereof.
"DISTRIBUTION" shall mean the declaration or payment of any dividend or
distribution of cash or cash equivalents to the holders of any Equity Interests,
or any distribution or payment to any officer, employee or director of the
Borrower or the Company, other than reasonable employee compensation.
"DOLLAR(S)" and the sign "$" shall mean lawful currency of the United
States of America.
"EFFECTIVE DATE" shall mean the date on which the conditions precedent for
initial Loans under Section 4 hereof have been satisfied and the initial Loan
has been made.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 5.11
hereof.
"ENVIRONMENTAL REPORTS" shall have the same meaning as set forth in the
Bank Boston Credit Agreement and in addition shall include that certain
Environmental Report dated December 16, 1997, prepared by Carlson Environmental,
Inc. with respect to the Indiana Property.
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<PAGE>
"EQUITY INTERESTS" shall mean, collectively, all equity ownership interests
in the Borrower or the Company including, without limitation, the Common Shares,
the Preferred Shares, the Common Units and the Preferred Units.
"EQUITY PROSPECTUS" shall have the same meaning as set forth in the Bank
Boston Credit Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof shall include such sections and
any predecessor and successor provisions thereto.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which, together with Borrower, would be treated as a single
employer under Section 4001(a)(14) of ERISA or IRC Sections 414(b), (c), (m),
(n) or (o), as applicable.
"EURODOLLAR LOAN" shall mean any Loan with respect to which the Borrower
shall have selected an interest rate based on the Libor Rate in accordance with
the provisions of Section 2.5(a) of this Agreement; provided, however, that
there shall not be in excess of four (4) Eurodollar Loans outstanding at any one
time.
"EVENT OF DEFAULT" shall mean the occurrence of any one or more of the
events set forth in Section 10 of this Agreement.
"EXCESS INTEREST" shall have the meaning set forth in Section 2.5(c)
hereof.
"FAIR VALUE" shall mean Borrower's assets and liabilities as determined in
accordance with Generally Accepted Accounting Principles, except that assets
shall be reflected at present fair saleable value and liabilities shall reflect
a complete statement of liabilities, fixed or contingent, direct or indirect,
disputed or undisputed, whether or not required to be reflected on a balance
sheet prepared in accordance with Generally Accepted Accounting Principles.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean for any day, a fluctuating rate
of interest equal for each day during such period to (i) the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day by
the Federal Reserve Bank of New York; or (ii) if such rate is not so published
for any day, the average of the quotations for such day on such transactions
received by Lender from three (3) federal funds brokers of recognized standing
selected by it.
"FISCAL YEAR" shall mean with respect to Borrower, the fiscal accounting
period of Borrower each year ending on December 31 of each calendar year.
"FORMATION TRANSACTIONS" shall have the same meaning as set forth in the
Bank Boston Credit Agreement.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean, with respect to any
date of determination, generally accepted accounting principles as used by the
Financial Accounting Standards Board and/or the American Institute of Certified
Public Accountants consistently applied.
"GUARANTOR SUBSIDIARIES" shall mean the partnerships, limited liability
companies and corporations identified on Schedule 1.1 hereto (including, without
limitation, Mortgagor), and any other partnerships, limited liability companies
or corporations hereafter approved by the Lender which are at least 99% owned by
Borrower and which execute and deliver a Subsidiary Guaranty in favor of the
Lender.
"HAZARDOUS MATERIALS" shall have the meaning set forth in Section 5.11
hereof.
"INDEBTEDNESS" shall have the same meaning as set forth in the Bank Boston
Credit Agreement.
"INDEMNIFIED PERSONS" shall have the meaning set forth in Section 16
hereof.
"INDIANA PROPERTY" shall mean that certain tract of real property owned by
Mortgagor consisting of approximately 31 acres, together with the warehouse
building comprised of approximately 450,000 square feet and all other
improvements located thereon, located at 475 Superior Avenue, Munster, Indiana.
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"INDIANA PROPERTY LEASE" shall mean that certain lease for the Indiana
Property dated May 1, 1988 between Mortgagor, as landlord, and General Electric
Company, as tenant.
"INSOLVENCY PROCEEDING" shall mean, with respect to any Person, any
proceeding commenced by or against such Person, under any provision of the
United States Bankruptcy Code, as amended, or under any other bankruptcy,
reorganization or insolvency law, or any assignment for the benefit of
creditors, formal or informal moratorium, compositions or extensions with some
or all creditors of such Person.
"INTEREST PERIOD" shall mean: (i) as to any Eurodollar Loan, the period
commencing on the date of such Eurodollar Loan and ending on the date thereafter
selected by the Borrower, not to exceed in any event 180 days, and (ii) as to
any Reference Rate Loan, the period commencing on the date of such Reference
Rate Loan and ending on the earlier of (A) the last Business Day of each
calendar month, and (B) the expiration or earlier termination of this Agreement;
provided, however, that (i) if any Interest Period would end on a day that shall
not be a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, (ii) no Interest Period with respect to any Loan shall
end later than the Termination Date, and (iii) interest shall accrue from and
including the first day of an Interest Period to and excluding the last day of
such Interest Period.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and all
references to sections thereof shall include such sections and any predecessor
and successor provisions thereto.
"JUDICIAL OFFICER OR ASSIGNEE" shall mean any trustee, receiver,
controller, custodian, assignee for the benefit of creditors or any other Person
or entity having powers or duties like or similar to the powers and duties of a
trustee, receiver, controller, custodian, or assignee for the benefit of
creditors.
"LAWS" shall mean all ordinances, statutes, rules, regulations, codes,
orders, injunctions, writs or decrees of any government, whether federal, state,
municipal or local, of any political subdivision or agency thereof, or of any
court, board or similar entity established by any of the foregoing having
jurisdiction over the property, assets, business or operations of a Person.
"LENDER" shall mean LaSalle National Bank, a national banking association,
together with its successors and assigns.
"LIBOR RATE" shall mean, with respect to any Eurodollar Loan for any
Interest Period, the interest rate per annum equal to the quotient obtained by
dividing (x) the rate of interest determined by Lender to be the average of the
rate per annum at which deposits in U.S. dollars are generally offered in the
London Interbank Bank at 11:00 A.M. London time, two (2) Business Days before
the first day of such Interest Period, for a period equal to such Interest
Period and in the amount of the applicable Eurodollar Loan, by (y) the
difference between one hundred percent (100%) and any applicable reserve
requirements (rounded upward to the nearest whole multiple of one hundredth
(1/100) of one percent (1%) per annum), including, without limitation, any
statutory maximum requirement for Lender to hold reserves for "Eurocurrency
Liabilities" under Regulation D of the Board of Governors of the Federal Reserve
System (or any similar reserves under any successor regulation or regulations).
"LIEN" shall have the same meaning as set forth in the Bank Boston Credit
Agreement.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Security
Documents, the Subsidiary Guaranty, and all other agreements, documents and
instruments now or hereafter evidencing, securing or otherwise relating to the
Loans.
"LOANS" shall have the meaning set forth in Section 2.1 hereof.
"LOSSES" shall have the meaning set forth in Section 16 hereof.
"MAJOR LEASE" shall mean with respect to the Indiana Property, any lease
(including, without limitation, the Indiana Property Lease) of 100,000 square
feet or more, and any guaranty of the tenant's obligations under any such lease.
"MAJOR TENANTS" shall mean as to any Major Lease, those tenants that are
parties to that Major Lease and any guarantors of those tenant's obligations
thereunder.
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"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i) any
of the Mortgaged Properties, (ii) the business, result of operations or
financial condition of the Borrower, the Company, and the Related Companies
taken as a whole, (iii) the ability of the Borrower, the Company, Mortgagor, or
any other of the Guarantor Subsidiaries to perform their obligations under the
Loan Documents, or (iv) the validity or enforceability of any of the Loan
Documents or the remedies or material rights of the Lender thereunder.
"MAXIMUM FACILITY" shall mean $15,000,000.
"MORTGAGE" shall mean that certain Mortgage, Assignment of Leases and
Rents, Security Agreement and Financing Statement dated as of January 28, 1998
as amended from time to time delivered by Mortgagor to Lender pursuant to which
the Mortgagor shall convey the Indiana Property as security for the Obligations.
"MORTGAGED PROPERTIES" shall have the same meaning as set forth in the Bank
Boston Credit Agreement, and in addition, shall be deemed to include, without
limitation, the Indiana Property.
"MORTGAGOR" shall mean 475 Superior Avenue, L.L.C., a Delaware limited
liability company, which is 100% owned by the Borrower.
"MULTIEMPLOYER PLAN" shall mean a plan described in Section 4001(a)(3) of
ERISA which covers employees of Borrower or any ERISA Affiliate.
"NET OFFERING PROCEEDS" shall mean all net cash proceeds received after the
date hereof by the Borrower or the Company as a result of the sale of common,
preferred or other classes of stock of the Company or the issuance of limited
partnership interests in the Borrower after deducting customary costs and
discounts of issuance paid by the Company or Borrower in connection therewith.
"NOTE" shall mean the Revolving Loan Note dated as of January 28, 1998
attached hereto as Exhibit A, as amended from time to time.
"OBLIGATIONS" shall mean all loans, advances, overdrafts, debts,
liabilities (including without limitation any and all amounts charged to
Borrower's account pursuant to any agreement authorizing Lender to charge
Borrower's Loan Account), obligations, covenants, lease payments, guarantees and
duties owing by Borrower to Lender of any kind or description (whether advanced
pursuant to or evidenced by this Agreement, by the Note, or by any other Loan
Document), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising (or otherwise as a result of a payment
made by Lender on behalf of Borrower as permitted under this Agreement or any
other Loan Documents) and further including without limitation all interest, all
Out-of-Pocket Fees and Costs which Borrower is required to pay or reimburse by
this Agreement or any other Loan Document, by law or otherwise.
"OUT-OF-POCKET FEES AND COSTS" shall have the meaning set forth in Section
2.6(b) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
agency.
"PARTICIPANT" shall mean any Person now or from time to time hereafter
participating with the Lender in any of the Loans made or issued by the Lender
to Borrower pursuant to this Agreement.
"PERMITTED ACQUISITIONS" shall have the same meaning as set forth in the
Bank Boston Credit Agreement.
"PERMITTED DEVELOPMENTS" shall have the same meaning as set forth in the
Bank Boston Credit Agreement.
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity or governmental entity.
"POTENTIAL DEFAULT" shall mean any event which through the passage of time,
service of notice or both, would mature into an Event of Default.
"PREFERRED SHARES" shall have the same meaning as set forth in the Bank
Boston Credit Agreement.
"PREFERRED UNITS" shall have the same meaning as set forth in the
Bank Boston Credit Agreement.
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"PROHIBITED TRANSACTION" shall mean any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Sections 4975(c)(2) or (d) of the IRC, and which could result in any
excise tax, fine, penalty or other liability being imposed on Borrower.
"RATE" shall have the meaning set forth in Section 2.5(a) hereof.
"REAL ESTATE" shall have the same meaning as set forth in the Bank Boston
Credit Agreement, and in addition shall be deemed to include, without
limitation, the Indiana Property.
"REAL ESTATE ASSETS" shall have the same meaning as set forth in the Bank
Boston Credit Agreement, and in addition shall be deemed to include, without
limitation, the Indiana Property.
"REFERENCE RATE" shall mean the greater of (i) the variable per annum rate
of interest announced from time to time by LaSalle at its corporate headquarters
in Chicago, Illinois, as its Prime Rate or equivalent rate, or (ii) the Federal
Funds Effective Rate in effect from time to time, plus one-half of one percent
(.50%) per annum. The "Prime Rate" is one of LaSalle's index rates and merely
serves as a basis under which effective rates of interest are calculated for
loans making reference thereto and may not be the lowest or best rate at which
LaSalle calculates interest or extends credit.
"REFERENCE RATE LOAN" shall mean any Loan with respect to which Borrower
shall have selected an interest rate based upon the Reference Rate in accordance
with the provisions of Section 2.5(a) of this Agreement.
"REGULATORY AGENCIES" shall mean any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
commission, department or instrumentality thereof, or any court.
"RELATED COMPANIES" shall have the same meaning as set forth in the Bank
Boston Credit Agreement.
"RELEASE" shall have the meaning set forth in Section 5.11 hereof.
"REPORTABLE EVENT" shall mean a reportable event described in Section 4043
of ERISA or the regulations thereunder, for which the thirty (30) day notice
requirement has not been waived.
"SECURITY DOCUMENTS" shall mean the Mortgage, Assignment of Leases and
Rents and all other documents granting or evidencing security interests in the
Indiana Property or any portion thereof to secure the Obligations.
"SUBSIDIARY" shall mean any corporation, partnership, limited liability
company, association, trust or other business entity of which the designated
parent or other controlling Person shall at any time own, directly or
indirectly, through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Interests.
"SUBSIDIARY GUARANTY" shall mean that certain Guaranty of Payment and
Performance dated as of January 28, 1998 made and delivered by each of the
Guarantor Subsidiaries in favor of the Lender, as modified by that certain First
Amendment to Guaranty dated February 17, 1998, and as further modified by that
certain Release and Reaffirmation of Guaranty dated as of the date hereof.
"TERMINATION DATE" shall have the meaning set forth in Section 2.1.
"TOTAL EQUITY CAPITAL" shall mean the Borrower's total equity capital
determined in a manner consistent with that used in preparing Borrower's
consolidated financial statements for its fiscal year ending December 31, 1997.
"UNCURED DEFAULT" shall mean an Event of Default which shall be continuing.
"VOTING INTERESTS" shall have the same meaning as set forth in the Bank
Boston Credit Agreement.
1.2 ACCOUNTING TERMS.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
Generally Accepted Accounting Principles. In the event that changes in Generally
Accepted Accounting Principles shall be mandated by the Financial Accounting
Standards Board and/or the American Institute of Certified Public Accountants or
any similar accounting body of comparable standing, or shall be recommended by
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Borrower's certified public accountants, to the extent that such changes would
modify such accounting terms or the interpretation or computation thereof as
contemplated by this Agreement at the time of execution hereof, then in such
event such changes shall be followed in defining such accounting terms only
after the Borrower and Lender shall have agreed to amend this Agreement to
reflect the original intent of such terms in light of such changes, and such
terms shall continue to be applied and interpreted without such change until
such agreement.
1.3 CERTAIN MATTERS OF CONSTRUCTION.
The terms "herein" "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to cover all genders.
The section titles, table of contents and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any
instruments or agreements, including, without limitation, references to any of
the Loan Documents shall include any and all modifications or amendments thereto
and any and all extensions or renewals thereof. The Recitals to this Agreement
are incorporated into this Agreement in their entirety and deemed to be a part
hereof. Wherever covenants or definitions from the Bank Boston Credit Agreement
are incorporated and/or restated in this Agreement, any defined terms or
references to sections or schedules or exhibits in such covenants or definitions
shall have the same meaning as ascribed to such defined terms in the Bank Boston
Credit Agreement and shall be deemed to be references to such sections,
schedules or exhibits of the Bank Boston Credit Agreement.
2. LOANS; FEES; TERMS OF PAYMENT.
2.1 REVOLVING CREDIT FACILITY.
Subject to the terms and provisions of this Agreement including without
limitation, that no Event of Default or Potential Default has occurred and all
other conditions precedent to lending under Section 4 hereof have been
satisfied, upon the request of Borrower, made at any time and from time to time
prior to January 31, 1999 (the "Termination Date"), the Lender agrees to make
loans and advances (hereinafter individually referred to as a "Loan" and
collectively as the "Loans") to Borrower from time to time so long as the
aggregate amount of the Revolving Loans outstanding at any time does not exceed
the Maximum Facility.
The Loans shall be evidenced by, and repayable in accordance with the Note.
2.2 BORROWING PROCEDURES.
Lender shall have received, on or before 11:00 a.m. Chicago time, one (1)
Business Day prior to the date a Loan is to be made, if a Reference Rate Loan,
or three (3) Business Days prior to the date a Loan is to be made, if a
Eurodollar Loan, (i) an oral request from Borrower for a Loan in a specific
amount (and a request in writing, which shall be delivered to Lender on the same
Business Day, executed by an Authorized Representation of Borrower), (ii)
designation whether the Loan is to be a Eurodollar Loan or a Reference Rate
Loan, and if such Loan is to be a Eurodollar Loan, the Interest Period or
Interest Periods with respect thereto, and (iii) copies of all other documents
which the Borrower is required to deliver to Lender hereunder. If such request
for a Loan is received by Lender one (1) business day before the day a Reference
Rate Loan is to be made or three (3) Business Days prior to the date a
Eurodollar Loan is to be made, subject to the other terms and conditions of this
Agreement, Lender will make such Loan on the applicable day on which such Loan
is to be funded hereunder, subject to any delays beyond Lender's reasonable
control, provided that Lender shall not be liable for any damages or liabilities
for the failure to so make any Loan on the day requested unless such failure was
due to Lender's gross negligence or wilful misconduct. If no election as to the
type of Loan is specified in any such notice by Borrower, then such Loan shall
be a Reference Rate Loan. If no Interest Period is specified with respect to a
Eurodollar Loan in such notice, then Borrower shall be deemed to have selected
an Interest Period of one month's duration. Each request for a Reference Rate
Loan shall be in a minimum amount of $100,000. Notwithstanding anything
contained in this Agreement to the contrary, Borrower may not have more than
four (4) Eurodollar Loans outstanding at any one time, and each request for a
Eurodollar Loan shall be in a minimum initial increment of $100,000.
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2.3 PAYMENTS AND PREPAYMENTS.
(a) Notwithstanding anything to the contrary set forth in this Agreement,
each Loan shall be due and payable on the earlier of (i) 180 days
after the Lender's funding thereof, or (ii) the Termination Date.
Borrower shall make each payment in respect of the principal of and
interest on the Loans and any other payments due under this Agreement
not later than 12:00 p.m. Chicago time on the day when due, in
Dollars, to the Lender at the Lender's office in Chicago, Illinois in
immediately available funds.
(b) After the occurrence of an Event of Default resulting from failure to
pay any Obligations hereunder, Lender may (but shall not be obligated
to) debit the amount of any such payment which is not made by such
time to any ordinary deposit account of Borrower with Lender and shall
give notice thereof to the Borrower, provided the failure to give such
notice does not affect the validity of such debit.
(c) Borrower shall, at the time of making such payment under this
Agreement or the Note, specify to the Lender the Loans or other
amounts payable by Borrower hereunder to which such payment is to be
applied. Absent receipt of such notice from the Borrower, the Lender
may apply any payments received from the Borrower in any order or
priority determined by the Lender in its sole discretion.
(d) Each payment received by the Lender under this Agreement or the Note
shall be deemed paid to Lender on the same Business Day of receipt by
Lender if received by 1:00 p.m. Chicago time, or otherwise on the next
successive Business Day, at the office of the Lender.
(e) Except as otherwise provided in Section 2.10 hereof, any prepayment of
the Obligations by Borrower shall be without premium or penalty, other
than the imposition of the Default Rate of interest, where applicable.
(f) The Lender shall render monthly statements of the Obligations owing by
Borrower to the Lender, including statements of all principal,
interest, and Out-of-Pocket Fees and Costs owing, and such statements
shall be prima facie evidence to be correct and accurate and
constitute an account stated between the Borrower and the Lender
unless, within thirty (30) days after receipt thereof by the Borrower,
the Borrower shall deliver to the Lender, at the Lender's place of
business indicated in Section 14 hereof, written objection thereto
specifying the error or errors, if any, contained in any such
statement. Any balance credited to the Borrower's account, less monies
remitted, paid or otherwise advanced by the Lender to or for the
Borrower's account, and less any other sums due to the Lender as
provided in this Agreement, shall be remitted to the Borrower when all
Obligations owed by the Borrower to the Lender have been paid in full.
2.4 INTENTIONALLY DELETED.
2.5 INTEREST.
(a) All Obligations owed by the Borrower to Lender (except for Eurodollar
Loans and those Obligations evidenced by a promissory note other than
the Note, or covered by any other Section of this Agreement or other
agreement which specifically provides for a rate of interest different
from that provided for herein) shall bear interest, on the unpaid
principal balance thereof, at a rate per annum (computed on the basis
of the actual number of days elapsed over a 360 day year) (the "Rate")
equal to the Reference Rate, payable monthly in arrears on the first
Business Day of each calendar month.
Each Eurodollar Loan shall bear interest on the unpaid principal
balance thereof at a rate per annum (computed on the basis of the
actual number of days elapsed over a 360-day year) equal to the Libor
Rate for the Interest Period in effect for such Loan, plus 1.95%.
Interest on Eurodollar Loans shall be payable in arrears on the
earlier of (i) last day of each calendar month during the applicable
Interest Period, or (ii) on the last day of such Interest Period.
In addition to calculations of the Rate as provided above, in the
event that the Reference Rate announced is, from time to time
hereafter, changed, adjustment in the Rate shall be made on the
effective date of such change in the Reference Rate. The Rate, as
adjusted, shall apply to all Obligations (except as provided above
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with respect to Eurodollar Loans or where otherwise specifically
provided) owed on the date following the date on which the adjustment
is made and shall continue to apply to such Obligations owed during
succeeding months until the Reference Rate is adjusted again. Lender
shall use reasonable efforts to notify Borrower of each change in the
Reference Rate as soon as practicable, but Borrower's obligation to
pay all interest at the Rate and Default Rate as provided in this
Agreement shall not be affected by, nor shall Lender have any
liability for, any failure to so notify Borrower.
(b) Notwithstanding the foregoing, the Obligations shall bear interest,
from and after the occurrence of an Event of Default and for so long
as an Event of Default shall be an Uncured Default and without
constituting a waiver of any such Event of Default, on the balances
owing from time to time, at a rate per annum equal to four (4)
percentage points above the Rate (the "Default Rate"), payable on
demand. In addition, the Borrower shall pay to the Lender a late
charge equal to three (3) percent of any amount of principal and/or
interest and/or charges on the Loans which is not paid within ten (10)
days of the date when due.
(c) It is the intention of Lender and Borrower to comply with the laws of
the State of Illinois, and notwithstanding any provision to the
contrary contained herein or in the other Loan Documents, Borrower
shall not be required to pay, and Lender shall not be permitted to
collect, any amount in excess of the maximum amount of interest
permitted by applicable law ("Excess Interest"). If any Excess
Interest is provided for or determined to have been provided for by a
court of competent jurisdiction in this Agreement or in any of the
other Loan Documents, then in such event (i) the provisions of this
Section shall govern and control; (ii) Borrower shall not be obligated
to pay any Excess Interest; (iii) any Excess Interest that Lender may
have received hereunder shall be, at Lender's option, (A) applied as a
credit against either the outstanding principal balance of the Loans
or accrued and unpaid interest hereon, (B) refunded to the payor
thereof, or (C) any combination of the foregoing; (iv) the interest
rate(s) provided for herein shall be automatically reduced to the
maximum rate allowed under applicable law, and this Agreement and the
other Loan Documents shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction; and (v) Borrower
shall not have any action against Lender for any damages arising out
of the payment or collection of any Excess Interest. Notwithstanding
the foregoing, if any interest payment or other charge or fee payable
hereunder or under any of the other Loan Documents exceeds the maximum
amount then permitted by applicable law, then to the extent permitted
by law, Borrower shall be obligated to pay the maximum amount then
permitted by applicable law and Borrower shall continue to pay the
maximum amount from time to time permitted by applicable law until all
such interest payments and other charges and fees otherwise due
hereunder or under any of the other Loan Documents (in the absence of
such restraint imposed by applicable law) have been paid in full.
(d) Lender may, upon notice to Borrower, at its option, charge any
interest and fees payable hereunder or under any of the other Loan
Documents to Borrower's Loan Account, and any amounts so charged shall
thereupon constitute Obligations hereunder and shall thereafter accrue
interest as provided for in this Agreement.
2.6 FEES.
In consideration of Lender' establishing the Maximum Facility hereunder and
making of the Loans hereunder, Borrower shall pay to the Lender, the following
fees and charges:
(a) A facility fee equal to $82,500.00, previous receipt of which is
acknowledged by Lender.
(b) All reasonable out-of-pocket fees, costs and expenses ("Out-of-Pocket
Fees and Costs"), incurred by Lender in connection with (i) any bank
charges in connection with opening and maintaining and transferring
funds from any depository account and depositing funds for collection
by Lender on account of the Obligations; (ii) wire transfer fees in
connection with Lender's forwarding to Borrower the proceeds of Loans
hereunder; (iii) photocopying and other mechanical or electronic
reproduction expenses in connection with Lender's rights of inspection
under this Agreement or any other Loan Document or in connection with
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any service utilized by Lender to perform such functions; (iv)
expenses in connection with the documentation, negotiation and closing
of the Loans, including without limitation title insurance charges and
escrow fees (including any and all amendments or waivers with respect
hereto), (v) the fees, costs and expenses for attorneys and paralegals
(A) incurred by Lender in connection with the documentation,
negotiation and Closing of the Loans described herein, or incurred by
Lender in connection with any and all amendments or waivers with
respect thereto entered into at or after the Closing of the Loans, and
the enforcement of Lender's rights hereunder and under the other Loan
Documents, (B) incurred by the Lender in connection with any suit by
or involving the Lender in enforcing or defending this Agreement or
any portion hereof, including without limitation, attorneys' and
paralegals' fees and costs incurred in connection with appellate
proceedings in any appeals court, and (C) incurred by the Lender
obtaining advice and legal services with respect to drafting,
negotiating, amending, restating, restructuring, terminating,
enforcing or defending this Agreement, or any portion hereof or any of
the other Loan Documents, whether or not suit is brought. All such
Out-of-Pocket Fees and Costs shall be part of the Obligations, payable
on demand.
2.7 PAYMENT DATES.
Any payment due under this Agreement on any day other than a Business Day
shall be due on the next succeeding Business Day, and such payment shall bear
interest in accordance herewith until actually received.
2.8 INTENTIONALLY DELETED.
2.9 RENEWALS; CONVERSION AND CONTINUATION OF LOANS.
(a) Upon maturity of any Eurodollar Loan, the Borrower may renew all or
any part of any Eurodollar Loan to it from Lender with a Loan of the
same or a different type from Lender, subject to the conditions and
limitations set forth herein and elsewhere in this Agreement. Any
Eurodollar Loan or part thereof so renewed shall be deemed to be
repaid in accordance with this Section 2 with the proceeds of a new
borrowing hereunder and the proceeds of the new Loan, to the extent
such proceeds do not exceed the principal amount of the Eurodollar
Loan being renewed, shall not be paid by the Lender to Borrower.
Nothing in this Section 2.9(a) shall be deemed a limitation on the
Borrower's obligations under Section 2.3(a) above.
(b) The Borrower shall have the right at any time, upon notice to the
Lender given in the manner and at the times specified in this
Agreement with respect to the Loans into which conversion or
continuation is to be made, to convert its Eurodollar Loans into
Reference Rate Loans, to convert its Reference Rate Loans into
Eurodollar Loans (specifying the Interest Period to be applicable
thereto), to convert the Interest Period applicable to any of its
Eurodollar Loans to another permissible Interest Period, and to
continue any of its Eurodollar Loans into a subsequent Interest Period
of any permissible duration, subject to the terms and conditions of
this Agreement, and to the following:
(i) each conversion shall be effected by Lender by applying the
proceeds of the new Reference Rate Loan or Eurodollar Loan, as
the case may be, to the Reference Rate Loan or Eurodollar Loan
(or portion thereof) being converted; accrued interest on a Loan
(or portion thereof) being converted or continued shall be paid
by the Borrower at the time of conversion or continuation; and
(ii) If any Eurodollar Loan is converted at any time other than the
end of an Interest Period applicable thereto, the Borrower shall
make such payments associated therewith as are required pursuant
to Section 2.10 at the time such Eurodollar Loan shall be
converted to a Reference Rate Loan.
The Interest Period applicable to any Eurodollar Loan resulting from a
conversion or continuation shall be specified by the Borrower in the notice of
conversion or continuation delivered pursuant to this provided, however, that if
no such Interest Period shall be specified, the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
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2.10 INDEMNITY.
The Borrower shall indemnify the Lender against any loss, fee, claim,
damage, liability or expense which the Lender may sustain or incur as a
consequence of (i) any failure by the Borrower to fulfill on the date of any
borrowing of a Eurodollar Loan hereunder the applicable conditions set forth in
this Agreement, (ii) any failure by the Borrower to borrow hereunder after
notice of borrowing pursuant to this Agreement has been given, (iii) any
payment, prepayment or conversion of a Eurodollar Loan required by any provision
of this Agreement, or otherwise made on a date other than the last day of the
applicable Interest Period, or (iv) the occurrence of any Event of Default,
including, but not limited to, any loss or expense sustained or incurred or to
be sustained or incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a Eurodollar
Loan. Such loss or expense shall include, without limitation, an amount equal to
the excess, if any, as reasonably determined by the Lender of its cost of
obtaining the funds for the Eurodollar Loan being paid, prepaid or converted or
not borrowed (based on the Libor Rate applicable thereto) for the period from
the date of such payment, prepayment or conversion or failure to borrow to the
last day of the Interest Period for such Eurodollar Loan (or, in the case of a
failure to borrow, the Interest Period for such Eurodollar Loan which would have
commenced on the date of such failure to borrow) over the amount of interest (as
reasonably determined by the Lender) that could be realized by the Lender in
re-employing during such period the funds so paid, prepaid or converted or not
borrowed. A certificate of the Lender setting forth any amount or amounts which
the Lender is entitled to receive pursuant to this Section 2.10 shall be
conclusive absent manifest error.
2.11 CHANGE IN LEGALITY.
(a) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by
any governmental authority charged with the administration or
interpretation thereof shall make it unlawful for the Lender to make
or maintain any Eurodollar Loan or to give effect to its obligations
as contemplated hereby (an "Illegality"), or if the Lender determines
that maintenance of Eurodollar Loans would cause the Lender to
implement or modify any reserve, special deposit or assessment or
other requirement, or impose any other condition on the Lender
affecting the Loans (each of the foregoing circumstances called a
"Regulatory Action"), then, by written notice to the Borrower, the
Lender shall:
(i) declare that Eurodollar Loans will not thereafter be made by the
Lender hereunder, whereupon the Borrower shall be prohibited from
requesting Eurodollar Loans from the Lender hereunder unless such
declaration is subsequently withdrawn; provided, however, that if
after the date of any such declaration there shall occur any
change in law or regulation or in the interpretation thereof by
any government authority charged with the administration or
interpretation thereof that shall eliminate such Illegality, the
Lender shall as promptly as reasonably practicable notify the
Borrower of such occurrence and withdraw such declaration; and
(ii) require that all outstanding Eurodollar Loans made by the Lender
be converted to Reference Rate Loans, in which event (1) all such
Eurodollar Loans shall be automatically converted to Reference
Rate Loans as of the effective date of such notice as provided in
paragraph (b) below and, (2) all payments and prepayments of
principal which would otherwise have been applied to repay the
converted Eurodollar Loans shall instead be applied to repay the
Reference Rate Loans resulting from the conversion of such
Eurodollar Loans.
(b) for purposes of this Section 2.11 a notice to the Borrower by the
Lender pursuant to paragraph (a) above shall be effective on the date
of receipt by the Borrower.
2.12 UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN, OR INADEQUACY OF
LIBOR RATE.
If on or prior to the first day of any Interest Period for any Borrowing of
Eurodollar Loans, the Lender advises the Borrower that deposits in United States
Dollars (in the applicable amounts) are not being offered to it in the off-shore
U.S. Dollar interbank market for such Interest Period, whereupon until the
Lender notifies the Borrower that the circumstances giving rise to such
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suspension no longer exist, the obligations of the Lender to make Eurodollar
Loans shall be suspended without liability to the Lender.
2.13 INCREASED COST AND REDUCED RETURN.
(a) If on or after the date hereof, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender
with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject the Lender to any tax, duty or other charge with
respect to its Eurodollar Loans, its Note or its obligation to
make Eurodollar Loans, or shall change the basis of taxation of
payments to the Lender of the principal of or interest on its
Eurodollar Loans or any other amounts due under this Agreement in
respect of its Eurodollar Loans or its obligation to make
Eurodollar Loans (except for changes in the rate of tax on the
overall net income of the Lender imposed by the jurisdiction in
which the Lender's principal executive office is located);
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the
Federal Reserve System, against assets of, deposits with or for
the account of, or credit extended by, the Lender or shall impose
on the Lender or on the interbank market any other condition
affecting its Eurodollar Loans, its Note or its obligation to
make Eurodollar Loans; or
(iii)shall impose on the Lender any other condition affecting the
Loans;
and the result of any of the foregoing is to increase the cost to the Lender of
making or maintaining any Eurodollar Loan, or to reduce the amount of any sum
received or receivable by the Lender under this Agreement or under its Note with
respect thereto, by an amount deemed reasonably and in good faith by the Lender
to be material, then, Borrower shall, within fifteen (15) days after demand by
the Lender, be obligated to pay the Lender such additional amount or amounts as
will compensate the Lender for such increased cost or reduction (computed
commencing on the effective date of any event mentioned herein). The Lender
agrees to use its best efforts to give the Borrower notice of the occurrence of
any event mentioned herein. In addition, the Lender may, upon notice to the
Borrower, elect to increase the interest rate applicable to all Eurodollar Loans
made subsequent thereto, to compensate the Lender for such increased cost or
reduced yield.
2.14 DISCRETION OF THE LENDER AS TO MANNER OF FUNDING.
Notwithstanding any other provision of this Agreement, the Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if the Lender had
actually funded and maintained each Eurodollar Loan through the purchase of
deposits in the interbank market having a maturity corresponding to such
Eurodollar Loan's Interest Period and bearing an interest rate equal to the
Libor Rate for such Interest Period.
3. TERM OF THIS AGREEMENT; PREPAYMENTS; COLLATERAL SECURITY
3.1 TERM.
(a) This Agreement shall have a term commencing on the Effective Date and
expiring on the Termination Date.
(b) Notwithstanding the foregoing, upon the occurrence of an Event of
Default, the Lender may, in accordance with Section 11 of this
Agreement, terminate this Agreement, except that this Agreement shall
terminate automatically upon an Event of Default under Section 10.5 or
10.6.
(c) On the date of termination or expiration of this Agreement, all
Obligations owed by the Borrower shall become immediately due and
payable without notice or demand and shall be repaid in cash or by a
wire transfer of immediately available funds and the Lender's
Commitment shall terminate.
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3.2 PREPAYMENT; TERMINATION.
The Borrower may borrow, repay and reborrow Loans subject to the terms of
this Agreement. Subject to the terms of Section 2.10 of this Agreement and this
Section 3.2, Borrower may, at any time, on five (5) days written notice prior to
the end of any month, prepay in full the Loans and terminate this Agreement by
paying to the Lender, in cash or by a wire transfer of immediately available
funds, the Obligations. The Borrower may, at any time, on five (5) day's written
notice prior to the end of any month, elect to reduce the Maximum Facility in
increments of not less than $1,000,000. Upon receipt by the Lender of such
notice, the Maximum Facility shall be reduced by the requested increment
effective the first day of the month following the expiration of the notice
period. Notwithstanding any of the foregoing, the Lender shall not be obligated
to refund any portion of the facility fee described in Section 2.6(a) in the
event the Maximum Facility Amount is reduced as set forth in this Section 3.2.
3.3 MANDATORY PREPAYMENT.
In the event that at any time before the termination of this Agreement and
the repayment of all Obligations hereunder there exist any Net Offering
Proceeds, then subject to the terms of Section 2.10 of this Agreement and this
Section 3.3: (a) Borrower and Company shall, within two (2) business days after
receipt of any Net Offering Proceeds, prepay the Loans and any outstanding
Obligations to the extent of such Net Offering Proceeds; and (b) the Maximum
Facility Amount shall be permanently reduced dollar for dollar by the amount of
any Net Offering Proceeds, effective immediately upon receipt of same by
Borrower or Company. Notwithstanding any of the foregoing, the Lender shall not
be obligated to refund any portion of the facility fee described in Section
2.6(a) in the event the Maximum Facility Amount is reduced as set forth in this
Section 3.3.
3.4 COLLATERAL SECURITY.
The Obligations shall be secured by (i) a perfected first priority lien and
security interest to be held by Lender in the Indiana Property and Indiana
Property Lease, pursuant to the terms of the Mortgage, Assignment of Leases and
Rents and other Security Documents, and (ii) the Subsidiary Guaranty.
Notwithstanding the foregoing collateral, the Obligations are full recourse
obligations of the Borrower (with recourse to its partners limited to the extent
provided in Section 19 below) and, to the extent provided in the Subsidiary
Guaranty, of the Guarantor Subsidiaries.
4. CONDITIONS PRECEDENT
4.1 CLOSING; CONDITIONS TO INITIAL LOAN AND CLOSING.
The initial Loan shall be made upon the Effective Date hereunder at the
offices of the Lender's counsel ("Closing"). In addition to those conditions set
forth hereunder with respect to all Loans hereunder, prior to or
contemporaneously with the making of the initial Loan hereunder, the Lender
shall be satisfied that all of the following conditions precedent shall have
been satisfied in a manner satisfactory to the Lender.
(a) No Material Adverse Change.
There shall have been (as determined by the Lender in its sole
discretion) (i) no Material Adverse Change since September 30, 1997
which has occurred in the operations (financial or otherwise) of the
Borrower, Company or their Subsidiaries, and (ii) no material
litigation or claims that have occurred which would have a Material
Adverse Effect.
(b) Required Documents.
The Lender shall have received all of the following documents, each in
form and substance satisfactory to the Lender and its counsel, duly
executed and dated the Effective Date (or such other date prior
thereto as shall be satisfactory to the Lender):
(i) Agreement. Multiple copies of this Agreement as requested by the
Lender.
(ii) Note. The Note payable to the Lender.
(iii)Subsidiary Guaranty. The Subsidiary Guaranty executed and
delivered by the Guarantor Subsidiaries.
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(iv) Mortgage, Assignment of Leases and Rents and other Security
Documents executed and delivered by Mortgagor.
(v) Initial Draw Request. A written request for the initial Loan from
the Borrower in form and substance reasonably acceptable to the
Lender, with such supporting documentation as the Lender may
request in its sole discretion.
(vi) Certified Copies of Organizational Documents; Good Standing
Certificates. (a) A Certificate of the Borrower to which there
shall be attached true, correct and complete copies of the
Borrower's Limited Partnership Agreement and its Certificate of
Limited Partnership, certified as of a recent date by the
Secretary of State for the State of Delaware, (b) Certificates of
Good Standing for the Borrower from the Secretary of State for
the State of Delaware and each State in which the Borrower is
qualified to do business as a foreign limited partnership, (c) a
copy of the Company's Declaration of Trust certified by the
Maryland Secretary of State, (d) Certificates of Good Standing
for the Company from the State of Maryland and each State in
which the Company is qualified to do business as a foreign trust,
and (e) certificates of good standing and certified copies of the
partnership agreements, certificates of limited partnership,
Articles of Incorporation and By-Laws and/or Articles of
organization and operating agreements with respect to each of the
Guarantor Subsidiaries, including without limitation, the
Mortgagor.
(vii)Authority. All action on the part of the Borrower and the
Company necessary for the valid execution, delivery and
performance by the Borrower, the Company and each of the
Guarantor Subsidiaries, including Mortgagor, of this Agreement
and the other Loan Documents to which it is or is to become a
party shall have been duly and effectively taken, and evidence
thereof satisfactory to the Lender shall have been provided to
the Lender.
(viii)Incumbency Certificate; Authorized Signers. The Lender shall
have received from the Company an incumbency certificate, dated
as of the Effective Date, signed by a duly authorized officer of
the Company and giving the name and bearing a specimen signature
of each individual who shall be authorized: (a) to sign, in the
name and on behalf of the Company (in its own capacity and as
general partner on behalf of the Borrower and on behalf of each
Guarantor Subsidiary which is a partnership or limited liability
company ), each of the Loan Documents to which the Borrower, the
Company or any Guarantor Subsidiary is or is to become a party;
(b) to make loan requests and conversion requests; and (c) to
give notices and to take other action on behalf of the Borrower
under the Loan Documents.
(ix) Legal Opinion. Legal opinions of Winston & Strawn, special
counsel for the Borrower and Company, Maryland counsel, Tennessee
counsel and Indiana counsel.
(x) Officer's Certificate. A certificate executed by the chief
executive officer or chief financial officer of the Company, as
general partner on behalf of the Borrower in his capacity as a
corporate officer, stating that to the best knowledge of such
officer after diligent inquiry and investigation no Event of
Default or Potential Default has occurred and is continuing.
(xi) The Lender shall have received the facility fee pursuant to
Section 2.6(a) hereof.
(xii)The Borrower shall deliver to Lender a copy of all "Loan
Documents" (as defined in the Bank Boston Credit Agreement)
delivered by the Borrower, the Company and the Guarantor
Subsidiaries in connection with the Bank Boston Credit Agreement
which are requested by the Lender.
(xiii)Consent of the Agent and Lenders (as such terms are defined in
the Bank Boston Credit Agreement) as may be required under the
Bank Boston Credit Agreement to any matters related to the Loans
and Loan Documents which require consent of the Agent and/or the
Lenders under the Bank Boston Credit Agreement.
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<PAGE>
(xiv)Lender's title insurance policy and a survey regarding the
Indiana Property in form and substance satisfactory to Lender.
(xv) A copy of the Indiana Property Lease, certified as true and
complete by the Borrower.
(xvi)Tenant Estoppel Certificate addressed to Lender, from the tenant
under the Indiana Property Lease, in form and substance
satisfactory to Lender.
(xvii) Reliance letters addressed to Lender for the environmental and
engineering reports regarding the Indiana Property previously
delivered to Lender.
(xviii)Evidence of insurance regarding the Indiana Property naming
Lender as mortgagee and loss payee and otherwise in form
satisfactory to Lender.
(xix)Other. Such other documents as the Lender shall reasonably
request.
(c) Out-of-Pocket Fees and Costs. The Lender shall have received
reimbursement for all Out-of-Pocket Fees and Costs which then have
been paid or accrued by the Lender, and Lender shall advise Borrower
as to the amount of the same.
4.2 CONDITION TO ALL LOANS.
Notwithstanding any other provisions contained in this Agreement, the
making of each Loan provided for in this Agreement shall be conditioned upon the
satisfaction of the matters set forth in this Section 4.2, and each request by
the Borrower for a Loan shall constitute a representation to the Lender that
each such condition set forth below has been met or satisfied.
(a) Warranties and Representations.
All of the warranties and representations contained in this Agreement
or any other Loan Document shall be true and correct in all material
respects on and as of the date of such Loan as if made on such date
and each request for a Loan shall constitute an affirmation by the
Borrower that such warranties and representations are then true and
correct in all material respects.
(b) No Default.
As determined by the Lender in its reasonable discretion, no Potential
Default shall have occurred or will result from such Loan and no Event
of Default shall have occurred which shall be an Uncured Default or
will result from such Loan.
(c) No Litigation.
(i) Except as set forth on Schedule 5.7 no litigation, investigation
or proceeding before any court or other governmental authority shall
be pending or threatened against the Borrower, the Company or any of
their respective Subsidiaries, including Mortgagor, or any officer,
director, or employee of the Borrower, the Company or any of their
respective Subsidiaries, including Mortgagor, which, in the reasonable
opinion of the Lender, is likely to have a Material Adverse Effect;
and (ii) no injunction, writ, restraining order, judgment, decree, or
other order of any nature which could reasonably have a Material
Adverse Effect shall have been issued or threatened by any court or
other governmental authority.
(d) Other Requirements and Other Documents.
The Lender shall have received, in form and substance reasonably
satisfactory to Lender, all certificates, orders, authorizations,
consents, affidavits, schedules, instruments and other documents which
are provided for hereunder, or which the Lender may at any time
reasonably request, including, without limitation, an Officer's
Certificate as set forth in Subsection 4.1(b)(x) above.
5. GENERAL CONTINUING WARRANTIES AND REPRESENTATIONS.
As of the Effective Date and as of the date hereof, the Borrower warrants and
represents to Lender as follows, and to the extent that the following warranties
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and representations relate to the Company, the Company represents and warrants
to Lender as follows:
5.1 OFFICE.
The chief executive office or principal place of business of the Borrower
is at the address indicated in Section 14 hereof and the Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to the Lender, relocate such chief executive office or
principal place of business.
5.2 EXISTENCE.
The Borrower is a limited partnership, duly formed and validly existing as
a limited partnership under the laws of the State of Delaware and has all powers
and all material governmental licenses, authorizations, consents and approvals
required to own its property and assets and carry on its business as now
conducted or as it presently proposes to conduct and has been duly qualified and
is in good standing in every jurisdiction in which the failure to be so
qualified and/or in good standing is likely to have a Material Adverse Effect.
Company is a real estate investment trust, duly formed, validly existing and in
good standing as a real estate investment trust under the laws of the State of
Maryland and has all powers and all material governmental licenses,
authorizations, consents and approvals required to own its property and assets
and carry on its business as now conducted or as it presently proposes to
conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect. Mortgagor is a limited liability
company, duly formed and existing as a limited liability company under the laws
of the State of Delaware and has all powers and all material governmental
licenses, authorizations, consents and approvals required to own its property
and assets and carry on its business as now conducted or as it presently
proposes to conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect.
5.3 AUTHORITY.
The Borrower has the partnership power and authority to execute, deliver
and carry out the terms and provisions of each of the Loan Documents to which it
is a party and has taken all necessary partnership action, if any, to authorize
the execution and delivery on behalf of the Borrower and the performance by the
Borrower of such Loan Documents. The Borrower, the Company and the Guarantor
Subsidiaries, including Mortgagor, each have duly executed and delivered each
Loan Document to which it is a party in accordance with the terms of this
Agreement, and each such Loan Document constitutes the legal, valid and binding
obligation of the Borrower, the Company and each Guarantor Subsidiary, including
Mortgagor, enforceable in accordance with its terms, except as enforceability
may be limited by applicable insolvency, bankruptcy or other laws affecting
creditors rights generally, or general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law. The Company
and each Guarantor Subsidiary, including Mortgagor, has the power and authority
to execute, deliver and carry out the terms and provisions of each of the Loan
Documents to which it is a party and has taken all necessary action to authorize
the execution, delivery and performance of such Loan Documents. The Company has
the power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents on behalf of the Borrower to which the
Borrower is a party and has taken all necessary action to authorize the
execution and delivery on behalf of the Borrower and the performance by the
Borrower of such Loan Documents.
5.4 NO BREACH.
(a) Neither the execution, delivery or performance by or on behalf of the
Borrower of the Loan Documents to which it is a party, nor compliance by the
Borrower with the terms and provisions thereof nor the consummation of the
transactions contemplated by the Loan Documents, (i) will contravene any
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality, as applicable to the
Borrower, (ii) will materially conflict 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 the Borrower or any of
its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, or other agreement or other instrument, including, without limitation,
the Bank Boston Credit Agreement, to which the Borrower (or of any partnership
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of which the Borrower is a partner) or any of its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it is subject
(except for such breaches and defaults under loan agreements which the lenders
thereunder have agreed to forbear pursuant to valid forbearance agreements), or
(iii) will cause a default by the Borrower under any organizational document of
any Person in which the Borrower has an interest, or cause a default under the
Borrower's agreement or certificate of limited partnership, the consequences of
which conflict, breach or default would have a Material Adverse Effect, or
result in or require the creation or imposition of any Lien whatsoever upon any
property.
(b) Neither the execution, delivery or performance by the Company or the
Guarantor Subsidiaries (including without limitation, Mortgagor) of the Loan
Documents to which they are a party, nor compliance by the Company or the
Guarantor Subsidiaries with the terms and provisions thereof nor the
consummation of the transactions contemplated by the Loan Documents to which any
of them are a party, (i) will contravene any provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court or governmental
instrumentality, as applicable to the Company or the Guarantor Subsidiaries (ii)
will materially conflict 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 the Company, any Guarantor Subsidiary
or any of their respective Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, or other agreement or other instrument to which the
Company (or of any partnership of which the Company is a partner), any Guarantor
Subsidiary or any of their respective Subsidiaries is a party or by which any of
them or any of their respective property or assets is bound or to which any of
them are subject (except for such breaches and defaults under loan agreements
which the lenders thereunder have agreed to forbear pursuant to valid
forbearance agreements), or (iii) will cause a default by the Company or any
Guarantor Subsidiary under any organizational document of any Person in which
the Company or any Guarantor Subsidiary has an interest, the consequences of
which conflict, breach or default would have a Material Adverse Effect, or
result in or require the creation or imposition of any Lien whatsoever upon any
property.
5.5 SOLVENCY.
On the Effective Date both prior to and after the transactions contemplated
in connection with the Closing, and at all times thereafter, the Fair Value of
the Borrower's assets is and shall be greater than its liabilities; the Borrower
is and shall be able to pay its debts as they mature and the Borrower does not
and will not have an unreasonably small amount of capital. The Borrower has and
at all times hereafter will have sufficient capital to carry on its business and
transactions as now conducted and as planned to be conducted in the future.
5.6 COMPLIANCE WITH LAWS.
The Borrower, the Company and each Guarantor Subsidiary (including without
limitation, Mortgagor) is in compliance in all respects with all applicable
Laws, including without limitation, Laws imposed by any Regulatory Agencies or
other governmental authority, including but not limited to the Securities Act of
1933, the Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or social
security taxes and employee benefit plans (as defined in Section 3(3) of ERISA)
as required by ERISA, except for those laws, rules and regulations the violation
of which would not have a Material Adverse Effect.
5.7 ACTIONS OR PROCEEDINGS.
Except as disclosed on Schedule 5.7, there are no actions or proceedings
pending by or against the Borrower, the Company or any Guarantor Subsidiary
(including without limitation, Mortgagor) before any court, administrative
agency or other governmental entity including, without limitation, any
Regulatory Agency which could have a Material Adverse Effect and the Borrower
and Company have no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving the Borrower, the Company or any Guarantor Subsidiary (including,
without limitation, Mortgagor), or any breaches by the Borrower, Company,
Mortgagor or any other Person of any agreement to which the Borrower, Company,
or Mortgagor is a party, except for actions, proceedings, litigation,
investigations, claims, complaints, actions, prosecutions and breaches that
would not have a Material Adverse Effect.
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5.8 TRADEMARKS, LICENSES, ETC.
Borrower, Company and each Guarantor Subsidiary (including, without
limitation, Mortgagor) owns or possesses rights to use all licenses, patents,
patent applications, copyrights, service marks, trademarks and trade names
required to continue to conduct its business as heretofore or presently
conducted. All such licenses, patents, patent applications, copyright
registrations, service marks, trademarks and trade names are listed on Schedule
5.8. To the best of the Borrower's knowledge, after diligent inquiry, no such
license or trademark has been declared invalid, been limited by order of any
governmental authority or by agreement, or is the subject of any infringement,
interference or similar proceeding or challenge, except for those licenses or
trademarks which if challenged, limited or rendered invalid, would not have a
Material Adverse Effect.
5.9 FINANCIAL STATEMENTS.
All financial statements relating to the Borrower, Company and the
Guarantor Subsidiaries which have been or may hereafter be delivered by the
Borrower to the Lender fairly present the financial condition of the Borrower,
Company and their Subsidiaries and have been prepared in accordance with
Generally Accepted Accounting Principles, subject to year-end adjustments and
the absence of footnotes with respect to interim financial statements, and there
has been no material adverse change in the financial condition of the Borrower,
Company and the Guarantor Subsidiaries (including without limitation,
Mortgagor), either individually or on a consolidated basis, since the submission
of such financial information to the Lender.
5.10 CONDUCT OF BUSINESS.
Since September 30, 1997, except as set forth in the Equity Prospectus or
as set forth in Schedule 5.10, neither the Borrower nor the Company has: (i)
incurred any debts, obligations, or liabilities (absolute, accrued, or
contingent and whether due or to become due) except current liabilities incurred
in the ordinary course of business, none of which (individually or in the
aggregate) materially and adversely affects the business or properties of the
Borrower; (ii) paid any obligation or liability other than current liabilities
in the ordinary course of business, or discharged or satisfied any liens or
encumbrances other than those securing current liabilities, in each case in the
ordinary course of business; (iii) declared or made any payment to or
distribution to its partners as such, or obligated itself to do so; (iv)
mortgaged, pledged, or subjected to any Lien any of its assets (tangible or
intangible); (v) sold, transferred or leased any of its assets except in the
usual and ordinary course of business; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the properties or business of the Borrower; (vii) entered
into any transaction other than in the usual and ordinary course of business and
other than as contemplated hereby; (viii) encountered any labor difficulties or
labor union organizing activities; (ix) issued or sold any securities or granted
any options or similar rights with respect thereto other than pursuant hereto;
or (x) agreed to do any of the foregoing other than pursuant hereto. There has
been no Material Adverse Change in the business, financial condition, operations
or results of operations of either the Borrower or the Company since September
30, 1997.
5.11 ENVIRONMENTAL COMPLIANCE.
The Borrower has delivered to the Lender the Environmental Reports with
respect to the Mortgaged Properties, which are listed on Schedule 5.11. Except
as may be set forth in the Environmental Reports with respect to the Mortgaged
Properties, or as described on Schedule 5.11 or in the Equity Prospectus with
respect to the other Real Estate Assets, Borrower makes the following
representations and warranties:
(a) To the best of Borrower's knowledge, none of the Borrower, the Company,
any of the Guarantor Subsidiaries (including, without limitation, Mortgagor) or
any operator of the Real Estate or any portion thereof, or any operations
thereon is in violation, or alleged material violation, of any judgment, decree,
order, law, license, rule or regulation pertaining to environmental matters,
including without limitation, those arising under the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal
Clean Air Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or the
environment, including, without limitation, the environmental statutes,
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regulations, orders and decrees of the States in which any of the Real Estate
may be located (hereinafter collectively referred to as the "Environmental
Laws"), which violation either involves the Mortgaged Properties, or would have
a Material Adverse Effect.
(b) None of the Borrower, the Company or the Guarantor Subsidiaries
(including, without limitation, Mortgagor) has received written notice from any
third party including, without limitation any federal, state or local
governmental authority with respect to any of the Mortgaged Properties, or with
respect to any other Real Estate if the same would have a Material Adverse
Effect, (i) that it has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C. ss
9601(5), any hazardous substances as defined by 42 U.S.C. ss 9601(14), any
pollutant or contaminant as defined by 42 U.S.C. ss 9601(33) or any toxic
substances, oil or hazardous materials or other chemicals or substances
regulated by any Environmental Laws ("Hazardous Materials") which it has
generated, transported or disposed of have been found at any site at which a
federal, state or local agency or other third party has conducted or has ordered
that the Borrower, the Company or any of the Guarantor Subsidiaries (including,
without limitation, Mortgagor) conduct a remedial investigation, removal or
other response action pursuant to any Environmental Law; or (iii) that it is or
shall be a named party to any claim, action, cause of action, complaint, or
legal or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Materials.
(c) (i) To the best of Borrower's knowledge no portion of the Real Estate
has been used for the handling, processing, storage or disposal of Hazardous
Materials except in material compliance with applicable Environmental Laws; and
no underground tank or other underground storage receptacle for Hazardous
Materials is located on any portion of the Real Estate except in material
compliance with applicable Environmental Laws; (ii) to the best of Borrower's
knowledge, in the course of any activities conducted by the Borrower, the
Company, any of the Guarantor Subsidiaries or the operators of any Real Estate,
any ground or space tenants on any Real Estate, no Hazardous Materials have been
generated or are being used on the Real Estate except in material compliance
with applicable Environmental Laws, which in the case of Real Estate other than
the Mortgaged Properties would have a Material Adverse Effect; (iii) there has
been no present, or to the best of Borrower's knowledge past, releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping (a "Release") or threatened Release of Hazardous
Materials on, upon, into or from the Mortgaged Properties, or the other Real
Estate, which Release in the case of Real Estate other than the Mortgaged
Properties would have a Material Adverse Effect and; (iv) to the best of
Borrower's knowledge, there have been no Releases on, upon, from or into any
real property in the vicinity of any of the Real Estate which, through soil or
groundwater contamination, may have come to be located on, and which would have
a Material Adverse Effect; and (v) notwithstanding that any representation
contained herein may be limited to the knowledge of the Borrower, any such
limitation shall not affect the covenants specified in Section 7.11 or elsewhere
in this Agreement.
5.12 PERMITS AND LICENSES.
To the best of the Borrower's knowledge after diligent inquiry, the
Borrower, the Company and each of the Guarantor Subsidiaries (including without
limitation, Mortgagor) has been and is current and in good standing with respect
to all governmental approvals, permits, certificates, licenses, inspections,
consents and franchises (collectively, the "Licenses") necessary to continue to
conduct its business and to own or lease and operate its properties as
heretofore conducted, owned, leased or operated, except where failure to hold or
maintain such Licenses would not have a Material Adverse Effect.
5.13 ERISA.
To the best of the Borrower's knowledge after diligent inquiry: neither the
Borrower, the Company, any ERISA Affiliate of the Borrower or the Company, nor
any Benefit Plan is in violation in any material respect of any of the
provisions of ERISA or any of the qualification requirements of Section 401(a)
of the IRC; no material Prohibited Transaction or Reportable Event has occurred
with respect to any Benefit Plan, nor has any Benefit Plan been the subject of a
waiver of the minimum funding standard under Section 412 of the IRC; nor has any
Benefit Plan experienced an accumulated funding deficiency under Section 412 of
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the IRC; nor has any lien been imposed upon the Borrower or any ERISA Affiliate
of the Borrower under Section 412(n) of the IRC; nor has any Benefit Plan been
amended in such a way that the security requirements of Section 401(a)(29) of
the IRC apply; no notice of intent to terminate a Benefit Plan has been
distributed to affected parties or filed with the PBGC under Section 4041(c) of
ERISA, nor has any Benefit Plan been terminated under Section 4041(e) of ERISA;
the PBGC has not instituted proceedings to terminate, or appoint a trustee to
administer, a Benefit Plan and no event has occurred or condition exists which
might constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Benefit Plan; neither the
Borrower nor any ERISA Affiliate of the Borrower would be liable for any amount
pursuant to Sections 4062, 4063 or 4064 of ERISA if all Benefit Plans terminated
as of the most recent valuation dates of such Benefit Plans; neither the
Borrower nor any ERISA Affiliate of the Borrower maintains any employee welfare
benefit plan, as defined in Section 3(1) of ERISA, which provides any benefits
to an employee or the employee's dependents with respect to claims incurred
after the employee separates from service other than is required by applicable
law; and neither the Borrower nor any ERISA Affiliate of the Borrower has
incurred or expects to incur any withdrawal liability to any Multiemployer Plan.
5.14 INTENTIONALLY DELETED.
5.15 TAX OBLIGATIONS.
Borrower, the Company and each of the Guarantor Subsidiaries has
filed complete and correct federal, state and local tax reports and returns
required to be filed by it, prepared in accordance with any applicable laws or
regulations, and except for extensions duly obtained, has either duly paid all
taxes, duties and charges owed by it, or made adequate provision for the payment
thereof, unless the Borrower, the Company or such Guarantor Subsidiary is
contesting in good faith, by appropriate proceedings, the validity, amount or
imposition of such tax, duty or charge while maintaining adequate reserves to
cover such tax, duty or charge and where such contest would not have a Material
Adverse Effect. There are no material unresolved questions or claims concerning
any tax liability of the Borrower, the Company or any of the Guarantor
Subsidiaries. None of the transactions contemplated hereby or under any
agreements referred to hereunder will result in any material tax liability for
the Borrower, the Company or any of the Guarantor Subsidiaries or result in any
other material adverse tax consequence for the Borrower, the Company or any of
the Guarantor Subsidiaries.
5.16 EMPLOYEE CONTROVERSIES.
There are no strikes, work stoppages or controversies pending or, to the
best of the Borrower's knowledge after diligent inquiry and investigation,
threatened, between either the Borrower, the Company or any of the Guarantor
Subsidiaries and any of their employees, other than employee grievances arising
in the ordinary course of business which will not, individually or in the
aggregate, have a Material Adverse Effect.
5.17 FULL DISCLOSURE.
To the best of Borrower's knowledge, this Agreement, the financial
statements delivered in connection herewith, and the representations and
warranties of the Borrower herein and in any other document delivered or to be
delivered by or on behalf of the Borrower, do not and will not contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein, in light of the circumstances under
which they were made, not misleading. To the best of Borrower's knowledge, there
is no material fact which the Borrower has not disclosed to the Lender in
writing which materially and adversely affects or, so far as the Borrower
reasonably foresees, could materially and adversely affect the assets, business,
prospects, profits, or condition (financial or otherwise) of the Borrower, or
Company, the rights of the Lender or the ability of the Borrower to perform this
Agreement.
5.18 BANK BOSTON CREDIT AGREEMENT.
The Bank Boston Credit Agreement attached hereto as Exhibit B is true,
correct and complete, is in full force and effect, and no Default or Event of
Default (as each such term is defined thereunder) has occurred and is
continuing, nor has any event which, with the passage of time or the giving of
notice, or both, could give rise to a Default or Event of Default under the Bank
Boston Credit Agreement (as each such term is defined thereunder). Except as set
forth in Exhibit B, the Bank Boston Credit Agreement has not been amended,
modified or supplemented.
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6. INCORPORATION OF NEGATIVE COVENANTS.
The Borrower covenants and agrees, and to the extent that the following
covenants relate to the Company, the Company covenants and agrees, that the
following covenants contained in the Bank Boston Credit Agreement shall be
incorporated herein by this reference, and made a part hereof, for all purposes,
as if more fully set forth herein and shall be for the direct benefit of Lender:
Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7 and 8.9 of the Bank Boston Credit
Agreement in the form attached hereto as Exhibit B.
6.1 INCORPORATION OF NEGATIVE COVENANTS.
The foregoing Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7 and 8.9 of the
Bank Boston Credit Agreement are by this reference hereby restated in their
entirety and incorporated herein respectively as Sections 6.2 through 6.9 hereof
and shall run to the direct benefit of Lender, and all references therein to
"Lenders", "Requisite Lenders", "Lead Lenders" or "Agent" shall be deemed to
instead mean the Lender hereunder.
6.10 INDEPENDENT ENFORCEMENT OF NEGATIVE COVENANTS BY THE LENDER.
The foregoing Sections 6.2 through 6.9 hereof shall be independent
obligations of the Borrower and, as applicable, the Company hereunder, and shall
be enforceable by the Lender hereunder notwithstanding (i) the termination,
maturity or further amendment, modification or renewal of the Bank of Boston
Credit Agreement, or (ii) the waiver of the Borrower's or Company's failure to
perform, keep or observe any of the foregoing affirmative covenants by the
"Agent", "Requisite Lenders", "Lead Lenders" or the "Lenders" (each as defined
in the Bank Boston Credit Agreement).
6.11 LEASES.
Neither Borrower nor Mortgagor will (i) enter into any Major Leases or (ii)
materially amend, supplement or otherwise materially modify, or terminate or
cancel, or accept the surrender of, or grant any material concessions to or
waive the material performance of any of the Major Tenants under the Major
Leases, in each case without the prior approval of Lender as provided in Section
7.20 below.
7. INCORPORATION OF AFFIRMATIVE COVENANTS - GENERAL.
The Borrower covenants and agrees, and to the extent that the following
covenants relate to the Company, the Company covenants and agrees, that the
following covenants contained in the Bank Boston Credit Agreement shall be
incorporated herein by this reference, and made a part hereof, for all purposes,
as if more fully set forth herein and shall be for the direct benefit of Lender:
Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.14, 7.15, 7.16,
7.18, 7.19, 7.20 and 7.22 of the Bank Boston Credit Agreement in the form
attached hereto as Exhibit B.
7.1 INCORPORATION OF AFFIRMATIVE COVENANTS.
The foregoing Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10,
7.14, 7.15, 7.16, 7.18, 7.19, 7.20 and 7.22 of the Bank Boston Credit Agreement
are by this reference hereby restated in their entirety and incorporated herein
respectively as Sections 7.2 through 7.18 hereof, and shall run to the direct
benefit of Lender, and all references therein to "Lenders", "Requisite Lenders",
"Lead Lenders" or "Agent" shall be deemed instead to mean the Lender hereunder.
7.19 INDEPENDENT ENFORCEMENT OF AFFIRMATIVE COVENANTS BY THE LENDER.
The foregoing Sections 7.2 through 7.18 hereof shall be independent
obligations of the Borrower and, as applicable, the Company hereunder, and shall
be enforceable by the Lender hereunder notwithstanding (i) the termination,
maturity or further amendment, modification or renewal of the Bank of Boston
Credit Agreement, or (ii) the waiver of the Borrower's or Company's failure to
perform, keep or observe any of the foregoing affirmative covenants by the
"Agent", "Requisite Lenders", "Lead Lenders" or the "Lenders" (each as defined
in the Bank Boston Credit Agreement).
7.20 USE OF PROCEEDS.
Subject to the provisions of Section 2.2 hereof, the proceeds of the Loans
shall be used by the Borrower for Permitted Acquisitions and Permitted
Developments, for refinancing other Indebtedness and for working capital and
other purposes consistent with the covenants contained herein.
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7.21 LEASES; LEASE APPROVALS.
Mortgagor will at all times exercise or enforce its material rights under
the Indiana Property Lease and any other leases for the Indiana Property. During
the continuance of an Event of Default, Lender shall have the right, and the
Borrower (on behalf of Mortgagor) hereby authorizes Lender, to communicate
directly with any of the tenants or guarantors for any purpose contemplated by
this Agreement or any of the Security Documents. Any proposed lease which would
be a Major Lease shall be submitted to and approved by Lender prior to
execution, along with the most recent financial statements of such proposed
tenant and any guarantor. The Mortgagor will not terminate, accept surrender of
or materially adversely amend the Indiana Property Lease or any other Major
Lease or release any Major Tenant or waive the material performance of a Major
Lease by a Major Tenant, in each case without prior approval of the Lender. The
Lender shall not unreasonably withhold its approval of any Major Lease or
amendment thereof. If Lender fails to respond within five (5) business days
after receipt of any proposed Major Lease or amendment of a Major Lease, the
same shall be deemed to be approved.
7.22 YEAR 2000 PROBLEM.
The Borrower shall promptly conduct a comprehensive review and assessment
of its computer applications and make inquiry of its property managers with
respect to the "Year 2000 Problem" (i.e., the risk that computer applications
may not be able to properly perform date-sensitive functions after December 31,
1999) and, based on that review and inquiry, take appropriate actions to assure
that the Year 2000 Problem will not result in a Material Adverse Effect.
8. AFFIRMATIVE COVENANTS - REPORTING.
Borrower shall furnish, or cause to be furnished to the Lender the
following:
8.1 REPORTS, COVENANT COMPLIANCE CERTIFICATES.
As soon as practicable, and in any event, within the time periods set forth
in Sections 7.4 and 7.5 of the Bank Boston Credit Agreement for delivery to the
Agent or Lenders thereunder, the Borrower shall provide the Lender with all
certificates, affidavits, financial statements, balance sheets, notices, reports
and other instruments described in Sections 7.4 and 7.5 of the Bank Boston
Credit Agreement in effect as of the date hereof, notwithstanding the
termination, maturity or further amendment, modification or renewal of the Bank
Boston Credit Agreement.
8.2 INTENTIONALLY DELETED.
8.3 OTHER INFORMATION AND CHANGES.
Borrower shall promptly supply the Lender with such other information
concerning its or its Subsidiaries' affairs as the Lender may reasonably request
from time to time hereafter, and shall promptly notify the Lender of any
material adverse change in the Borrower's or any Subsidiary's financial
condition and of any condition or event which constitutes a breach of or an
Event of Default under this Agreement.
8.4 CONFIDENTIALITY.
Lender understands that in the course of its exercise of the rights set
forth in this Section 8, the Lender may obtain information which relating to
Borrower or the Company or the Guarantor Subsidiaries which is confidential in
nature (the "Confidential Information"). Lender agrees that it will not, at any
time, divulge, publish or disclose, or authorize or permit any other person to
do so, to any other Person, any of the Confidential Information, provided,
however, that the Confidential Information may be disclosed by Lender (a) to its
officers, attorneys, and accountants, (b) to any Participant, (c) to any
regulator or other governmental agency with supervisory authority over the
business of Lender, (d) to any other Person to the extent required by applicable
law or regulation, and (e) to the extent that such Confidential Information is
otherwise publicly available from sources other than Lender.
9. COVENANTS - FINANCIAL.
The Borrower covenants and agrees that the following covenants contained in
the Bank Boston Credit Agreement shall be incorporated herein by this reference,
and made a part hereof, for all purposes, as if more fully set forth herein and
shall be for the direct benefit of Lender Sections 9.1, 9.2, 9.3, 9.4, 9.5 and
9.6 of the Bank Boston Credit Agreement in the form attached hereto as Exhibit
B.
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9.1 INCORPORATION OF FINANCIAL COVENANTS.
The foregoing Sections 9.1, 9.2, 9.3, 9.4, 9.5 and 9.6 of the Bank Boston
Credit Agreement are by this reference hereby restated in their entirety and
incorporated herein respectively as Sections 9.2 through 9.7 hereof.
Notwithstanding anything to the contrary set forth in this Agreement the parties
hereto acknowledge and agree that the provisions of Section 9.4 of this
Agreement shall be deemed to have been amended effective as of September 30,
1998.
9.8 INDEPENDENT ENFORCEMENT OF FINANCIAL COVENANTS BY THE LENDER.
The foregoing Sections 9.2 through 9.7 hereof shall be independent
obligations of the Borrower hereunder, and shall be enforceable by the Lender
hereunder notwithstanding (i) the termination, maturity or further amendment,
modification or renewal of the Bank of Boston Credit Agreement, or (ii) the
waiver of the Borrower's failure to perform, keep or observe any of the
foregoing affirmative covenants by the "Agent", "Requisite Lenders", "Lead
Lenders" or the "Lenders" (each as defined in the Bank Boston Credit Agreement).
10. EVENTS OF DEFAULT.
Any one or more of the following shall constitute an Event of Default under
this Agreement:
10.1 PAYMENT.
If the Borrower fails to pay when due and payable or when declared due and
payable, all or any portion of the principal amount on any of the Loans owing to
the Lender, or if the Borrower fails to pay when due and payable or when
declared due and payable, all or any portion of the Obligations owning to the
Lender (other than payments of principal) within five (5) days after the same
shall be due and payable.
10.2 BREACH OF CERTAIN COVENANTS.
If the Borrower or Company shall fail to comply with any of their
respective covenants contained in Section 6, Section 7.6, the first sentence of
Section 7.7, the first sentence of Section 7.8 (with respect to the Indiana
Property), Section 7.17 or Section 9 hereof.
10.3 BREACH OF REPRESENTATION.
If any representation, warranty, statement, report, or certificate made or
delivered by the Borrower, the Company or any Guarantor Subsidiary, or any of
their officers, partners, employees or agents on behalf of the Borrower, the
Company or any Guarantor Subsidiary, to the Lender is false or misleading in any
material respect when made or deemed to be made.
10.4 ATTACHMENT OR LEVY.
If all or any of the Borrower's assets in excess of $5,000,000.00 in the
aggregate are attached, seized, subjected to a writ or distress warrant, or are
levied upon, or come into the possession of any Judicial Officer or assignee for
the benefit of creditors unless, with respect to any such assets, such
attachment, seizure, writ, warrant or levy shall be dismissed, released or
stayed within thirty (30) days of issuance thereof.
10.5 VOLUNTARY INSOLVENCY.
If an Insolvency Proceeding is commenced by the Borrower, the Company or
any Guarantor Subsidiary, including, without limitation, the Mortgagor.
10.6 INVOLUNTARY INSOLVENCY.
If an Insolvency Proceeding is commenced against the Borrower, the Company
or any of their Subsidiaries, including, without limitation, the Mortgagor,
except that if the Borrower, the Company or any Guarantor Subsidiary is
contesting such Proceeding in good faith, such Insolvency Proceeding shall not
constitute an Event of Default unless such Insolvency Proceeding is not
dismissed within ninety (90) days of the commencement of such Insolvency
Proceedings.
10.7 INJUNCTION.
If the Borrower, the Company or any Guarantor Subsidiary, including,
without limitation, the Mortgagor, is enjoined, restrained or in any way
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prevented by court order from continuing to conduct all or any material part of
its business affairs.
10.8 GOVERNMENTAL LIEN.
If a notice of lien, levy or assessment in excess of $5,000,000.00 in the
aggregate, is filed of record with respect to any or all of the Borrower's, the
Company's or any Guarantor Subsidiary's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities in excess of $5,000,000.00 in
the aggregate, becomes a Lien, whether choate or otherwise, upon any or all of
the Borrower's, the Company's or any Guarantor Subsidiary's assets and the same
is not paid on the payment date thereof.
10.9 JUDGMENT.
If a judgment or other claim in excess of $5,000,000.00 individually, or
$10,000,000.00 in the aggregate, becomes a Lien upon any or all of the
Borrower's, the Company's or any Guarantor Subsidiary's assets.
10.10 OTHER INDEBTEDNESS.
If there is a default in any agreement with respect to Indebtedness in
excess of $5,000,000.00 to which the Borrower, the Company or any Guarantor
Subsidiary is a party with another Person resulting in a right by such Person to
accelerate the maturity of such Indebtedness or to exercise any other right or
remedy.
10.11 BANK BOSTON CREDIT AGREEMENT.
If there is an 'Event of Default' under the Bank Boston Credit Agreement
(as such term is defined therein) which has not been waived or cured within the
time periods provided therein, if any.
10.12 ERISA REPORTABLE EVENT.
If (a) any Reportable Event which the Lender determines constitutes grounds
for the termination of any Benefit Plan by the PBGC or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan, shall have occurred and be continuing thirty (30) days after written
notice of such determination shall have been given to the Borrower by the
Lender, or any such Benefit Plan shall be terminated within the meaning of Title
IV of ERISA, or a trustee shall be appointed by the appropriate United States
District Court to administer any such Plan, or the PBGC shall institute
proceedings to terminate any Benefit Plan; and (b) in case of any event
described above in this Section 10.12, the aggregate amount of the Borrower's
liability under Sections 4062, 4063 or 4064 of ERISA shall exceed one percent
(1%) of the Borrower's Total Equity Capital; or (c) there shall be a withdrawal
from any Multiemployer Plan as a result of which the aggregate amount of the
Borrower's liability in relation thereto shall exceed one percent (1%) of the
Borrower's Total Equity Capital.
10.13 BREACH OF COVENANTS.
If the Borrower, the Company or any Guarantor Subsidiary fails or neglects
to perform, keep or observe any term, provision, condition, covenant, agreement
contained in this Agreement (other than as set forth in any other subsection of
this Section 10), any other Loan Document, or any other present or future
agreement between the Borrower, the Company or any such Guarantor Subsidiary and
the Lender and/or evidencing and/or securing the Obligations, and such failure
remains unremedied for a period of thirty (30) days after written notice of such
breach from the Lender to the Borrower. Provided, however, that if the condition
or event giving rise to such breach is not reasonably capable of being cured
within such thirty (30) day period, Borrower shall be granted an additional
sixty (60) day period to cure the condition or event giving rise to the breach,
provided further that Borrower has commenced cure of such condition or event
within thirty (30) days after written notice of such breach from the Lender and
continuously and diligently pursues the cure of such condition or event.
Notwithstanding anything contained in this Section 10 or contained in any
other provision of this Agreement or the other Loan Documents to the contrary,
in the event of the institution of Insolvency Proceedings against the Borrower,
the Company or any Guarantor Subsidiary, the Lender shall not be obligated to
make advances to the Borrower during the ninety (90) day grace period under
Section 10.6.
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11. RIGHTS AND REMEDIES.
11.1 RIGHTS AND REMEDIES GENERALLY.
Upon the occurrence of an Event of Default by the Borrower or the Company
under this Agreement and notice thereof by the Lender to the Borrower, except as
hereinafter provided, The Lender may do any one or more of the following, all of
which are authorized by the Borrower and Company:
(a) Declare all Obligations, whether evidenced by this Agreement, by the
Note, or otherwise, immediately due and payable; provided, that all
Obligations shall be immediately due and payable without notice or
demand upon an Event of Default under Section 10.5 or 10.6;
(b) Cease advancing money or extending credit to or for the benefit of the
Borrower under this Agreement, or any other agreement between the
Borrower and the Lender;
(c) Terminate this Agreement as to any future liability or obligation of
the Lender but without affecting the Lender's rights and without
affecting the Obligations owing by the Borrower to the Lender;
(d) Commerce suit for collection of the Obligations or pursue any other
right or remedy available under the other Loan Documents, or
(e) Borrower shall pay all Out-of-Pocket Fees and Costs incurred in
connection with the Lender's enforcement and exercise of any of its
rights and remedies as herein provided, whether or not suit is
commenced by the Lender.
11.2 RIGHTS CUMULATIVE.
The Lender's rights and remedies under this Agreement and all other Loan
Documents shall be cumulative. The Lender shall have all other rights and
remedies not inconsistent herewith as provided by law, or in equity. No exercise
by the Lender of one right or remedy shall be deemed an election, and no waiver
by the Lender of any default on the Borrower's part shall be deemed a continuing
waiver. No delay by the Lender shall constitute a waiver, election or
acquiescence by it.
12. TAXES AND EXPENSES.
If the Borrower fails to pay promptly when due to any other Person, monies
which the Borrower is required to pay by reason of any provision in this
Agreement (including without limitation for any tax, expense or with respect to
any Lien), or to promptly contest same by proper proceedings diligently pursued,
the Lender may, but need not, pay the same and charge the Borrower's account
therefor, and the Borrower shall promptly reimburse the Lender. All such sums
shall become additional Obligations owing to the Lender and shall bear interest
at the Default Rate hereunder. Any payments made by the Lender shall not
constitute: (i) agreement by the Lender to make similar payments in the future,
or (ii) a waiver by the Lender of any Event of Default under this Agreement. the
Lender need not inquire as to, or contest the validity of, any such expense, tax
or Lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing, and the
receipt of any other notice with respect to all other such monies due hereunder
shall be prima facia evidence that the same was validly due and owing.
13. CERTAIN WAIVERS.
13.1 APPLICATION OF PAYMENTS.
Except as expressly provided in this Agreement with respect to payments and
prepayments on the Loans, the Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
the Lender on account of any Obligations owed by the Borrower, and the Borrower
agrees that the Lender shall have the continuing exclusive right to apply and
reapply such payments in any manner as the Lender may deem advisable,
notwithstanding any entry by the Lender upon its books.
13.2 DEMAND, ETC.
Except as expressly provided in this Agreement, the Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, notice of nonpayment at maturity, notice of
intent to accelerate, and notice of acceleration.
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14. NOTICES.
Except as otherwise expressly provided herein, any notice required or
desired to be served, given or delivered hereunder shall be in the form and
manner specified below, and shall be addressed to the party to be notified as
follows:
If to the Lender at: LaSalle National Bank
135 South LaSalle Street, Suite 510
Chicago, Illinois 60603
Attention: John C. Hein
Facsimile: 312/904-6467
With a Copy to: Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Donald I. Resnick, Esq.
Facsimile: 312/840-7656
If to Borrower at: Prime Group Realty, L.P.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Chief Financial Officer
Facsimile: (312) 917-0460
With a copy to: Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg, Esq.
Telecopy: (312) 558-5700
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) Business Days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iii) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
15. CHOICE OF LAW AND VENUE.
This Agreement and each of the other Loan Documents (except as otherwise
specifically provided therein) shall be deemed to have been made in the State of
Illinois and the validity of this Agreement and the other Loan Documents, their
construction, interpretation and enforcement, shall be determined under,
governed by and construed in accordance with the laws of the State of Illinois.
The parties agree that all actions or proceedings arising in connection with
this Agreement and each of the other Loan Documents (except as otherwise
specifically provided therein) shall be tried and litigated only in the state
and federal courts located in the County of Cook, State of Illinois. The
Borrower waives any right it may have to assert the doctrine of forum non
conveniens or to object to such venue and hereby consents to any court ordered
relief. The Borrower consents that all service of process upon it be made by
registered mail or messenger directed to it at the address set forth in Section
14 above and that service so made shall be deemed to be completed upon the
earlier of actual receipt or three (3) Business Days after the same shall have
been posted to the Borrower's address by the Borrower's agent as set forth
below. Nothing contained in this Section 15 shall affect the right of the Lender
to serve legal process in any other manner permitted by law or affect the right
of the Lender to bring any action or proceeding against the Borrower, Company or
any Guarantor Subsidiaries or their property in the courts of any other
jurisdiction. Without limiting the foregoing, in addition to the state and
federal courts of Illinois, the Lender may bring action(s) for enforcement on a
non-exclusive basis in the state or federal courts of Indiana with respect to
the Security Documents, and the Borrower consents (on behalf of itself and
Mortgagor) to the non-exclusive jurisdiction of such courts and the service of
process in any such suit being made upon the Mortgagor and Borrower by
registered mail or messenger at the address specified in Section 14 above.
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<PAGE>
16. INDEMNITY.
Borrower shall indemnify, hold harmless and defend the Lender and its
directors, officers, agents, counsel and employees ("Indemnified Persons") from
and against all losses, claims, damages, costs, expenses and liabilities
("Losses"), whether such Losses arise or notice thereof is received by the
Lender during the term of this Agreement or after termination of this Agreement,
incurred by any of them arising principally out of or relating to this
Agreement, the Loans, the other Loan Documents or any other transaction
contemplated hereby or thereby, other than arising out of any intercreditor
relationship between the Lender and any Participant or subordinated debt holder
and except for any such losses caused by the gross negligence or willful
misconduct of such Indemnified Persons, and shall reimburse the Lender and each
other Indemnified Person for any expenses including in connection with the
investigation of, preparation for or defense of any actual or threatened claim,
action or proceeding arising therefrom (including any such costs of responding
to discovery requests or subpoenas), regardless of whether any Indemnified
Person is a party thereto. Except as set forth below, each Indemnified Person
may select its own counsel with respect to any Losses, in addition to any
Borrower's counsel, and shall be indemnified therefor hereunder. In litigation,
or the preparation therefor, the Indemnified Persons shall be entitled to select
their own separate counsel to the extent that their representation by the same
counsel would present such counsel with a conflict of interest, or would be
inappropriate due to the actual or potential differing interests or because
there may be defenses available to the other Persons to be represented by such
counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay
promptly the reasonable fees and expenses of such counsel. In the event that any
Indemnified Persons are made a party to any litigation against the Borrower, the
Company or any Guarantor Subsidiary relating to or arising from the Formation
Transactions, the Borrower, the Company or any Guarantor Subsidiary may, or if
requested by such Indemnified Persons shall, assume primary responsibility for
the defense thereof with counsel reasonably satisfactory to such Indemnified
Persons, subject to the right of such Indemnified Persons to separate counsel to
the extent provided in the preceding sentence. The provisions of this Section 16
shall survive the termination of this Agreement and/or repayment of the
Obligations.
17. GENERAL PROVISIONS.
17.1 ACCEPTANCE.
This Agreement shall be binding and deemed effective when executed by the
Borrower and Company and accepted and executed by the Lender.
17.2 BINDING AGREEMENT.
This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that the
Borrower and Company may not assign this Agreement or any rights hereunder
without the Lender's prior written consent and any prohibited assignment shall
be absolutely void. No consent to an assignment by the Lender shall release the
Borrower or the Company from their obligations to the Lender. Except as
otherwise provided herein, the Lender may assign this Agreement and its rights
and duties hereunder, and the Borrower and Company shall execute and deliver
such documents in connection with such assignment as they or such assignee may
reasonably request. Except as otherwise provided herein, Lender reserve the
right to sell, assign, transfer, negotiate or grant participations in all or any
part of, or any interest in their rights and benefits hereunder; provided,
however, the Lender shall not assign all of its interest hereunder to any other
Person without the prior consent of the Borrower, which consent will not
unreasonably be withheld, provided further that the Lender shall not be
restricted in making partial assignments or granting participation interests
hereunder. Notwithstanding anything to the contrary in this Agreement, Lender
shall not assign, transfer or grant any participation in its rights and benefits
hereunder to any assignee, transferee, or Participant which is not domiciled in
the United States, and no such participation shall require Borrower to give any
notice, deliver any report or certificate, obtain any consent, or otherwise
treat any Participant as a Lender hereunder or pay any amount, including any
amount under Sections 2.13 or 16 of this Agreement in excess of the amount which
would have been payable by Borrower to Lender hereunder had such participation
not occurred. In connection therewith, the Lender may disclose all documents and
information which the Lender now or hereafter may have relating to the Borrower
or the Borrower's business, but shall use all reasonable efforts to ensure that
the recipient of such information maintains the confidentiality of such
information.
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<PAGE>
17.3 SECTION HEADINGS.
Section headings and section numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement.
17.4 CONSTRUCTION.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against the Lender or the Borrower, whether under any rule
of construction or otherwise. On the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of the parties hereto.
17.5 SEVERABILITY.
Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
17.6 ENTIRE AGREEMENT.
This Agreement cannot be changed or terminated orally. All prior
agreements, understandings, representations, warranties, and negotiations, if
any, are merged into this Agreement. This Agreement may be amended only by a
written agreement signed by duly authorized officers of the Borrower, the
Company and the Lender.
17.7 NO FIDUCIARY RELATIONSHIP OR JOINT VENTURE.
No provision herein or in any of the other Loan Documents and no course of
dealing between the parties hereto shall be deemed to create any fiduciary
relationship between the Lender and the Borrower nor to create any partnership
or joint venture between the Lender and the Borrower.
17.8 PUBLICITY.
Borrower hereby consents to the issuance or dissemination by Lender to the
public of information describing the credit accommodations entered into pursuant
to this Agreement (as it may be amended, modified and supplemented from time to
time) to the extent such information is available to the public pursuant to any
filing made by the Borrower with any Regulatory Agency, including without
limitation, the name and address of the Borrower, a general description of the
Borrower's business and the use of the Borrower's name and logo in connection
therewith.
17.9 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which shall together constitute one and
the same instrument.
17.10 CONFLICT.
In the event of a conflict between the terms of this Agreement and the
terms of the Note or other Loan Documents, the terms of this Agreement shall be
controlling.
17.11 EFFECTIVENESS OF LOAN DOCUMENTS.
The Borrower hereby confirms that each of the Security Documents shall
continue to secure payment and performance of all of the Obligations under this
Agreement and the Borrower's obligations under the Security Documents shall
continue to be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Agreement. Every reference contained in the
Loan Documents to the Loan Agreement shall mean and be a reference to this
Agreement and as the Loan Agreement may be further amended. Except as
specifically amended by this Agreement each of the Loan Documents shall remain
in full force and effect and are hereby ratified and confirmed.
18. WAIVER OF JURY TRIAL.
BORROWER AND THE LENDER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY
JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE WAIVED. THE BORROWER
AND THE LENDER EACH KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND WITHOUT COERCION,
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<PAGE>
WAIVE ALL RIGHTS TO TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM. NEITHER THE
LENDER NOR THE BORROWER SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY
TRIAL UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN RELINQUISHED HAS A
WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY STATING THAT THIS WAIVER HAS BEEN
GIVEN UP.
19. PARTNER LIABILITY.
19.1 LIMITED RECOURSE TO COMPANY.
Notwithstanding anything expressed or implied to the contrary contained
herein, the Company shall not be liable hereunder or under the Subsidiary
Guaranty or under any legal or equitable proceeding or by virtue of any statute,
regulation or other applicable law for (i) any payment of principal or interest
on, or any other amounts due under, any of the Loans, or (ii) to repay any other
indebtedness of Borrower or any Guarantor Subsidiary, provided, however, that
nothing herein shall be construed to prevent the Lender from recovering from the
Company, or limit the Lender's recourse against the Company for any losses,
damages or costs (including without limitation, reasonable legal expenses),
incurred by the Lender in connection with the Company's breach of the Company's
own covenants and agreements herein, or in connection with the Company's fraud,
misappropriation of funds (whether due to the Company's failure to contribute
Net Offering Proceeds to the Borrowers, as required by Section 7.17 hereof, or
its receipt of Distributions from the Borrower in violation of Section 6.8
hereof, or otherwise) or any misrepresentation made by or on behalf of the
Company hereunder or in connection with the transactions contemplated hereby.
19.2 LIMITED RECOURSE TO PARTNERS OF BORROWER OTHER THAN THE COMPANY.
With respect to all partners of the Borrower other than the Company, no
personal deficiency judgment or any other judgment shall be asserted or enforced
against any such partner for payment of any amount hereunder or for observance
or performance of any of the obligations of the Borrower contained herein,
except as expressly set forth in this Agreement or any other agreement or
instrument or document as an obligation of such partner in connection herewith
(including without limitation the Subsidiary Guaranty), and provided that the
foregoing shall not affect the liability which any of such other partners may
have for any fraud, misappropriation of funds or intentional misrepresentation
made hereunder by or on behalf of the Borrower or in connection with the
transactions contemplated hereby.
IN WITNESS WHEREOF, the Borrower and Company have executed and delivered
this Agreement.
"BORROWER"
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST,
its general partner
By: /s/ Roy P. Rendino
--------------------------------
Roy P. Rendino
--------------------------------
Its: Senior Vice President
--------------------------------
"COMPANY"
PRIME GROUP REALTY TRUST
By: /s/ Roy P. Rendino
--------------------------------
Roy P. Rendino
--------------------------------
Its: Senior Vice President
--------------------------------
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<PAGE>
ACCEPTED this 1st day of October, 1998, at Lender's place of business in
the City of Chicago, State of Illinois.
LASALLE NATIONAL BANK, a national banking
association
By: /s/ John C. Hein
-------------------------------------
Title: First Vice President
----------------------------------
Address: 135 S. LaSalle Street
Chicago, Illinois 60603
Attn: John C. Hein
Fax No. (312) 904-6467
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<PAGE>
EXHIBIT A
---------
Note
[Exhibit Omitted]
<PAGE>
EXHIBIT B
---------
Bank Boston Credit Agreement
[Exhibit Omitted]
<PAGE>
SCHEDULE 1.1
------------
List of Guarantor Subsidiaries
NASHVILLE OFFICE BUILDING I, LTD.
OLD KINGSTON PROPERTIES, LTD.
PROFESSIONAL PLAZA, LTD.
CENTRE SQUARE II, LTD.
TRIAD PARKING COMPANY, LTD.
475 SUPERIOR AVENUE, L.L.C.
EXHIBIT 10.12
FIFTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This Fifth Amendment to Credit Agreement is made as of the 1st day of
October, 1998 by and among PRIME GROUP REALTY, L.P., a Delaware limited
partnership (the "Borrower"), PRIME GROUP REALTY TRUST, a Maryland trust (the
"Company") and BANKBOSTON, N.A., a national banking association ("BankBoston"),
PRUDENTIAL SECURITIES CREDIT CORPORATION, a Delaware corporation ("Prudential"),
the other lending institutions which are from time to time listed on Schedule 1,
(collectively, with BankBoston and Prudential, the "Lenders") and BANKBOSTON,
N.A., as agent for itself and such other lending institutions (the "Agent").
WHEREAS, the parties hereto are parties to that certain Credit Agreement
dated as of November 17, 1997 as amended by First Amendment to Credit Agreement
dated as of December 15, 1997 and by Second Amendment to Credit Agreement dated
as of March 16, 1998, as amended and restated by Third Amendment to Credit
Agreement dated as of March 30, 1998 and as amended by Fourth Amendment to
Credit Agreement dated as of April 24, 1998 (the "Existing Agreement"); and
WHEREAS, the Borrower has requested that the Agent release the West Wacker
Drive Property from the lien of the Security Documents but such release would
not be permitted by Section 5.5 because certain Defaults or Events of Default
would arise therefrom or from the new Indebtedness to be incurred by the
Borrower secured by the West Wacker Drive Property; and
WHEREAS, the parties have agreed to amend the Existing Agreement so as to
permit the requested release of the West Wacker Drive Property and to effect
certain other changes in the Existing Agreement.
NOW, THEREFORE, the parties hereby agree that effective upon the
Effective Date hereof (as determined pursuant to Paragraph 18 below) the
Existing Agreement is amended as follows:
1. DECREASE IN TOTAL COMMITMENT. The Total Commitment is hereby decreased
to $80,000,000 and each Lender hereby decreases its Commitment to the amount
shown on the revised Schedule 1.2 attached hereto. As of the Effective Date the
Commitment Percentages of the Lenders shall be adjusted as shown on said revised
Schedule 1.2. The parties shown on such revised Schedule 1.2 as having a zero
Commitment and 0% Commitment Percentage shall no longer be Lenders hereunder
after the Effective Date.
2. DEFINITIONS: Section 1.1 of the Existing Agreement is amended to provide
that the following terms shall have the following meanings and, to the extent
that any of the following terms are already defined in the Existing Agreement,
such definitions shall be deemed to be amended and restated by the following
definitions:
Applicable Margin. As of any date of determination, two and one quarter
percent (2.25%).
Collateral Account. The cash collateral account established pursuant to the
Collateral Account Agreement in which the Agent shall hold funds deposited
pursuant to Section 5.6 or Section 2.9(f).
Collateral Account Agreement. The Collateral Account Agreement dated
October 1, 1998 from the Borrower as pledgor to the Agent as secured party.
Collateral Account Balance. As of any date of determination, the aggregate
amount of all cash and other investments held in the Collateral Account.
EBITDA. The Borrower's earnings before interest, taxes, depreciation and
amortization, as determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles, except that rental income shall be determined
based on contractual lease terms (to the extent that the applicable tenant is
actually paying rent in accordance with such terms).
Permitted Company Subsidiaries. Corporations, limited liability
companies or other entities, each of which is a wholly owned Subsidiary of the
Company and whose only asset is a partnership interest in a partnership or a
membership interest in a limited liability company provided that (i) such
Company Subsidiary's ownership interest in such partnership or limited liability
company does not exceed one percent (1%); (ii) the remaining 99% or more of such
partnership or limited liability company is owned by the Borrower; and (iii)
such partnership or limited liability company owns a Property which is financed
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<PAGE>
or to be financed with or through a securitized or securitizable loan structure
and the applicable lender requires that the borrower entity be "bankruptcy
remote" by having a certain percentage of the borrower entity owned by such
corporation and, if such required percentage is less than 1%, the Company
Subsidiary's ownership interest shall not exceed the level required by such
lender.
Pro Forma Principal Amount. (a) With respect to Compliance Certificates
delivered pursuant to Section 7.4(e), the maximum Outstanding Principal Amount
at any time during the applicable fiscal quarter minus the Collateral Account
Balance on the last day of such quarter; (b) with respect to Compliance
Certificates delivered pursuant to Section 2.5, 2.9(b) or Section 11.1, the
Outstanding Principal Amount after giving effect to the requested Loan or the
issuance of the requested Letter of Credit minus the Collateral Account Balance
on the Borrowing Date or the date of issuance of such Letter of Credit; (c) with
respect to Compliance Certificates delivered pursuant to Section 5.5, Section
5.6 or Section 8.4(b), the Outstanding Principal Amount minus the Collateral
Account Balance after giving effect to any proposed sale or transfer including
any payments on the Loans or cancellation of Letters of Credit or any changes in
the Collateral Account Balance to be made in connection therewith.
Security Documents. The Security Deeds, the Assignments of Leases and
Rents, the Pledge Agreements and the UCC-1 financing statements, the Assigned
Note Assignments and all documents securing the Assigned Notes assigned thereby
and the Collateral Account Agreement.
Total Adjusted Assets. The sum of (i) the assets classified as cash or cash
equivalents on the consolidated balance sheet of Borrower prepared in accordance
with Generally Accepted Accounting Principles as of the date of determination
(including any restricted cash other than tenant deposits), plus (ii) the
product of (a) EBITDA for the most recent two fiscal quarters for which
financial statements have been provided pursuant to Section 7.4(b), times (b)
two, divided by (c) 0.0975. EBITDA used to compute Total Adjusted Assets will be
computed on a pro forma basis as though the assets reflected on the consolidated
balance sheet of Borrower prepared in accordance with Generally Accepted
Accounting Principles as of the date of determination had been owned since the
first day of the applicable period of two fiscal quarters and as though all
assets disposed of prior to the date of determination had been disposed of prior
to the first day of the applicable period of two fiscal quarters.
Total Liabilities. The sum of the following (without duplication): (i) all
liabilities of the Borrower and the Related Companies consolidated and
determined in accordance with Generally Accepted Accounting Principles excluding
the dividends payable and accounts payable and accrued expenses line items as
shown on the balance sheet included in the Company's Form 10-K and Form 10-Q
statements filed with the SEC (but not excluding the accrued interest payable
and accrued real estate taxes line items as shown on such balance sheet), (ii)
all Indebtedness of the Borrower and the Related Companies whether or not so
classified, including, without limitation, all outstanding Loans under this
Agreement, and (iii) the balance available for drawing under letters of credit
issued for the account of the Borrower or any of the Related Companies. When
compliance with Section 9.3 is being computed as of a date other than the end of
a fiscal quarter, Total Liabilities will be adjusted to reflect all changes in
the items described in clauses (ii) and (iii) of this definition since the end
of the last fiscal quarter for which financial statements have been provided
pursuant to Section 7.4(b) but it shall be presumed that other types of
liabilities have remained the same since the end of such quarter.
3. AMENDMENTS TO SECTION 2.9. The first sentence of Section 2.9 is hereby
amended and restated to read as follows: "A portion of the Commitments may be
used by the Borrower for the issuance of Letters of Credit by the Agent for the
account of the Borrower subject to the terms and conditions set forth herein,
provided that the aggregate face amount of all Letters of Credit shall not
exceed $50,000,000."
4. AMENDMENT TO SECTION 4.4. Section4.4 is hereby amended by adding the
following sentence to the end thereof: "The Borrower shall make each payment
hereunder not later than 11:00 A.M. (Eastern Time) on the day when due, to the
Agent in immediately available funds without set-off or counterclaim, and any
payments received by the Agent after 11:00 A.M. (Eastern Time) shall be deemed
to be received on the next Business Day."
5. Amendments to Section 5.1. Section 5.1 is hereby amended and restated to
read as follows:
Section 5.1. Collateral Security. The Obligations shall be secured by (i) a
perfected first priority lien and security interest to be held by the Agent
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<PAGE>
(subject only to Permitted Liens) in the Mortgaged Properties, pursuant to the
terms of the Security Documents, (ii) a perfected first priority lien and
security interest to be held by the Agent in the Leases and rents pursuant to
the Assignments of Leases and Rents, (iii) a first priority pledge of any
pledged bonds purchased with the proceeds of Drawings under any IRB Letter of
Credit pursuant to the Pledge Agreements, (iv) a first priority pledge of any
monies or investments in the Collateral Account pursuant to the Collateral
Account Agreement and (v) the Guaranties.
6. NEW SECTION 5.6. A new Section 5.6 to read as follows is hereby added
immediately following Section 5.5:
Section 5.6. Collateral Account. If Borrower desires the release of a
Mortgaged Property from the lien of the Security Documents pursuant to Sectio
5.5 but the same would not be permitted because an Event of Default under
Section 9.1 or Section 9.2 would result from such a release, the Borrower shall
deposit in the Collateral Account established pursuant to the Collateral Account
Agreement such amount as may be required to increase the Collateral Account
Balance to a level such that the requested release will not result in a default
under Section 9.1 or Section 9.2. In the event of any subsequent increase in the
Collateral Value of the Mortgaged Properties or decrease in the Outstanding
Principal Amount, the Borrower may request that the Agent release funds from the
Collateral Account and the Agent shall grant such requested release provided
there is then no continuing Default or Event of Default under this Agreement and
the requested release will not result in any Default or Event of Default under
this Agreement and the Borrower delivers to the Agent a pro-forma Compliance
Certificate reasonably satisfactory to the Agent demonstrating that the
requested release will not result in a violation of any of the covenants in
Section 9.1 or Section 9.2.
7. NEW SECTION 7.22. A new Section 7.22 to read as follows is hereby added
immediately following Section 7.21:
Section 7.22. Distributions from Permitted Company Subsidiaries. The
Company will cause each Permitted Company Subsidiary to promptly distribute to
the Company an amount equal to any distributions received by the Permitted
Company Subsidiary from the partnership or limited liability company in which
the Permitted Company Subsidiary is a partner or member. All such amounts
distributed to the Company by any Permitted Company Subsidiary shall be
immediately contributed by the Company to the Borrower as an additional capital
contribution with respect to the Company's general partnership interest in the
Borrower.
8. AMENDMENTS TO SECTION 6.19. Section 6.19 is hereby amended and restated
to read as follows:
Section 6.19. Subsidiaries and Affiliates. The Borrower has no Subsidiaries
except for the Related Companies listed on Schedule 1.3 and does not have an
ownership interest in any entity whose financial statements are not consolidated
with the Borrower's except for the Permitted Joint Ventures listed on Schedule
1.3. The Company is not a partner in any partnership other than Borrower and
certain of the Related Companies listed on Schedule 1.3 which are limited
partnerships in which the Company has a one tenth percent (0.1%) limited
partnership interest, has no Investments in any Person other than the Borrower,
Permitted Company Subsidiaries and such limited partnerships and is not a member
of any limited liability company. The Company owns no material assets other than
its partnership interest in Borrower, its stock in the Permitted Company
Subsidiaries and the limited partnership interests described in this Section
6.19.
9. AMENDMENTS TO SECTION 8.1(f). Section 8.1(f) is hereby amended and
restated to read as follows:
(f) Indebtedness of Borrower, the Company or the Related Companies to the
extent the same does not create a violation of Section 9.3, Section 9.5 or
Section 9.6 provided that the maximum principal amount of Recourse Indebtedness
permitted under this paragraph shall not exceed $60,000,000 in the aggregate at
any time outstanding. Schedule 8.1(f) attached hereto sets forth the existing
Indebtedness (and proposed indebtedness for which Borrower has accepted a
commitment letter) included within such limit on Recourse Indebtedness.
10. AMENDMENTS TO SECTION 8.9(a). Section 8.9(a) is hereby amended and
restated to read as follows:
(a) own any assets, or have any Investments, other than owning its general
partnership interest in the Borrower, its stock or other equity interest in the
Permitted Company Subsidiaries and its limited partnership interests described
in Section 6.19.
-3-
<PAGE>
11. AMENDMENTS TO SECTION 9. Section 9.1, Section 9.2 and Section 9.3 are
hereby amended and restated to read as follows:
Section 9.1. Collateral Value. The Borrower will not at any time permit the
Outstanding Principal Amount (minus the Collateral Account Balance) to exceed
the sum of (i) sixty percent (60%) of the total of the Collateral Values of the
Mortgaged Properties other than the Assigned Mortgaged Properties plus (ii)
fifty percent (50%) of the total of the Collateral Values of the Assigned
Mortgaged Properties.
Section 9.2. Minimum Debt Service Coverage. The Borrower will not at any
time permit the Outstanding Principal Amount (minus the Collateral Account
Balance) to exceed an amount such that: (a) the aggregate of the Net Operating
Income for all of the Mortgaged Properties, divided by (b) Pro Forma Debt
Service Charges for the Mortgaged Properties would be less than 1.5 for any
fiscal quarter of Borrower. For purposes of the foregoing, any Real Estate Asset
that became a Mortgaged Property during the applicable fiscal quarter shall be
treated as though it were a Mortgaged Property for the entire quarter and any
Real Estate Asset which is released by Agent during such fiscal quarter shall be
excluded for the entire quarter.
Section 9.3. Total Liabilities to Total Adjusted Assets. The Borrower will
not at any time permit Total Liabilities to exceed sixty percent (60%) of Total
Adjusted Assets.
12. AMENDMENT FEE AND LETTER OF CREDIT FEES. As consideration for this
Amendment the Borrower shall pay to the Agent, upon execution hereof, an
Amendment Fee of $200,000.00. The Agent shall promptly distribute such Amendment
Fee among the Lenders in proportion to their respective Commitment Percentages
applicable after the Effective Date of this Amendment. The Borrower shall delay
the payment of the Letter of Credit Fees on the outstanding Letters of Credit
for the last fiscal quarter of 1998 from October 1, 1998 until the Effective
Date in order to permit the Agent to appropriately compute and allocate among
the Lenders the total Letter of Credit Fees for such fiscal quarter, taking into
account the changes in the Commitment Percentages and the Applicable Margin on
the Effective Date.
13. AMENDMENT TO EXHIBIT C. Exhibit C is hereby replaced by the Exhibit C
attached hereto.
14. UPDATED SCHEDULES TO CREDIT AGREEMENT. The following Schedules to the
Credit Agreement are hereby updated, supplemented or replaced as follows:
(a) Schedule 1.1 is replaced by Schedule 1.1 attached hereto.
(b) Schedule 1.2 is replaced by Schedule 1.2 attached hereto.
(c) Schedule 1.3 is replaced by Schedule 1.3 attached hereto.
(d) Schedule 1.4 is replaced by Schedule 1.4 attached hereto.
(e) Schedule 8.1(f) is replaced by Schedule 8.1(f) attached hereto.
15. REPRESENTATIONS AND WARRANTIES. The Borrower and the Company represent
and warrant that each of the representations and warranties contained in Section
6 is true, correct and complete in all material respects as of the date hereof
to the same extent as though made on such date and that no Default or Event of
Default has occurred and is continuing on the date hereof.
16. EFFECTIVENESS OF LOAN DOCUMENTS. The Borrower hereby
confirms that each of the Security Documents shall continue to secure the
payment and performance of all of the Obligations under the Existing Agreement
as amended hereby and the Borrower's obligations under the Security Documents
shall continue to be valid and enforceable and shall not be impaired or limited
by the execution or effectiveness of this Amendment. Every reference contained
in the Loan Documents to the Credit Agreement shall mean and be a reference to
the Existing Agreement as amended hereby and as the Credit Agreement may be
further amended. Except as specifically amended by this Amendment, the Existing
Agreement and each of the Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
17. MISCELLANEOUS. This Amendment shall be governed by, interpreted and
construed in accordance with all of the same provisions applicable under the
Existing Agreement including, without limitation, all definitions set forth in
Section 1.1, the rules of interpretation set forth in Section 1.2, the
provisions relating to governing law set forth in Section 20, the provisions
relating to counterparts in Section 22 and the provision relating to
severability in Section 26.
-4-
<PAGE>
18. CONDITIONS TO EFFECTIVENESS. This Fifth Amendment to Credit Agreement
shall become effective on the earliest date (the "Effective Date") that each of
the following conditions precedent have been satisfied:
(a) Documents. Each of (i) this Fifth Amendment to Credit Agreement, (ii)
the Collateral Account Agreement, (iii) UCC Financing Statements with respect to
the Collateral Account, (iv) the Fourth Amendment to the Guaranty, and (v)
replacement Loan Notes for the Lenders reflecting the amount of their
Commitments as reduced pursuant hereto shall have been duly executed and
delivered by the respective parties thereto, shall be in full force and effect
and shall be in form and substance satisfactory to each of the Lenders.
(b) Certified Copies of Amendments of Organization Documents. The Agent
shall have received a Certificate of the Company to which there shall be
attached complete copies of any amendments to the Borrower's Limited Partnership
Agreement, Borrower's Certificate of Limited Partnership the Company's
Declaration of Trust or the Company's Bylaws which have become effective since
the complete certified copies of such documents which were previously delivered
to the Agent.
(c) Resolutions. All action on the part of the Borrower and each Guarantor
necessary for the valid execution, delivery and performance by the Borrower and
each Guarantor of this Amendment and the other Loan Documents to which it is or
is to become a party shall have been duly and effectively taken, and evidence
thereof satisfactory to the Agent shall have been provided to the Agent. The
Agent shall have received from the Company true copies of the resolutions
adopted by its Board of Directors authorizing the transactions described herein,
certified by its secretary to be true and complete and in effect on the
Effective Date.
(d) Opinions of Counsel. Each of the Lenders and the Agent shall have
received favorable opinions addressed to the Lenders and the Agent and dated as
of the Effective Date, substantially in the same form as, or with appropriate
provisions incorporating by reference, the opinions from Borrower's counsel
previously delivered to the Lenders and the Agent, copies of which are attached
as Exhibit E to the Credit Agreement and as to the validity and perfection of
the pledge pursuant to the Collateral Account Agreement. Such opinion may rely
on opinions from other law firms approved by the Agent as to matters of law
applicable in the various states.
(e) Receipt of Funds for Repayment of Loans and Initial Collateral Account
Balance. The Agent shall have received funds in the aggregate amount necessary
to (i) repay in full all of the Loans outstanding hereunder as of the opening of
business on the Effective Date, (ii) fund the initial Collateral Account Balance
required by Section 5.6 and (iii) pay the fees required by Paragraph 10 of this
Amendment.
In the event that the Effective Date has not occurred on or before October
15, 1998, then this instrument shall be void and the Existing Agreement shall
remain in effect as though this instrument had never been executed.
19. RELEASE OF WEST WACKER DRIVE PROPERTY. Each of the Lenders hereby
consents, pursuant to Section 5.5, to the release of the West Wacker Drive
Property from the lien of the Security Documents on the Effective Date hereof
and authorizes the Agent to execute and deliver a Release of Mortgage, UCC
financing statement terminations and other documents reasonably requested to
effect such release and a Fourth Amendment of the Guaranty terminating all
further obligations of 77 West Wacker Limited Partnership as a Guarantor
thereunder.
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first set forth above.
PRIME GROUP REALTY TRUST
By: /s/ W. Michael Karnes
------------------------------------
W. Michael Karnes
------------------------------------
Its: Executive Vice President
-------------------------------
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST,
its managing general partner
By: /s/ W. Michael Karnes
------------------------------------
W. Michael Karnes
------------------------------------
Its: Executive Vice President
-------------------------------
BANKBOSTON, N.A.
By: /s/ Lori Y. Litow
------------------------------------
Lori Y. Litow
------------------------------------
Its: Vice President
-------------------------------
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By: /s/ Jeff K. French
------------------------------------
Jeff K. French
------------------------------------
Its:
-------------------------------
-6-
<PAGE>
MELLON BANK, N.A.
By: /s/ Janis R. Carey
------------------------------------
Janis R. Carey
------------------------------------
Its: Vice President
-------------------------------
SOCIETE GENERALE
By: /s/ Robert N. Delph
------------------------------------
Robert N. Delph
------------------------------------
Its: Director
-------------------------------
COMMERZBANK AG
By: /s/ Douglas P. Traynor
------------------------------------
Douglas P. Traynor
------------------------------------
Its: Vice President
-------------------------------
By: /s/ Christian Berry
------------------------------------
Christian Berry
------------------------------------
Its: Assistant Treasurer
-------------------------------
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
------------------------------------
Arnaud Collin du Bocage
------------------------------------
Its: Executive Vice President
and General Manager
-------------------------------
-7-
<PAGE>
SCHEDULE 1
----------
Lenders; Domestic and Eurodollar Lending Offices
------------------------------------------------
Domestic and Eurodollar Lending Offices: Notice Address:
- - ---------------------------------------- ---------------
BankBoston, N.A. BankBoston, N.A.
100 Federal Street 100 Federal Street
Boston, MA 02110 Boston, MA 02110
(Domestic and Eurodollar) Attn: Real Estate Department
With a copy to:
BankBoston, N.A.
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, GA 30346
Attn: Lori Y. Litow, Vice President
Fax: (770)390-8434 or 391-9811
Prudential Securities Credit Corporation Prudential Securities Credit
One New York Plaza Corporation
New York, New York 10292 One New York Plaza
(Domestic and Eurodollar) New York, NY 10292
Attn: Fuller O'Connor, Director
Phone: (212) 778-3720
Fax: (212) 778-3194 or 2253
-8-
<PAGE>
SCHEDULE 1.1
Mortgaged Properties Fee Owner
-------------------- ---------
1. Hilton Parking Garage, Knoxville, TN Triad Parking Company, Ltd.
2. SunTrust Bank Bldg., 201 4th Ave., N.,
Nashville, TN Nashville Office Building I, Ltd.
3. The Weston, 4823 Kingston Pike,
Knoxville, TN Old Kingston Properties, Ltd.
4. One Centre Square, 620 Market St.,
Knoxville, TN Professional Plaza, Ltd.
5. Two Centre Square, 625 Gay St.,
Knoxville, TN Centre Square II, Ltd.
Assigned Mortgaged Properties Owner of Assigned Note
----------------------------- ----------------------
None
-9-
<PAGE>
<TABLE>
SCHEDULE 1.2
Commitments
-----------
<CAPTION>
Committment Committment
prior to prior to Commitment % Commitment
Effective Effective prior to % on and after
Lender Date Date Effective Date Effective Date
- - ---------------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
BankBoston, N.A. $ 52,500,000 $ 40,000,000 27.6315789474% 50%
Prudential Securities $ 52,500,000 $ 40,000,000 27.6315789474% 50%
Credit Corporation
Societe Generale $ 25,000,000 $ 0 13.1578947368% 0%
Commerzbank, AG $ 20,000,000 $ 0 10.5263157895% 0%
Banque Nationale de $ 20,000,000 $ 0 10.5263157895% 0%
Paris
Mellon Bank, N.A. $ 20,000,000 $ 0 10.5263157895% 0%
- - ---------------------- ------------ ------------ -------------- --------------
Total $190,000,000 $ 80,000,000 100% 100%
- - ---------------------- ------------ ------------ -------------- --------------
</TABLE>
-10-
<PAGE>
<TABLE>
SCHEDULE 1.4
Letters of Credit
-----------------
<CAPTION>
Beneficiary Project Face Amount
- - ------------------------- ----------------------------- -------------------
<S> <C> <C>
First Tennessee Bank N.A. Nashville Office Building
I, Ltd. $ 4,915,069.00
First Tennessee Bank N.A. Old Kingston Properties, Ltd. $ 3,583,905.00
First Tennessee Bank N.A. Professional Plaza, Ltd. $ 9,215,754.00
First Tennessee Bank N.A. Centre Square II, Ltd. $ 9,215,754.00
- - ------------------------- ----------------------------- --------------------
TOTAL $ 26,930,482.00
82.00
- - ------------------------- ----------------------------- --------------------
</TABLE>
-11-
<PAGE>
<TABLE>
SCHEDULE 8.1(f)
Recourse Indebtedness
---------------------
<CAPTION>
Lender Total Credit Amount Recourse Indebtedness
- - ------------------------ ------------------- ---------------------
<S> <C> <C>
LaSalle National Bank $ 15,000,000.00 $ 15,000,000.00
Bank One, Illinois $ 48,809,587.00 $ 10,000,000.00
CIGNA Investments, Inc. $ 75,000,000.00 $ 6,215,110.00
CIBC Oppenheimer $ 14,600,000.00 $ 7,300,000.00
LaSalle National Bank $ 13,500,000.00 $ 3,500,000.00
- - ------------------------ ------------------- ---------------------
Total $ 42,015,110.00
- - ------------------------ ------------------- ---------------------
</TABLE>
-12-
<PAGE>
Exhibit C
---------
Prime Group Realty, L.P.
77 West Wacker Drive, Suite 3900
Chicago, IL 60601
Compliance Certificate under
Credit Agreement dated as of November 17, 1997, as amended
The undersigned, a Responsible Officer of Prime Group Realty Trust, general
partner of Prime Group Realty, L.P. (the "Borrower"), hereby certifies on behalf
of the Borrower as of the date hereof the following:
1. NO DEFAULTS. I have read a copy of the Credit Agreement dated as of
November 17, 1997 as amended (the "Credit Agreement") among the Borrower,
BankBoston, N.A., the other lending institutions party thereto, and BankBoston,
N.A., as Agent. Terms used herein and not otherwise defined herein shall have
the meanings set forth in Section 1.1 of the Credit Agreement. No Default is
continuing in the performance or observance of any of the covenants, terms or
provisions of the Credit Agreement or any of the other Loan Documents. Without
limiting the foregoing, the Borrower has not taken any actions which are
prohibited by the negative covenants set forth in Section 8 of the Credit
Agreement. Attached hereto as Appendix I are all relevant calculations needed to
determine whether the Borrower is in compliance with Section 9, Section 8.3(e),
(g) and (h) and Section 8.7 of the Credit Agreement as of the end of the most
recently completed fiscal quarter (except that in the case of Compliance
Certificates delivered pursuant to Section 2.5, Section 2.9(b), Section 2.9(d)
Section 11.1, Section 5.5 or Section 8.4(b), the calculations determining
compliance with Section 9.1, Section 9.2 and Section 9.3 are computed on a
pro-forma basis as of the date of such certificate and after giving effect to
the proposed transaction, if any, with respect to which the Compliance
Certificate is being delivered), and is in compliance with Section 8.7 of the
Credit Agreement for the most recently completed fiscal year.
2. NO MATERIAL CHANGES, ETC. Except as disclosed on Appendix II hereto,
since the [date of most recent financial statements furnished to the Agent and
the Lenders], there have occurred no materially adverse changes in the financial
condition or business of the Borrower as shown on or reflected in the balance
sheet of the Borrower as at such date other than (a) changes in the ordinary
course of business that have not had any materially adverse effect either
individually or in the aggregate on the business or financial condition of the
Borrower and (b) changes resulting from the making of the Loans and the
transactions contemplated by the Credit Agreement.
3. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor the
Company is subject to any charter, corporate, trust, partnership or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected, in the reasonable judgment of the Company's officers, in the future to
have a Materially Adverse Effect. Neither the Borrower nor the Company is a
party to any contract or agreement that has or is expected, in the reasonable
judgment of the Company's officers, to have a Materially Adverse Effect.
Prime Group Realty, L.P.
By: Prime Group Realty Trust,
Its managing general partner
By:_______________________________
_______________________________
Its:___________________________
Date:
-13-
<PAGE>
Appendix I
----------
FINANCIAL COVENANT CALCULATIONS
-------------------------------
Note: Unless otherwise indicated all calculations are as of ____________________
or for the fiscal quarter ending on such date (the "Fiscal Quarter") [except
that paragraphs 1, 2 and 3 have been computed on a pro-forma basis as of
___________________ and including the effect of the following proposed
transaction:_____________________.]. References herein to the "last quarter"
mean the Fiscal Quarter and references to the "prior quarter" mean the fiscal
quarter immediately preceding the Fiscal Quarter.
1. Appraisal Value [Section 9.1]
(a) Principal of Outstanding Loans $____________
(b) Aggregate Face Amount of Outstanding Letters of Credit $____________
(c) Collateral Account Balance $____________
(d) Pro Forma Principal Amount [a + b - c] $____________
(e) Collateral Value of Mortgaged $____________
Properties (see attached Schedule
of Collateral Values)
(f) 60% of line (e) $____________
(g) Collateral Value of Assigned Mortgaged $____________
Properties (see attached Schedule
of Collateral Values)
(h) 50% of line (g) $____________
(i) Sum of lines (f) and (h) $____________
COVENANT: (d) should be less than (i)
2. Minimum Debt Service Coverage [Section 9.2]
(a) Net Operating Income for all of the Mortgaged
Properties: $____________
(b) Pro Forma Debt Service Charges for Mortgaged
Properties based on three monthly payments of
mortgage style amortization of the Pro Forma
Principal Amount of $______________ amortized
over 25 years at _______% per annum, being the
greater of the current average interest rate on
the Loans or 1.75% above the current ten year
U.S. Treasury bill yield: $____________
CALCULATIONS: (a)/(b) = _________ which is not less than 1.5
3. Total Liabilities to Total Adjusted Assets [Section 9.3]
(a) Total liabilities from Fiscal Quarter balance sheet: $____________
(b) Accounts payable and accrued expenses $____________
(c) Dividends payable $____________
(d) Total Liabilities at end of Fiscal Quarter [a-b-c] $____________
(e) Change in Indebtedness and letters of credit
outstanding since end of Fiscal Quarter $____________
(f) Total Liabilities [d+or-e] $____________
(g) Cash and cash equivalents: $____________
(h) Income before minority interest and extraordinary
items last quarter $____________
(i) Interest Expense last quarter $____________
(j) Depreciation and amortization last quarter $____________
(k) Deferred rent receivable for prior quarter
net of effect of last quarter property sales $____________
(l) Deferred rent receivable for last quarter $____________
(m) EBITDA last quarter per operating statement[h+i+j+k-l]: $____________
(n) Proforma adjustments to last quarter EBITDA-see schedule $____________
(o) Proforma adjusted last quarter EBITDA[k+l] $____________
-14-
<PAGE>
(p) Income before minority interest and extraordinary items
prior quarter $____________
(q) Interest Expense prior quarter $____________
(r) Depreciation and amortization prior quarter $____________
(s) Deferred rent receivable for quarter before prior
quarter net of effect of prior quarter property sales $____________
(t) Deferred rent receivable for prior quarter $____________
(u) EBITDA prior quarter per operating statement [p+q+r+s-t]:$____________
(v) Proforma adjustments to prior quarter EBITDA-see
schedule $____________
(w) Proforma adjusted prior quarter EBITDA[u+v] $____________
(x) Annualized EBITDA [(o) + (w) times 2]: $____________
(y) Line (x) divided by 0.0975: $____________
(z) Total Adjusted Assets [(g) + (y)]: $____________
CALCULATIONS: (f)/(z) = ____________ which is less than 60%
4. Minimum Tangible Net Worth [Section 9.4]
(a) Total Assets (GAAP assets plus depreciation
on Real Estate Assets) $____________
(b) Total Liabilities (end of Fiscal Quarter) $____________
(c) Intangibles $____________
(d) Tangible Net Worth [(a)-(b)-(c)] $____________
(e) Net Offering Proceeds $____________
(f) $350,000,000 plus .75 times (e) $____________
COVENANT: Line (d) should exceed line (f)
5. Total Operating Cash Flow to Interest Expense [Section 9.5]
(a) EBITDA (for Fiscal Quarter) $____________
(b) Gross leasable area of all Real Estate Assets $____________
(c) Reserve Amount ((b) times $0.25 divided by 4) $____________
(d) Total Operating Cash Flow [(a) - (c)] $____________
(e) Interest Expense (includes capitalized interest) $____________
CALCULATIONS: (d)/(e) = _____ which is not less than 2.0
6. EBITDA to Fixed Charges [Section 9.6]
(a) EBITDA (for Fiscal Quarter) $____________
(b) Interest Expense (same as line 5(e)) $____________
(c) Principal installments and current maturities $____________
not refinanced
(d) Preferred dividends and distributions $____________
(e) Fixed Charges (sum of lines (b), (c), and (d)) $____________
CALCULATIONS: (a)/(e) = ____________which is not less than 1.75
7. Permitted Investments [Section 8.3(e), (g) and (h)]
Attached hereto is a Schedule of all (a) Investments
in mortgages and notes receivable, (b)
Permitted Developments in process as of ________________
and (c) Investments in undeveloped land.
(a) Investments in mortgages and notes receivable
(excluding Mortgages the acquisition of which
has been expressly approved by the Requisite Lenders) $____________
(b) Investments in Permitted Developments $____________
(c) Total Adjusted Assets (end of Fiscal Quarter) $____________
(d) 20% of Total Adjusted Assets $____________
(e) Investments in undeveloped land $____________
(f) 10% of Total Adjusted Assets $____________
COVENANT:
Line (a) should not exceed $25,000,000
Line (b) should not exceed line (d)
Line (e) should not exceed line (f)
8. Distributions [Section 8.7]
(a) Total Distributions during most recently ended $____________
fiscal year
(b) Funds From Operations for said fiscal year $____________
(c) Total Distributions during most recently ended
fiscal quarter $____________
-15-
<PAGE>
(d) Funds from Operations for fiscal quarter referenced
in (c) $____________
(e) Total Distributions during the fiscal quarter preceding
the fiscal quarter referenced in (c) $____________
(f) Funds from Operations during fiscal quarter referenced
in (e) $____________
(g) Total Distributions during the fiscal quarter preceding
the fiscal quarter referenced in (e) $____________
(h) Funds from Operations during fiscal quarter referenced
in (g) $____________
CALCULATIONS: (a)/(b) = _____% which is less than 90%
(c)/(d) = _____%
(e)/(f) = _____%
(g)/(h) = _____%
At least one of the three percentages immediately above is less than 100%
-16-
<PAGE>
SCHEDULE OF COLLATERAL VALUES
Borrowing
Mortgaged NOI NOI Reserve Cap Base Appraised Collateral
Property Last Q Previous Q Amount Rate Value Value Value
- - --------- ------ ---------- ------- ---- --------- --------- ----------
Totals:
- - -------
-17-
<PAGE>
SCHEDULE OF
PERMITTED INVESTMENTS
I. Mortgages:
----------
Location of Security Maker of Note Cost Outstanding Balance
- - -------------------- ------------- ---- -------------------
II. Developments:
-------------
Scheduled
Project Location Size (sq. ft.) Total Project Cost Start Date Completion Date
- - ---------------- -------------- ------------------ ---------- ---------------
III. Undeveloped Land:
-----------------
Land Location Size (acres) Cost
- - ------------- ------------ ----
-18-
<PAGE>
SCHEDULE OF PROFORMA ADJUSTMENTS TO EBITDA PURSUANT TO DEFINITION
OF TOTAL ADJUSTED ASSETS
A. Adjustments to last quarter EBITDA for acquisitions made during last quarter
[and since the end of the last quarter]
Operating
and
RE Tax EBITDA
Revenue exp. included Adjustment
(full Full property on to
Acquisition Date quarter quarter) EBITDA financials EBITDA
- - ----------- ---- ------- --------- -------- ---------- ----------
B. Adjustments to last quarter EBITDA for dispositions made during last quarter
[and since the end of the last quarter]
Disposition Date EBITDA from property included in last quarter financials
- - ----------- ---- --------------------------------------------------------
Total additions to last quarter EBITDA for acquisitions $____________
Total subtractions from last quarter EBITDA for dispositions $____________
Net proforma adjustments to last quarter EBITDA(enter on line 3k) $____________
C. Adjustments to prior quarter EBITDA for acquisitions made during prior
quarter and during last quarter [and since the end of the last quarter]
Operating
and
RE Tax EBITDA
Revenue exp. included Adjustment
(full Full property on to
Acquisition Date quarter quarter) EBITDA financials EBITDA
- - ----------- ---- ------- --------- -------- ---------- ----------
D. Adjustments to prior quarter EBITDA for dispositions made during prior
quarter and during last quarter [and since the end of the last quarter]
Disposition Date EBITDA from property included in last quarter financials
- - ----------- ---- --------------------------------------------------------
Total additions to prior quarter EBITDA for acquisitions $____________
Total subtractions from prior quarter EBITDA for dispositions $____________
Net proforma adjustments to prior quarter EBITDA(enter on line 3q)$____________
-19-
<PAGE>
APPENDIX II
-----------
MATERIAL CHANGES
----------------
-20-
EXHIBIT 10.13
- - --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of October 21, 1998
Between
2000 YORK ROAD, L.L.C.,
as Borrower
AND
THE CAPITAL COMPANY OF AMERICA LLC,
as Lender
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 10.24........................... Interpretation 73
--------------
SCHEDULES
---------
Schedule 1 - Matters Regarding Representations
Schedule 2 - Rent Roll
Schedule 3 - Required Repairs
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Management Agreement
-2-
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT dated as of October 21, 1998 (the "Agreement") between 2000
YORK ROAD, L.L.C., a limited liability company duly organized and validly
existing under the laws of the State of Delaware ("Borrower") and THE CAPITAL
COMPANY OF AMERICA LLC, a limited liability company organized under the laws of
the State of Delaware (together with its permitted successors and assigns,
"Lender").
All capitalized terms used herein shall have the respective meanings set
forth in Section 1 hereof.
W I T N E S E T H :
-------------------
WHEREAS, Borrower desires to obtain the Loan from Lender;
WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly required or unless the context clearly indicates a contrary
intent:
"ACCRUED INTEREST" shall have the meaning set forth in Section 2.2.2.
"AFFILIATE" shall mean, as to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by or is under
common control with such Person or is a director or officer of such Person or of
an Affiliate of such Person.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"ANNUAL BUDGET" shall have the meaning set forth in Section 5.1(r).
"APPROVED CAPITAL EXPENSES" shall mean Capital Expenses incurred by
Borrower with respect to the Property which (i) are included in the Capital
Budget for the Current Month for the Property, (ii) are not included in the
Capital Budget for the Current Month, but do not cause either (A) the relevant
line item for the entire year covered by the Capital Budget for the Property to
be exceeded by more than five percent (5%) or (B) the total of the Capital
Budget for the Property for the Current Month and all prior months covered by
such Capital Budget (i.e., year to date) to be exceeded or (iii) have been
approved by the Lender.
"APPROVED LEASING EXPENSES" shall mean those expenses incurred in leasing
space at the Property pursuant to Leases entered into in accordance with the
provisions of Section 5.1(u) and the applicable provisions of the Mortgage,
including brokerage commissions, tenant improvements and other inducements,
which expenses are (A) approved by Lender in connection with approving the
applicable Lease or (B) otherwise approved by Lender, which approval shall not
be unreasonably withheld or delayed.
"APPROVED OPERATING EXPENSES" shall mean Operating Expenses incurred by
Borrower with respect to the Property which (i) are included in the approved
Operating Budget for the Property for the Current Month, (ii) are not included
in the approved Operating Budget for the Property for the Current Month, but do
not cause (A) the relevant line item for the Current Month or the total of such
approved Operating Budget for the Current Month to be exceeded by more than five
percent (5%) or (B) the total of the Operating Budget for the Property for the
Current Month and all prior months covered by such Operating Budget (i.e., year
to date) to be exceeded, (iii) are for electric, gas, oil, water, sewer or other
utility service to the Property or (iv) have been approved by the Lender or are
in the nature of an emergency repair.
"ASSIGNMENT OF AGREEMENTS" shall mean, with respect to the Property, that
certain first priority Assignment of Agreements, Licenses, Permits and Contracts
dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee,
-3-
<PAGE>
assigning to Lender as security for the Loan, to the extent assignable under
law, all of Borrower's interest in and to the Management Agreement and all other
licenses, permits and contracts necessary for the use and operation of the
Property, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.
"ASSIGNMENT OF LEASES" shall mean, with respect to the Property, that
certain first priority Assignment of Leases and Rents dated as of the date
hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender
as security for the Loan, to the extent assignable under law, all of Borrower's
interest in and to the Rents and Leases for the Property, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"AWARD" shall have the meaning set forth in Section 7.1.3.
"BORROWER" shall mean 2000 York Road, L.L.C., together with its permitted
successors and assigns.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in New York or Illinois are not open for
business.
"CAPITAL BUDGET" shall have the meaning set forth in Section 5.1(r).
"CAPITAL EXPENSES" shall mean capital expenditures as determined in
accordance with GAAP.
"CAPITAL RESERVE FUND" shall have the meaning set forth in Section 7.4.1.
"CASH COLLATERAL ACCOUNT" shall mean that account established and
maintained pursuant to the Cash Collateral Account Agreement.
"CASH COLLATERAL ACCOUNT AGREEMENT" shall mean that certain Cash Collateral
Account Agreement dated as of the date hereof among Borrower, Lender, Manager
and Cash Collateral Account Bank, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"CASH COLLATERAL ACCOUNT BANK" shall mean LaSalle National Bank, or any
successor chosen by Lender.
"CASH TRAP EVENT" shall have the meaning set forth in Section 2.6(a).
"CASUALTY/CONDEMNATION PREPAYMENTS" shall have the meaning set forth in
Section 2.3.2.
"CCA" shall mean The Capital Company of America LLC, a Delaware limited
liability company.
"COLLECTION ACCOUNT" shall mean the account established and maintained
pursuant to the Collection Account Agreement.
"COLLECTION ACCOUNT AGREEMENT" shall mean that certain Collection Account
Agreement dated as of the date hereof among Borrower, Lender and Collection
Account Bank into which Rents from the Property are deposited, as the same may
be amended, restated, replaced, supplemented, or otherwise modified from time to
time.
"COLLECTION ACCOUNT BANK" shall have the meaning set forth in Section
2.6(a).
"CLOSING DATE" shall mean the date of the funding of the Loan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"CONDEMNATION" shall have the meaning set forth in Section 7.1.3.
"CONDEMNATION RESTORATION" shall have the meaning set forth in Section
7.1.3.
"CONSENT AND SUBORDINATION OF MANAGER" shall mean that certain Consent and
Subordination of Manager dated the date hereof between Manager and Lender, as
the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.
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"CONTROL" shall mean with respect to any Person either (i) ownership
directly or through other entities, of more than 50% of all beneficial equity
interest in such Person or (ii) the power to direct the management, operation
and business of such Person.
"CURRENT MONTH" shall mean, as of the date of determination, the then
current calendar month.
"DEBT" shall mean the outstanding principal amount set forth in, and
evidenced by, the Note, together with all interest accrued and unpaid thereon
and all other sums due to Lender in respect of the Loan, including the Yield
Maintenance Premium, and any sums due under the Note, this Agreement, the
Mortgage or in any other Loan Document.
"DEBT SERVICE" shall mean, with respect to any particular period of time,
scheduled principal and interest payments under the Note.
"DEBT SERVICE COVERAGE RATIO" shall mean, as of any date, a ratio in which
(a) the numerator is the Net Operating Income for the 12-month period
immediately preceding such date and (b) the denominator is the aggregate amount
of principal and interest actually due and payable on the Note (other than
principal and interest under any Defeased Notes and principal payable under
Section 2.2.3(e)) for such period.
"DEEMED APPROVED LEASE" shall have the meaning set forth in Section 5.1(u).
"DEFAULT" shall mean the occurrence of any event hereunder or under any
other Loan Document which, but for the giving of notice or passage of time, or
both, would be an Event of Default.
"DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal
to the lesser of (a) the maximum rate permitted by applicable law or (b) five
percent (5%) above the Interest Rate.
"DEFEASANCE" shall have the meaning set forth in Section 2.3.3.
"DEFEASANCE DATE" shall have the meaning set forth in Section 2.3.3.
"DEFEASANCE DEPOSIT" shall mean an amount equal to the sum of (i) an amount
that will be sufficient to purchase U.S. Obligations providing payments to meet
the Scheduled Defeasance Payments, (ii) any costs and expenses incurred or to be
incurred in the purchase of U.S. Obligations necessary to meet the Scheduled
Defeasance Payments and (iii) any revenue, documentary stamp or intangible taxes
or any other tax or charge due in connection with the transfer of the Note, the
creation of the Defeased Note and the Undefeased Note, if applicable, any
transfer of the Defeased Note or otherwise required to accomplish the agreements
of Sections 2.3 and 2.4.
"DEFEASED NOTE" shall have the meaning set forth in Section 2.3.3.
"DISCLOSURE DOCUMENT" shall have the meaning set forth in Section 9.2(a).
"ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental and
Hazardous Substance Indemnification Agreement executed by Borrower in connection
with the Loan for the benefit of Lender, as the same may be amended, restated,
replaced, supplemented, or otherwise modified from time to time.
"EQUIPMENT" shall have the meaning set forth in the Mortgage.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1.
"EXCHANGE ACT" shall have the meaning set forth in Section 9.2(a).
"FISCAL YEAR" shall mean each twelve month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence having jurisdiction over Borrower or the Property.
"GUARANTOR" shall have the meaning set forth in Section 4.1(dd)(iii).
"IMPROVEMENTS" shall have the meaning set forth in the Mortgage.
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"including" shall mean "including, without limitation".
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section
10.13(b).
"INDEPENDENT DIRECTOR" shall have the meaning set forth in Section 4.1(dd).
"INSURANCE PREMIUMS" shall have the meaning set forth in Section 7.1.1.
"INSURANCE PROCEEDS" means the proceeds of any insurance policies carried
pursuant to the Loan Documents or otherwise with respect to the Property.
"INSURED CASUALTY" shall have the meaning specified in Section 7.1.1(d).
"INTEREST RATE" shall mean a rate of interest equal to 7.375% per annum.
"LEASE" shall mean any lease, or, to the extent of the interest therein of
Borrower, any sublease or sub-sublease, letting, license, concession or other
agreement (whether written or oral and whether now or hereafter in effect)
pursuant to which any Person is granted a possessory interest in, or right to
use or occupy all or any portion of any space in the Property, and every
modification, amendment or other agreement relating to such lease, sublease,
sub-sublease, or other agreement entered into in connection with such lease,
sublease, sub-sublease, or other agreement and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal,
state, county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting the Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, whether now or hereafter
enacted and in force, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Borrower, at any time in force affecting the Property or any part thereof,
including any which may (i) require repairs, modifications or alterations in or
to the Property or any part thereof or (ii) in any way limit the use and
enjoyment thereof.
"LENDER" shall mean The Capital Company of America LLC, together with its
successors and assigns.
"LIABILITIES" shall have the meaning set forth in Section 9.2(b).
"LICENSES" shall have the meaning set forth in Section 4.1(w).
"LIEN" shall mean, with respect to the Property, any mortgage, deed of
trust, lien, pledge, hypothecation, assignment, security interest, or any other
encumbrance, charge or transfer of, on or affecting the Property or any portion
thereof or Borrower, including any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement, and mechanic's,
materialmen's and other similar liens and encumbrances.
"LOAN" shall mean the loan made to Borrower by Lender pursuant hereto in
the original principal amount of $12,000,000 and evidenced by the Note and
secured by the Mortgage and the other Loan Documents.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the
Mortgage, the Assignment of Leases, the Assignment of Agreements, the
Environmental Indemnity, the Consent and Subordination of Manager, the
Collection Account Agreement, the Cash Collateral Account Agreement and all
other documents, agreements and instruments evidencing, securing or delivered to
Lender in connection with the Loan.
"MANAGEMENT AGREEMENT" shall mean, with respect to the Property, a
management agreement in the form attached hereto as Exhibit B entered into by
and between Borrower and the Manager, pursuant to which the Manager is to
provide management and other services with respect to the Property, as the same
may be amended, restated, replaced, supplemented, or otherwise modified from
time to time.
"MANAGEMENT FEE" shall mean the fee payable to Manager pursuant to the
Management Agreement.
"MANAGER" shall mean Prime Group Realty, L.P., a Delaware limited
partnership.
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"MATURITY DATE" shall mean the date on which the final payment
of principal of the Note (or the Defeased Note, if applicable) becomes due and
payable as therein provided, whether at the Stated Maturity Date (November 11,
2024), by declaration of acceleration, or otherwise.
"MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall have the meaning set forth in
Section 2.2.1.
"MORTGAGE" shall mean that certain first priority Mortgage, Assignment of
Leases and Rents, Security Agreement and Financing Statement executed and
delivered by Borrower as security for the Loan and encumbering the Property, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time.
"NET OPERATING INCOME" shall mean, for any period, the difference between
all Operating Income during such period, minus all Operating Expenses during
such period. In determining Net Operating Income for purposes hereof, all
adjustments to Operating Income and Operating Expenses shall be determined by
Lender in its sole discretion consistent with its due diligence findings and
prevailing market conditions. Net Operating Income shall be audited, or shall be
determined in accordance with agreed-upon procedures determined by Lender.
"NOTE" shall mean that certain Note of even date herewith, made by Borrower
in favor of Lender, substantially in the form of Exhibit A annexed hereto, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time, including any Undefeased Note that may
exist from time to time.
"OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by
Borrower which is signed by a senior executive officer of Borrower.
"OPERATING BUDGET" shall have the meaning set forth in Section 5.1(r).
"OPERATING EXPENSES" shall mean, as to any period, all operating expenses
relating to the Property during such period, including the following items:
(i) all expenses for the operation of the Property including management
fees in respect thereof (in no event less than four percent (4%) of gross
revenues), all insurance premiums and expenses, accounting expenses, advertising
expenses, expenses for architectural services, bank charges, utility charges,
expenses for extermination, cleaning and trash removal services, expenses
relating to window washing, landscaping and security services, reasonable and
necessary legal expenses incurred in connection with the operation of the
Property, tenant improvements and marketing costs;
(ii) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest on such impositions (or portions
thereof) that are payable by reason of Borrower's failure to pay an imposition
timely; and
(iii) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP.
Operating Expenses shall be subject to adjustment to provide for (a) a
normalized allowance for lease rollovers including costs for downtime, tenant
improvements and leasing commissions, (b) a reserve for capital expenditures and
capital replacements equal to at least $0.55 per square foot per annum for all
rentable space (or such greater amount as shall be indicated in the independent
engineering reports) and (c) any other matters that may have an impact on
Operating Expenses. Operating Expenses will not include debt service, capital
expenses, non-cash items such as depreciation and amortization and any
extraordinary one-time expenditures not considered operating expenses under
GAAP.
"OPERATING INCOME" shall mean, as to any period, all income actually
received by Borrower from the Property during such period, including actual
rental income and other income, base rents, percentage rents, common area
maintenance charges, property tax recoveries, operating expense recoveries,
insurance recoveries, Consumer Price Index rent adjustments and other
miscellaneous income items. Operating Income shall be based on Leases in place
with tenants occupying their space (either directly or through subtenants) and
actually paying rent; provided, that rental income from signed Leases with
tenants rated "BBB" or better will be counted whether or not the tenant is
occupying the space. For purposes of calculating Operating Income, reimbursement
and other income will be included in Operating Income to the extent that Lender,
in its reasonable discretion, determines that it is stabilized and recurring,
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and any income from temporary or month-to-month tenants will not be included in
Operating Income. Operating Income shall be subject to adjustment (i) for a
vacancy allowance at the market vacancy rate (but not less than ten percent
[10%]) if actual vacancy is less than market or ten percent (10%), (ii) for any
tenants operating under bankruptcy protection, (iii) if necessary, to mark any
Leases to market rent, (iv) to address any rent adjustments or cancellation
options contained in the Leases, and (v) any other matters that may have an
impact on Operating Income. Operating Income will not include income from
non-recurring income sources, advance payments, deposits, escrows, a sale or
other capital item transaction or payments received in respect of U.S.
Obligations purchased in connection with a Defeasance.
"OPTIONAL PREPAYMENT DATE" shall mean November 11, 2008.
"OTHER CHARGES" shall mean all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including vault charges and
license fees for the use of vaults, chutes and similar areas adjoining the
Property, now or hereafter levied or assessed or imposed against the Property or
any part thereof.
"PAYMENT DATE" shall mean the eleventh (11th) day of each calendar month
or, if in any month the eleventh (11th) day is not a Business Day, than the
Payment Date for such month shall be the first Business Day thereafter.
"PERMITTED ENCUMBRANCES" shall mean, with respect to the Property,
collectively, (i) the Liens and security interests created by the Loan
Documents, (ii) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policy relating to the Property or any part thereof, (iii) Liens, if
any, for Taxes or Other Charges not yet payable or delinquent or which are being
protested in accordance with the provisions of Section 5.1(b), (iv) such other
title and survey exceptions as Lender has approved or may approve in writing in
Lender's sole discretion, or are hereafter created in accordance with this
Agreement or the Mortgage and (v) Liens which attach in accordance with the
provisions of Section 6.1(b).
"PERMITTED INDEBTEDNESS" shall mean (i) the Debt, and (ii) unsecured trade
debt customarily payable within thirty (30) days.
"PERMITTED INVESTMENTS" shall have the meaning set forth in the Cash
Collateral Account Agreement.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"POLICIES" shall have the meaning specified in Section 7.1.1(c).
"POOLING AND SERVICING AGREEMENT" shall mean the Servicing Agreement
entered into with the Servicer in connection with any Securitization of the
Loan.
"PREMISES" shall have the meaning set forth in the Granting Clause of the
Mortgage encumbering the Property.
"PROPERTY" shall mean that certain parcel of real property and improvements
thereon owned by Borrower and encumbered by the Mortgage, together with all
rights pertaining to such property and improvements, as more particularly
described in the Granting Clauses of the Mortgage and referred to therein as the
"Property" or the "Mortgaged Property", as the case may be, and known as 2000
York Road, Oak Brook, Illinois.
"PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1.
"QUALIFIED SURVEY" shall mean a current title survey, certified to the
title company and Lender and their successors and assigns, that (A) is in form
and content reasonably satisfactory to Lender, (B) is prepared by a professional
and properly licensed land surveyor satisfactory to Lender in accordance with
the 1997 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,
(C) meets the classification of an "Urban Survey" and includes the following
additional items from the list of "Optional Survey Responsibilities and
Specifications" (Table A): 1, 2, 3, 4, 5, 6, 7a-b, 8, 9, 10, 11 and 13, (D)
reflects the same legal description contained in the Title Insurance Policy
relating to the Property, and (E) contains a certification in form and substance
reasonably acceptable to Lender.
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"QUALIFIED TITLE INSURANCE POLICY" shall mean a Title Insurance Policy
issued by Commonwealth Title Insurance Company or another title company
acceptable to Lender, with reinsurance and direct access agreements acceptable
to Lender, which Title Insurance Policy shall (A) provide coverage in the amount
of the Loan, (B) insure Lender that the Mortgage creates a valid lien on the
Property encumbered thereby of the requisite priority, free and clear of all
exceptions from coverage other than Permitted Encumbrances and standard
exceptions and exclusions from coverage (as modified by the terms of any
endorsements), (C) contain such endorsements and affirmative coverages as Lender
may reasonably request, (D) name Lender as the insured and (E) be assignable.
"RATING AGENCY" shall mean each of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch Investors Service, Inc. or any other
nationally-recognized statistical rating agency which has been approved by
Lender.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
9.2(b).
"RELEASE DATE" shall mean the earlier of (a) three (3) years after the
Closing Date and (b) two (2) years from the "start-up day" (within the meaning
of Section 860G(a)(9) of the Code) of the REMIC Trust.
"REMIC" shall mean a "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC Trust" shall mean a REMIC which holds the Note.
"RENTS" shall mean, with respect to the Property, all rents, rent
equivalents, moneys payable as damages or in lieu of rent or rent equivalents,
royalties (including all oil and gas or other mineral royalties and bonuses),
income, receivables, receipts, revenues, deposits (including security, utility
and other deposits), accounts, cash, issues, profits, charges for services
rendered, and other consideration of whatever form or nature received by or paid
to or for the account of or benefit of Borrower or its agents or employees from
any and all sources arising from or attributable to the Property, including all
receivables, customer obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of the sale, lease,
sublease, license, concession or other grant of the right of the use and
occupancy of the Property and proceeds, if any, from business interruption or
other loss of income insurance.
"RENT ROLL" shall have the meaning set forth in Section 4.1(aa).
"REQUIRED RECORDS" shall have the meaning set forth in Section 5.1(k).
"REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section
7.2.1.
"REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.2.1.
"REQUIRED REPAIRS" shall have the meaning set forth in Section 7.2.1.
"RESTORATION" shall have the meaning set forth in Section 7.1.2(b).
"REVISED INTEREST RATE" shall mean the per annum rate of interest which is
the greater of (i) the Interest Rate plus 5% and (ii) the Treasury Rate on the
Optional Prepayment Date plus 7.215%
"SPE MEMBER" shall have the meaning set forth in Section 4.1(dd).
"SCHEDULED DEFEASANCE PAYMENTS" shall have the meaning set forth in Section
2.3.3.
"SECONDARY MARKET TRANSACTION" shall mean any transaction in which Lender
(i) sells the Loan, the Note and the other Loan Documents to one or more
investors as a whole loan, (ii) participates the Loan to one or more investors,
(iii) deposits the Loan, the Mortgage, the Note and other Loan Documents with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets or (iv) otherwise sells the Loan or an interest
therein to investors.
"SECURITIES" shall have the meaning set forth in Section 9.1.
"SECURITIES ACT" shall have the meaning set forth in Section 9.2(a).
"SECURITIZATION" shall have the meaning set forth in Section 9.1.
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"SECURITY AGREEMENT" shall have the meaning set forth in Section
2.3.3(vii).
"SERVICER" shall mean the entity appointed by Lender to service the Loan or
its successor in interest, or if any successor servicer is appointed pursuant to
the Pooling and Servicing Agreement, such successor servicer.
"SPECIAL TRANSFER" shall mean the sale by the original Borrower of the
Property to a purchaser pursuant to which such purchaser shall assume in writing
all of the obligations of Borrower under the Loan, provided that Lender shall
have received evidence in writing from the applicable Rating Agencies to the
effect that such a sale and assumption of the Loan by such purchaser will not
result in a qualification, withdrawal or downgrading of the ratings in effect
immediately prior to such sale for the Securities issued in connection with the
Securitization which are then outstanding.
"STATE" shall mean the State of Illinois.
"STATED MATURITY DATE" shall mean November 11, 2024.
"SUCCESSOR BORROWER" shall have the meaning set forth in Section 2.3.3(c).
"SURVEY" shall mean a survey of the Property in question prepared by a
surveyor licensed in the State and satisfactory to Lender and the company or
companies issuing the Title Insurance Policies, and containing a certification
of such surveyor satisfactory to Lender.
"TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section
7.3.1.
"TAXES" shall mean all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against the Property or part thereof.
"TERM" shall mean the entire term of this Agreement, which shall expire
upon repayment in full of the Debt and full performance of each and every
obligation to be performed by Borrower pursuant to the Loan Documents.
"TITLE INSURANCE POLICY" shall mean, with respect to the Property, the ALTA
mortgagee title insurance policy in the form (acceptable to Lender) issued with
respect to the Property and insuring the lien of the Mortgage encumbering the
Property.
"TRANSFER" shall have the meaning set forth in Section 6.1(j).
"TREASURY RATE" shall mean, as of the Optional Prepayment Date, the linear
interpolation of the bond equivalent yields, as reported in Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading "U.S.
Government Securities/Treasury Constant Maturities" for the week ending prior to
the Optional Prepayment Date, of U.S. Treasury constant maturities with maturity
dates (one longer and one shorter) most nearly approximating the remaining term
of the Note as of the Optional Prepayment Date.
"UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code
as in effect in the State.
"UNDEFEASED NOTE" shall have the meaning set forth in Section 2.3.3 hereof.
"UNDERWRITER GROUP" shall have the meaning set forth in Section 9.2(b).
"U.S. OBLIGATION" shall mean direct non-callable obligations of the United
States of America.
"YIELD MAINTENANCE PREMIUM" shall mean the amount (if any) which, when
added to the remaining principal amount of the Note or the principal amount of
Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations
providing the required Scheduled Defeasance Payments.
Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. Unless otherwise specified, the words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. Unless otherwise specified, all meanings attributed
to defined terms herein shall be equally applicable to both the singular and
plural forms of the terms so defined. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, as modified herein.
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II. GENERAL
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Section 2.1 THE LOAN.
2.1.1 COMMITMENT. Subject to and upon the terms and conditions set forth
herein, including the conditions precedent set forth in Section 3.1, Lender
hereby agrees to make the Loan to Borrower on the Closing Date, in the aggregate
original principal amount set forth in the Note and which Loan shall mature on
the Stated Maturity Date. Borrower hereby agrees to accept the Loan on the
Closing Date, subject to and upon the terms and conditions set forth herein.
2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one
borrowing hereunder in respect of the Loan. Borrower shall receive the Loan upon
the Closing, subject to the direction given by Borrower as to the application of
Loan proceeds for the uses set forth in Section 2.1.4. Any amount borrowed and
repaid hereunder in respect of the Loan may not be reborrowed.
2.1.3 THE NOTE. The Loan shall be evidenced by the Note, in the aggregate
original principal amount of the Loan. The Note shall bear interest as provided
therein. The Note shall be subject to repayment as provided in Section 2.3,
shall be entitled to the benefits of this Agreement and shall be secured by the
Mortgage and the other Loan Documents.
2.1.4 USE OF PROCEEDS OF LOAN. Borrower shall use the proceeds of the Loan
(i) to finance the Property and to pay costs and expenses incurred in connection
with the Closing of the Loan, as approved by Lender and (ii) with respect to the
remainder, if any, as Borrower directs.
Section 2.2 INTEREST; MONTHLY PAYMENTS.
2.2.1 GENERALLY.
(a) From the date hereof through but not including the Optional Prepayment
Date, Borrower shall pay interest on the outstanding principal balance of the
Loan at the Interest Rate.
(b) On the date hereof, Borrower shall pay interest at the Interest Rate on
the outstanding principal balance of the Loan from the Closing Date through
November 10, 1998. Commencing with the Payment Date on December 11, 1998 and on
each and every Payment Date thereafter through and including the Maturity Date,
the principal amount of the Loan and interest thereon at the Interest Rate shall
be payable in equal monthly installments of $86,544.68 (the "Monthly Debt
Service Payment Amount"); such Monthly Debt Service Payment Amount being based
on the Interest Rate and a 312-month amortization schedule. The Monthly Debt
Service Payment Amount due on any Payment Date shall first be applied to the
payment of interest accrued from the eleventh (11th) day of the month preceding
the Payment Date through the tenth (10th) day of the month in which the Payment
Date occurs, notwithstanding that the Payment Date may have been deferred
because the eleventh (11th) day of such month is not a Business Day. The
remainder of such Monthly Debt Service Payment Amount shall be applied to the
reduction of the outstanding principal balance of the Note.
(c) From and after the Optional Prepayment Date, interest on the Loan shall
accrue at the Revised Interest Rate and shall be payable as provided in Sections
2.2.2 and 2.2.3.
2.2.2 ACCRUED INTEREST. From and after the Optional Prepayment Date, all
interest accruing in respect of the Note in excess of the Interest Rate
("Accrued Interest") shall be deferred, be added to the Debt and, to the extent
permitted by applicable law, accrue interest at the Revised Interest Rate,
compounded monthly. All Accrued Interest and interest on Accrued Interest shall
be due and payable on the Maturity Date.
2.2.3 PROPERTY CASH FLOW ALLOCATION AFTER THE OPTIONAL PREPAYMENT DATE.
Commencing on the Optional Prepayment Date and continuing on each Payment Date
thereafter until the entire Debt has been paid in full, any Rents deposited into
the Cash Collateral Account (or otherwise received by Borrower) during the
immediately preceding calendar month shall be applied as follows in the
following order of priority unless an Event of Default exists:
(a) First, to make required payments to the Tax and Insurance Escrow Fund;
(b) Second, to Lender to pay the Monthly Debt Service Payment Amount
(plus, if applicable, interest at the Default Rate);
(c) Third, payments for Approved Operating Expenses;
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(d) Fourth, to make required payments to the Capital Reserve Fund;
(e) Fifth, to make required payments to the Rollover Reserve Fund;
(f) Sixth, payments to Lender to prepay the outstanding principal balance
under the Note until paid in full;
(g) Seventh, payments to Lender to be applied against Accrued Interest and
interest accrued thereon; and
(h) Lastly, payments to Borrower of any excess amounts.
Notwithstanding anything herein to the contrary, the failure of Borrower to make
all of the payments required under clauses (a) through (d) above in full on the
Optional Prepayment Date and on each Payment Date thereafter shall constitute a
Default under this Agreement. However, the failure of Borrower to pay principal
amounts due under clause (e) and any Accrued Interest or interest on Accrued
Interest on a Payment Date as a result of insufficient Rents for such payment
shall not constitute a Default hereunder. All Accrued Interest or interest on
Accrued Interest shall nonetheless be due and payable on the Maturity Date.
2.2.4 DEFAULT RATE. After the occurrence and during the continuance of an
Event of Default, the entire outstanding principal balance of the Loan shall
bear interest at the Default Rate, and shall be payable upon demand from time to
time, to the extent permitted by applicable law. Payment or acceptance of the
increased rates provided for in this subsection is not a permitted alternative
to timely payment and shall not constitute a waiver of any Default or Event of
Default or an amendment to this Agreement or any other Loan Document and shall
not otherwise prejudice or limit any rights or remedies of Lender.
Section 2.3 LOAN REPAYMENT AND DEFEASANCE.
2.3.1 REPAYMENT. Borrower shall repay any outstanding principal
indebtedness of the Loan in full on the Maturity Date of the Loan, together with
interest thereon to (but excluding) the date of repayment. Other than as set
forth in Section 2.3.2 below, Borrower shall have no right to prepay all or any
portion of Loan during the period commencing on the Closing Date to but not
including the Optional Prepayment Date. From and after the Optional Prepayment
Date, the Loan may be prepaid in whole or in part without penalty or premium,
including without limitation the Yield Maintenance Premium.
2.3.2 MANDATORY PREPAYMENTS. The Loan is subject to mandatory prepayment,
without premium or penalty except as provided in Section 7.1.2, in certain
instances of Insured Casualty or Condemnation (each a "Casualty/Condemnation
Prepayment"), in the manner and to the extent set forth in Sections 7.1.2 and
Section 7.1.3 hereof. Each Casualty/Condemnation Prepayment shall be made on a
Payment Date and include (i) all accrued and unpaid interest on the amount
prepaid up to but not including such Payment Date or, if not paid on a Payment
Date, include interest that would have accrued on the amount prepaid to but not
including the next Payment Date.
2.3.3 VOLUNTARY DEFEASANCE OF THE NOTE.
(a) Subject to the terms and conditions set forth in this Section 2.3.3,
Borrower may defease all or any portion of the Loan evidenced by the Note
(hereinafter, a "Defeasance"); provided, that no such Defeasance may occur prior
to the Release Date. Each Defeasance shall be subject, in each case, to the
satisfaction of the following conditions precedent:
(i) Borrower shall provide not less than thirty (30) days prior written
notice to Lender specifying a Payment Date (the "Defeasance Date") on
which the Defeasance is to occur. Such notice shall indicate the
principal amount of the Note to be defeased.
(ii) Borrower shall pay to Lender all accrued and unpaid interest on the
principal balance of the Note to but not including the Defeasance
Date. If for any reason the Defeasance Date is not a Payment Date,
Borrower shall also pay interest that would have accrued on the Note
to but not including the next Payment Date.
(iii)Borrower shall pay to Lender all other sums, not including scheduled
interest or principal payments, then due under the Note, this
Agreement, the Mortgage and the other Loan Documents.
(iv) No Event of Default shall exist.
(v) Borrower shall pay to Lender the required Defeasance Deposit for the
Defeasance.
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(vi) In the event only a portion of the Loan evidenced by the Note is the
subject of the Defeasance, Borrower shall execute and deliver all
necessary documents to amend and restate the Note and issue two
substitute notes: one having a principal balance equal to the defeased
portion of the original Note (the "Defeased Note") and one note having
a principal balance equal to the undefeased portion of the original
Note (the "Undefeased Note"). The Defeased Note and Undefeased Note
shall have identical terms as the Note, except for the principal
balance. A Defeased Note cannot be the subject of any further
Defeasance.
(vii)Borrower shall execute and deliver a security agreement, in form and
substance satisfactory to Lender, creating a first priority lien on
the Defeasance Deposit and the U.S. Obligations purchased with the
Defeasance Deposit in accordance with this provision of this Section
2.3.3 (the "Security Agreement").
(viii) Borrower shall deliver an opinion of counsel for Borrower in form
reasonably satisfactory to Lender stating, among other things, that
(A) Lender has a perfected first priority security interest in the
Defeasance Deposit and the U.S. Obligations delivered by Borrower and
(B) said U.S. Obligations have been validly assigned to the REMIC
Trust.
(ix) Lender shall receive evidence in writing from the applicable Rating
Agencies to the effect that such Defeasance will not result in a
reduction, withdrawal or requalification of the ratings in effect
immediately prior to such Defeasance for the Securities issued in
connection with the Securitization which are then outstanding.
(x) If required by the applicable Rating Agencies, Borrower shall also
deliver or cause to be delivered a non-consolidation opinion with
respect to the Successor Borrower in form and substance satisfactory
to Lender and the applicable Rating Agencies.
(xi) Borrower shall deliver an Officer's Certificate certifying that the
requirements set forth in this Section 2.3.3(a) have been satisfied.
(xii)Borrower shall deliver such other certificates, documents or
instruments as Lender may reasonably request.
(xiii) Borrower shall pay all reasonable costs and expenses of Lender
incurred in the Defeasance, including any costs and expenses
associated with a release of Lien as provided in Section 2.4 hereof
and reasonable attorney's fees and expenses.
(b) In connection with each Defeasance of all or any portion of the Note,
Borrower hereby appoints Lender as its agent and attorney-in-fact for the
purpose of using the Defeasance Deposit to purchase U.S. Obligations (which
purchases, if made by Lender, shall be made by Lender on an arms-length basis at
then prevailing market rates) which provide payments on or prior to, but as
close as possible to, all successive Payment Dates after the Defeasance Date, in
the case of a Defeasance for the entire outstanding principal balance of the
Note, or the Defeased Note, in the case of a Defeasance for only a portion of
the outstanding principal balance of the Loan, as applicable (including, on the
Optional Prepayment Date, the outstanding principal balance of either the Note
or the Defeased Note), and in amounts equal to the scheduled payments due on
such dates under the Note or the Defeased Note, as applicable (the "Scheduled
Defeasance Payments"). Borrower, pursuant to the Security Agreement or other
appropriate document, shall irrevocably authorize and direct that the payments
received from the U.S. Obligations may be made directly to Lender and applied to
satisfy the obligations of Borrower under the Note or the Defeased Note, as
applicable. Any portion of the Defeasance Deposit in excess of the amount
necessary to purchase the U.S. Obligations required by this Section 2.3(a) and
satisfy Borrower's obligations under Sections 2.3 or 2.4 shall be remitted
promptly to Borrower. Any amounts received in respect of the U.S. Obligations in
excess of the amounts necessary to make monthly payments pursuant to Section 2.2
shall be remitted promptly to Borrower. Semi-annual payments in respect of U.S.
Obligations shall be applied to payments under the Note or the Defeased Note, as
applicable, as the same become due thereunder.
(c) CCA shall establish or designate a successor entity (the "Successor
Borrower") and Borrower shall transfer and assign all obligations, rights and
duties under and to the Note or the Defeased Note, as applicable, together with
the pledged U.S. Obligations to such Successor Borrower. The obligation of CCA
to establish or designate a Successor Borrower shall be retained by CCA
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notwithstanding the sale or transfer of this Agreement unless such obligation is
specifically assumed by the transferee. Such Successor Borrower shall assume the
obligations under the Note or the Defeased Note, as applicable, and the Security
Agreement and Borrower shall be relieved of its obligations thereunder,
hereunder and under the other Loan Documents (except for those which are
expressly stated to survive). Borrower shall pay $1,000 to any such Successor
Borrower as consideration for assuming the obligations under the Note or the
Defeased Note, as applicable, and the Security Agreement. Notwithstanding
anything in this Agreement to the contrary, no other assumption fee shall be
payable upon a transfer of the Note or the Defeased Note in accordance with this
Section 2.3.3, but Borrower shall pay all costs and expenses incurred by Lender,
including Lender's reasonable attorneys' fees and expenses, incurred in
connection therewith.
Section 2.4 RELEASE OF PROPERTY. Except as set forth in this Section 2.4,
no repayment, prepayment or defeasance of all or any portion of the Note shall
cause, give rise to a right to require, or otherwise result in, the release of
the Lien of the Mortgage on the Property.
2.4.1 RELEASE OF THE PROPERTY.
(a) If Borrower has elected to defease the Note in its entirety, and the
requirements of Section 2.3 have been satisfied, the Property shall be released
from the Lien of the Mortgage and the other Loan Documents and the U.S.
Obligations, pledged pursuant to the Security Agreement, shall be the sole
source of collateral securing the Note.
(b) In connection with the release of the Lien, Borrower shall submit to
Lender, not less than twenty (20) days prior to the Defeasance Date, a release
of Lien (and related Loan Documents) for the Property (for execution by Lender)
in a form appropriate in the State reasonably satisfactory to Lender and all
other documentation Lender requires to be delivered by Borrower in connection
with such release, together with an Officer's Certificate certifying that such
documentation (i) is in compliance with all Legal Requirements, and (ii) will
effect such release in accordance with the terms of this Agreement.
2.4.2 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request
and at the expense of Borrower, upon payment in full of all principal and
interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms thereof, release the Lien of the Mortgage
and the other Loan Documents if not theretofore released.
Section 2.5 PAYMENTS AND COMPUTATIONS.
2.5.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the
Note shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender by
11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to Borrower.
Whenever any payment hereunder or under the Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the first
Business Day thereafter.
2.5.2 COMPUTATIONS. Interest payable hereunder or under the Note by
Borrower shall be computed on the basis of the actual number of days elapsed in
a 360-day year.
2.5.3 LATE PAYMENT CHARGE. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Mortgage and the
other Loan Documents.
Section 2.6 CASH MANAGEMENT ARRANGEMENTS.
(a) All Rents (other than security deposits) will be transmitted directly
into an account maintained by Borrower but controlled by Lender at a bank
selected by Borrower (the "Collection Account Bank"). Borrower will establish a
separate "A" account (the "A" Account) and "B" Account (the "B" Account) with
the Collection Account Bank. Borrower shall cause all Rents to be sent directly
to the Collection Account Bank by tenants (where practicable) for deposit into
the "A" Account. All other income or revenue received by Borrower or Manager in
connection with the Property will be deposited into the "A" Account on the date
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of receipt. Until the earlier to occur of (i) the Optional Prepayment Date or
(ii) an Event of Default (either such occurrence, a "Cash Trap Event"), the
Collection Account Bank will transfer deposits that are cleared on a daily basis
from the "A" Account to the "B" Account which shall be an account not subject to
any restrictions and under the sole control of Borrower. Upon the occurrence of
a Cash Trap Event, the Collection Account Bank will transfer property receipts
that are cleared on a daily basis to the Cash Collateral Account Bank for
deposit into the Cash Collateral Account. The duties of the Collection Account
Bank and the application and disbursement of all funds deposited with the
Collection Account Bank shall be governed by the terms of this Agreement and the
Collection Account Agreement. Any amounts so deposited into the Cash Collateral
Account shall be applied and disbursed in accordance with the terms and
provisions of this Agreement and the Cash Collateral Account Agreement.
(b) Lender shall have a senior security interest in the aforementioned
accounts and all subaccounts established thereunder (other than the "B"
Account). The upfront and ongoing expenses of maintaining such accounts and
subaccounts, and any other accounts and reserves maintained pursuant to the Loan
Documents, shall be the responsibility of Borrower. Funds in each account shall
be invested for the benefit of Borrower in Permitted Investments.
(c) Anything hereinabove in this Section to the contrary notwithstanding,
from and after the occurrence and during the continuance of an Event of Default,
100% of all Rents and other sums deposited into the Collection Account in any
month which remain in the Cash Collateral Account shall be applied to the
payment of Debt Service on the Loan (including, if applicable, interest at the
Default Rate), required reserves and Approved Operating Expenses and/or to the
payment of the principal amount of the Note, in such order as Lender shall
determine in its sole discretion.
Section 2.7 INTENTIONALLY DELETED.
III. CONDITIONS PRECEDENT
--------------------
Section 3.1 CONDITIONS PRECEDENT TO THE LOAN. The obligation of Lender to
make the Loan hereunder is subject to the fulfillment by Borrower or waiver by
Lender of the following conditions precedent no later than the Closing Date:
(a) Representation and Warranties; Compliance with Conditions. The
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
(b) Loan Agreement and Note. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
(i) Mortgage, Assignments of Agreements. Lender shall have received
from Borrower fully executed and acknowledged counterparts of the Mortgage,
Assignment of Leases, the Assignment of Agreements and Consent and Subordination
of Manager relating to the Property and evidence that counterparts of the
Mortgage have been delivered to the title company for recording, in the
reasonable judgment of Lender, so as to effectively create upon such recording
valid and enforceable Liens upon the Property, of the requisite priority, in
favor of Lender (or such other trustee as may be required or desired under local
law), subject only to the Permitted Encumbrances and such other Liens as are
permitted pursuant to the Loan Documents. Lender shall have also received from
Borrower fully executed counterparts of the Environmental Indemnity.
(ii) Title Insurance. Lender shall have received a Qualified Title
Insurance Policy for the Property and evidence that the premium in respect of
such Title Insurance Policy has been paid.
(iii)Survey. Lender shall have received a Qualified Survey for the
Property.
(iv) Insurance. Lender shall have received valid certificates of
insurance for the policies of insurance required hereunder, satisfactory to
Lender in its reasonable discretion, and evidence of the payment of all premiums
payable for the existing policy period which period shall not be less than one
year in advance.
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(v) Environmental Reports. Lender shall have received an
environmental report in respect of the Property reasonably satisfactory to
Lender.
(vi) Zoning. With respect to the Property, Lender shall have
received, at Lender's option, (i) letters or other evidence with respect to the
Property from the appropriate municipal authorities (or other Persons)
concerning applicable zoning and building laws, (ii) an ALTA 3.1 zoning
endorsement for the Title Insurance Policy, or (iii) a zoning opinion letter, in
substance reasonably satisfactory to Lender.
(d) Related Documents. Each additional document not specifically referenced
herein, but relating to the transactions contemplated herein, shall have been
duly authorized, executed and delivered by all parties thereto and Lender shall
have received and approved certified copies thereof.
(e) Delivery of Organizational Documents. On or before the Closing Date,
Borrower shall deliver or cause to be delivered to Lender (i) copies certified
by Borrower of all organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or qualification to do
business, as Lender may reasonably request, including good standing
certificates, qualifications to do business in the appropriate jurisdictions,
resolutions authorizing the entering into of the Loan and incumbency
certificates as may be requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received opinions of
Borrower's counsel (i) with respect to non-consolidation, true sale or true
contribution, and fraudulent transfer issues and (ii) with respect to due
execution, authority, enforceability of the Loan Documents and such other
matters as Lender may reasonably require, all such opinions in form, scope and
substance reasonably satisfactory to Lender and Lender's counsel.
(g) Intentionally Omitted.
(h) Basic Carrying Costs. Borrower shall have paid or deposited into an
applicable reserve fund all (i) accrued but unpaid Insurance Premiums, (ii)
currently due Taxes (including any in arrears) and (iii) currently due Other
Charges, which amounts shall be funded with proceeds of the Loan.
(i) Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Agreement
and other Loan Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall have received all
such counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Financial Statements. Lender shall have received financial statements
prepared in accordance with agreed upon procedures for the Property for such
periods as Lender may request.
(k) Leases, Rent Roll and Estoppel Certificates. Borrower shall have
provided Lender with original executed or certified copies of each of the Leases
in effect as of the date hereof, a current rent roll, and original executed
copies of estoppel certificates and subordination non-disturbance agreements in
the form previously approved by Lender, from those tenants as Lender may
request.
(l) Debt Service Coverage Ratio. The Debt Service Coverage Ratio shall be
at least 1.20 to 1.
(m) Appraisals. Lender shall have received an appraisal for the Property
satisfactory to Lender.
(n) Engineering Reports. Lender shall have received a structural
engineering report, reasonably acceptable to Lender, identifying, among other
things, (i) deferred maintenance for the Property and the cost thereof and (ii)
a ten (10) year schedule of anticipated capital expenditures and the per annum
cost thereof.
(o) Utility Service and Tax Assessment. Borrower shall have delivered
evidence that all utility services required for the Property are available and
that the Property is subject to separate tax assessment.
(p) Absence of Adverse Changes. Lender shall have determined that there
have been no material developments prior to the Closing Date which could, in
Lender's sole judgment, adversely affect the ownership or operation of the
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Property or the ability of Borrower to repay the Loan or the ability of Borrower
to perform any of its covenants and agreements set forth in this Agreement and
the other Loan Documents.
(q) Fee. Lender shall have received a structuring fee equal to $6,450.00.
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 BORROWER REPRESENTATIONS. Borrower represents and warrants as
of the date hereof and as of the Closing Date that:
(a) Organization. Borrower has been duly organized and is validly existing
and in good standing with requisite limited liability company power and
authority to own its properties and to transact the businesses in which it is
now engaged. Borrower is duly qualified to do business and is in good standing
in each jurisdiction where it is required to be so qualified in connection with
its properties, businesses and operations. Borrower possesses all rights,
licenses, permits and authorizations, governmental or otherwise, necessary to
entitle it to own its properties and to transact the businesses in which it is
now engaged (other than those which the failure to have would not reasonably be
expected to have a material adverse effect on the Borrower, the Property or the
Loan), and the sole business of Borrower is the ownership, management and
operation of the Property.
(b) Proceedings. Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and such other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective 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).
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the other Loan Documents by Borrower will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance (other
than pursuant to the Loan Documents) upon any of the property or assets of
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, partnership agreement or other agreement or instrument to which
Borrower is a party or by which Borrower's property or assets is subject, nor
will such action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Borrower or any of its properties or assets (other than such
actions described herein which would not reasonably be expected to have a
material adverse effect on the Borrower, the Property, or the Loan), and any
consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental agency or
body required for the execution, delivery and performance by any Borrower of
this Agreement or any other Loan Documents has been obtained and is in full
force and effect.
(d) Litigation. There are no actions, suits or proceedings at law or in
equity by or before any Governmental Authority or other agency now pending or
threatened against or affecting Borrower or the Property, which actions, suits
or proceedings, if determined against Borrower or the Property, might materially
adversely affect the condition (financial or otherwise) or business of Borrower
or the condition or ownership of the Property.
(e) Agreements. Borrower is not a party to any agreement or instrument or
subject to any restriction which would reasonably be expected to materially
adversely affect Borrower or the Property, or Borrower's business, properties or
assets, operations or condition, financial or otherwise. Borrower is not in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any Permitted
Encumbrance or any other agreement or instrument to which it is a party or by
which it or the Property is bound.
(f) Title. Borrower has good and insurable title in fee to the real
property comprising part of the Property, and good title to the balance of the
Property, free and clear of all Liens whatsoever except the Permitted
Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created by the Loan Documents. The Mortgage when properly recorded
in the appropriate records, together with any Uniform Commercial Code financing
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statements required to be filed in connection therewith, will create (i) a
valid, perfected first priority lien on the Property, subject only to Permitted
Encumbrances and the Liens created by the Loan Documents and (ii) perfected
security interests in and to, and perfected collateral assignments of, all
personalty (including the Leases), all in accordance with the terms thereof, in
each case subject only to any applicable Permitted Encumbrances, such other
Liens as are permitted pursuant to the Loan Documents and the Liens created or
permitted by the Loan Documents. The Permitted Encumbrances do not materially
adversely affect the value or use of the Property, or Borrower's ability to
repay the Loan. There are no claims for payment for work, labor or materials
affecting the Property which are or may become a lien prior to, or of equal
priority with, the Liens created by the Loan Documents.
(g) No Bankruptcy Filing. Borrower is not contemplating either the filing
of a petition by it under any state or federal bankruptcy or insolvency laws or
the liquidation of all or a major portion of its assets or property, and
Borrower has no knowledge of any Person contemplating the filing of any such
petition against it.
(h) Full and Accurate Disclosure. No statement of fact made by Borrower in
this Agreement or in any of the other Loan Documents contains any untrue
statement of a material fact or omits to state any material fact necessary to
make statements contained herein or therein not misleading. There is no material
fact presently known to Borrower which has not been disclosed to Lender which
adversely affects, nor as far as Borrower can foresee, might adversely affect,
the Property or the business, operations or condition (financial or otherwise)
of Borrower.
(i) No Plan Assets. Borrower is not an "employee benefit plan," as defined
in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101.
(j) Compliance. To the best of Borrower's knowledge, Borrower and the
Property and the use thereof comply in all material respects with all applicable
Legal Requirements, including building and zoning ordinances and codes. Borrower
has not received notice of any default or violation of any order, writ,
injunction, decree or demand of any Governmental Authority, the violation of
which is likely to materially adversely affect the condition (financial or
otherwise) or business of Borrower. There has not been and shall never be
committed by Borrower or, to Borrower's actual knowledge, any other person in
occupancy of or involved with the operation or use of the Property any act or
omission affording the federal government or any state or local government the
right of forfeiture as against the Property or any part thereof or any monies
paid in performance of Borrower's obligations under any of the Loan Documents.
Borrower hereby covenants and agrees not to commit or permit, and shall use its
commercially reasonable efforts to prevent any other person or entity from
committing, any act or omission affording such right of forfeiture.
(k) Contracts. Except as set forth on Schedule 1, there are no material
contracts affecting the Property which are not terminable on one month's notice
or less without cause and without penalty or premium. All contracts affecting
the Property (except for the Management Agreement) have been entered into at
arms-length in the ordinary course of Borrower's business and all contracts
affecting the Property (including the Management Agreement) provide for the
payment of fees in amounts and upon terms comparable to existing market rates.
(l) Financial Information. All financial data, including the statements of
cash flow and income and operating expense, that have been delivered to Lender
by Borrower in respect of the Property (i) are true, complete and correct in all
material respects, (ii) accurately represent the financial condition of the
Property as of the date of such reports and (iii) to the extent prepared by an
independent certified public accounting firm, have been prepared in accordance
with GAAP consistently applied throughout the periods covered, except as
disclosed therein. Borrower has no contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are known to Borrower and
reasonably likely to have a materially adverse effect on the Property or the
operation thereof, except as referred to or reflected in said financial
statements. Since the date of such financial statements, there has been no
materially adverse change in the financial condition, operations or business of
Borrower from that set forth in said financial statements.
(m) Condemnation. No Condemnation or other proceeding has been commenced
or, to Borrower's best knowledge, is contemplated with respect to all or any
portion of the Property or for the relocation of roadways providing access to
the Property.
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(n) Federal Reserve Regulations. No part of the proceeds of the Loan will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
or for any other purpose which would be inconsistent with such Regulation U or
any other Regulations of such Board of Governors, or for any purposes prohibited
by Legal Requirements or by the terms and conditions of this Agreement or the
other Loan Documents.
(o) Utilities and Public Access. The Property has rights of access to
public ways and is served by water, sewer, sanitary sewer and storm drain
facilities adequate to service the Property for its respective intended uses.
All public utilities necessary to the full use and enjoyment of the Property are
located in the public right-of-way abutting the Property. To Borrower's actual
knowledge, all roads necessary for the use of the Property for their current
respective purposes have been completed and dedicated to public use and accepted
by all Governmental Authorities.
(p) Not a Foreign Person. Borrower is not a "foreign person" within the
meaning ofss.1445(f)(3) of the Code.
(q) Separate Lots. The Property is comprised of one (1) or more parcels
which constitutes a separate tax lot and does not constitute a portion of any
other tax lot not a part of the Property.
(r) Assessments. To the best of Borrower's knowledge, there are no pending
or proposed special or other assessments for public improvements or otherwise
affecting the Property, nor are there any contemplated improvements to the
Property that may result in such special or other assessments.
(s) Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, including the defense
of usury, nor would the exercise of any of the terms of the Loan Documents, or
the exercise of any right thereunder, render the Loan Documents unenforceable,
and Borrower has not asserted any right of rescission, set-off, counterclaim or
defense with respect thereto.
(t) No Prior Assignment. There are no assignments of the Leases or any
portion of the Rents due and payable or to become due and payable which are
presently outstanding.
(u) Insurance. Borrower has obtained and has delivered to Lender insurance
certificates reflecting the insurance coverages, amounts and other requirements
set forth in this Agreement.
(v) Use of Property. The Property is used exclusively as an office building
and other appurtenant and related uses.
(w) Certificate of Occupancy; Licenses. All material certifications,
permits, licenses and approvals, including certificates of completion and
occupancy permits and any applicable liquor licenses required for the legal use,
occupancy and operation of the Property (collectively, the "Licenses"), have
been obtained and are in full force and effect. Borrower shall keep and maintain
all licenses necessary for the operation of the Property. The use being made of
the Property is in conformity with the certificate of occupancy issued for the
Property.
(x) Flood Zone. To Borrower's actual knowledge, none of the Improvements on
the Property are located in an area identified by the Federal Emergency
Management Agency as an area having special flood hazards.
(y) Physical Condition. To Borrower's actual knowledge, the Property,
including all buildings, improvements, parking facilities, sidewalks, storm
drainage systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators, exterior sidings and doors,
landscaping, irrigation systems and all structural components, are in good
condition, order and repair in all material respects; and there exist no
structural or other material defects or damages in the Property, whether latent
or otherwise. Borrower has not received notice from any insurance company or
bonding company of any defects or inadequacies in the Property, or any part
thereof, which would adversely affect the insurability of the same or cause the
imposition of extraordinary premiums or charges thereon or of any termination or
threatened termination of any policy of insurance or bond.
(z) Appraised Value. To Borrower's actual knowledge, all of the
improvements which were included in determining the appraised value of the
Property lie wholly within the boundaries and building restriction lines of the
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Property, and no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon the Property encroach upon
any of the improvements, so as to affect the value or marketability of the
Property except those which are insured against by title insurance.
(aa) Leases. Attached hereto as Schedule 2 is a rent roll (the "Rent Roll")
for the Property. The Rent Roll is true, correct and complete in all material
respects with respect to the subject matter thereof. The only Leases affecting
the Property are those reflected in the Rent Roll. To Borrower's knowledge
following inquiry as a duly diligent property purchaser, except as set forth in
Schedule 1: (i) each Lease is in full force and effect; (ii) except for those
Leases with terms that have not yet commenced, the tenants under the Leases have
accepted possession of and are in occupancy of all of their respective demised
premises (unless such demised premises or portions thereof, have been
subleased), have commenced the payment of rent under such Leases and there are
no offsets, claims or defenses to the enforcement thereof; (iii) all rents due
and payable under the Leases have been paid and no portion thereof has been paid
for any period more than thirty (30) days in advance; (iv) the rent payable
under each Lease is the amount set forth in the Rent Roll and there is no claim
or basis for a claim by the tenant thereunder for an adjustment to the rent; (v)
no tenant has made any claim against the landlord under the Leases which remains
outstanding and there are no defaults on the part of the landlord under any
Lease and no event has occurred which, with the giving of notice or passage of
time, or both, would constitute such default; and (vi) there is no present
material default by any tenant under any Lease. None of the Leases contains any
option to purchase or right of first refusal to purchase the Property or any
part thereof. The Leases have not been assigned or pledged except to Lender, and
no other person whatsoever has any interest therein except the tenants
thereunder.
(bb) Survey. To Borrower's actual knowledge, the survey for the Property
delivered to Lender in connection with this Agreement does not fail to reflect
any material matter affecting the Property or the title thereto.
(cc) Filing and Recording Taxes. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of the Property to Borrower have been paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including the Mortgage,
have been paid and, under current Legal Requirements, the Mortgage is
enforceable against Borrower in accordance with its respective terms by Lender
(or any subsequent holder thereof), except as such enforceability may be limited
by insolvency, bankruptcy, moratorium or other laws affecting creditor's
remedies in general and principles of equity.
(dd) Single-Purpose. Borrower hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower does not and will not own any asset or property other than
(A) the Property and (B) incidental personal property necessary for
the ownership or operation of the Property.
(ii) Borrower will not engage in any business other than the ownership,
management and operation of the Property and will in all material
respects conduct and operate its business as presently conducted and
operated.
(iii)Borrower will not enter into any contract or agreement with any of
its affiliates or constituent parties, any guarantor (a "Guarantor")
of the Debt or any part thereof or any affiliate of any constituent
party or Guarantor, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any
such party.
(iv) Borrower has not incurred, and Borrower will not incur, any
indebtedness, secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation), other than the
Permitted Indebtedness. Except as set forth in the immediately
preceding sentence, no indebtedness other than the Debt may be secured
(subordinate or pari passu) by the Property.
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(v) Borrower has not made and will not make any loans or advances to any
third party (including any affiliate or constituent party, any
Guarantor or any affiliate of any constituent party or Guarantor),
other than immaterial advances for tenant improvements pursuant to
Leases executed in accordance with this Agreement.
(vi) Borrower is and will remain solvent and will pay its debts and
liabilities (including employment and overhead expenses) from its
assets as the same shall become due.
(vii)Borrower has done or caused to be done and will do all things
necessary to observe corporate, partnership, or limited liability
company formalities, as the case may be, and preserve its existence.
(viii) Borrower will not permit any constituent party or Guarantor to,
amend, modify or otherwise change the partnership certificate,
partnership agreement, articles of incorporation and bylaws, trust,
operating agreement or other organizational documents of Borrower or
such constituent party or Guarantor in a manner which would adversely
affect Borrower's existence as a single purpose entity.
(ix) Borrower will maintain books and records and bank accounts separate
from those of its affiliates and any constituent party and Borrower
will file its own tax returns.
(x) Borrower will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity
(including any affiliate, any constituent party, any Guarantor or any
affiliate of any constituent party or Guarantor), shall conduct
business in its own name and shall maintain and utilize separate
stationery, invoices and checks.
(xi) Borrower will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in
light of its contemplated business operations.
(xii)Neither Borrower nor any constituent party will seek the dissolution
or winding up, in whole or in part, of Borrower.
(xiii) Borrower will not commingle its funds and other assets with those of
any affiliate or constituent party, any Guarantor, or any affiliate of
any constituent party or Guarantor, or any other person.
(xiv)Borrower has and will maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify
its individual assets from those of any affiliate or constituent
party, any Guarantor, or any affiliate of any constituent party or
Guarantor, or any other person.
(xv) Borrower does not and will not hold itself out to be responsible for
the debts or obligations of any other person.
(xvi)Borrower shall at all times have one member (the "SPE Member") who is
a "single purpose entity" and shall at all times comply with each of
the representations, warranties, and covenants contained in this
Section 4.1 as if such representation, warranty or covenant was made
directly by such SPE Member.
(xvii) The charter of the SPE Member shall at all times have at least one
duly appointed member of its board of directors (an "Independent
Director") reasonably satisfactory to Lender who shall not have been
at the time of such individual's appointment, and may not have been at
any time during the preceding five (5) years (i) a member of, or an
officer or employee of, Borrower or any of its members, subsidiaries
or Affiliates (except as an Independent Director on any of their
boards of directors), (ii) a customer or supplier who derives more
than ten percent (10%) of its purchases or revenues from its
activities with Borrower or any of its members, subsidiaries or
Affiliates (except as an Independent Director on any of their boards
of directors), (iii) a person or other entity controlling any such
member, supplier or customer or (iv) a member of the immediate family
of any such member, officer, employee, supplier or customer or of any
other director of the SPE Member. As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person or
entity, whether through ownership of voting securities, by contract or
otherwise.
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(xviii) The board of directors of the SPE Member shall not take any action
which, under the terms of any certificate of incorporation, bylaws or
any voting trust agreement with respect to any common stock, requires
the vote of the board of directors of the SPE Member unless at the
time of such action there shall be at least one member who is an
Independent Director.
(xix)Borrower shall conduct its business so that the assumptions made with
respect to Borrower in that certain opinion letter dated as of the
Closing Date delivered by Borrower's counsel in connection with the
Loan shall be true and correct in all respects.
(ee) Investment Company Act. Borrower is not (i) an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.
(ff) Fraudulent Transfer. Borrower has not entered into the Loan or any
Loan Document with the actual intent to hinder, delay, or defraud any creditor,
and Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed Borrower's total liabilities, including subordinated,
unliquidated, disputed or contingent liabilities. The fair saleable value of
Borrower's assets is and will, immediately following the execution and delivery
of the Loan Documents, be greater than Borrower's probable liabilities,
including the maximum amount of its contingent liabilities or its debts as such
debts become absolute and matured. Borrower's assets do not and, immediately
following the execution and delivery of the Loan Documents will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it will,
incur debts and liabilities (including contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
Borrower).
(gg) Management Agreement. The Management Agreement is in full force and
effect and there is no default, breach or violation existing thereunder by any
party thereto and no event has occurred (other than payments due but not yet
delinquent) that, with the passage of time or the giving of notice, or both,
would constitute a default, breach or violation by any party thereunder. Neither
the execution and delivery of the Loan Documents, Borrower's performance
thereunder, the recordation of the Mortgage, nor the exercise of any remedies by
Lender, will adversely affect Borrower's rights under the Management Agreement.
Section 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the
representations and warranties of Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under this Agreement or any of the
other Loan Documents by Borrower. All representations, warranties, covenants and
agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
Section 5.1 BORROWER COVENANTS. From the date hereof and until payment and
performance in full of all obligations of Borrower under the Loan Documents or
the earlier release of the Lien of the Mortgage (and all related obligations) in
accordance with the terms of this Agreement and the other Loan Documents,
Borrower hereby covenants and agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
and comply with all Legal Requirements applicable to it and the Property.
Borrower shall at all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property used or useful in the
conduct of its business and shall keep the Property in good working order and
repair, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Mortgage.
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(b) Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges
now or hereafter levied or assessed or imposed against the Property or any part
thereof as the same become due and payable, other than those which it is
protesting in good faith by appropriate proceedings diligently pursued in
accordance with this Section. Borrower will deliver to Lender receipts for
payment or other evidence satisfactory to Lender that the Taxes and Other
Charges have been so paid or are not then delinquent no later than thirty (30)
days prior to the date on which the Taxes and/or Other Charges would otherwise
be delinquent if not paid (provided, however, that Borrower is not required to
furnish such receipts for payment of Taxes in the event that such Taxes are to
be paid by Lender pursuant to Section 7.3 hereof if Borrower furnishes a request
by such date for a disbursement from the Tax and Insurance Escrow Fund and there
are sufficient funds therein to make the payment). Borrower shall not suffer and
when due shall cause to be paid and discharged any lien or charge whatsoever
which may be or become a lien or charge against the Property (other than those
liens or charges which Borrower is protesting in good faith by appropriate
proceedings, diligently pursued), and when due shall pay for all utility
services provided to the Property. After prior written notice to Lender,
Borrower, at its own expense, may contest by appropriate legal proceeding,
promptly initiated and conducted in good faith and with due diligence, the
amount or validity or application in whole or in part of any Taxes or Other
Charges, provided that (i) no Default or Event of Default has occurred and
remains uncured, (ii) such proceeding shall suspend the collection of the Taxes
or Other Charges from the Property, (iii) such proceeding shall be permitted
under and be conducted in accordance with the provisions of any other instrument
to which Borrower is subject and shall not constitute a default thereunder, (iv)
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, terminated, canceled or lost, (v) Borrower shall have
furnished such security as may be required in the proceeding, or as may be
reasonably requested by Lender, to insure the payment of any such Taxes or Other
Charges, together with all interest and penalties thereon and (vi) Borrower
shall promptly upon final determination thereof pay the amount of any such Taxes
or Other Charges, together with all costs, interest and penalties which may be
payable in connection therewith subject to payment pursuant to Section 7.3.
Lender may, following prior written notice to Borrower, pay over any such cash
deposit or part thereof held by Lender to the claimant entitled thereto at any
time when, in the judgment of Lender, the entitlement of such claimant is
established.
(c) Litigation. Borrower shall give prompt written notice to Lender of any
litigation or governmental proceedings pending or threatened against Borrower
which might materially adversely affect Borrower's condition (financial or
otherwise) or business or the Property.
(d) Premises. Borrower shall permit agents, representatives and employees
of Lender to inspect the Property or any part thereof at reasonable hours upon
reasonable advance notice.
(e) Notice of Default. Borrower shall promptly advise Lender of any
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Default or Event of Default of which Borrower has
knowledge.
(f) Cooperate in Legal Proceedings. Borrower shall cooperate fully with
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way materially adversely affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.
(g) Perform Loan Documents. Borrower shall observe, perform and satisfy all
the terms, provisions, covenants and conditions of, and shall pay when due all
costs, fees and expenses to the extent required under the Loan Documents
executed and delivered by Borrower.
(h) Insurance Benefits. Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any Insurance Proceeds lawfully or equitably payable
in accordance with Section 7.1 hereof in connection with the Property, and
Lender shall be reimbursed for any expenses incurred in connection therewith
(including attorneys' fees and disbursements, and the expense of an appraisal on
behalf of Lender in case of a fire or other casualty affecting the Property or
any part thereof) out of such Insurance Proceeds.
(i) Further Assurances. Borrower shall, at Borrower's sole cost and
expense:
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(A) furnish to Lender all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement and instrument required to be furnished
by it pursuant to the terms of the Loan Documents or reasonably requested by
Lender in connection therewith;
(B) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure its obligations under the Loan Documents, as
Lender may reasonably require, so long as Borrower's liability is not materially
increased thereby; and
(C) do and execute all and such further lawful and reasonable acts,
conveyances and assurances for the better and more effective carrying out of the
intents and purposes of this Agreement and the other Loan Documents, as Lender
shall reasonably require from time to time, so long as Borrower's liability is
not materially increased thereby.
(j) Supplemental Mortgage Affidavits. If at any time Lender reasonably
determines, based on applicable law, that Lender is not being afforded the
maximum amount of security available from the Property as a direct or indirect
result of applicable taxes not having been paid with respect to the Property,
Borrower agrees that Borrower will execute, acknowledge and deliver to Lender,
immediately upon Lender's request, supplemental affidavits increasing the amount
of the Debt attributable to the Property to the amount of the Debt and Borrower
shall, on demand, pay any additional taxes.
(k) Financial Reporting.
(i) Borrower will keep and maintain or will cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP or another method of
preparation approved by Lender, proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Property and in connection with
any services, equipment or furnishings provided in connection with the operation
of the Property, whether such income or expense be realized by Borrower or by
any other Person whatsoever, excepting lessees unrelated to and unaffiliated
with Borrower who have leased from Borrower portions of the Property for the
purpose of occupying the same. Lender shall have the right from time to time at
all times during normal business hours upon reasonable notice to examine such
books, records and accounts at the office of Borrower or other Person
maintaining such books, records and accounts and to make such copies or extracts
thereof as Lender shall desire. After the occurrence and during the continuance
of an Event of Default, Borrower shall pay any costs and expenses incurred by
Lender to examine Borrower's accounting records with respect to the Property, as
Lender shall determine to be necessary or appropriate in the protection of
Lender's interest.
(ii) Borrower will furnish to Lender annually, (A) within forty (40)
days following the end of each Fiscal Year of Borrower, unaudited financial
statements of Borrower, and (B) within ninety (90) days following the end of
each Fiscal Year of Borrower, (y) a complete copy of the unqualified
consolidated annual financial statements of Prime Group Realty Trust, audited by
a "big six" accounting firm (as such accounting firm may have been consolidated
with another "big six" accounting firm) or another independent certified public
accountant reasonably acceptable to Lender in accordance with GAAP covering the
Property for such Fiscal Year and (z) financial statements of Borrower,
unaudited but certified by an independent certified public accountant reasonably
acceptable to Lender, containing balance sheets and statements of profit and
loss for Borrower and the Property in such detail as Lender may reasonably
request. Such statements shall set forth the financial condition and the income
and expenses for the Property for the immediately preceding calendar year
including statements of annual net operating income. Borrower's annual financial
statements shall be accompanied by an Officer's Certificate certifying that, to
the best of such officer's knowledge, each such annual financial statement
presents fairly the financial condition of the Property and has been prepared in
accordance with GAAP. Together with Borrower's annual financial statements,
Borrower shall furnish to Lender an Officer's Certificate certifying as of the
date thereof whether, to the best of its knowledge, there exists an event or
circumstance which constitutes a Default or Event of Default under the Loan
Documents executed and delivered by Borrower, and if such Default or Event of
Default exists, the nature thereof, the period of time it has existed and the
action then being taken to remedy the same.
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(iii) Borrower will furnish, or cause to be furnished, to Lender on or
before thirty (30) days after the end of each calendar month the following
items, in a format reasonably acceptable to Lender, accompanied by an Officer's
Certificate certifying that, to the best of such officer's knowledge, such items
are true, correct, accurate, and complete and fairly present the financial
condition and results of the operations of Borrower and the Property in
accordance with GAAP or a method of preparation approved by Lender (subject to
normal year end adjustments) as applicable: (A) monthly and year to date
operating statements prepared for each calendar month, noting net operating
income and other information necessary and sufficient to fairly represent the
results of operation of the Property during such calendar month, all in form
reasonably satisfactory to Lender; (B) a balance sheet for each such month; (C)
a comparison of the budgeted income and expenses and the actual income and
expenses for each month and year to date for the Property together with a
detailed explanation of any variances of ten percent (10%) or more between
budgeted and actual amounts for such period and year to date; (D) a statement of
the actual capital expenditures made by Borrower during each calendar quarter as
of the last day of such calendar quarter; (E) a calculation reflecting the
annual Debt Service Coverage Ratio as of the last day of each calendar month;
and (F) a statement that the representations and warranties of Borrower set
forth in Section 4.l(dd)(iv) are true and correct as of the date of such
certificate.
(iv) Borrower will furnish, or cause to be furnished, to Lender as
soon as available and in any event on or before thirty (30) days after the end
of each calendar month occupancy rates, rent rolls (identifying the leased
premises, names of all tenants, units leased, monthly rental and all other
charges payable under each lease, date to which paid, term of lease, date of
occupancy, date of expiration, any and every material special provision,
concession or inducement granted to tenants during such month) and a delinquency
report for the Property and such other relevant information with respect to the
Property as requested by the Lender, in each case accompanied by an Officer's
Certificate certifying that such items are true, correct, accurate, and
complete.
(v) Borrower shall furnish to Lender, within ten (10) Business Days
after request, such further detailed information with respect to the operation
of the Property and the financial affairs of Borrower as may be reasonably
requested by Lender or any applicable Rating Agency. If Borrower fails to
provide to Lender or its designee any of the financial statements, certificates,
reports or information (the "Required Records") required by this Section 5.1(k)
within thirty (30) days after the date upon which such Required Record is due,
Borrower shall pay to Lender, at Lender's option and in its sole discretion, an
amount equal to $5,000 for each Required Record that is not delivered; provided
that, Lender has given at least fifteen (15) days prior written notice to
Borrower of such failure by Borrower to timely submit the applicable Required
Record.
(l) Business and Operations. Borrower will continue to engage in the
businesses presently conducted by it as and to the extent the same are necessary
for the ownership, maintenance, management and operation of the Property.
Borrower will qualify to do business and will remain in good standing under the
laws of each jurisdiction as and to the extent the same are required for the
ownership, maintenance, management and operation of the Property.
(m) Title to the Property. Borrower will warrant and defend (i) the title
to the Property and every part thereof, subject only to Liens permitted under
the Loan Documents (including Permitted Encumbrances) and (ii) the validity and
priority of the Lien of the Mortgage, subject only to Liens permitted under the
Loan Documents (including Permitted Encumbrances), in each case against the
claims of all Persons whomsoever. Borrower shall reimburse Lender for any
losses, costs, damages or expenses (including reasonable attorneys' fees and
court costs) incurred by Lender if an interest in the Property, other than as
permitted hereunder, is claimed by another Person.
(n) Costs of Enforcement. In the event (i) that the Mortgage is foreclosed
in whole or in part or is put into the hands of an attorney for collection,
suit, action or foreclosure, (ii) of the foreclosure of any mortgage prior to or
subsequent to the Mortgage encumbering the Property in which proceeding Lender
is made a party or (iii) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or an assignment by Borrower for the
benefit of its creditors, Borrower, its successors or assigns, shall be
chargeable with and agrees to pay all costs of collection and defense, including
reasonable attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
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(o) Estoppel Statement.
(i) After request by Lender, Borrower shall within ten (10) days
furnish Lender with a statement, duly acknowledged and certified, setting forth
(A) the unpaid principal amount of the Note, (B) the Interest Rate of the Note,
(C) the date installments of interest and/or principal were last paid, (D) any
offsets or defenses to the payment of the Debt, if any and (E) that the Note,
this Agreement, the Mortgage and the other Loan Documents are valid, legal and
binding obligations and have not been modified or if modified, giving
particulars of such modification.
(ii) After request by Lender (but no more frequently than once in any
year), Borrower shall within ten (10) days furnish Lender with a certificate
reaffirming all representations and warranties of Borrower set forth herein and
in the other Loan Documents as of the date requested by Lender or, to the extent
of any changes to any such representations and warranties, so stating such
changes.
(iii) Borrower shall deliver to Lender upon request, tenant estoppel
certificates from each tenant at the Property in form and substance reasonably
satisfactory to Lender provided that Borrower shall not be required to deliver
such certificates more frequently than one (1) time in any calendar year.
(p) Loan Proceeds. Borrower shall use the proceeds of the Loan received by
it on the Closing Date only for the purposes set forth in Section 2.1.4.
(q) Performance by Borrower. Borrower shall in a timely manner observe,
perform and fulfill each and every covenant, term and provision of each Loan
Document executed and delivered by Borrower, and shall not enter into or
otherwise suffer or permit any amendment, waiver, supplement, termination or
other modification of any Loan Document executed and delivered by Borrower
without the prior written consent of Lender.
(r) Annual Budget. Borrower shall prepare and submit (or shall cause
Manager to prepare and submit) to Lender by December 1 of each year during the
Term, a proposed pro forma budget for the Property for the succeeding fiscal
year commencing January 1 and ending December 31 (the "Annual Budget") and,
promptly after preparation thereof, any subsequent revisions to such Annual
Budget. After the occurrence of a Cash Trap Event, the Annual Budget shall be
subject to Lender's approval which approval shall not be unreasonably withheld
or delayed. Lender's failure to approve or disapprove any Annual Budget
requiring Lender's approval within thirty (30) days after Lender's receipt
thereof shall be deemed to constitute Lender's approval thereof. The Annual
Budget shall consist of (i) an operating expense budget (the "Operating Budget")
showing, on a month-by-month basis, in reasonable detail, each line item of the
Borrower's anticipated income and Operating Expenses (on a cash modified basis),
including amounts required to establish, maintain and/or increase reserves, (ii)
a Capital Expense Budget (the "Capital Budget") showing, on a month-by-month
basis, in reasonable detail, each line item of anticipated Capital Expenses. A
copy of the Budget for the period commencing on the date hereof and ending on
December 31, 1998 shall be delivered to Lender for its approval within
forty-five (45) days after the date hereof.
(s) Confirmation of Representations. In addition to and not in limitation
of the covenants and agreements of Borrower contained in Section 9.1, Borrower
shall deliver, in connection with any Secondary Market Transaction, (i)
Officer's Certificates certifying as to the accuracy of all representations made
by Borrower in the Loan Documents (with changes made to such representations as
necessary to render them factually accurate) as of the date of the closing of
such Secondary Market Transaction and (ii) certificates of the relevant
Governmental Authorities in all relevant jurisdictions indicating the good
standing and qualification of Borrower as of the date of the Secondary Market
Transaction.
(t) No Joint Assessment. Borrower shall not suffer, permit or initiate the
joint assessment of the Property (i) with any other real property constituting a
tax lot separate from the Property and (ii) with any portion of the Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Property.
(u) Leasing Matters. Borrower shall not, without Lender's prior written
consent, enter into, modify, amend or renew any Lease (x) for 10,000 or more
square feet while an Event of Default is not occurring or (y) for any size while
an Event of Default is continuing. Any Lease for less than 10,000 square feet
that is entered into, modified, amended or renewed during a period of time when
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no Event of Default exists shall be deemed approved by Lender (such Lease, a
"Deemed Approved Lease"). If Lender does not approve or disapprove a Lease
(other than a Deemed Approved Lease) within ten (10) Business Days of Lender's
receipt of such Lease and all information relating thereto reasonably requested
by Lender, such Lease shall be deemed approved. Upon request, Borrower shall
furnish Lender with executed copies of all Leases. All renewals of Leases and
all proposed Leases shall provide for rental rates that are at or greater than
existing local market rates for space at properties similar to the Property. All
proposed Leases shall be on commercially reasonable terms and shall not contain
any terms which would materially adversely affect Lender's rights under the Loan
Documents. All Leases shall provide that they are subordinate to the Mortgage
encumbering the Property and that the lessee agrees to attorn to Lender if it
succeeds to the interest of Borrower in the Property. Borrower (i) shall observe
and perform the obligations imposed upon the lessor under the Leases, other than
immaterial obligations the failure of which to perform is not likely to have a
material adverse effect on the Property or the applicable Lease(s); (ii) shall,
in the exercise of its prudent business judgment, enforce the terms, covenants
and conditions contained in the Leases upon the part of the lessee thereunder to
be observed or performed; (iii) shall not collect any of the rents more than one
(1) month in advance (other than security deposits); (iv) shall not execute any
other assignment of lessor's interest in the Leases or the Rents (except as
contemplated by the Loan Documents); (v) shall not alter, modify or change the
terms of the Leases in a manner inconsistent within the provisions of the Loan
Documents; and (vi) shall execute and deliver at the request of Lender all such
further assurances, confirmations and assignments in connection with the Leases
as Lender shall from time to time reasonably require.
(v) Principal Place of Business. Borrower shall not change its principal
place of business set forth on the first page of this Agreement without first
giving Lender thirty (30) days prior written notice.
(w) Management Agreement. Borrower shall cause the Property to be operated
pursuant the Management Agreement. Borrower shall:
(i) promptly perform and/or observe all of the covenants and
agreements required to be performed and observed by it under the Management
Agreement and do all things necessary to preserve and to keep unimpaired its
material rights thereunder;
(ii) promptly notify Lender of any default under the Management
Agreement of which it is aware;
(iii) promptly, upon Lender's request, deliver to Lender a copy of
each financial statement, business plan, capital expenditures plan, property
improvement plan and any other notice, report and estimate received by it under
the Management Agreement; and
(iv) promptly enforce the performance and observance of all of the
covenants and agreements required to be performed and/or observed by the Manager
under the Management Agreement.
VI. NEGATIVE COVENANTS
------------------
Section 6.1 BORROWER'S NEGATIVE COVENANTS. From the date hereof until
payment and performance in full of all obligations of Borrower under the Loan
Documents or the earlier release of the Lien of the Mortgage in accordance with
the terms of this Agreement and the other Loan Documents, Borrower covenants and
agrees with Lender that it will not do, directly or indirectly, any of the
following:
(a) Operation of Property. Borrower shall not, without Lender's prior
consent: (i) surrender, terminate or cancel the Management Agreement or
otherwise replace the Manager of the Property or enter into any other management
agreements with respect to the Property (except pursuant to Section 9.5); (ii)
reduce or consent to the reduction of the term of the Management Agreement;
(iii) increase or consent to the increase of the amount of any charges under the
Management Agreement; or (iv) otherwise modify, change, supplement, alter or
amend, or waive or release any of its rights and remedies under the Management
Agreement in any material respect.
(b) Liens. Borrower shall not, without the prior written consent of Lender,
create, incur, assume or suffer to exist any Lien on any portion of the Property
or permit any such action to be taken, except (i) Permitted Encumbrances, (ii)
Liens created by or permitted pursuant to the Loan Documents and (iii) Liens for
Taxes or Other Charges not yet due.
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(c) Dissolution. Borrower shall not dissolve, terminate, liquidate, merge
with or consolidate into another Person.
(d) Change In Business. Borrower shall not enter into any line of business
other than the ownership and operation of the Property, or make any material
change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.
(e) Debt Cancellation. Borrower shall not cancel or otherwise forgive or
release any claim or debt owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business in its
reasonable judgment.
(f) Affiliate Transactions. Borrower shall not enter into, or be a party
to, any transaction with an Affiliate of Borrower or any of the members of
Borrower except in the ordinary course of business and on terms which are fully
disclosed to Lender in advance and are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arms-length transaction with an
unrelated third party.
(g) Zoning. Borrower shall not initiate or consent to any zoning
reclassification of any portion of any of the Property or seek any variance
under any existing zoning ordinance or use or permit the use of any portion of
any of the Property in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender.
(h) Assets. Borrower shall not purchase or own any real properties other
than the Property.
(i) Debt. Borrower shall not create, incur or assume any debt (including
subordinate debt) other than the Debt and other than Permitted Indebtedness. In
addition, no Person owning any interest in Borrower shall pledge, transfer or
otherwise dispose of its interest in Borrower to secure any financing for the
benefit of such Person, Borrower or the Property.
(j) Transfers. Borrower shall not, without the prior written consent of
Lender, suffer or permit the sale, assignment or transfer (collectively,
"Transfer") of (i) all or any part of the Property (except pursuant to any
Lease) other than in connection with a Special Transfer, (ii) any direct
interest in Borrower or (iii) any direct or indirect interest in any member of
Borrower other than (A) the issuance or transfer of beneficial interests in
Prime Group Realty Trust, a Maryland real estate investment trust, so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty Trust and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower, and (B) the issuance or
transfer of limited partner interests in Prime Group Realty L.P., a Delaware
limited partnership, or a conversion of a one percent general partnership
interest owned beneficially by The Nardi Group, L.L.C. in Prime Group Realty
L.P. into a limited partnership interest in Prime Group Realty L.P., so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty L.P. and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower; provided, however, that
Borrower may grant the easements and other rights in the Property specifically
permitted under Section 8(f) of the Mortgage. No Transfer consented to by Lender
pursuant to clause (ii) or (iii) above shall be permitted unless Lender shall
have received (a) evidence in writing from the applicable Rating Agencies to the
effect that such a Transfer will not result in a qualification, withdrawal or
downgrading of the ratings in effect immediately prior to such Transfer for the
Securities issued in connection with the Securitization which are then
outstanding and (b) a non-consolidation opinion satisfactory to Lender from the
transferee's counsel. On or before the completion of any such permitted
Transfer, Borrower will pay all reasonable expenses of Lender incurred in
connection therewith. Notwithstanding anything to the contrary contained in this
clause (j), holders of interests in Borrower (or holders of interests in any
entity directly or indirectly holding an interest in Borrower) as of the date
hereof (the "Interest Holders") shall have the right to transfer their interest
in Borrower (or any entity directly or indirectly holding an interest in
Borrower) to another Person who is not an Interest Holder, including without
limitation immediate family members for estate planning purposes, without
Lender's consent; provided, however, that:
(i) after taking into account any prior transfers pursuant to this
sentence, whether to the proposed transferee or otherwise, no such transfer (or
series of transfers) shall result in (A) the proposed transferee, together with
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all members of his/her immediate family or any affiliates thereof, owning in the
aggregate (directly, indirectly or beneficially) more than 20% of the interests
in Borrower (or any entity directly or indirectly holding an interest in
Borrower) or (B) a transfer in the aggregate of more than 20% of the interests
in Borrower as of the date hereof;
(ii) no such transfer of interest shall result in a change of control
of Borrower or the day-to-day operations of the Property;
(iii) Borrower shall give Lender notice of such transfer together with
copies of all instruments effecting such transfer not less than ten (10) days
prior to the date of such transfer;
(iv) no Event of Default has occurred and remains uncured; and
(v) the legal and financial structure of Borrower after such transfer
and its members and the single purpose nature and bankruptcy remoteness of
Borrower and its shareholders, partners or members satisfies Lender's then
current applicable underwriting criteria and requirements, including without
limitation the requirement at the request of Lender to deliver written
confirmations from the Rating Agencies that such transfer or series of transfers
will not result in a qualification, downgrade or withdrawal of the then
applicable ratings.
For purposes of this clause (j), (A) a change of control of Borrower shall be
deemed to have occurred if there is any change in the identity of the individual
or entities or group of individuals or entities who have the right, by virtue of
any partnership agreement, articles of incorporation, bylaws, articles of
organization, operating agreement or any other agreement, with or without taking
any formative action, to cause Borrower to take some action or to prevent,
restrict or impede Borrower from taking some action which, in either case,
Borrower could take or could refrain from taking were it not for the rights of
such individuals; and (B) an "immediate family member" shall mean a spouse or a
child of any Interest Holder.
VII. CASUALTY; CONDEMNATION; ESCROWS
-------------------------------
Section 7.1 INSURANCE; CASUALTY AND CONDEMNATION.
7.1.1 INSURANCE.
(a) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall keep the Property insured and obtain and maintain
during the Term policies of insurance insuring against loss or damage by
standard, "all-risk" perils. Such insurance (i) shall be in an amount equal to
the greatest of (A) the then full replacement cost of the Property without
deduction for physical depreciation, (B) the outstanding principal balance of
the Loan and (C) such amount that the insurer would not deem Borrower a
co-insurer under said policies and (ii) and shall have deductibles no greater
than five percent (5%) of the full replacement cost of the Property. The
premiums for such policies of insurance carried in accordance with this
paragraph shall be paid annually in advance and shall contain a "Replacement
Cost Endorsement" with a waiver of depreciation.
(b) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall also obtain and maintain during the Term the
following policies of insurance:
(i) Flood insurance if any part of the Property is located in an area
identified by the Federal Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Program in an amount at least equal to the Debt or the
maximum limit of coverage available with respect to the Property under said
program, whichever is less.
(ii) Commercial general liability insurance, including broad form
property damage, blanket contractual and personal injuries (including death
resulting therefrom) coverages and containing minimum limits per occurrence of
$1,000,000 and $2,000,000 in the aggregate for any policy year. In addition, at
least $10,000,000 excess and/or umbrella liability insurance shall be obtained
and maintained for any and all claims, including all legal liability imposed
upon Borrower and all court costs and attorneys' fees incurred in connection
with the ownership, operation and maintenance of the Property.
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(iii) Rental loss and/or business interruption insurance in an amount
equal to the greater of (A) the estimated gross revenues from the operations of
the Property for the next succeeding eighteen (18) month period or (B) the
projected operating expenses (including Debt Service) for the maintenance and
operation of the Property for the next succeeding eighteen (18) month period.
The amount of such insurance shall be increased from time to time during the
Term as and when the Rents increase or the estimate of (or the actual) gross
revenue, as may be applicable, increases.
(iv) Insurance against loss or damage from (A) leakage of sprinkler
systems and (B) explosion of steam boilers, air conditioning equipment, high
pressure piping, machinery and equipment, pressure vessels or similar apparatus
now or hereafter installed in any of the Improvements (without exclusion for
explosions), in an amount at least equal to $2,000,000 for the Property.
(v) Worker's compensation insurance with respect to any employees of
Borrower, as required by any governmental authority or legal requirement.
(vi) During any period of repair or restoration, builder's "all risk"
insurance in an amount equal to not less than the full insurable value of the
Property against such risks (including fire and extended coverage and collapse
of the Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender.
(vii) Coverage to compensate for the cost of demolition and the
increased cost of construction for the Property in an amount satisfactory to
Lender.
(viii) Such other insurance as may from time to time be reasonably
required by Lender in order to protect its interests.
(c) All policies of insurance (the "Policies") required pursuant to Section
7.1.1(b) shall be issued by companies reasonably approved by Lender and licensed
to do business in the State, with a claims paying ability rating of "A" or
better by Standard & Poor's Ratings Group; (ii) shall name Lender and its
successors and/or assigns as their interest may appear as the mortgagee; (iii)
shall contain a Non-Contributory Standard Lender Clause and a Lender's Loss
Payable Endorsement, or their equivalents, naming Lender as the person to which
all payments made by such insurance company shall be paid; (iv) shall contain a
waiver of subrogation against Lender; (v) shall be maintained throughout the
Term without cost to Lender; (vi) shall be assigned and the certificates thereof
delivered to Lender; and (vii) shall contain endorsements providing that neither
Borrower, Lender nor any other party shall be a co-insurer under said Policies
and that Lender shall receive at least thirty (30) days prior written notice of
any modification, reduction or cancellation of any of the Policies; and (viii)
shall be satisfactory in form and substance to Lender and shall be approved by
Lender as to amounts, form, risk coverage, deductibles, loss payees and
insureds. Borrower shall pay the premiums for such Policies (the "Insurance
Premiums") as the same become due and payable and shall furnish to Lender
evidence of the renewal of each of the Policies with receipts for the payment of
the Insurance Premiums or other evidence of such payment reasonably satisfactory
to Lender (provided, however, that Borrower is not required to furnish such
evidence of payment to Lender if such Insurance Premiums have been paid by
Lender pursuant to Section 7.3 hereof). If Borrower does not furnish such
evidence and receipts at least ten (10) days prior to the expiration of any
expiring Policy, then Lender may procure, but shall not be obligated to procure,
such insurance and pay the Insurance Premiums therefor, and Borrower agrees to
reimburse Lender for the cost of such Insurance Premiums promptly on demand.
Within thirty (30) days after request by Lender, Borrower shall obtain such
increases in the amounts of coverage required hereunder as may be reasonably
requested by Lender, taking into consideration changes in the value of money
over time, changes in liability laws, and changes in prudent customs and
practices.
(d) If any Property is damaged or destroyed, in whole or in part, by fire
or other casualty (an "Insured Casualty"), Borrower shall give prompt notice
thereof to Lender. Following the occurrence of an Insured Casualty, unless the
Loan is repaid in full, Borrower shall promptly proceed to restore, repair,
replace or rebuild the Property to be of at least equal value and of
substantially the same character as prior to such damage or destruction, all to
be effected in accordance with Legal Requirements. The expenses incurred by
Lender in the adjustment and collection of insurance proceeds shall become part
of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender
upon demand.
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7.1.2 CASUALTY AND APPLICATION OF PROCEEDS.
(a) In case of loss or damages covered by any of the Policies, the
following provisions shall apply:
(i) If an Insured Casualty does not exceed $200,000, Borrower may
settle and adjust any claim without the consent of Lender; provided that such
adjustment is carried out in a competent and timely manner. In such case,
Borrower is hereby authorized to collect and receipt for any such insurance
proceeds.
(ii) If an Insured Casualty shall equal or exceed $200,000, Lender may
settle and adjust any claim without the consent of Borrower and agree with the
insurance company or companies on the amount to be paid on the loss, and the
proceeds of any such policy shall be due and payable solely to Lender and held
in escrow by Lender in accordance with the terms hereof.
(b) In the event of an Insured Casualty where the loss is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months and prior to the Optional
Prepayment Date to an economic unit not less valuable and not less useful than
the same was prior to the Insured Casualty, and after such restoration will
adequately secure the Debt, then, if no Default or Event of Default shall have
occurred and be then continuing, the proceeds of insurance (after reimbursement
of any expenses incurred by Lender) shall be applied to reimburse Borrower for
the cost of restoring, repairing, replacing or rebuilding the Property or part
thereof subject to the Insured Casualty (the "Restoration"), in the manner set
forth herein. Borrower hereby covenants and agrees to commence and diligently
prosecute such Restoration; provided that (i) Borrower shall pay all costs (and
if required by Lender, Borrower shall deposit the total thereof with Lender in
advance) of such Restoration in excess of the net proceeds of insurance made
available pursuant to the terms hereof; (ii) the Restoration shall be done in
compliance with all Legal Requirements; and (iii) Lender shall have received
evidence reasonably satisfactory to it that, during the period of the
Restoration, the sum of (A) income derived from the Property, as reasonably
determined by Lender, plus (B) proceeds of rent loss insurance or business
interruption insurance, if any, to be paid will equal or exceed the sum of (I)
expenses in connection with the operation of the Property and (II) the Debt
Service under the Loan.
(c) Except as provided above, the proceeds of insurance collected upon any
Insured Casualty shall, at the option of Lender in its sole discretion, be
applied to the payment of the Debt or applied to reimburse Borrower for the cost
of any Restoration, in the manner set forth below. Any such application to the
Debt shall be without any prepayment consideration except that if an Event of
Default has occurred and is continuing at the time the insurance proceeds are
received, then Borrower shall pay to Lender an additional amount equal to the
Yield Maintenance Premium, if any, that would be required under Section 2.3.3
hereof if a Defeasance Deposit was to be made by Borrower. Any such application
to the Debt shall be applied to those payments of principal and interest last
due under the Note but shall not postpone or reduce any payments otherwise
required pursuant to the Note other than such last due payments.
(d) If Borrower is entitled to reimbursement out of insurance proceeds held
by Lender, such proceeds shall be deposited by Lender into the
Casualty/Condemnation Subaccount (as described in the Cash Collateral Agreement)
and disbursed from time to time from the Casualty/Condemnation Subaccount upon
Lender being furnished with (i) evidence satisfactory to it of the estimated
cost of completion of the Restoration, (ii) funds or, at Lender's option,
assurances satisfactory to Lender that such funds are available, sufficient in
addition to the proceeds of insurance to complete the proposed Restoration,
(iii) such architect's certificates, waivers of lien, contractor's sworn
statements, title insurance endorsements, bonds, plats of survey and such other
evidences of cost, payment and performance as Lender may reasonably require and
approve and (iv) all plans and specifications for such Restoration, such plans
and specifications to be approved by Lender prior to commencement of any work.
In addition, no payment made prior to the final completion of the Restoration
shall exceed ninety percent (90%) of the value of the work performed from time
to time; funds other than proceeds of insurance shall be disbursed prior to
disbursement of such proceeds; and at all times, the undisbursed balance of such
proceeds remaining in the hands of Lender, together with funds deposited for
that purpose or irrevocably committed to the satisfaction of Lender by or on
behalf of Borrower for that purpose, shall be at least sufficient in the
reasonable judgment of Lender to pay for the cost of completion of the
Restoration, free and clear of all liens or claims for lien. Any surplus which
may remain out of insurance proceeds held by Lender after payment of such costs
of Restoration shall be paid to Borrower.
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7.1.3 CONDEMNATION.
(a) Borrower shall promptly give Lender written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Property (a "Condemnation") and shall deliver to Lender copies of
any and all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation, Borrower, regardless of whether an Award is
available, shall promptly proceed to restore, repair, replace or rebuild the
Property to the extent practicable to be of at least equal value and of
substantially the same character as prior to such Condemnation, all to be
effected in accordance with Legal Requirements.
(b) Lender is hereby irrevocably appointed as Borrower's attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment in respect of a Condemnation (an "Award") and to make any
compromise or settlement in connection with such Condemnation, subject to the
provisions of this Section. Notwithstanding any Condemnation by any public or
quasi-public authority (including any transfer made in lieu of or in
anticipation of such a Condemnation), Borrower shall continue to pay the Debt at
the time and in the manner provided for in the Note, in this Agreement and the
other Loan Documents and the Debt shall not be reduced unless and until any
Award shall have been actually received and applied by Lender to expenses of
collecting the Award and to discharge of the Debt. Lender shall not be limited
to the interest paid on the Award by the condemning authority but shall be
entitled to receive out of the Award interest at the rate or rates provided in
the Note. Borrower shall cause any Award that is payable to Borrower to be paid
directly to Lender.
(c) In the event of any Condemnation where the Award is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months and prior to the Optional
Prepayment Date to an economic unit not less valuable and not less useful than
the same was prior to the Condemnation, and after such restoration will
adequately secure the Debt, then, if no Default or Event of Default shall have
occurred and be then continuing, the proceeds of the Award (after reimbursement
of any expenses incurred by Lender) shall be applied to reimburse Borrower for
the cost of restoring, repairing, replacing or rebuilding the Property or part
thereof subject to Condemnation (the "Condemnation Restoration") in the manner
set forth below. Borrower hereby covenants and agrees to commence and diligently
to prosecute such Condemnation Restoration; provided that (i) Borrower shall pay
all costs (and if required by Lender, Borrower shall deposit the total thereof
with Lender in advance) of such Condemnation Restoration in excess of the Award
made available pursuant to the terms hereof; (ii) the Condemnation Restoration
shall be done in compliance with all Legal Requirements; and (iii) Lender shall
have received evidence reasonably satisfactory to it that, during the period of
the Condemnation Restoration, the sum of (A) income derived from the Property,
as reasonably determined by Lender, plus (B) proceeds of rent loss insurance or
business interruption insurance, if any, to be paid will equal or exceed the sum
of (I) expenses in connection with the operation of the Property and (II) the
Debt Service under the Loan.
(d) Except as provided above, the Award collected upon any Condemnation
shall, at the option of Lender in its sole discretion, be applied to the payment
of the Debt or applied to reimburse Borrower for the cost of the Condemnation
Restoration in the manner set forth below. Any such application to the Debt
shall be without any prepayment consideration except that if an Event of Default
has occurred and is continuing at the time the Award is received, then Borrower
shall pay to Lender an additional amount equal to the Yield Maintenance Premium,
if any, that would be required under Section 2.3.3 hereof if a Defeasance
Deposit was to be made by Borrower. Any such application to the Debt shall be
applied to those payments of principal and interest last due under the Note but
shall not postpone or reduce any payments otherwise required pursuant to the
Note other than such last due payments. If the Property is sold, through
foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall be
recoverable or shall have been sought, recovered or denied, to receive all or a
portion of said Award sufficient to pay the Debt.
(e) In the event Borrower is entitled to reimbursement out of the Award
received by Lender, such proceeds shall be disbursed from time to time upon
Lender being furnished with (i) evidence satisfactory to it of the estimated
cost of completion of the Condemnation Restoration, (ii) funds or, at Lender's
option, assurances satisfactory to Lender that such funds are available,
sufficient in addition to the proceeds of the Award to complete the Condemnation
Restoration, (iii) such architect's certificates, waivers of lien, contractor's
sworn statements, title insurance endorsements, bonds, plats of survey and such
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other evidences of costs, payment and performance as Lender may reasonably
require and approve; and (iv) all plans and specifications for such Condemnation
Restoration, such plans and specifications to be approved by Lender prior to
commencement of work. In addition, no payment made prior to the final completion
of the restoration, repair, replacement and rebuilding shall exceed ninety
percent (90%) of the value of the work performed from time to time; (y) funds
other than proceeds of the Award shall be disbursed prior to disbursement of
such proceeds; and (z) at all times, the undisbursed balance of such proceeds
remaining in the hands of Lender, together with funds deposited for that purpose
or irrevocably committed to the satisfaction of Lender by or on behalf of
Borrower for that purpose, shall be at least sufficient in the reasonable
judgment of Lender to pay for the costs of completion of the Condemnation
Restoration free and clear of all liens or claims for lien. Any surplus which
may remain out of the Award received by Lender after payment of such costs of
restoration, repair, replacement or rebuilding shall, in the sole and absolute
discretion of Lender, be retained by Lender and applied to payment of the Debt.
Section 7.2 REQUIRED REPAIR; REQUIRED REPAIR FUNDS.
7.2.1 REQUIRED REPAIRS: DEPOSITS. Borrower shall perform the repairs at the
Property set forth on Schedule 3 annexed hereto (the "Required Repairs").
Borrower shall complete each of the Required Repairs on or before the deadline
for same set forth on Schedule 3. On the Closing Date, Borrower shall deposit
with Lender the amount set forth on Schedule 3 hereto to perform the Required
Repairs for the Property. Amounts so deposited with Lender (the "Required Repair
Fund") shall be held by Lender in an account (the "Required Repair Account") in
Lender's name at a financial institution selected by Lender in its sole
discretion and shall be invested in Permitted Investments.
7.2.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due in
respect of the Loan and the performance of all other terms, conditions and
covenants of the Loan Documents and this Agreement on Borrower's part to be paid
and performed, all of Borrower's right, title and interest in and to the
Required Repair Fund and the Required Repair Account. Borrower shall not,
without obtaining the prior written consent of Lender, further pledge, assign or
grant any security interest in the Required Repair Fund or the Required Repair
Account or permit any lien or encumbrance to attach thereto, or any levy to be
made thereon, or any UCC-l Financing Statements, except those naming Lender as
the secured party, to be filed with respect thereto.
7.2.3 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower
all Required Repair Funds in the Required Repair Account upon satisfaction by
Borrower of each of the following conditions: (a) Borrower shall submit a
written request for payment to Lender at least thirty (30) days prior to the
date on which Borrower requests such payment be made (except in the case of an
emergency repair which requires immediate attention, in which event Borrower may
submit such payment request within ten (10) days), (b) on the date such request
is received by Lender and on the date such payment is to be made, no Event of
Default shall exist and remain uncured, (c) Lender shall have received an
Officer's Certificate from Borrower certifying that all Required Repairs at the
Property for which disbursement has been requested have been completed (i) in a
good and workmanlike manner and (ii) in accordance with all applicable Legal
Requirements, such certificate to be accompanied by a copy of each license,
permit or other approval required by any Governmental Authority for the use or
occupancy of the Property, (d) Lender shall have received an Officer's
Certificate from Borrower (i) identifying each Person that supplied materials or
labor in connection with the Required Repairs for which disbursement has been
requested (ii) stating that each such Person has been paid in full or will be
paid in full with the funds disbursed, such certificate to be accompanied by a
copy of appropriate lien waivers or other evidence of payment satisfactory to
Lender, (e) at Lender's option, a title search for the Property indicating that
the Property is free from all liens, claims and other encumbrances not
previously approved by Lender and (f) Lender shall have received such other
evidence as Lender shall reasonably request that the Required Repairs at the
Property have been completed and paid for or will be paid for with the proceeds
of such disbursement. Lender shall be required to make only one disbursement
from the Required Repair Account during a month and such disbursement shall be
made only upon satisfaction of each condition contained in this Section 7.2.3.
Upon completion of all Required Repairs in accordance with the terms hereof,
Lender shall disburse to Borrower any amounts then remaining in the Required
Repair Account.
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7.2.4 FAILURE TO PERFORM REQUIRED REPAIRS. It shall be a Default under this
Agreement if (a) Borrower does not complete the Required Repairs at the Property
by the required deadline for each repair as set forth on Schedule 3 or (b)
Borrower does not satisfy each condition contained in Section 7.2.3 hereof. Upon
the occurrence of an Event of Default, Lender, at its option, may withdraw all
Required Repair Funds from the Required Repair Account and Lender may apply such
funds either to completion of the Required Repairs at the Property or toward
payment of the Debt in such order, proportion and priority as Lender may
determine in its sole discretion. Lender's right to withdraw and apply Required
Repair Funds shall be in addition to all other rights and remedies provided to
Lender under this Agreement and the other Loan Documents.
Section 7.3 TAX AND INSURANCE ESCROW FUND.
7.3.1 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender (a) on
each Payment Date, (i) one-twelfth (1/12) of the Taxes that Lender reasonably
estimates will be payable during the next ensuing twelve (12) months in order to
accumulate with Lender sufficient funds to pay all such Taxes at least thirty
(30) days prior to their respective due dates and (ii) one-twelfth (1/12) of the
Insurance Premiums that Lender estimates will be payable for the renewal of the
coverage afforded by the Policies upon the expiration thereof in order to
accumulate with Lender sufficient funds to pay all such Insurance Premiums at
least thirty (30) days prior to the expiration of the Policies and (b) on the
Closing Date, an amount which, when combined with the monthly deposits described
in (a) above, shall be sufficient to pay the next installment of Taxes and the
next required payment of Insurance Premiums on the due date therefor (said
amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow
Fund"). The Tax and Insurance Escrow Fund, and the payments of interest or
principal or both, payable pursuant to the Note, shall be added together and
shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the
Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums
required to be made by Borrower pursuant to Section 5.1 hereof and under the
Mortgage, or to reimburse Borrower for such amounts upon presentation of
evidence of payment and an Officer's Certificate in form and substance
satisfactory to Lender; subject, however, to Borrower's right to contest Taxes
in accordance with Section 5.1(b) hereof. In making any payment relating to the
Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement
or estimate procured from the appropriate public office (with respect to Taxes)
or insurer or agent (with respect to Insurance Premiums), without inquiry into
the accuracy of such bill, statement or estimate or into the validity of any
tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the
amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for
Taxes and Insurance Premiums pursuant to Section 5.1 hereof, Lender shall return
any excess to Borrower or credit such excess against future payments to be made
to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal
with the Person shown on the records of Lender to be the owner of the Property.
If at any time Lender determines that the Tax and Insurance Escrow Fund is not
or will not be sufficient to pay the items set forth in (a) and (b) above,
Lender shall notify Borrower of such determination and Borrower shall increase
its monthly payments to Lender by the amount that Lender reasonably estimates is
sufficient to make up the deficiency at least thirty (30) days prior to
delinquency of the Taxes and/or expiration of the Policies, as the case may be.
7.3.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due
under the Loan and the performance of all other terms, conditions and provisions
of the Loan Documents and this Agreement on Borrower's part to be paid and
performed, of all Borrower's right, title and interest in and to the Tax and
Insurance Escrow Fund. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Tax and Insurance Escrow Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
7.3.3 APPLICATION OF TAX AND INSURANCE ESCROW FUND. Upon the occurrence and
during the continuance of an Event of Default, Lender may apply any sums then
present in the Tax and Insurance Escrow Fund to the payment of the following
items in any order in its sole discretion: (a) Taxes and Other Charges; (b)
Insurance Premiums; (c) interest on the unpaid principal balance of the Note;
(d) amortization of the unpaid principal balance of the Note; or (e) all other
sums payable pursuant to this Agreement and the other Loan Documents. The Tax
and Insurance Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Lender. Sums in the Tax and Insurance
Escrow Fund shall be held by Lender in an account in Lender's name at a
financial institution selected by Lender in its sole discretion and shall be
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invested in Permitted Investments. Earnings or interest, if any, thereon shall
be retained as part of such funds and applied in accordance with this Section
7.3. Lender shall not be liable for any loss sustained on the investment of any
funds constituting the Tax and Insurance Escrow Fund.
Section 7.4 CAPITAL RESERVE FUND.
7.4.1 CAPITAL RESERVE FUND. Borrower shall pay to Lender on each Payment
Date an amount equal to one-twelfth (1/12th) of the product obtained by
multiplying $0.55 by the aggregate amount of square feet of rentable space in
the Property (said amounts hereinafter called the "Capital Reserve Fund").
Lender will apply the Capital Reserve Fund to payment of Approved Capital
Expenses pursuant to the terms hereof; provided, however, if the Loan shall have
been accelerated or if there is an Event of Default which is continuing, then
Lender may credit such Capital Reserve Fund against the Debt in such priority
and proportions as Lender in its sole and absolute discretion shall deem proper.
If the amount of the Capital Reserve Fund shall exceed the amounts due for
Approved Capital Expenses pursuant to the terms hereof, Lender shall, in its
discretion, return any excess to Borrower or, if future Capital Reserve Fund
payments are then required, credit such excess against such future payments;
provided, however, if the Loan shall have been accelerated or if there is an
Event of Default which is continuing, then Lender may credit such excess against
the Debt in such priority and proportions as Lender in its sole and absolute
discretion shall deem proper.
7.4.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in all Borrower's right, title
and interest in and to the Capital Reserve Fund, as security for payment of all
sums due under the Loan and the performance of all other terms, conditions and
provisions of the Loan Documents and this Agreement on Borrower's part to be
paid and performed. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Capital Reserve Fund, or permit any lien or encumbrance to attach thereto, or
any levy to be made thereon, or any UCC-1 Financing Statements, except those
naming Lender as the secured party, to be filed with respect thereto. This
Agreement is, among other things, intended by the parties to be a security
agreement for purposes of the Illinois Uniform Commercial Code.
7.4.3 APPLICATION OF CAPITAL RESERVE FUND. Upon the occurrence and during
the continuance of an Event of Default, Lender may apply any sums then present
in the Capital Reserve Fund to the payment of the following items in any order
in its sole discretion: (a) Capital Expenses; (b) interest on the unpaid
principal balance of the Note; (c) amortization of the unpaid principal balance
of the Note; or (d) all other sums payable pursuant to this Agreement and the
other Loan Documents. The Capital Reserve Fund shall not constitute a trust fund
and may be commingled with other monies held by Lender. Sums in the Capital
Reserve Fund shall be held by Lender in an account in Lender's name at a
financial institution selected by Lender in its sole discretion and shall be
invested in Permitted Investments. Earnings or interest, if any, thereon shall
be retained as part of such funds and applied in accordance with this Section
7.4. Lender shall not be liable for any loss sustained on the investment of any
funds constituting the Capital Reserve Fund.
7.4.4 PAYMENT OF CAPITAL EXPENSES. Funds held in the Capital Reserve Fund
may be used for Approved Capital Expenses. From time to time, Borrower may send
a request for disbursement of funds in the Capital Reserve Fund, but not more
than one (1) time per month and, to the extent there are sufficient funds
available in the Capital Reserve Fund, such disbursements shall be made by
Lender so long as (a) no Event of Default shall have occurred and be continuing;
(b) such expenditure is for an Approved Capital Expense; and (c) the request for
disbursement is accompanied by (i) an Officer's Certificate certifying (A) the
amount of funds to be disbursed, (B) that such funds will be used to pay
Approved Capital Expenses and a description thereof, (C) that the same has not
been the subject of a previous disbursement, (D) that all outstanding trade
payables (other than those to be paid from the requested disbursement or those
otherwise permitted to be outstanding under Section 6.1(i) hereof) have been
paid in full and (E) that all previous disbursements have been used to pay the
previously identified Approved Capital Expenses and (ii) reasonably detailed
documentation as to the amount, necessity and purpose therefor.
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Section 7.5 ROLLOVER RESERVE FUND
7.5.1 ROLLOVER RESERVE FUND.
(a) Borrower shall pay to Lender on each Payment Date commencing January 1,
2001, and continuing through December 31, 2002, the sum of $26,835.00 (each such
payment a "Rollover Payment," the schedule of such Rollover Payments [as may be
amended pursuant to the terms of Section 7.5.1(a)(i), below], the "Rollover
Payment Schedule," and such Rollover Payments cumulatively, the "Rollover
Reserve Fund"), to be applied in accordance with the terms of this Section 7.5;
provided, however, that
(i) if, in accordance with the terms of that certain Lease
dated July 1, 1992 (as may have been amended on or prior to the date
hereof, the "Tribune Lease"), by and between American National Bank and
Trust Company of Chicago, as Trustee under Trust Agreement dated
December 1, 1985, and known as Trust No. 66245, and Tribune Regional
Programming, Inc. / Chicago Tribune Company (collectively, "Tenant"),
Tenant extends the term of the Tribune Lease such that the expiration
date of the Tribune Lease is no earlier than March 31, 2008, then
Borrower may, in lieu of the immediately preceding Rollover Payment
Schedule, pay to Lender the sum of $7,657.00 on each Payment Date
commencing January 1, 2001, and continuing through December 31, 2007;
(ii) if the unsecured debt rating of Prime Group Realty Trust,
Inc. is BBB- or better as determined by Standard & Poor's Ratings
Services as of January 1, 2001, then Borrower may, in lieu of making
Rollover Payments, deliver to Lender on or before January 1, 2001 the
Prime Group Guaranty (as defined below);
(iii) Borrower shall not be required to make any Rollover
Payments if, as determined by Lender as of January 1, 2001, the Leases
that expire during a single calendar year at no time represent more
than twenty percent (20%) of the gross leasable area of the Property;
and
(iv) Borrower shall not be required to make any Rollover
Payments if Borrower delivers to Lender, on or before January 1, 2001,
an irrevocable letter of credit in the amount of $643,160.00 in a form
and issued by a bank reasonably acceptable to Lender, and Lender shall
have the right to draw upon and apply the proceeds from such letter of
credit at the times and in the manner provided in this Section 7.5 for
application of funds deposited in the Rollover Reserve Fund.
For purposes of this Section 7.5, the "Prime Group Guaranty"
shall mean a guaranty in form and substance reasonably satisfactory to
Lender from Prime Group Realty, L.P., pursuant to which Prime Group
Realty, L.P. unconditionally guarantees the payment of all costs and
expenses, up to a maximum amount of $643,160.00, incurred in connection
with Approved Leasing Expenses. Lender shall have the right to enforce
the Prime Group Guaranty and apply the proceeds from the Prime Group
Guaranty at the times and in the manner provided in this Section 7.5
for application of funds deposited in the Rollover Reserve Fund.
(b) Lender will apply the Rollover Reserve Fund to the payment of Approved
Leasing Expenses pursuant to the terms of this Section 7.5; provided, however,
if there is an Event of Default which is continuing, then Lender may credit such
Rollover Reserve Fund against the Debt in such priority and proportions as
Lender in its sole and absolute discretion shall deem proper. If the amount of
the Rollover Reserve Fund shall exceed the amounts due for Approved Leasing
Expenses pursuant to the terms hereof, Lender shall, in its reasonable
discretion, return any excess to Borrower; provided, however, if there is an
Event of Default which is continuing, then Lender may credit such excess against
the Debt in such priority and proportions as Lender in its sole and absolute
discretion shall deem proper.
7.5.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in, all of Borrower's right,
title and interest in and to the Rollover Reserve Fund, as security for payment
of all sums due under the Loan and the performance of all other terms,
conditions and provisions of the Loan Documents and this Agreement on Borrower's
part to be paid and performed. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in the Rollover Reserve Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto. This Agreement is, among other things, intended by the parties to be a
security agreement for purposes of the Illinois Uniform Commercial Code.
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7.5.3 APPLICATION OF ROLLOVER RESERVE FUND. Upon the occurrence and during
the continuance of an Event of Default, Lender may apply any sums then present
in the Rollover Reserve Fund to the payment of the following items in any order
in its sole discretion: (a) Approved Leasing Expenses; (b) interest on the
unpaid principal balance of the Note; (c) amortization of the unpaid principal
balance of the Note; or (d) all other sums payable pursuant to this Agreement
and the other Loan Documents. The Rollover Reserve Fund shall not constitute a
trust fund and may be commingled with other monies held by Lender. Sums in the
Rollover Reserve Fund shall be held by Lender or Servicer in an account in
Lender's or Servicer's name at a financial institution selected by Lender in its
sole discretion and shall be invested in Permitted Investments. Earnings or
interest, if any, thereon shall be retained as part of such funds and applied in
accordance with this Section 7.5. Lender shall not be liable for any loss
sustained on the investment of any funds constituting the Rollover Reserve Fund.
7.5.4 PAYMENT OF APPROVED LEASING EXPENSES. Funds held in the Rollover
Reserve Fund may be used for Approved Leasing Expenses. From time to time,
Borrower may send a request for disbursement of funds in the Rollover Reserve
Fund, but not more than one (1) time per month and, to the extent there are
sufficient funds available in the Rollover Reserve Fund, such disbursements
shall be made by Lender within five (5) Business Days of such request so long as
(a) no Event of Default shall have occurred and be continuing; (b) such
expenditure is for an Approved Leasing Expense; and (c) the request for
disbursement is accompanied by (i) an Officer's Certificate certifying (A) the
amount of funds to be disbursed, (B) that such funds will be used to pay
Approved Leasing Expenses and a description thereof, (C) that all outstanding
trade payables (other than those to be paid from the requested disbursement or
those otherwise permitted to be outstanding under Section 6.1(i) hereof) have
been paid in full, (D) that the same has not been the subject of a previous
disbursement, and (E) that all previous disbursements have been used to pay the
previously identified Approved Leasing Expenses and (ii) if requested by Lender,
reasonably detailed supporting documentation as to the amount, necessity and
purpose therefor. Should Borrower deliver to Lender an irrevocable letter of
credit in accordance with the terms of Section 7.5.1(a)(iv), above, to the
extent that Borrower is entitled to request funds and receive disbursements from
the Rollover Reserve Fund pursuant to this Section 7.5.4, Lender shall be
entitled to make partial draw requests on said letter of credit for the amounts
so requested by Borrower and shall disburse such amounts in accordance with the
terms of this Section; provided, however, that if partial draw requests are not
permitted under said letter of credit then, upon Borrower's first request for
disbursement of Rollover Reserve Fund sums, Lender shall make a draw request for
the full amount of the letter of credit and shall hold such funds in the
Rollover Reserve Fund and disburse such funds in accordance with this Section
7.5.
Section 7.6 PAYMENT OF APPROVED OPERATING EXPENSES. After a Cash Trap
Event, Funds held in the Cash Collateral Account may be used for Approved
Operating Expenses, provided that such use shall be in Lender's discretion if an
Event of Default has occurred and remains uncured. Provided an Event of Default
has not occurred, Borrower may from time to time send a request for disbursement
of funds in the Cash Collateral Account for payment of Approved Operating
Expenses, but not more than one (1) time per month. To the extent there are
funds available in the Cash Collateral Account in excess of the amounts required
to fund the Tax and Insurance Escrow Fund, the Capital Reserve Fund and to pay
the Monthly Debt Service Payment Amount due in respect of the Loan on the next
Payment Date, such disbursements for Approved Operating Expenses shall be made
by the Lender so long as (a) no Event of Default shall have occurred and be
continuing; (b) such expenditure is for an Approved Operating Expense; and (c)
the request for disbursement is accompanied by (i) an Officer's Certificate
certifying (A) the amount of funds to be disbursed, (B) that such funds will be
used to pay Approved Operating Expenses and a description thereof, (C) that all
outstanding trade payables (other than those to be paid from the requested
disbursement or those otherwise permitted to be outstanding under Section 6.1(i)
hereof) have been paid in full, (D) that the same has not been the subject of a
previous disbursement and (E) that all previous disbursements have been or will
be used to pay the previously identified Approved Operating Expenses, and (ii)
reasonably detailed documentation as to the amount, necessity and purpose
therefor. Subject to satisfaction of the preceding conditions, if the Lender
receives from the Borrower a valid request for a disbursement for payment of
Approved Operating Expenses for the then Current Month at least five (5)
Business Days prior to the Payment Date occurring in such Current Month, then
the disbursement in respect of such Approved Operating Expenses shall be made to
Borrower on such Payment Date. If the Borrower shall fail to validly request a
disbursement for payment of Approved Operating Expenses for the then Current
Month at least five (5) Business Days prior to the Payment Date in such Current
Month, then the Lender shall retain in the Deposit Account an amount equal to
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the anticipated Operating Expenses for the then Current Month as set forth in
the approved Operating Budget for such month, and the Lender shall, subject to
satisfaction of the preceding conditions, disburse same to the Borrower five (5)
Business Days after the Lender receives a valid request therefor. Amounts
disbursed to the Borrower under this Section 7.6 shall be used by the Borrower
to pay current Approved Operating Expenses and for no other purpose. The
Borrower shall furnish the Lender with copies of bills, statements, invoices,
receipts or other evidence as the Lender may reasonably request in connection
with a request for disbursement.
VIII. DEFAULTS
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Section 8.1 EVENT OF DEFAULT.
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default"):
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid when the same
are due and payable, subject to Borrower's right to contest Taxes and Other
Charges in accordance with Section 5.1(b) hereof, provided that such event shall
not have been cured within five (5) days;
(iii) if the Policies are not kept in full force and effect, or if the
certificates are not delivered to Lender within five (5) Business Days following
request;
(iv) if, without Lender's prior written consent, (A) Borrower
transfers or encumbers all or any portion of the Property other than as may be
permitted hereunder or (B) any direct or indirect interest in Borrower is
transferred or assigned except as expressly permitted under Section 6.1(j)
hereof;
(v) if any representation or warranty made by Borrower herein or in
any other Loan Document, or in any report, certificate, financial statement or
other instrument, agreement or document furnished by Borrower in connection with
this Agreement or any other Loan Document, shall be false or misleading in any
material respect as of the date the representation or warranty was made;
(vi) if Borrower shall make an assignment for the benefit of
creditors, or if Borrower shall generally not be paying its debts as they become
due;
(vii) if a receiver, liquidator or trustee shall be appointed for
Borrower or if Borrower shall be adjudicated a bankrupt or insolvent, or if any
petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to, or acquiesced in by, Borrower, or if any proceeding for
the dissolution or liquidation of Borrower shall be instituted; and if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by Borrower, the same is not discharged, stayed or dismissed within
sixty (60) days;
(viii) if Borrower attempts to assign its respective rights under this
Agreement in contravention of the Loan Documents or any of the other Loan
Documents or any interest herein or therein;
(ix) if Borrower defaults in any of its negative covenants contained
in Section 6.1 or any covenant contained in Section 4.1(dd) hereof;
(x) if an Event of Default as defined or described in any of the other
Loan Documents occurs, whether as to Borrower or the Property, or if any other
such event shall occur or condition shall exist, if the effect of such event or
condition is to accelerate the maturity of any portion of the Debt or to permit
Lender to accelerate the maturity of all or any portion of the Debt;
(xi) if Borrower shall be in default of its obligations to make
deposits into the Required Repair Fund or the Tax and Insurance Escrow Fund or
the Capital Reserve Fund, provided that such event shall not have been cured
within five (5) days;
(xii) if Borrower shall be in default under any term, covenant or
provision set forth herein which specifically contains a notice requirement or
grace period after the giving of such notice or the expiration of such grace
period; or
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(xiii) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsections (i) to (xii) above, for fifteen (15) days after notice to Borrower
from Lender, in the case of any Default which can be cured by the payment of a
sum of money, or for thirty (30) days after notice from Lender in the case of
any other Default; provided, however, that if such non-monetary Default is
susceptible of cure but cannot reasonably be cured within such 30-day period and
provided further that Borrower shall have commenced to cure such Default within
such 30-day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to cure
such Default, such additional period not to exceed sixty (60) days.
(b) Upon the occurrence of an Event of Default (other than an Event of
Default described in clauses (vi), (vii) or (viii) above) and at any time
thereafter Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to the Property,
including declaring the Debt to be immediately due and payable, and Lender may
enforce or avail itself of any or all rights or remedies provided in the Loan
Documents against Borrower and the Property, including all rights or remedies
available at law or in equity; and upon any Event of Default described in
clauses (vi), (vii) or (viii) above, the Debt and all other obligations of
Borrower hereunder and under the other Loan Documents shall immediately and
automatically become due and payable, without notice or demand, and Borrower
hereby expressly waives any such notice or demand, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
Section 8.2 REMEDIES.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents executed and
delivered by Borrower or at law or in equity may be exercised by Lender at any
time and from time to time, whether or not all or any of the Debt shall be
declared due and payable, and whether or not Lender shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan Documents with respect to the Property. Any such
actions taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein
or in the other Loan Documents. Without limiting the generality of the
foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender
is not subject to any "one action" or "election of remedies" law or rule and
(ii) all liens and other rights, remedies or privileges provided to Lender shall
remain in full force and effect until Lender has exhausted all of its remedies
against the Property and the Mortgage has been foreclosed, sold and/or otherwise
realized upon in satisfaction of the Debt or the Debt has been paid in full.
(b) Lender shall have the right from time to time to partially foreclose
the Mortgage in any manner and for any amounts secured by the Mortgage then due
and payable as determined by Lender in its sole discretion including, without
limitation, the following circumstances: (i) in the event Borrower defaults in
the payment of one or more scheduled payments of principal and interest, Lender
may foreclose the Mortgage to recover such delinquent payments or (ii) in the
event Lender elects to accelerate less than the entire outstanding principal
balance of the Loan, Lender may foreclose the Mortgage to recover so much of the
principal balance of the Loan as Lender may accelerate. Notwithstanding one or
more partial foreclosures, the Property shall remain subject to the Mortgage to
secure payment of sums secured by the Mortgage and not previously recovered.
(c) Lender shall have the right from time to time to sever the Note and the
other Loan Documents into one or more separate notes, mortgages and other
security documents in such denominations as Lender shall determine in its sole
discretion for purposes of evidencing and enforcing its rights and remedies
provided hereunder. Borrower shall execute and deliver to Lender from time to
time, promptly after the request of Lender, a severance agreement and such other
documents as Lender shall request in order to effect the severance described in
the preceding sentence, all in form and substance reasonably satisfactory to
Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true
and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the aforesaid severance,
Borrower ratifying all that its said attorney shall do by virtue thereof.
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Section 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of Lender
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Borrower shall not be construed to be a waiver of any subsequent Default or
Event of Default by Borrower or to impair any remedy, right or power consequent
thereon.
IX. SPECIAL PROVISIONS
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Section 9.1 SALE OF NOTE AND SECONDARY MARKET TRANSACTION.
9.1.1 COOPERATION. At Lender's request (to the extent not already required
to be provided by Borrower under this Agreement), Borrower shall use reasonable
efforts to satisfy the market standards to which Lender customarily adheres or
which may be reasonably required in the marketplace or by the Rating Agencies in
connection with one or more sales or assignments of the Note or participations
therein or securitizations of rated single or multiclass securities (the
"Securities") secured by or evidencing ownership interests in the Note and the
Mortgage (each such sale, assignment, participation and/or securitization, a
"Secondary Market Transaction"). Without limiting the generality of the
foregoing, Borrower shall, at the request of Lender in connection with any
Secondary Market Transaction, and so long as the Loan is still outstanding:
(a) (i) provide such financial and other information with respect to
the Property, Borrower and its Affiliates, Manager and any tenants of the
Property, (ii) provide business plans and budgets relating to the Property and
(iii) perform or permit or cause to be performed or permitted such site
inspection, appraisals, surveys, market studies, environmental reviews and
reports (Phase I's and, if appropriate, Phase II's), engineering reports and
other due diligence investigations of the Property, as may be reasonably
requested from time to time by Lender or the Rating Agencies or as may be
necessary or appropriate in connection with a Secondary Market Transaction or
Exchange Act requirements (the items provided to Lender pursuant to this
paragraph (a) being called the "Provided Information"), together, if customary,
with appropriate verification of and/or consents to the Provided Information
through letters of auditors or opinions of counsel of independent attorneys
acceptable to Lender and the Rating Agencies;
(b) at Borrower's expense, cause counsel to render opinions as to
non-consolidation, fraudulent conveyance, true sale and true contribution and
any other opinion customary in securitization transactions with respect to the
Property, Borrower and its Affiliates, which counsel and opinions shall be
reasonably satisfactory to Lender and the Rating Agencies;
(c) make such representations and warranties as of the closing date of
any Secondary Market Transaction with respect to the Property, Borrower and the
Loan Documents as are customarily provided in such transactions and as may be
reasonably requested by Lender or the Rating Agencies and consistent with the
facts covered by such representations and warranties as they exist on the date
thereof, including the representations and warranties made in the Loan
Documents;
(d) provide current crtificates of good standing and qualification
with respect to Borrower from appropriate Governmental Authorities; and
(e) execute such amendments to the Loan Documents and Borrower's
organizational documents, enter into a lock-box or similar arrangement with
respect to the Rents and establish and fund such reserve funds (including
reserve funds for deferred maintenance and capital improvements) as may be
requested by Lender or the Rating Agencies or otherwise to effect a Secondary
Market Transaction, provided that nothing contained in this subsection (e) shall
result in a material economic change in the transaction.
Borrower shall pay all reasonable third party costs and expenses incurred by
Lender in connection with a Secondary Market Transaction
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9.1.2 USE OF INFORMATION. Borrower understands that all or any portion of
the Provided Information and the Required Records may be included in disclosure
documents in connection with a Secondary Market Transaction, including a
prospectus or private placement memorandum (each, a "Disclosure Document") and
may also be included in filings with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
provided or made available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers or other parties relating
to the Secondary Market Transaction. In the event that the Disclosure Document
is required to be revised, Borrower shall cooperate with Lender in updating the
Provided Information or Required Records for inclusion or summary in the
Disclosure Document or for other use reasonably required in connection with a
Secondary Market Transaction by providing all current information pertaining to
Borrower, Manager and the Property necessary to keep the Disclosure Document
accurate and complete in all material respects with respect to such matters.
Such disclosure may include the opinion or judgment of Lender or Servicer
concerning the Provided Information or other matters disclosed, and despite
reasonable good faith efforts by Lender and/or Servicer, the disclosure may be
erroneous or incomplete. Borrower hereby consents to any and all such
disclosures of such information.
9.1.3 BORROWER OBLIGATIONS REGARDING DISCLOSURE DOCUMENTS. In connection
with a Disclosure Document, Borrower shall:
(a) if requested by Lender, certify in writing that Borrower has
carefully examined those portions of such Disclosure Document, pertaining to
Borrower, the Property, the Manager and the Loan, including applicable portions
of the sections entitled "Special Considerations", "Description of the
Mortgages", "Description of the Mortgage Loans and Mortgaged Property", "The
Manager", "The Borrower" and "Certain Legal Aspects of the Mortgage Loan", and
such portions (and portions of any other sections reasonably requested and
pertaining to Borrower, the Property, the Manager or the Loan) do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading;
(b) indemnify (i) any underwriter, syndicate member or placement agent
(collectively, the "Underwriters") retained by Lender or its issuing company
affiliate (the "Issuer") in connection with a Secondary Market Transaction, (ii)
Lender and (iii) the Issuer that is named in the Disclosure Document or
registration statement relating to a Secondary Market Transaction (the
"Registration Statement"), and each of the Issuer's directors, each of its
officers who have signed the Registration Statement and each person or entity
who controls the Issuer or the Lender within the meaning of Section 15 of the
Securities Act or Section 30 of the Exchange Act (collectively within (iii), the
"CCA Group"), and each of its directors and each person who controls each of the
Underwriters, within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act (collectively, the "Underwriter Group") for any losses,
claims, damages or liabilities (the "Liabilities") to which Lender, the CCA
Group or the Underwriter Group may become subject (including reimbursing all of
them for any legal or other expenses actually incurred in connection with
investigating or defending the Liabilities) insofar as the Liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any of the Required Records or in any of the
applicable portions of such sections of the Disclosure Document applicable to
Borrower, Manager, the Property or the Loan, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated in the applicable portions of such sections or necessary in order to make
the statements in the applicable portions of such sections in light of the
circumstances under which they were made, not misleading, provided, however,
that Borrower shall not be required to indemnify Lender for any Liabilities
relating to untrue statements or omissions which Borrower identified to Lender
in writing at the time of Borrower's examination of such Disclosure Document;
and
(c) reimburse any member of the CCA Group for any legal or other
expenses reasonably incurred by such member in connection with investigating or
defending the Liabilities.
Borrower's Liability under clause (a) or (b) above shall be limited to
Liabilities arising out of or based upon any such untrue statement or omission
made therein in reliance upon and in conformity with information furnished to
Lender by or on behalf of Borrower in connection with the preparation of those
portions of the Disclosure Document pertaining to Borrower, Manager, the
Property or the Loan or in connection with the underwriting of the debt,
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including financial statements of Borrower, operating statements, rent rolls and
other Required Records, environmental site assessment reports and property
condition reports with respect to the Property. The foregoing indemnity will be
in addition to any liability which Borrower may otherwise have.
9.1.4 BORROWER INDEMNITY REGARDING FILINGS. In connection with filings
under the Exchange Act, Borrower shall (i) indemnify Lender, the CCA Group and
the Underwriter Group for any Liabilities to which Lender, the CCA Group or the
Underwriter Group may become subject insofar as the Liabilities arise out of or
are based upon the omission or alleged omission to state in the Provided
Information or Required Records a material fact required to be stated in the
Provided Information or Required Records in order to make the statements in the
Provided Information or Required Records, in light of the circumstances under
which they were made not misleading and (ii) reimburse Lender, the CCA Group or
the Underwriter Group for any legal or other expenses actually incurred by
Lender, CCA Group or the Underwriter Group in connection with defending or
investigating the Liabilities.
9.1.5 INDEMNIFICATION PROCEDURE. Promptly after receipt by an indemnified
party under Section 9.1.3 or 9.1.4 of notice of the commencement of any action
for which a claim for indemnification is to be made against Borrower, such
indemnified party shall notify Borrower in writing of such commencement, but the
omission to so notify the Borrower will not relieve Borrower from any liability
that it may have to any indemnified party hereunder except to the extent that
failure to notify causes prejudice to Borrower. In the event that any action is
brought against any indemnified party, and it notifies Borrower of the
commencement thereof, Borrower will be entitled, jointly with any other
indemnifying party, to participate therein and, to the extent that it (or they)
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice of commencement, to assume the defense thereof
with counsel satisfactory to such indemnified party in its discretion. After
notice from Borrower to such indemnified party under this Section 9.1.5,
Borrower shall not be responsible for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, if the defendants in
any such action include both Borrower and an indemnified party, and any
indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to Borrower, then the indemnified party or
parties shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Borrower shall not be liable for the expenses
of more than one separate counsel unless there are legal defenses available to
it that are different from or additional to those available to another
indemnified party.
9.1.6 CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 9.1.3
or 9.1.4 is for any reason held to be unenforceable by an indemnified party in
respect of any Liabilities (or action in respect thereof) referred to therein
which would otherwise be indemnifiable under Section 9.1.3 or 9.1.4, Borrower
shall contribute to the amount paid or payable by the indemnified party as a
result of such Liabilities (or action in respect thereof); provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person not guilty of such fraudulent misrepresentation. In determining the
amount of contribution to which the respective parties are entitled, the
following factors shall be considered: (i) the CCA Group's and Borrower's
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted; (ii) the opportunity to correct and prevent any
statement or omission; and (iii) any other equitable considerations appropriate
in the circumstances. Lender and Borrower hereby agree that it may not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation.
9.1.7 RATING SURVEILLANCE. Lender will retain the Rating Agencies to
provide rating surveillance services on Securities. The pro rata expenses of
such surveillance will be paid for by Borrower based on the applicable
percentage of such expenses determined by dividing the then outstanding
Principal by the then aggregate outstanding amount of the pool created in the
Secondary Market Transaction which includes the Loan.
Section 9.2 RESERVED
Section 9.3 RESERVED.
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Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall
not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in the Note, this Agreement, the Mortgage or the other
Loan Documents by any action or proceeding wherein a money judgment shall be
sought against Borrower, except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Property, the
Rents, or any other collateral given to Lender pursuant to the Loan Documents;
provided, however, that, except as specifically provided herein, any judgment in
any such action or proceeding shall be enforceable against Borrower only to the
extent of Borrower's interest in the Property, in the Rents and in any other
collateral given to Lender, and Lender, by accepting the Note, this Agreement,
the Mortgage and the other Loan Documents, agrees that it shall not sue for,
seek or demand any deficiency judgment against Borrower in any such action or
proceeding under or by reason of or under or in connection with the Note, this
Agreement, the Mortgage or the other Loan Documents. The provisions of this
section shall not, however, (a) constitute a waiver, release or impairment of
any obligation evidenced or secured by any of the Loan Documents; (b) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under the Mortgage; (c) affect the validity or
enforceability of or any guaranty made in connection with the Loan or any of the
rights and remedies of Lender thereunder; (d) impair the right of Lender to
obtain the appointment of a receiver; (e) impair the enforcement of any of the
Assignments of Leases; (f) constitute a prohibition against Lender commencing
any other appropriate action or proceeding in order for Lender to fully realize
the security granted by the Mortgage or to exercise its remedies against the
Property; or (g) constitute a waiver of the right of Lender to enforce the
liability and obligation of Borrower, by money judgment or otherwise, to the
extent of any loss, damage, cost, expense, liability, claim or other obligation
incurred by Lender (including attorneys' fees and costs reasonably incurred)
arising out of or in connection with the following:
(i) fraud or intentional misrepresentation by Borrower or any guarantor in
connection with the Loan;
(ii) the gross negligence or willful misconduct of Borrower;
(iii) the breach of any provision in that certain Environmental and
Hazardous Substance Indemnification Agreement of even date herewith given by
Borrower to Lender or in the Mortgage concerning environmental laws, hazardous
substances and asbestos and any indemnification of Lender with respect thereto
in either document;
(iv) physical waste of the Property, or the removal or disposal of any
portion of the Property;
(v) the misapplication or conversion by Borrower of (A) any insurance
proceeds paid by reason of any loss, damage or destruction to the Property, (B)
any awards or other amounts received in connection with the condemnation of all
or a portion of the Property, or (C) any Rents following an Event of Default;
(vi) failure to pay charges for labor or materials or other charges that
can create liens on any portion of the Property unless such charges are the
subject of a bona fide dispute in which Borrower is contesting the amount or
validity thereof;
(vii) any security deposits collected with respect to the Property which
are not delivered to Lender upon a foreclosure of the Property or action in lieu
thereof, except to the extent any such security deposits were applied in
accordance with the terms and conditions of any of the Leases prior to the
occurrence of the Event of Default that gave rise to such foreclosure or action
in lieu thereof; and
(viii) Borrower's indemnification of Lender set forth in Section 9.2.
Notwithstanding anything to the contrary in this Agreement or any of the Loan
Documents, (x) Lender shall not be deemed to have waived any right which Lender
may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the
U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by
the Mortgage or to require that all collateral shall continue to secure all of
the Debt owing to Lender in accordance with the Loan Documents, and (y) the Debt
shall be fully recourse to Borrower in the event that: (aa) the first full
monthly payment of principal and interest under the Note is not paid when due;
(bb) Borrower fails to permit on-site inspections of the Property, fails to
provide financial information, fails to maintain its status as a single purpose
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entity or fails to appoint a new property manager upon the request of Lender
after an Event of Default, each as required by, and in accordance with the terms
and provisions of, this Loan Agreement and the Mortgage (cc) Borrower fails to
obtain Lender's prior written consent to any subordinate financing or other
voluntary lien encumbering the Property other than a Permitted Encumbrance; or
(dd) Borrower fails to obtain Lender's prior written consent to any assignment,
transfer, or conveyance of the Property or any interest therein as required by
the Mortgage.
Section 9.5 TERMINATION OF MANAGER. If an Event of Default is continuing,
Borrower shall, at the request of Lender, terminate the Management Agreement and
replace the Manager with a manager approved by Lender on terms and conditions
satisfactory to Lender. In the event that Borrower does not propose a
replacement manager to Lender for its approval within fifteen (15) business days
after the Lender's request that Borrower do so, Lender may propose two or more
such property managers for Borrower's consideration. If Borrower then fails to
select and retain one of such property managers within fifteen (15) business
days thereafter, Lender shall have the right to select a property manager for
the Property, and to enter into a management agreement with such manager in the
name of Borrower. Borrower hereby appoints Lender its attorney-in-fact, which
appointment is coupled with an interest, for the purpose of entering into such
management agreement. The management agreement entered into between Borrower and
any Manager shall be in form and substance reasonably acceptable to Lender.
Section 9.6 RETENTION OF SERVICER. Lender reserves the right to retain the
Servicer to act as its agent hereunder with such powers as are specifically
delegated to the Servicer by Lender, whether pursuant to the terms of this
Agreement, the Pooling and Servicing Agreement or the Cash Collateral Account
Agreement or otherwise, together with such other powers as are reasonably
incidental thereto. Borrower shall pay any reasonable fees and expenses of the
Servicer in connection with a Defeasance of the Note, release of Property,
assumption or modification of the Loan or enforcement of the Loan Documents.
X. MISCELLANEOUS
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Section 10.1 SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Debt is outstanding and unpaid (but the accuracy
thereof shall be determined as of the Closing Date). Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the legal representatives, successors and assigns of such party. All
covenants, promises and agreements in this Agreement made by Borrower, shall
inure to the benefit of the respective legal representatives, successors and
assigns of Lender.
Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement,
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.
Section 10.3 GOVERNING LAW.
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF ILLINOIS, AND MADE BY
LENDER AND ACCEPTED BY BORROWER IN THE STATE OF ILLINOIS, AND THE PROCEEDS OF
THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF ILLINOIS,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF
ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER
OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE.
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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN CHICAGO, ILLINOIS, AND BORROWER AND LENDER WAIVE ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING, AND BORROWER AND LENDER HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CT CORPORATION, AS ITS AUTHORIZED AGENT TO ACCEPT
AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN CHICAGO,
ILLINOIS, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
ILLINOIS. BORROWER (i) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS
OF ITS AUTHORIZED AGENT HEREUNDER, (ii) MAY AT ANY TIME AND FROM TIME TO TIME
DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN CHICAGO, ILLINOIS
(WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS) AND
(iii) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN OFFICE IN CHICAGO, ILLINOIS OR IS DISSOLVED WITHOUT LEAVING A
SUCCESSOR.
Section 10.4 MODIFICATION, WAIVER IN WRITING. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
or of the Note, or of any other Loan Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.
Section 10.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the
part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under the Note or under any other Loan Document, or any other
instrument given as security therefor, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
future exercise, or the exercise of any other right, power, remedy or privilege.
In particular, and not by way of limitation, by accepting payment after the due
date of any amount payable under this Agreement, the Note or any other Loan
Document, Lender shall not be deemed to have waived any right either to require
prompt payment when due of all other amounts due under this Agreement, the Note
or the other Loan Documents, or to declare a default for failure to effect
prompt payment of any such other amount.
Section 10.6 NOTICES. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid or (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, and by telecopier (with answer back
acknowledged), addressed as follows (or at such other address and person as
shall be designated from time to time by any party hereto, as the case may be,
in a written notice to the other parties hereto in the manner provided for in
this Section):
If to Lender:
The Capital Company of America
c/o The Capital Company of America
Client Services, LLC
600 East Colinas Blvd., Suite 1300
Irving, Texas 75639
Attention: Legal Department
Telecopier: 972-401-8554
with copies to:
The Capital Company of America
311 S. Wacker Drive, Suite 5400
Chicago, Illinois 60606
Attention: David Murdoch, Jr.
Telecopier: 312-692-2400
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Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Steven R. Davidson
Telecopier: 312-876-7934
If to Borrower:
c/o Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Louis Conforti
Telecopier: 312-917-0460
with copies to:
Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: James F. Hoffman, Esq.
Telecopier: 312-917-0460
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg
Telecopier: 312-558-5700
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day.
Section 10.7 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR
OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND BORROWER ARE EACH HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER.
Section 10.8 HEADINGS. The Article and/or Section headings and the Table of
Contents in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.
Section 10.9 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable 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 Agreement.
Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments by Borrower to any
portion of the obligations of Borrower hereunder. To the extent Borrower makes a
payment or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice. To the extent permitted by law,
Borrower hereby expressly waives the right to receive any notice from Lender
with respect to any matter for which this Agreement or the other Loan Documents
do not specifically and expressly provide for the giving of notice by Lender to
Borrower.
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Section 10.12 REMEDIES OF BORROWER. In the event that a claim or
adjudication is made that Lender or its agents, including Servicer, have acted
unreasonably or unreasonably delayed acting in any case where by law or under
this Agreement or the other Loan Documents, Lender or such agent, as the case
may be, has an obligation to act reasonably or promptly, Borrower agrees that
neither Lender nor its agents, including Servicer, shall be liable for any
monetary damages, and Borrower's sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
Section 10.13 EXPENSES; INDEMNITY.
(a) Borrower covenants and agrees to reimburse Lender (or the holder of the
Loan, as applicable) upon receipt of written notice from such holder for all
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by Lender in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby and
thereby and all the costs of furnishing all opinions by counsel for Borrower
(including any opinions requested by Lender as to any legal matters arising
under this Agreement or the other Loan Documents with respect to the Property);
(ii) Borrower's ongoing performance of and compliance with Borrower's respective
agreements and covenants contained in this Agreement and the other Loan
Documents on its part to be performed or complied with after the Closing Date,
including confirming compliance with environmental and insurance requirements;
(iii) Lender's ongoing performance and compliance with all agreements and
conditions contained in this Agreement and the other Loan Documents on its part
to be performed or complied with after the Closing Date; (iv) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers or other modifications to this Agreement and the other Loan Documents
and any other documents or matters requested by Lender; (v) Borrower complying
with any requests made pursuant to Section 9.1 hereof (subject to the
limitations contained in such section); (vi) the filing and recording fees and
expenses, title insurance and reasonable fees and expenses of counsel for
providing to Lender all required legal opinions, and other similar expenses
incurred in creating and perfecting the Liens in favor of Lender pursuant to
this Agreement and the other Loan Documents; (vii) enforcing or preserving any
rights, in response to third party claims or the prosecuting or defending of any
action or proceeding or other litigation, in each case against, under or
affecting Borrower, this Agreement, the other Loan Documents, the Property, or
any other security given for the Loan; and (viii) enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other
Loan Documents or with respect to the Property or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any
costs and expenses due and payable to Lender hereunder which are not paid by
Borrower within ten (10) days after demand may be paid from any amounts in the
Cash Collateral Account, with notice thereof to Borrower.
(b) Borrower shall indemnify and hold harmless Lender from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel
for Lender in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not Lender shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against Lender
in any manner relating to or arising out of (i) any breach by Borrower of its
obligations under, or any material misrepresentation by Borrower contained in
this Agreement or the other Loan Documents, (ii) the use or intended use of the
proceeds of the Loan or (iii) any information provided by Borrower, or contained
in any documentation approved by Borrower and in any way relating to the
issuance, offering and sale of the Securities (collectively, the "Indemnified
Liabilities"); provided, however, that Borrower shall not have any obligation to
Lender hereunder to the extent that such Indemnified Liabilities arise from the
gross negligence, illegal acts, fraud or willful misconduct of Lender. To the
extent that the undertaking to indemnify and hold harmless set forth in the
preceding sentence may be unenforceable because it violates any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by Lender.
Section 10.14 EXHIBITS INCORPORATED. The Exhibits annexed hereto are hereby
incorporated herein as a part of this Agreement with the same effect as if set
forth in the body hereof.
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Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's
interest in and to this Agreement, the Note and the other Loan Documents shall
take the same free and clear of all offsets, counterclaims or defenses which are
unrelated to such documents which Borrower may otherwise have against any
assignor of such documents, and no such unrelated counterclaim or defense shall
be interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon such documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.
Section 10.16 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lender intend
that the relationships created hereunder and under the other Loan Documents be
solely that of borrower and lender. Nothing herein or therein is intended to
create a joint venture, partnership, tenancy-in-common, or joint tenancy
relationship between Borrower and Lender nor to grant Lender any interest in the
Property other than that of mortgagee or lender.
Section 10.17 PUBLICITY. All news releases, publicity or advertising by
Borrower or their Affiliates through any media intended to reach the general
public which refers to the Loan Documents or the financing evidenced by the Loan
Documents, to Lender, CCA Group, the Loan purchaser, the Servicer or the trustee
in a Securitization shall be subject to the prior written approval of Lender.
Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent
Borrower may legally do so, Borrower waives all rights to a marshalling of the
assets of Borrower, Borrower's partners, if any, and others with interests in
Borrower, and of Borrower's properties, or to a sale in inverse order of
alienation in the event of foreclosure of the interests hereby created, and
agrees not to assert any right under any laws pertaining to the marshalling of
assets, the sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever to
defeat, reduce or affect the right of Lender under the Loan Documents to a sale
of the Property for the collection of the related indebtedness without any prior
or different resort for collection, of the right of Lender or any deed of trust
trustee to the payment of the related indebtedness out of the net proceeds of
the Property in preference to every other claimant whatsoever.
Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to
assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents, including Servicer.
Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of any
conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents
that it has dealt with no financial advisors, brokers, underwriters, placement
agents, agents or finders in connection with the transactions contemplated by
this Agreement. Borrower and Lender hereby agree to indemnify and hold the other
harmless from and against any and all claims, liabilities, costs and expenses of
any kind in any way relating to or arising from a claim by any Person that such
Person acted on behalf of the indemnifying party in connection with the
transactions contemplated herein. The provisions of this Section 10.21 shall
survive the expiration and termination of this Agreement and the repayment of
the Debt.
Section 10.22 NO THIRD PARTY BENEFICIARIES. This Agreement and the other
Loan Documents are solely for the benefit of Lender and Borrower and nothing
contained in this Agreement or the other Loan Documents shall be deemed to
confer upon anyone other than Lender and Borrower any right to insist upon or to
enforce the performance or observance of any of the obligations contained herein
or therein. All conditions to the obligations of Lender to make the Loan
hereunder are imposed solely and exclusively for the benefit of Lender and no
other Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that Lender will refuse to
make the Loan in the absence of strict compliance with any or all thereof and no
other Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lender if, in Lender's sole discretion, Lender deems it advisable or desirable
to do so.
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Section 10.23 PRIOR AGREEMENTS. This Agreement and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between such parties, whether oral or written, are superseded by the terms of
this Agreement and the other Loan Documents.
Section 10.24 INTERPRETATION. Notwithstanding anything to the contrary in
this Agreement or the other Loan Documents, all references in this Loan
Agreement and the other Loan Documents to "the continuance of an Event of
Default until cured" or analogous language shall specifically require the
acceptance by Lender, in its sole discretion, of such cure for such Event of
Default to be deemed cured.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
BORROWER: 2000 YORK ROAD, L.L.C.
--------
By: Prime Group Realty, L.P., a Delaware limited
partnership, as Administrative Member
By: Prime Group Realty Trust, a Maryland
real estate investment trust, as
managing general partner
By: /s/ Louis Conforti
-------------------------
Name: Louis Conforti
Title: Senior Vice President
LENDER: THE CAPITAL COMPANY OF AMERICA LLC,
------ a Delaware limited liability company
By: /s/ John Burke
-------------------------
Name: John Burke
Title: Director
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SCHEDULE 1
----------
Matters Regarding Representations
---------------------------------
1. Contracts not cancelable on 30 days notice:
(a) Elevator Service Contract with Millar Elevator Service Company for
$150.00 per month; expires at the end of any one-year period (December 31st) or,
after December 31, 1998, with 90 days prior written notice.
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SCHEDULE 2
----------
Rent Roll
---------
[Exhibit Omitted]
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SCHEDULE 3
----------
Required Repairs
----------------
Borrower shall complete the repairs described on the pages attached to this
Section 3 within one (1) year after the date of execution of this Agreement.
Borrower shall deposit or cause to be deposited with Lender on or prior to the
Closing Date $186,906.00, which sum represents one hundred twenty-five percent
(125%) of the cost of completing said repairs.
EXHIBIT A
---------
Form of Note
------------
[Exhibit Omitted]
EXHIBIT B
---------
Form of Management Agreement
----------------------------
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EXHIBIT 10.14
- - --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of October 21, 1998
Between
TWO CENTURY CENTRE, L.L.C.,
as Borrower
AND
THE CAPITAL COMPANY OF AMERICA LLC,
as Lender
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 10.24........................... Interpretation 73
--------------
SCHEDULES
---------
Schedule 1 - Matters Regarding Representations
Schedule 2 - Rent Roll
Schedule 3 - Required Repairs
EXHIBITS
--------
Exhibit A - Form of Note
Exhibit B - Form of Management Agreement
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LOAN AGREEMENT
LOAN AGREEMENT dated as of October 21, 1998 (the "Agreement") between TWO
CENTURY CENTRE, L.L.C., a limited liability company duly organized and validly
existing under the laws of the State of Delaware ("Borrower") and THE CAPITAL
COMPANY OF AMERICA LLC, a limited liability company organized under the laws of
the State of Delaware (together with its permitted successors and assigns,
"Lender").
All capitalized terms used herein shall have the respective meanings set
forth in Section 1 hereof.
W I T N E S S E T H :
---------------------
WHEREAS, Borrower desires to obtain the Loan from Lender;
WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly required or unless the context clearly indicates a contrary
intent:
"ACCRUED INTEREST" shall have the meaning set forth in Section 2.2.2.
"AFFILIATE" shall mean, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such Person or of an Affiliate
of such Person.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"ANNUAL BUDGET" shall have the meaning set forth in Section 5.1(r).
"APPROVED CAPITAL EXPENSES" shall mean Capital Expenses incurred by
Borrower with respect to the Property which (i) are included in the Capital
Budget for the Current Month for the Property, (ii) are not included in the
Capital Budget for the Current Month, but do not cause either (A) the relevant
line item for the entire year covered by the Capital Budget for the Property to
be exceeded by more than five percent (5%) or (B) the total of the Capital
Budget for the Property for the Current Month and all prior months covered by
such Capital Budget (i.e., year to date) to be exceeded or (iii) have been
approved by the Lender.
"APPROVED LEASING EXPENSES" shall mean those expenses incurred in leasing
space at the Property pursuant to Leases entered into in accordance with the
provisions of Section 5.1(u) and the applicable provisions of the Mortgage,
including brokerage commissions, tenant improvements and other inducements,
which expenses are (A) approved by Lender in connection with approving the
applicable Lease or (B) otherwise approved by Lender, which approval shall not
be unreasonably withheld or delayed.
"APPROVED OPERATING EXPENSES" shall mean Operating Expenses incurred by
Borrower with respect to the Property which (i) are included in the approved
Operating Budget for the Property for the Current Month, (ii) are not included
in the approved Operating Budget for the Property for the Current Month, but do
not cause (A) the relevant line item for the Current Month or the total of such
approved Operating Budget for the Current Month to be exceeded by more than five
percent (5%) or (B) the total of the Operating Budget for the Property for the
Current Month and all prior months covered by such Operating Budget (i.e., year
to date) to be exceeded, (iii) are for electric, gas, oil, water, sewer or other
utility service to the Property or (iv) have been approved by the Lender or are
in the nature of an emergency repair.
"ASSIGNMENT OF AGREEMENTS" shall mean, with respect to the Property, that
certain first priority Assignment of Agreements, Licenses, Permits and Contracts
dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee,
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assigning to Lender as security for the Loan, to the extent assignable under
law, all of Borrower's interest in and to the Management Agreement and all other
licenses, permits and contracts necessary for the use and operation of the
Property, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.
"ASSIGNMENT OF LEASES" shall mean, with respect to the Property, that
certain first priority Assignment of Leases and Rents dated as of the date
hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender
as security for the Loan, to the extent assignable under law, all of Borrower's
interest in and to the Rents and Leases for the Property, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"AWARD" shall have the meaning set forth in Section 7.1.3.
"BORROWER" shall mean Two Century Centre, L.L.C., together with its
permitted successors and assigns.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in New York or Illinois are not open for
business.
"CAPITAL BUDGET" shall have the meaning set forth in Section 5.1(r).
"CAPITAL EXPENSES" shall mean capital expenditures as determined in
accordance with GAAP.
"CAPITAL RESERVE FUND" shall have the meaning set forth in Section 7.4.1.
"CASH COLLATERAL ACCOUNT" shall mean that account established and
maintained pursuant to the Cash Collateral Account Agreement.
"CASH COLLATERAL ACCOUNT AGREEMENT" shall mean that certain Cash Collateral
Account Agreement dated as of the date hereof among Borrower, Lender, Manager
and Cash Collateral Account Bank, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"CASH COLLATERAL ACCOUNT BANK" shall mean LaSalle National Bank, or any
successor chosen by Lender.
"CASH TRAP EVENT" shall have the meaning set forth in Section 2.6(a).
"CASUALTY/CONDEMNATION PREPAYMENTS" shall have the meaning set forth in
Section 2.3.2.
"CCA" shall mean The Capital Company of America LLC, a Delaware limited
liability company.
"COLLECTION ACCOUNT" shall mean the account established and maintained
pursuant to the Collection Account Agreement.
"COLLECTION ACCOUNT AGREEMENT" shall mean that certain Collection Account
Agreement dated as of the date hereof among Borrower, Lender and Collection
Account Bank into which Rents from the Property are deposited, as the same may
be amended, restated, replaced, supplemented, or otherwise modified from time to
time.
"COLLECTION ACCOUNT BANK" shall have the meaning set forth in Section
2.6(a).
"CLOSING DATE" shall mean the date of the funding of the Loan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"CONDEMNATION" shall have the meaning set forth in Section 7.1.3.
"CONDEMNATION RESTORATION" shall have the meaning set forth in Section
7.1.3.
"CONSENT AND SUBORDINATION OF MANAGER" shall mean that certain Consent and
Subordination of Manager dated the date hereof between Manager and Lender, as
the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.
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"CONTROL" shall mean with respect to any Person either (i) ownership
directly or through other entities, of more than 50% of all beneficial equity
interest in such Person or (ii) the power to direct the management, operation
and business of such Person.
"CURRENT MONTH" shall mean, as of the date of determination, the then
current calendar month.
"DEBT" shall mean the outstanding principal amount set forth in, and
evidenced by, the Note, together with all interest accrued and unpaid thereon
and all other sums due to Lender in respect of the Loan, including the Yield
Maintenance Premium and any sums due under the Note, this Agreement, the
Mortgage or in any other Loan Document.
"DEBT SERVICE" shall mean, with respect to any particular period of time,
scheduled principal and interest payments under the Note.
"DEBT SERVICE COVERAGE RATIO" shall mean, as of any date, a ratio in which
(a) the numerator is the Net Operating Income for the 12-month period
immediately preceding such date and (b) the denominator is the aggregate amount
of principal and interest actually due and payable on the Note (other than
principal and interest under any Defeased Notes and principal payable under
Section 2.2.3(e)) for such period.
"DEEMED APPROVED LEASE" shall have the meaning set forth in Section 5.1(u).
"DEFAULT" shall mean the occurrence of any event hereunder or under any
other Loan Document which, but for the giving of notice or passage of time, or
both, would be an Event of Default.
"DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal
to the lesser of (a) the maximum rate permitted by applicable law or (b) five
percent (5%) above the Interest Rate.
"DEFEASANCE" shall have the meaning set forth in Section 2.3.3.
"DEFEASANCE DATE" shall have the meaning set forth in Section 2.3.3.
"DEFEASANCE DEPOSIT" shall mean an amount equal to the sum of (i) an amount
that will be sufficient to purchase U.S. Obligations providing payments to meet
the Scheduled Defeasance Payments, (ii) any costs and expenses incurred or to be
incurred in the purchase of U.S. Obligations necessary to meet the Scheduled
Defeasance Payments and (iii) any revenue, documentary stamp or intangible taxes
or any other tax or charge due in connection with the transfer of the Note, the
creation of the Defeased Note and the Undefeased Note, if applicable, any
transfer of the Defeased Note or otherwise required to accomplish the agreements
of Sections 2.3 and 2.4.
"DEFEASED NOTE" shall have the meaning set forth in Section 2.3.3.
"DISCLOSURE DOCUMENT" shall have the meaning set forth in Section 9.2(a).
"ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental and
Hazardous Substance Indemnification Agreement executed by Borrower in connection
with the Loan for the benefit of Lender, as the same may be amended, restated,
replaced, supplemented, or otherwise modified from time to time.
"EQUIPMENT" shall have the meaning set forth in the Mortgage.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1.
"EXCHANGE ACT" shall have the meaning set forth in Section 9.2(a).
"FISCAL YEAR" shall mean each twelve month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence having jurisdiction over Borrower or the Property.
"GUARANTOR" shall have the meaning set forth in Section 4.1(dd)(iii).
"IMPROVEMENTS" shall have the meaning set forth in the Mortgage.
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<PAGE>
"including" shall mean "including, without limitation".
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section
10.13(b).
"INDEPENDENT DIRECTOR" shall have the meaning set forth in Section 4.1(dd).
"INSURANCE PREMIUMS" shall have the meaning set forth in Section 7.1.1.
"INSURANCE PROCEEDS" means the proceeds of any insurance policies carried
pursuant to the Loan Documents or otherwise with respect to the Property.
"INSURED CASUALTY" shall have the meaning specified in Section 7.1.1(d).
"INTEREST RATE" shall mean a rate of interest equal to 7.375% per annum.
"LEASE" shall mean any lease, or, to the extent of the interest therein of
Borrower, any sublease or sub-sublease, letting, license, concession or other
agreement (whether written or oral and whether now or hereafter in effect)
pursuant to which any Person is granted a possessory interest in, or right to
use or occupy all or any portion of any space in the Property, and every
modification, amendment or other agreement relating to such lease, sublease,
sub-sublease, or other agreement entered into in connection with such lease,
sublease, sub-sublease, or other agreement and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal,
state, county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting the Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, whether now or hereafter
enacted and in force, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Borrower, at any time in force affecting the Property or any part thereof,
including any which may (i) require repairs, modifications or alterations in or
to the Property or any part thereof or (ii) in any way limit the use and
enjoyment thereof.
"LENDER" shall mean The Capital Company of America LLC, together with its
successors and assigns.
"LIABILITIES" shall have the meaning set forth in Section 9.2(b).
"LICENSES" shall have the meaning set forth in Section 4.1(w).
"LIEN" shall mean, with respect to the Property, any mortgage, deed of
trust, lien, pledge, hypothecation, assignment, security interest, or any other
encumbrance, charge or transfer of, on or affecting the Property or any portion
thereof or Borrower, including any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement, and mechanic's,
materialmen's and other similar liens and encumbrances.
"LOAN" shall mean the loan made to Borrower by Lender pursuant hereto in
the original principal amount of $20,500,000.00 and evidenced by the Note and
secured by the Mortgage and the other Loan Documents.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the
Mortgage, the Assignment of Leases, the Assignment of Agreements, the
Environmental Indemnity, the Consent and Subordination of Manager, the
Collection Account Agreement, the Cash Collateral Account Agreement and all
other documents, agreements and instruments evidencing, securing or delivered to
Lender in connection with the Loan.
"MANAGEMENT AGREEMENT" shall mean, with respect to the Property, a
management agreement in the form attached hereto as Exhibit B entered into by
and between Borrower and the Manager, pursuant to which the Manager is to
provide management and other services with respect to the Property, as the same
may be amended, restated, replaced, supplemented, or otherwise modified from
time to time.
"MANAGEMENT FEE" shall mean the fee payable to Manager pursuant to the
Management Agreement.
"MANAGER" shall mean Prime Group Realty, L.P., a Delaware limited
partnership.
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"MATURITY DATE" shall mean the date on which the final payment of principal
of the Note (or the Defeased Note, if applicable) becomes due and payable as
therein provided, whether at the Stated Maturity Date (November 11, 2024), by
declaration of acceleration, or otherwise.
"MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall have the meaning set forth in
Section 2.2.1.
"MORTGAGE" shall mean that certain first priority Mortgage, Assignment of
Leases and Rents, Security Agreement and Financing Statement executed and
delivered by Borrower as security for the Loan and encumbering the Property, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time.
"NET OPERATING INCOME" shall mean, for any period, the difference between
all Operating Income during such period, minus all Operating Expenses during
such period. In determining Net Operating Income for purposes hereof, all
adjustments to Operating Income and Operating Expenses shall be determined by
Lender in its sole discretion consistent with its due diligence findings and
prevailing market conditions. Net Operating Income shall be audited, or shall be
determined in accordance with agreed-upon procedures determined by Lender.
"NOTE" shall mean that certain Note of even date herewith, made by Borrower
in favor of Lender, substantially in the form of Exhibit A annexed hereto, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time, including any Undefeased Note that may
exist from time to time.
"OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by
Borrower which is signed by a senior executive officer of Borrower.
"OPERATING BUDGET" shall have the meaning set forth in Section 5.1(r).
"OPERATING EXPENSES" shall mean, as to any period, all operating expenses
relating to the Property during such period, including the following items:
(i) all expenses for the operation of the Property including management
fees in respect thereof (in no event less than four percent (4%) of gross
revenues), all insurance premiums and expenses, accounting expenses, advertising
expenses, expenses for architectural services, bank charges, utility charges,
expenses for extermination, cleaning and trash removal services, expenses
relating to window washing, landscaping and security services, reasonable and
necessary legal expenses incurred in connection with the operation of the
Property, tenant improvements and marketing costs;
(ii) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest on such impositions (or portions
thereof) that are payable by reason of Borrower's failure to pay an imposition
timely; and
(iii) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP.
Operating Expenses shall be subject to adjustment to provide for (a) a
normalized allowance for lease rollovers including costs for downtime, tenant
improvements and leasing commissions, (b) a reserve for capital expenditures and
capital replacements equal to at least $0.27 per square foot per annum for all
rentable space (or such greater amount as shall be indicated in the independent
engineering reports) and (c) any other matters that may have an impact on
Operating Expenses. Operating Expenses will not include debt service, capital
expenses, non-cash items such as depreciation and amortization and any
extraordinary one-time expenditures not considered operating expenses under
GAAP.
"OPERATING INCOME" shall mean, as to any period, all income actually
received by Borrower from the Property during such period, including actual
rental income and other income, base rents, percentage rents, common area
maintenance charges, property tax recoveries, operating expense recoveries,
insurance recoveries, Consumer Price Index rent adjustments and other
miscellaneous income items. Operating Income shall be based on Leases in place
with tenants occupying their space (either directly or through subtenants) and
actually paying rent; provided, that rental income from signed Leases with
tenants rated "BBB" or better will be counted whether or not the tenant is
occupying the space. For purposes of calculating Operating Income, reimbursement
and other income will be included in Operating Income to the extent that Lender,
in its reasonable discretion, determines that it is stabilized and recurring,
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and any income from temporary or month-to-month tenants will not be included in
Operating Income. Operating Income shall be subject to adjustment (i) for a
vacancy allowance at the market vacancy rate (but not less than ten percent
[10%]) if actual vacancy is less than market or ten percent (10%), (ii) for any
tenants operating under bankruptcy protection, (iii) if necessary, to mark any
Leases to market rent, (iv) to address any rent adjustments or cancellation
options contained in the Leases, and (v) any other matters that may have an
impact on Operating Income. Operating Income will not include income from
non-recurring income sources, advance payments, deposits, escrows, a sale or
other capital item transaction or payments received in respect of U.S.
Obligations purchased in connection with a Defeasance.
"OPTIONAL PREPAYMENT DATE" shall mean November 11, 2008.
"OTHER CHARGES" shall mean all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including vault charges and
license fees for the use of vaults, chutes and similar areas adjoining the
Property, now or hereafter levied or assessed or imposed against the Property or
any part thereof.
"PAYMENT DATE" shall mean the eleventh (11th) day of each calendar month
or, if in any month the eleventh (11th) day is not a Business Day, than the
Payment Date for such month shall be the first Business Day thereafter.
"PERMITTED ENCUMBRANCES" shall mean, with respect to the Property,
collectively, (i) the Liens and security interests created by the Loan
Documents, (ii) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policy relating to the Property or any part thereof, (iii) Liens, if
any, for Taxes or Other Charges not yet payable or delinquent or which are being
protested in accordance with the provisions of Section 5.1(b), (iv) such other
title and survey exceptions as Lender has approved or may approve in writing in
Lender's sole discretion, or are hereafter created in accordance with this
Agreement or the Mortgage and (v) Liens which attach in accordance with the
provisions of Section 6.1(b).
"PERMITTED INDEBTEDNESS" shall mean (i) the Debt, and (ii) unsecured trade
debt customarily payable within thirty (30) days.
"PERMITTED INVESTMENTS" shall have the meaning set forth in the Cash
Collateral Account Agreement.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"POLICIES" shall have the meaning specified in Section 7.1.1(c).
"POOLING AND SERVICING AGREEMENT" shall mean the Servicing Agreement
entered into with the Servicer in connection with any Securitization of the
Loan.
"PREMISES" shall have the meaning set forth in the Granting
Clause of the Mortgage encumbering the Property.
"PROPERTY" shall mean that certain parcel of real property and improvements
thereon owned by Borrower and encumbered by the Mortgage, together with all
rights pertaining to such property and improvements, as more particularly
described in the Granting Clauses of the Mortgage and referred to therein as the
"Property" or the "Mortgaged Property", as the case may be, and known as Two
Century Centre, 1700 East Golf Road, Schaumburg, Illinois.
"PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1.
"QUALIFIED SURVEY" shall mean a current title survey, certified to the
title company and Lender and their successors and assigns, that (A) is in form
and content reasonably satisfactory to Lender, (B) is prepared by a professional
and properly licensed land surveyor satisfactory to Lender in accordance with
the 1997 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,
(C) meets the classification of an "Urban Survey" and includes the following
additional items from the list of "Optional Survey Responsibilities and
Specifications" (Table A): 1, 2, 3, 4, 5, 6, 7a-b, 8, 9, 10, 11 and 13, (D)
reflects the same legal description contained in the Title Insurance Policy
relating to the Property, and (E) contains a certification in form and substance
reasonably acceptable to Lender.
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"QUALIFIED TITLE INSURANCE POLICY" shall mean a Title Insurance Policy
issued by Commonwealth Title Insurance Company or another title company
acceptable to Lender, with reinsurance and direct access agreements acceptable
to Lender, which Title Insurance Policy shall (A) provide coverage in the amount
of the Loan, (B) insure Lender that the Mortgage creates a valid lien on the
Property encumbered thereby of the requisite priority, free and clear of all
exceptions from coverage other than Permitted Encumbrances and standard
exceptions and exclusions from coverage (as modified by the terms of any
endorsements), (C) contain such endorsements and affirmative coverages as Lender
may reasonably request, (D) name Lender as the insured and (E) be assignable.
"RATING AGENCY" shall mean each of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch Investors Service, Inc. or any other
nationally-recognized statistical rating agency which has been approved by
Lender.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
9.2(b).
"RELEASE DATE" shall mean the earlier of (a) three (3) years after the
Closing Date and (b) two (2) years from the "start-up day" (within the meaning
of Section 860G(a)(9) of the Code) of the REMIC Trust.
"REMIC" shall mean a "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC TRUST" shall mean a REMIC which holds the Note.
"RENTS" shall mean, with respect to the Property, all rents, rent
equivalents, moneys payable as damages or in lieu of rent or rent equivalents,
royalties (including all oil and gas or other mineral royalties and bonuses),
income, receivables, receipts, revenues, deposits (including security, utility
and other deposits), accounts, cash, issues, profits, charges for services
rendered, and other consideration of whatever form or nature received by or paid
to or for the account of or benefit of Borrower or its agents or employees from
any and all sources arising from or attributable to the Property, including all
receivables, customer obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of the sale, lease,
sublease, license, concession or other grant of the right of the use and
occupancy of the Property and proceeds, if any, from business interruption or
other loss of income insurance.
"RENT ROLL" shall have the meaning set forth in Section 4.1(aa).
"REQUIRED RECORDS" shall have the meaning set forth in Section 5.1(k).
"REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section
7.2.1.
"REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.2.1.
"REQUIRED REPAIRS" shall have the meaning set forth in Section 7.2.1.
"RESTORATION" shall have the meaning set forth in Section 7.1.2(b).
"REVISED INTEREST RATE" shall mean the per annum rate of interest which is
the greater of (i) the Interest Rate plus 5% and (ii) the Treasury Rate on the
Optional Prepayment Date plus 7.215%.
"SPE MEMBER" shall have the meaning set forth in Section 4.1(dd).
"SCHEDULED DEFEASANCE PAYMENTS" shall have the meaning set forth in Section
2.3.3.
"SECONDARY MARKET TRANSACTION" shall mean any transaction in which Lender
(i) sells the Loan, the Note and the other Loan Documents to one or more
investors as a whole loan, (ii) participates the Loan to one or more investors,
(iii) deposits the Loan, the Mortgage, the Note and other Loan Documents with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets or (iv) otherwise sells the Loan or an interest
therein to investors.
"SECURITIES" shall have the meaning set forth in Section 9.1.
"SECURITIES ACT" shall have the meaning set forth in Section 9.2(a).
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"SECURITIZATION" shall have the meaning set forth in Section 9.1.
"SECURITY AGREEMENT" shall have the meaning set forth in Section
2.3.3(vii).
"SERVICER" shall mean the entity appointed by Lender to service the Loan or
its successor in interest, or if any successor servicer is appointed pursuant to
the Pooling and Servicing Agreement, such successor servicer.
"SPECIAL TRANSFER" shall mean the sale by the original Borrower of the
Property to a purchaser pursuant to which such purchaser shall assume in writing
all of the obligations of Borrower under the Loan, provided that Lender shall
have received evidence in writing from the applicable Rating Agencies to the
effect that such a sale and assumption of the Loan by such purchaser will not
result in a qualification, withdrawal or downgrading of the ratings in effect
immediately prior to such sale for the Securities issued in connection with the
Securitization which are then outstanding.
"STATE" shall mean the State of Illinois.
"STATED MATURITY DATE" shall mean November 11, 2024.
"SUCCESSOR BORROWER" shall have the meaning set forth in Section 2.3.3(c).
"SURVEY" shall mean a survey of the Property in question prepared by a
surveyor licensed in the State and satisfactory to Lender and the company or
companies issuing the Title Insurance Policies, and containing a certification
of such surveyor satisfactory to Lender.
"TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section
7.3.1.
"TAXES" shall mean all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against the Property or part thereof.
"TERM" shall mean the entire term of this Agreement, which shall expire
upon repayment in full of the Debt and full performance of each and every
obligation to be performed by Borrower pursuant to the Loan Documents.
"TITLE INSURANCE POLICY" shall mean, with respect to the Property, the ALTA
mortgagee title insurance policy in the form (acceptable to Lender) issued with
respect to the Property and insuring the lien of the Mortgage encumbering the
Property.
"TRANSFER" shall have the meaning set forth in Section 6.1(j).
"TREASURY RATE" shall mean, as of the Optional Prepayment Date, the linear
interpolation of the bond equivalent yields, as reported in Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading "U.S.
Government Securities/Treasury Constant Maturities" for the week ending prior to
the Optional Prepayment Date, of U.S. Treasury constant maturities with maturity
dates (one longer and one shorter) most nearly approximating the remaining term
of the Note as of the Optional Prepayment Date.
"UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code
as in effect in the State.
"UNDEFEASED NOTE" shall have the meaning set forth in Section 2.3.3 hereof.
"UNDERWRITER GROUP" shall have the meaning set forth in Section 9.2(b).
"U.S. OBLIGATION" shall mean direct non-callable obligations of the United
States of America.
"YIELD MAINTENANCE PREMIUM" shall mean the amount (if any) which, when
added to the remaining principal amount of the Note or the principal amount of
Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations
providing the required Scheduled Defeasance Payments.
Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. Unless otherwise specified, the words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. Unless otherwise specified, all meanings attributed
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to defined terms herein shall be equally applicable to both the singular and
plural forms of the terms so defined. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, as modified herein.
II. GENERAL
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Section 2.1 THE LOAN.
2.1.1 COMMITMENT. Subject to and upon the terms and conditions set forth
herein, including the conditions precedent set forth in Section 3.1, Lender
hereby agrees to make the Loan to Borrower on the Closing Date, in the aggregate
original principal amount set forth in the Note and which Loan shall mature on
the Stated Maturity Date. Borrower hereby agrees to accept the Loan on the
Closing Date, subject to and upon the terms and conditions set forth herein.
2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one
borrowing hereunder in respect of the Loan. Borrower shall receive the Loan upon
the Closing, subject to the direction given by Borrower as to the application of
Loan proceeds for the uses set forth in Section 2.1.4. Any amount borrowed and
repaid hereunder in respect of the Loan may not be reborrowed.
2.1.3 THE NOTE. The Loan shall be evidenced by the Note, in the aggregate
original principal amount of the Loan. The Note shall bear interest as provided
therein. The Note shall be subject to repayment as provided in Section 2.3,
shall be entitled to the benefits of this Agreement and shall be secured by the
Mortgage and the other Loan Documents.
2.1.4 USE OF PROCEEDS OF LOAN. Borrower shall use the proceeds of the Loan
(i) to finance the Property and to pay costs and expenses incurred in connection
with the Closing of the Loan, as approved by Lender and (ii) with respect to the
remainder, if any, as Borrower directs.
Section 2.2 INTEREST; MONTHLY PAYMENTS.
2.2.1 GENERALLY.
(a) From the date hereof through but not including the Optional Prepayment
Date, Borrower shall pay interest on the outstanding principal balance of the
Loan at the Interest Rate.
(b) On the date hereof, Borrower shall pay interest at the Interest Rate on
the outstanding principal balance of the Loan from the Closing Date through
November 10, 1998. Commencing with the Payment Date on December 11, 1998 and on
each and every Payment Date thereafter through and including the Maturity Date,
the principal amount of the Loan and interest thereon at the Interest Rate shall
be payable in equal monthly installments of $147,847.15 (the "Monthly Debt
Service Payment Amount"); such Monthly Debt Service Payment Amount being based
on the Interest Rate and a 360-month amortization schedule. The Monthly Debt
Service Payment Amount due on any Payment Date shall first be applied to the
payment of interest accrued from the eleventh (11th) day of the month preceding
the Payment Date through the tenth (10th) day of the month in which the Payment
Date occurs, notwithstanding that the Payment Date may have been deferred
because the eleventh (11th) day of such month is not a Business Day. The
remainder of such Monthly Debt Service Payment Amount shall be applied to the
reduction of the outstanding principal balance of the Note.
(c) From and after the Optional Prepayment Date, interest on the Loan shall
accrue at the Revised Interest Rate and shall be payable as provided in Sections
2.2.2 and 2.2.3.
2.2.2 ACCRUED INTEREST. From and after the Optional Prepayment Date, all
interest accruing in respect of the Note in excess of the Interest Rate
("Accrued Interest") shall be deferred, be added to the Debt and, to the extent
permitted by applicable law, accrue interest at the Revised Interest Rate,
compounded monthly. All Accrued Interest and interest on Accrued Interest shall
be due and payable on the Maturity Date.
2.2.3 PROPERTY CASH FLOW ALLOCATION AFTER THE OPTIONAL PREPAYMENT DATE.
Commencing on the Optional Prepayment Date and continuing on each Payment Date
thereafter until the entire Debt has been paid in full, any Rents deposited into
the Cash Collateral Account (or otherwise received by Borrower) during the
immediately preceding calendar month shall be applied as follows in the
following order of priority unless an Event of Default exists:
(a) First, to make required payments to the Tax and Insurance Escrow Fund;
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(b) Second, to Lender to pay the Monthly Debt Service Payment Amount
(plus, if applicable, interest at the Default Rate);
(c) Third, payments for Approved Operating Expenses;
(d) Fourth, to make required payments to the Capital Reserve Fund;
(g) Fifth, to make required payments to the Rollover Reserve Fund;
(f) Sixth, payments to Lender to prepay the outstanding principal balance
under the Note until paid in full;
(g) Seventh, payments to Lender to be applied against Accrued Interest and
interest accrued thereon; and
(h) Lastly, payments to Borrower of any excess amounts.
Notwithstanding anything herein to the contrary, the failure of Borrower to make
all of the payments required under clauses (a) through (d) above in full on the
Optional Prepayment Date and on each Payment Date thereafter shall constitute a
Default under this Agreement. However, the failure of Borrower to pay principal
amounts due under clause (e) and any Accrued Interest or interest on Accrued
Interest on a Payment Date as a result of insufficient Rents for such payment
shall not constitute a Default hereunder. All Accrued Interest or interest on
Accrued Interest shall nonetheless be due and payable on the Maturity Date.
2.2.4 DEFAULT RATE. After the occurrence and during the continuance of an
Event of Default, the entire outstanding principal balance of the Loan shall
bear interest at the Default Rate, and shall be payable upon demand from time to
time, to the extent permitted by applicable law. Payment or acceptance of the
increased rates provided for in this subsection is not a permitted alternative
to timely payment and shall not constitute a waiver of any Default or Event of
Default or an amendment to this Agreement or any other Loan Document and shall
not otherwise prejudice or limit any rights or remedies of Lender.
Section 2.3 LOAN REPAYMENT AND DEFEASANCE.
2.3.1 REPAYMENT. Borrower shall repay any outstanding principal
indebtedness of the Loan in full on the Maturity Date of the Loan, together with
interest thereon to (but excluding) the date of repayment. Other than as set
forth in Section 2.3.2 below, Borrower shall have no right to prepay all or any
portion of Loan during the period commencing on the Closing Date to but not
including the Optional Prepayment Date. From and after the Optional Prepayment
Date, the Loan may be prepaid in whole or in part without penalty or premium,
including without limitation the Yield Maintenance Premium.
2.3.2 MANDATORY PREPAYMENTS. The Loan is subject to mandatory prepayment,
without premium or penalty except as provided in Section 7.1.2, in certain
instances of Insured Casualty or Condemnation (each a "Casualty/Condemnation
Prepayment"), in the manner and to the extent set forth in Sections 7.1.2 and
Section 7.1.3 hereof. Each Casualty/Condemnation Prepayment shall be made on a
Payment Date and include all accrued and unpaid interest on the amount prepaid
up to but not including such Payment Date or, if not paid on a Payment Date,
include interest that would have accrued on the amount prepaid to but not
including the next Payment Date.
2.3.3 VOLUNTARY DEFEASANCE OF THE NOTE.
(a) Subject to the terms and conditions set forth in this Section 2.3.3,
Borrower may defease all or any portion of the Loan evidenced by the Note
(hereinafter, a "Defeasance"); provided, that no such Defeasance may occur prior
to the Release Date. Each Defeasance shall be subject, in each case, to the
satisfaction of the following conditions precedent:
(i) Borrower shall provide not less than thirty (30) days prior written
notice to Lender specifying a Payment Date (the "Defeasance Date") on
which the Defeasance is to occur. Such notice shall indicate the
principal amount of the Note to be defeased.
(ii) Borrower shall pay to Lender all accrued and unpaid interest on the
principal balance of the Note to but not including the Defeasance
Date. If for any reason the Defeasance Date is not a Payment Date,
Borrower shall also pay interest that would have accrued on the Note
to but not including the next Payment Date.
(iii)Borrower shall pay to Lender all other sums, not including scheduled
interest or principal payments, then due under the Note, this
Agreement, the Mortgage and the other Loan Documents.
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(iv) No Event of Default shall exist.
(v) Borrower shall pay to Lender the required Defeasance Deposit for the
Defeasance.
(vi) In the event only a portion of the Loan evidenced by the Note is the
subject of the Defeasance, Borrower shall execute and deliver all
necessary documents to amend and restate the Note and issue two
substitute notes: one having a principal balance equal to the defeased
portion of the original Note (the "Defeased Note") and one note having
a principal balance equal to the undefeased portion of the original
Note (the "Undefeased Note"). The Defeased Note and Undefeased Note
shall have identical terms as the Note, except for the principal
balance. A Defeased Note cannot be the subject of any further
Defeasance.
(vii)Borrower shall execute and deliver a security agreement, in form and
substance satisfactory to Lender, creating a first priority lien on
the Defeasance Deposit and the U.S. Obligations purchased with the
Defeasance Deposit in accordance with this provision of this Section
2.3.3 (the "Security Agreement").
(viii) Borrower shall deliver an opinion of counsel for Borrower in form
reasonably satisfactory to Lender stating, among other things, that
(A) Lender has a perfected first priority security interest in the
Defeasance Deposit and the U.S. Obligations delivered by Borrower and
(B) said U.S. Obligations have been validly assigned to the REMIC
Trust.
(ix) Lender shall receive evidence in writing from the applicable Rating
Agencies to the effect that such Defeasance will not result in a
reduction, withdrawal or requalification of the ratings in effect
immediately prior to such Defeasance for the Securities issued in
connection with the Securitization which are then outstanding.
(x) If required by the applicable Rating Agencies, Borrower shall also
deliver or cause to be delivered a non-consolidation opinion with
respect to the Successor Borrower in form and substance satisfactory
to Lender and the applicable Rating Agencies.
(xi) Borrower shall deliver an Officer's Certificate certifying that the
requirements set forth in this Section 2.3.3(a) have been satisfied.
(xii)Borrower shall deliver such other certificates, documents or
instruments as Lender may reasonably request.
(xiii) Borrower shall pay all reasonable costs and expenses of Lender
incurred in the Defeasance, including any costs and expenses
associated with a release of Lien as provided in Section 2.4 hereof
and reasonable attorney's fees and expenses.
(b) In connection with each Defeasance of all or any portion of the Note,
Borrower hereby appoints Lender as its agent and attorney-in-fact for the
purpose of using the Defeasance Deposit to purchase U.S. Obligations (which
purchases, if made by Lender, shall be made by Lender on an arms-length basis at
then prevailing market rates) which provide payments on or prior to, but as
close as possible to, all successive Payment Dates after the Defeasance Date, in
the case of a Defeasance for the entire outstanding principal balance of the
Note, or the Defeased Note, in the case of a Defeasance for only a portion of
the outstanding principal balance of the Loan, as applicable (including, on the
Optional Prepayment Date, the outstanding principal balance of either the Note
or the Defeased Note), and in amounts equal to the scheduled payments due on
such dates under the Note or the Defeased Note, as applicable (the "Scheduled
Defeasance Payments"). Borrower, pursuant to the Security Agreement or other
appropriate document, shall irrevocably authorize and direct that the payments
received from the U.S. Obligations may be made directly to Lender and applied to
satisfy the obligations of Borrower under the Note or the Defeased Note, as
applicable. Any portion of the Defeasance Deposit in excess of the amount
necessary to purchase the U.S. Obligations required by this Section 2.3(a) and
satisfy Borrower's obligations under Sections 2.3 or 2.4 shall be remitted
promptly to Borrower. Any amounts received in respect of the U.S. Obligations in
excess of the amounts necessary to make monthly payments pursuant to Section 2.2
shall be remitted promptly to Borrower. Semi-annual payments in respect of U.S.
Obligations shall be applied to payments under the Note or the Defeased Note, as
applicable, as the same become due thereunder.
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(c) CCA shall establish or designate a successor entity (the "Successor
Borrower") and Borrower shall transfer and assign all obligations, rights and
duties under and to the Note or the Defeased Note, as applicable, together with
the pledged U.S. Obligations to such Successor Borrower. The obligation of CCA
to establish or designate a Successor Borrower shall be retained by CCA
notwithstanding the sale or transfer of this Agreement unless such obligation is
specifically assumed by the transferee. Such Successor Borrower shall assume the
obligations under the Note or the Defeased Note, as applicable, and the Security
Agreement and Borrower shall be relieved of its obligations thereunder,
hereunder and under the other Loan Documents (except for those which are
expressly stated to survive). Borrower shall pay $1,000 to any such Successor
Borrower as consideration for assuming the obligations under the Note or the
Defeased Note, as applicable, and the Security Agreement. Notwithstanding
anything in this Agreement to the contrary, no other assumption fee shall be
payable upon a transfer of the Note or the Defeased Note in accordance with this
Section 2.3.3, but Borrower shall pay all costs and expenses incurred by Lender,
including Lender's reasonable attorneys' fees and expenses, incurred in
connection therewith.
Section 2.4 RELEASE OF PROPERTY. Except as set forth in this Section 2.4,
no repayment, prepayment or defeasance of all or any portion of the Note shall
cause, give rise to a right to require, or otherwise result in, the release of
the Lien of the Mortgage on the Property.
2.4.1 RELEASE OF THE PROPERTY.
(a) If Borrower has elected to defease the Note in its entirety, and the
requirements of Section 2.3 have been satisfied, the Property shall be released
from the Lien of the Mortgage and the other Loan Documents and the U.S.
Obligations, pledged pursuant to the Security Agreement, shall be the sole
source of collateral securing the Note.
(b) In connection with the release of the Lien, Borrower shall submit to
Lender, not less than twenty (20) days prior to the Defeasance Date, a release
of Lien (and related Loan Documents) for the Property (for execution by Lender)
in a form appropriate in the State reasonably satisfactory to Lender and all
other documentation Lender requires to be delivered by Borrower in connection
with such release, together with an Officer's Certificate certifying that such
documentation (i) is in compliance with all Legal Requirements, and (ii) will
effect such release in accordance with the terms of this Agreement.
2.4.2 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request
and at the expense of Borrower, upon payment in full of all principal and
interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms thereof, release the Lien of the Mortgage
and the other Loan Documents if not theretofore released.
Section 2.5 PAYMENTS AND COMPUTATIONS.
2.5.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the
Note shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender by
11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to Borrower.
Whenever any payment hereunder or under the Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the first
Business Day thereafter.
2.5.2 COMPUTATIONS. Interest payable hereunder or under the Note by
Borrower shall be computed on the basis of the actual number of days elapsed in
a 360-day year.
2.5.3 LATE PAYMENT CHARGE. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Mortgage and the
other Loan Documents.
Section 2.6 CASH MANAGEMENT ARRANGEMENTS.
(a) All Rents (other than security deposits) will be transmitted directly
into an account maintained by Borrower but controlled by Lender at a bank
selected by Borrower (the "Collection Account Bank"). Borrower will establish a
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separate "A" account (the "A" Account) and "B" Account (the "B" Account) with
the Collection Account Bank. Borrower shall cause all Rents to be sent directly
to the Collection Account Bank by tenants (where practicable) for deposit into
the "A" Account. All other income or revenue received by Borrower or Manager in
connection with the Property will be deposited into the "A" Account on the date
of receipt. Until the earlier to occur of (i) the Optional Prepayment Date or
(ii) an Event of Default (either such occurrence, a "Cash Trap Event"), the
Collection Account Bank will transfer deposits that are cleared on a daily basis
from the "A" Account to the "B" Account which shall be an account not subject to
any restrictions and under the sole control of Borrower. Upon the occurrence of
a Cash Trap Event, the Collection Account Bank will transfer property receipts
that are cleared on a daily basis to the Cash Collateral Account Bank for
deposit into the Cash Collateral Account. The duties of the Collection Account
Bank and the application and disbursement of all funds deposited with the
Collection Account Bank shall be governed by the terms of this Agreement and the
Collection Account Agreement. Any amounts so deposited into the Cash Collateral
Account shall be applied and disbursed in accordance with the terms and
provisions of this Agreement and the Cash Collateral Account Agreement.
(b) Lender shall have a senior security interest in the aforementioned
accounts and all subaccounts established thereunder (other than the "B"
Account). The upfront and ongoing expenses of maintaining such accounts and
subaccounts, and any other accounts and reserves maintained pursuant to the Loan
Documents, shall be the responsibility of Borrower. Funds in each account shall
be invested for the benefit of Borrower in Permitted Investments.
(c) Anything hereinabove in this Section to the contrary notwithstanding,
from and after the occurrence and during the continuance of an Event of Default,
100% of all Rents and other sums deposited into the Collection Account in any
month which remain in the Cash Collateral Account shall be applied to the
payment of Debt Service on the Loan (including, if applicable, interest at the
Default Rate), required reserves and Approved Operating Expenses and/or to the
payment of the principal amount of the Note, in such order as Lender shall
determine in its sole discretion.
Section 2.7 INTENTIONALLY DELETED.
III. CONDITIONS PRECEDENT
--------------------
Section 3.1 CONDITIONS PRECEDENT TO THE LOAN. The obligation of Lender to
make the Loan hereunder is subject to the fulfillment by Borrower or waiver by
Lender of the following conditions precedent no later than the Closing Date:
(a) Representation and Warranties; Compliance with Conditions. The
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
(b) Loan Agreement and Note. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
(i) Mortgage, Assignments of Agreements. Lender shall have received
from Borrower fully executed and acknowledged counterparts of the Mortgage,
Assignment of Leases, the Assignment of Agreements and Consent and Subordination
of Manager relating to the Property and evidence that counterparts of the
Mortgage have been delivered to the title company for recording, in the
reasonable judgment of Lender, so as to effectively create upon such recording
valid and enforceable Liens upon the Property, of the requisite priority, in
favor of Lender (or such other trustee as may be required or desired under local
law), subject only to the Permitted Encumbrances and such other Liens as are
permitted pursuant to the Loan Documents. Lender shall have also received from
Borrower fully executed counterparts of the Environmental Indemnity.
(ii) Title Insurance. Lender shall have received a Qualified Title
Insurance Policy for the Property and evidence that the premium in respect of
such Title Insurance Policy has been paid.
(iii) Survey. Lender shall have received a Qualified Survey for the
Property.
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(iv) Insurance. Lender shall have received valid certificates of
insurance for the policies of insurance required hereunder, satisfactory to
Lender in its reasonable discretion, and evidence of the payment of all premiums
payable for the existing policy period which period shall not be less than one
year in advance.
(v) Environmental Reports. Lender shall have received an environmental
report in respect of the Property reasonably satisfactory to Lender.
(vi) Zoning. With respect to the Property, Lender shall have received,
at Lender's option, (i) letters or other evidence with respect to the Property
from the appropriate municipal authorities (or other Persons) concerning
applicable zoning and building laws, (ii) an ALTA 3.1 zoning endorsement for the
Title Insurance Policy, or (iii) a zoning opinion letter, in substance
reasonably satisfactory to Lender.
(d) Related Documents. Each additional document not specifically referenced
herein, but relating to the transactions contemplated herein, shall have been
duly authorized, executed and delivered by all parties thereto and Lender shall
have received and approved certified copies thereof.
(e) Delivery of Organizational Documents. On or before the Closing Date,
Borrower shall deliver or cause to be delivered to Lender (i) copies certified
by Borrower of all organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or qualification to do
business, as Lender may reasonably request, including good standing
certificates, qualifications to do business in the appropriate jurisdictions,
resolutions authorizing the entering into of the Loan and incumbency
certificates as may be requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received opinions of
Borrower's counsel (i) with respect to non-consolidation, true sale or true
contribution, and fraudulent transfer issues and (ii) with respect to due
execution, authority, enforceability of the Loan Documents and such other
matters as Lender may reasonably require, all such opinions in form, scope and
substance reasonably satisfactory to Lender and Lender's counsel.
(g) Intentionally Omitted.
(h) Basic Carrying Costs. Borrower shall have paid or deposited into an
applicable reserve fund all (i) accrued but unpaid Insurance Premiums, (ii)
currently due Taxes (including any in arrears) and (iii) currently due Other
Charges, which amounts shall be funded with proceeds of the Loan.
(i) Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Agreement
and other Loan Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall have received all
such counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Financial Statements. Lender shall have received financial statements
prepared in accordance with agreed upon procedures for the Property for such
periods as Lender may request.
(k) Leases, Rent Roll and Estoppel Certificates. Borrower shall have
provided Lender with original executed or certified copies of each of the Leases
in effect as of the date hereof, a current rent roll, and original executed
copies of estoppel certificates and subordination non-disturbance agreements in
the form previously approved by Lender, from those tenants as Lender may
request.
(l) Debt Service Coverage Ratio. The Debt Service Coverage Ratio shall be
at least 1.20 to 1.
(m) Appraisals. Lender shall have received an appraisal for the Property
satisfactory to Lender.
(n) Engineering Reports. Lender shall have received a structural
engineering report, reasonably acceptable to Lender, identifying, among other
things, (i) deferred maintenance for the Property and the cost thereof and (ii)
a ten (10) year schedule of anticipated capital expenditures and the per annum
cost thereof.
(o) Utility Service and Tax Assessment. Borrower shall have delivered
evidence that all utility services required for the Property are available and
that the Property is subject to separate tax assessment.
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(p) Absence of Adverse Changes. Lender shall have determined that there
have been no material developments prior to the Closing Date which could, in
Lender's sole judgment, adversely affect the ownership or operation of the
Property or the ability of Borrower to repay the Loan or the ability of Borrower
to perform any of its covenants and agreements set forth in this Agreement and
the other Loan Documents.
(q) Fee. Lender shall have received a structuring fee equal to $236,500.00.
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 BORROWER REPRESENTATIONS. Borrower represents and warrants as
of the date hereof and as of the Closing Date that:
(a) Organization. Borrower has been duly organized and is validly existing
and in good standing with requisite limited liability company power and
authority to own its properties and to transact the businesses in which it is
now engaged. Borrower is duly qualified to do business and is in good standing
in each jurisdiction where it is required to be so qualified in connection with
its properties, businesses and operations. Borrower possesses all rights,
licenses, permits and authorizations, governmental or otherwise, necessary to
entitle it to own its properties and to transact the businesses in which it is
now engaged (other than those which the failure to have would not reasonably be
expected to have a material adverse effect on the Borrower, the Property or the
Loan), and the sole business of Borrower is the ownership, management and
operation of the Property.
(b) Proceedings. Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and such other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective 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).
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the other Loan Documents by Borrower will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance (other
than pursuant to the Loan Documents) upon any of the property or assets of
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, partnership agreement or other agreement or instrument to which
Borrower is a party or by which Borrower's property or assets is subject, nor
will such action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Borrower or any of its properties or assets (other than such
actions described herein which would not reasonably be expected to have a
material adverse effect on the Borrower, the Property, or the Loan), and any
consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental agency or
body required for the execution, delivery and performance by any Borrower of
this Agreement or any other Loan Documents has been obtained and is in full
force and effect.
(d) Litigation. There are no actions, suits or proceedings at law or in
equity by or before any Governmental Authority or other agency now pending or
threatened against or affecting Borrower or the Property, which actions, suits
or proceedings, if determined against Borrower or the Property, might materially
adversely affect the condition (financial or otherwise) or business of Borrower
or the condition or ownership of the Property.
(e) Agreements. Borrower is not a party to any agreement or instrument or
subject to any restriction which would reasonably be expected to materially
adversely affect Borrower or the Property, or Borrower's business, properties or
assets, operations or condition, financial or otherwise. Borrower is not in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any Permitted
Encumbrance or any other agreement or instrument to which it is a party or by
which it or the Property is bound.
(f) Title. Borrower has good and insurable title in fee to the real
property comprising part of the Property, and good title to the balance of the
Property, free and clear of all Liens whatsoever except the Permitted
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Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created by the Loan Documents. The Mortgage when properly recorded
in the appropriate records, together with any Uniform Commercial Code financing
statements required to be filed in connection therewith, will create (i) a
valid, perfected first priority lien on the Property, subject only to Permitted
Encumbrances and the Liens created by the Loan Documents and (ii) perfected
security interests in and to, and perfected collateral assignments of, all
personalty (including the Leases), all in accordance with the terms thereof, in
each case subject only to any applicable Permitted Encumbrances, such other
Liens as are permitted pursuant to the Loan Documents and the Liens created or
permitted by the Loan Documents. The Permitted Encumbrances do not materially
adversely affect the value or use of the Property, or Borrower's ability to
repay the Loan. There are no claims for payment for work, labor or materials
affecting the Property which are or may become a lien prior to, or of equal
priority with, the Liens created by the Loan Documents.
(g) No Bankruptcy Filing. Borrower is not contemplating either the filing
of a petition by it under any state or federal bankruptcy or insolvency laws or
the liquidation of all or a major portion of its assets or property, and
Borrower has no knowledge of any Person contemplating the filing of any such
petition against it.
(h) Full and Accurate Disclosure. No statement of fact made by Borrower in
this Agreement or in any of the other Loan Documents contains any untrue
statement of a material fact or omits to state any material fact necessary to
make statements contained herein or therein not misleading. There is no material
fact presently known to Borrower which has not been disclosed to Lender which
adversely affects, nor as far as Borrower can foresee, might adversely affect,
the Property or the business, operations or condition (financial or otherwise)
of Borrower.
(i) No Plan Assets. Borrower is not an "employee benefit plan," as defined
in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101.
(j) Compliance. To the best of Borrower's knowledge, Borrower and the
Property and the use thereof comply in all material respects with all applicable
Legal Requirements, including building and zoning ordinances and codes. Borrower
has not received notice of any default or violation of any order, writ,
injunction, decree or demand of any Governmental Authority, the violation of
which is likely to materially adversely affect the condition (financial or
otherwise) or business of Borrower. There has not been and shall never be
committed by Borrower or, to Borrower's actual knowledge, any other person in
occupancy of or involved with the operation or use of the Property any act or
omission affording the federal government or any state or local government the
right of forfeiture as against the Property or any part thereof or any monies
paid in performance of Borrower's obligations under any of the Loan Documents.
Borrower hereby covenants and agrees not to commit or permit, and shall use its
commercially reasonable efforts to prevent any other person or entity from
committing, any act or omission affording such right of forfeiture.
(k) Contracts. Except as set forth on Schedule 1, there are no material
contracts affecting the Property which are not terminable on one month's notice
or less without cause and without penalty or premium. All contracts affecting
the Property (except for the Management Agreement) have been entered into at
arms-length in the ordinary course of Borrower's business and all contracts
affecting the Property (including the Management Agreement) provide for the
payment of fees in amounts and upon terms comparable to existing market rates.
(l) Financial Information. All financial data, including the statements of
cash flow and income and operating expense, that have been delivered to Lender
by Borrower in respect of the Property (i) are true, complete and correct in all
material respects, (ii) accurately represent the financial condition of the
Property as of the date of such reports and (iii) to the extent prepared by an
independent certified public accounting firm, have been prepared in accordance
with GAAP consistently applied throughout the periods covered, except as
disclosed therein. Borrower has no contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are known to Borrower and
reasonably likely to have a materially adverse effect on the Property or the
operation thereof, except as referred to or reflected in said financial
statements. Since the date of such financial statements, there has been no
materially adverse change in the financial condition, operations or business of
Borrower from that set forth in said financial statements.
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(m) Condemnation. No Condemnation or other proceeding has been commenced
or, to Borrower's best knowledge, is contemplated with respect to all or any
portion of the Property or for the relocation of roadways providing access to
the Property.
(n) Federal Reserve Regulations. No part of the proceeds of the Loan will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
or for any other purpose which would be inconsistent with such Regulation U or
any other Regulations of such Board of Governors, or for any purposes prohibited
by Legal Requirements or by the terms and conditions of this Agreement or the
other Loan Documents.
(o) Utilities and Public Access. The Property has rights of access to
public ways and is served by water, sewer, sanitary sewer and storm drain
facilities adequate to service the Property for its respective intended uses.
All public utilities necessary to the full use and enjoyment of the Property are
located in the public right-of-way abutting the Property. To Borrower's actual
knowledge, all roads necessary for the use of the Property for their current
respective purposes have been completed and dedicated to public use and accepted
by all Governmental Authorities.
(p) Not a Foreign Person. Borrower is not a "foreign person" within the
meaning ofss.1445(f)(3) of the Code.
(q) Separate Lots. The Property is comprised of one (1) or more parcels
which constitutes a separate tax lot and does not constitute a portion of any
other tax lot not a part of the Property.
(r) Assessments. To the best of Borrower's knowledge, there are no pending
or proposed special or other assessments for public improvements or otherwise
affecting the Property, nor are there any contemplated improvements to the
Property that may result in such special or other assessments.
(s) Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, including the defense
of usury, nor would the exercise of any of the terms of the Loan Documents, or
the exercise of any right thereunder, render the Loan Documents unenforceable,
and Borrower has not asserted any right of rescission, set-off, counterclaim or
defense with respect thereto.
(t) No Prior Assignment. There are no assignments of the Leases or any
portion of the Rents due and payable or to become due and payable which are
presently outstanding.
(u) Insurance. Borrower has obtained and has delivered to Lender insurance
certificates reflecting the insurance coverages, amounts and other requirements
set forth in this Agreement.
(v) Use of Property. The Property is used exclusively as an office building
and other appurtenant and related uses.
(w) Certificate of Occupancy; Licenses. All material certifications,
permits, licenses and approvals, including certificates of completion and
occupancy permits and any applicable liquor licenses required for the legal use,
occupancy and operation of the Property (collectively, the "Licenses"), have
been obtained and are in full force and effect. Borrower shall keep and maintain
all licenses necessary for the operation of the Property. The use being made of
the Property is in conformity with the certificate of occupancy issued for the
Property.
(x) Flood Zone. To Borrower's actual knowledge, none of the Improvements on
the Property are located in an area identified by the Federal Emergency
Management Agency as an area having special flood hazards.
(y) Physical Condition. To Borrower's actual knowledge, the Property,
including all buildings, improvements, parking facilities, sidewalks, storm
drainage systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators, exterior sidings and doors,
landscaping, irrigation systems and all structural components, are in good
condition, order and repair in all material respects; and there exist no
structural or other material defects or damages in the Property, whether latent
or otherwise. Borrower has not received notice from any insurance company or
bonding company of any defects or inadequacies in the Property, or any part
thereof, which would adversely affect the insurability of the same or cause the
imposition of extraordinary premiums or charges thereon or of any termination or
threatened termination of any policy of insurance or bond.
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(z) Appraised Value. To Borrower's actual knowledge, all of the
improvements which were included in determining the appraised value of the
Property lie wholly within the boundaries and building restriction lines of the
Property, and no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon the Property encroach upon
any of the improvements, so as to affect the value or marketability of the
Property except those which are insured against by title insurance.
(aa) Leases. Attached hereto as Schedule 2 is a rent roll (the "Rent Roll")
for the Property. The Rent Roll is true, correct and complete in all material
respects with respect to the subject matter thereof. The only Leases affecting
the Property are those reflected in the Rent Roll. To Borrower's knowledge
following inquiry as a duly diligent property purchaser, except as set forth in
Schedule 1: (i) each Lease is in full force and effect; (ii) except for those
Leases with terms that have not yet commenced, the tenants under the Leases have
accepted possession of and are in occupancy of all of their respective demised
premises (unless such demised premises or portions thereof, have been
subleased), have commenced the payment of rent under such Leases and there are
no offsets, claims or defenses to the enforcement thereof; (iii) all rents due
and payable under the Leases have been paid and no portion thereof has been paid
for any period more than thirty (30) days in advance; (iv) the rent payable
under each Lease is the amount set forth in the Rent Roll and there is no claim
or basis for a claim by the tenant thereunder for an adjustment to the rent; (v)
no tenant has made any claim against the landlord under the Leases which remains
outstanding and there are no defaults on the part of the landlord under any
Lease and no event has occurred which, with the giving of notice or passage of
time, or both, would constitute such default; and (vi) there is no present
material default by any tenant under any Lease. None of the Leases contains any
option to purchase or right of first refusal to purchase the Property or any
part thereof. The Leases have not been assigned or pledged except to Lender, and
no other person whatsoever has any interest therein except the tenants
thereunder.
(bb) Survey. To Borrower's actual knowledge, the survey for the Property
delivered to Lender in connection with this Agreement does not fail to reflect
any material matter affecting the Property or the title thereto.
(cc) Filing and Recording Taxes. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of the Property to Borrower have been paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including the Mortgage,
have been paid and, under current Legal Requirements, the Mortgage is
enforceable against Borrower in accordance with its respective terms by Lender
(or any subsequent holder thereof), except as such enforceability may be limited
by insolvency, bankruptcy, moratorium or other laws affecting creditor's
remedies in general and principles of equity.
(dd) Single-Purpose. Borrower hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower does not and will not own any asset or property other than
(A) the Property and (B) incidental personal property necessary for
the ownership or operation of the Property.
(ii) Borrower will not engage in any business other than the ownership,
management and operation of the Property and will in all material
respects conduct and operate its business as presently conducted and
operated.
(iii)Borrower will not enter into any contract or agreement with any of
its affiliates or constituent parties, any guarantor (a "Guarantor")
of the Debt or any part thereof or any affiliate of any constituent
party or Guarantor, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any
such party.
(iv) Borrower has not incurred, and Borrower will not incur, any
indebtedness, secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation), other than the
Permitted Indebtedness. Except as set forth in the immediately
preceding sentence, no indebtedness other than the Debt may be secured
(subordinate or pari passu) by the Property.
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(v) Borrower has not made and will not make any loans or advances to any
third party (including any affiliate or constituent party, any
Guarantor or any affiliate of any constituent party or Guarantor),
other than immaterial advances for tenant improvements pursuant to
Leases executed in accordance with this Agreement.
(vi) Borrower is and will remain solvent and will pay its debts and
liabilities (including employment and overhead expenses) from its
assets as the same shall become due.
(vii)Borrower has done or caused to be done and will do all things
necessary to observe corporate, partnership, or limited liability
company formalities, as the case may be, and preserve its existence.
(viii) Borrower will not permit any constituent party or Guarantor to,
amend, modify or otherwise change the partnership certificate,
partnership agreement, articles of incorporation and bylaws, trust,
operating agreement or other organizational documents of Borrower or
such constituent party or Guarantor in a manner which would adversely
affect Borrower's existence as a single purpose entity.
(ix) Borrower will maintain books and records and bank accounts separate
from those of its affiliates and any constituent party and Borrower
will file its own tax returns.
(x) Borrower will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity
(including any affiliate, any constituent party, any Guarantor or any
affiliate of any constituent party or Guarantor), shall conduct
business in its own name and shall maintain and utilize separate
stationery, invoices and checks.
(xi) Borrower will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in
light of its contemplated business operations.
(xii)Neither Borrower nor any constituent party will seek the dissolution
or winding up, in whole or in part, of Borrower.
(xiii) Borrower will not commingle its funds and other assets with those of
any affiliate or constituent party, any Guarantor, or any affiliate of
any constituent party or Guarantor, or any other person.
(xiv)Borrower has and will maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify
its individual assets from those of any affiliate or constituent
party, any Guarantor, or any affiliate of any constituent party or
Guarantor, or any other person.
(xv) Borrower does not and will not hold itself out to be responsible for
the debts or obligations of any other person.
(xvi)Borrower shall at all times have one member (the "SPE Member") who is
a "single purpose entity" and shall at all times comply with each of
the representations, warranties, and covenants contained in this
Section 4.1 as if such representation, warranty or covenant was made
directly by such SPE Member.
(xvii) The charter of the SPE Member shall at all times have at least one
duly appointed member of its board of directors (an "Independent
Director") reasonably satisfactory to Lender who shall not have been
at the time of such individual's appointment, and may not have been at
any time during the preceding five (5) years (i) a member of, or an
officer or employee of, Borrower or any of its members, subsidiaries
or Affiliates (except as an Independent Director on any of their
boards of directors), (ii) a customer or supplier who derives more
than ten percent (10%) of its purchases or revenues from its
activities with Borrower or any of its members, subsidiaries or
Affiliates (except as an Independent Director on any of their boards
of directors), (iii) a person or other entity controlling any such
member, supplier or customer or (iv) a member of the immediate family
of any such member, officer, employee, supplier or customer or of any
other director of the SPE Member. As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person or
entity, whether through ownership of voting securities, by contract or
otherwise.
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(xviii) The board of directors of the SPE Member shall not take any action
which, under the terms of any certificate of incorporation, bylaws or
any voting trust agreement with respect to any common stock, requires
the vote of the board of directors of the SPE Member unless at the
time of such action there shall be at least one member who is an
Independent Director.
(xix)Borrower shall conduct its business so that the assumptions made with
respect to Borrower in that certain opinion letter dated as of the
Closing Date delivered by Borrower's counsel in connection with the
Loan shall be true and correct in all respects.
(ee) Investment Company Act. Borrower is not (i) an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.
(ff) Fraudulent Transfer. Borrower has not entered into the Loan or any
Loan Document with the actual intent to hinder, delay, or defraud any creditor,
and Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed Borrower's total liabilities, including subordinated,
unliquidated, disputed or contingent liabilities. The fair saleable value of
Borrower's assets is and will, immediately following the execution and delivery
of the Loan Documents, be greater than Borrower's probable liabilities,
including the maximum amount of its contingent liabilities or its debts as such
debts become absolute and matured. Borrower's assets do not and, immediately
following the execution and delivery of the Loan Documents will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it will,
incur debts and liabilities (including contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
Borrower).
(gg) Management Agreement. The Management Agreement is in full force and
effect and there is no default, breach or violation existing thereunder by any
party thereto and no event has occurred (other than payments due but not yet
delinquent) that, with the passage of time or the giving of notice, or both,
would constitute a default, breach or violation by any party thereunder. Neither
the execution and delivery of the Loan Documents, Borrower's performance
thereunder, the recordation of the Mortgage, nor the exercise of any remedies by
Lender, will adversely affect Borrower's rights under the Management Agreement.
Section 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the
representations and warranties of Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under this Agreement or any of the
other Loan Documents by Borrower. All representations, warranties, covenants and
agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
---------------------
Section 5.1 BORROWER COVENANTS. From the date hereof and until payment and
performance in full of all obligations of Borrower under the Loan Documents or
the earlier release of the Lien of the Mortgage (and all related obligations) in
accordance with the terms of this Agreement and the other Loan Documents,
Borrower hereby covenants and agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
and comply with all Legal Requirements applicable to it and the Property.
Borrower shall at all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property used or useful in the
conduct of its business and shall keep the Property in good working order and
repair, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Mortgage.
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(b) Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges
now or hereafter levied or assessed or imposed against the Property or any part
thereof as the same become due and payable, other than those which it is
protesting in good faith by appropriate proceedings diligently pursued in
accordance with this Section. Borrower will deliver to Lender receipts for
payment or other evidence satisfactory to Lender that the Taxes and Other
Charges have been so paid or are not then delinquent no later than thirty (30)
days prior to the date on which the Taxes and/or Other Charges would otherwise
be delinquent if not paid (provided, however, that Borrower is not required to
furnish such receipts for payment of Taxes in the event that such Taxes are to
be paid by Lender pursuant to Section 7.3 hereof if Borrower furnishes a request
by such date for a disbursement from the Tax and Insurance Escrow Fund and there
are sufficient funds therein to make the payment). Borrower shall not suffer and
when due shall cause to be paid and discharged any lien or charge whatsoever
which may be or become a lien or charge against the Property (other than those
liens or charges which Borrower is protesting in good faith by appropriate
proceedings, diligently pursued), and when due shall pay for all utility
services provided to the Property. After prior written notice to Lender,
Borrower, at its own expense, may contest by appropriate legal proceeding,
promptly initiated and conducted in good faith and with due diligence, the
amount or validity or application in whole or in part of any Taxes or Other
Charges, provided that (i) no Default or Event of Default has occurred and
remains uncured, (ii) such proceeding shall suspend the collection of the Taxes
or Other Charges from the Property, (iii) such proceeding shall be permitted
under and be conducted in accordance with the provisions of any other instrument
to which Borrower is subject and shall not constitute a default thereunder, (iv)
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, terminated, canceled or lost, (v) Borrower shall have
furnished such security as may be required in the proceeding, or as may be
reasonably requested by Lender, to insure the payment of any such Taxes or Other
Charges, together with all interest and penalties thereon and (vi) Borrower
shall promptly upon final determination thereof pay the amount of any such Taxes
or Other Charges, together with all costs, interest and penalties which may be
payable in connection therewith subject to payment pursuant to Section 7.3.
Lender may, following prior written notice to Borrower, pay over any such cash
deposit or part thereof held by Lender to the claimant entitled thereto at any
time when, in the judgment of Lender, the entitlement of such claimant is
established.
(c) Litigation. Borrower shall give prompt written notice to Lender of any
litigation or governmental proceedings pending or threatened against Borrower
which might materially adversely affect Borrower's condition (financial or
otherwise) or business or the Property.
(d) Premises. Borrower shall permit agents, representatives and employees
of Lender to inspect the Property or any part thereof at reasonable hours upon
reasonable advance notice.
(e) Notice of Default. Borrower shall promptly advise Lender of any
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Default or Event of Default of which Borrower has
knowledge.
(f) Cooperate in Legal Proceedings. Borrower shall cooperate fully with
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way materially adversely affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.
(g) Perform Loan Documents. Borrower shall observe, perform and satisfy all
the terms, provisions, covenants and conditions of, and shall pay when due all
costs, fees and expenses to the extent required under the Loan Documents
executed and delivered by Borrower.
(h) Insurance Benefits. Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any Insurance Proceeds lawfully or equitably payable
in accordance with Section 7.1 hereof in connection with the Property, and
Lender shall be reimbursed for any expenses incurred in connection therewith
(including attorneys' fees and disbursements, and the expense of an appraisal on
behalf of Lender in case of a fire or other casualty affecting the Property or
any part thereof) out of such Insurance Proceeds.
(i) Further Assurances. Borrower shall, at Borrower's sole cost and
expense:
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(A) furnish to Lender all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement and instrument required to be furnished
by it pursuant to the terms of the Loan Documents or reasonably requested by
Lender in connection therewith;
(B) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure its obligations under the Loan Documents, as
Lender may reasonably require, so long as Borrower's liability is not materially
increased thereby; and
(C) do and execute all and such further lawful and reasonable acts,
conveyances and assurances for the better and more effective carrying out of the
intents and purposes of this Agreement and the other Loan Documents, as Lender
shall reasonably require from time to time, so long as Borrower's liability is
not materially increased thereby.
(j) Supplemental Mortgage Affidavits. If at any time Lender reasonably
determines, based on applicable law, that Lender is not being afforded the
maximum amount of security available from the Property as a direct or indirect
result of applicable taxes not having been paid with respect to the Property,
Borrower agrees that Borrower will execute, acknowledge and deliver to Lender,
immediately upon Lender's request, supplemental affidavits increasing the amount
of the Debt attributable to the Property to the amount of the Debt and Borrower
shall, on demand, pay any additional taxes.
(k) Financial Reporting.
(i) Borrower will keep and maintain or will cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP or another method of
preparation approved by Lender, proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Property and in connection with
any services, equipment or furnishings provided in connection with the operation
of the Property, whether such income or expense be realized by Borrower or by
any other Person whatsoever, excepting lessees unrelated to and unaffiliated
with Borrower who have leased from Borrower portions of the Property for the
purpose of occupying the same. Lender shall have the right from time to time at
all times during normal business hours upon reasonable notice to examine such
books, records and accounts at the office of Borrower or other Person
maintaining such books, records and accounts and to make such copies or extracts
thereof as Lender shall desire. After the occurrence and during the continuance
of an Event of Default, Borrower shall pay any costs and expenses incurred by
Lender to examine Borrower's accounting records with respect to the Property, as
Lender shall determine to be necessary or appropriate in the protection of
Lender's interest.
(ii) Borrower will furnish to Lender annually, (A) within forty (40)
days following the end of each Fiscal Year of Borrower, unaudited financial
statements of Borrower, and (B) within ninety (90) days following the end of
each Fiscal Year of Borrower, (y) a complete copy of the unqualified
consolidated annual financial statements of Prime Group Realty Trust, audited by
a "big six" accounting firm (as such accounting firm may have been consolidated
with another "big six" accounting firm) or another independent certified public
accountant reasonably acceptable to Lender in accordance with GAAP covering the
Property for such Fiscal Year and (z) financial statements of Borrower,
unaudited but certified by an independent certified public accountant reasonably
acceptable to Lender, containing balance sheets and statements of profit and
loss for Borrower and the Property in such detail as Lender may reasonably
request. Such statements shall set forth the financial condition and the income
and expenses for the Property for the immediately preceding calendar year
including statements of annual net operating income. Borrower's annual financial
statements (unaudited and audited) shall be accompanied by an Officer's
Certificate certifying that, to the best of such officer's knowledge, each such
annual financial statement presents fairly the financial condition of the
Property and has been prepared in accordance with GAAP. Together with Borrower's
annual financial statements, Borrower shall furnish to Lender an Officer's
Certificate certifying as of the date thereof whether, to the best of its
knowledge, there exists an event or circumstance which constitutes a Default or
Event of Default under the Loan Documents executed and delivered by Borrower,
and if such Default or Event of Default exists, the nature thereof, the period
of time it has existed and the action then being taken to remedy the same.
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(iii) Borrower will furnish, or cause to be furnished, to Lender on or
before thirty (30) days after the end of each calendar month the following
items, in a format reasonably acceptable to Lender, accompanied by an Officer's
Certificate certifying that, to the best of such officer's knowledge, such items
are true, correct, accurate, and complete and fairly present the financial
condition and results of the operations of Borrower and the Property in
accordance with GAAP or a method of preparation approved by Lender (subject to
normal year end adjustments) as applicable: (A) monthly and year to date
operating statements prepared for each calendar month, noting net operating
income and other information necessary and sufficient to fairly represent the
results of operation of the Property during such calendar month, all in form
reasonably satisfactory to Lender; (B) a balance sheet for each such month; (C)
a comparison of the budgeted income and expenses and the actual income and
expenses for each month and year to date for the Property together with a
detailed explanation of any variances of ten percent (10%) or more between
budgeted and actual amounts for such period and year to date; (D) a statement of
the actual capital expenditures made by Borrower during each calendar quarter as
of the last day of such calendar quarter; (E) a calculation reflecting the
annual Debt Service Coverage Ratio as of the last day of each calendar month;
and (F) a statement that the representations and warranties of Borrower set
forth in Section 4.l(dd)(iv) are true and correct as of the date of such
certificate.
(iv) Borrower will furnish, or cause to be furnished, to Lender as
soon as available and in any event on or before thirty (30) days after the end
of each calendar month occupancy rates, rent rolls (identifying the leased
premises, names of all tenants, units leased, monthly rental and all other
charges payable under each lease, date to which paid, term of lease, date of
occupancy, date of expiration, any and every material special provision,
concession or inducement granted to tenants during such month) and a delinquency
report for the Property and such other relevant information with respect to the
Property as requested by the Lender, in each case accompanied by an Officer's
Certificate certifying that such items are true, correct, accurate, and
complete.
(v) Borrower shall furnish to Lender, within ten (10) Business Days
after request, such further detailed information with respect to the operation
of the Property and the financial affairs of Borrower as may be reasonably
requested by Lender or any applicable Rating Agency. If Borrower fails to
provide to Lender or its designee any of the financial statements, certificates,
reports or information (the "Required Records") required by this Section 5.1(k)
within thirty (30) days after the date upon which such Required Record is due,
Borrower shall pay to Lender, at Lender's option and in its sole discretion, an
amount equal to $5,000 for each Required Record that is not delivered; provided
that, Lender has given at least fifteen (15) days prior written notice to
Borrower of such failure by Borrower to timely submit the applicable Required
Record.
(l) Business and Operations. Borrower will continue to engage in the
businesses presently conducted by it as and to the extent the same are necessary
for the ownership, maintenance, management and operation of the Property.
Borrower will qualify to do business and will remain in good standing under the
laws of each jurisdiction as and to the extent the same are required for the
ownership, maintenance, management and operation of the Property.
(m) Title to the Property. Borrower will warrant and defend (i) the title
to the Property and every part thereof, subject only to Liens permitted under
the Loan Documents (including Permitted Encumbrances) and (ii) the validity and
priority of the Lien of the Mortgage, subject only to Liens permitted under the
Loan Documents (including Permitted Encumbrances), in each case against the
claims of all Persons whomsoever. Borrower shall reimburse Lender for any
losses, costs, damages or expenses (including reasonable attorneys' fees and
court costs) incurred by Lender if an interest in the Property, other than as
permitted hereunder, is claimed by another Person.
(n) Costs of Enforcement. In the event (i) that the Mortgage is foreclosed
in whole or in part or is put into the hands of an attorney for collection,
suit, action or foreclosure, (ii) of the foreclosure of any mortgage prior to or
subsequent to the Mortgage encumbering the Property in which proceeding Lender
is made a party or (iii) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or an assignment by Borrower for the
benefit of its creditors, Borrower, its successors or assigns, shall be
chargeable with and agrees to pay all costs of collection and defense, including
reasonable attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
(o) Estoppel Statement.
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(i) After request by Lender, Borrower shall within ten (10) days
furnish Lender with a statement, duly acknowledged and certified, setting forth
(A) the unpaid principal amount of the Note, (B) the Interest Rate of the Note,
(C) the date installments of interest and/or principal were last paid, (D) any
offsets or defenses to the payment of the Debt, if any and (E) that the Note,
this Agreement, the Mortgage and the other Loan Documents are valid, legal and
binding obligations and have not been modified or if modified, giving
particulars of such modification.
(ii) After request by Lender (but no more frequently than once in any
year), Borrower shall within ten (10) days furnish Lender with a certificate
reaffirming all representations and warranties of Borrower set forth herein and
in the other Loan Documents as of the date requested by Lender or, to the extent
of any changes to any such representations and warranties, so stating such
changes.
(iii) Borrower shall deliver to Lender upon request, tenant estoppel
certificates from each tenant at the Property in form and substance reasonably
satisfactory to Lender provided that Borrower shall not be required to deliver
such certificates more frequently than one (1) time in any calendar year.
(p) Loan Proceeds. Borrower shall use the proceeds of the Loan received by
it on the Closing Date only for the purposes set forth in Section 2.1.4.
(q) Performance by Borrower. Borrower shall in a timely manner observe,
perform and fulfill each and every covenant, term and provision of each Loan
Document executed and delivered by Borrower, and shall not enter into or
otherwise suffer or permit any amendment, waiver, supplement, termination or
other modification of any Loan Document executed and delivered by Borrower
without the prior written consent of Lender.
(r) Annual Budget. Borrower shall prepare and submit (or shall cause
Manager to prepare and submit) to Lender by December 1 of each year during the
Term, a proposed pro forma budget for the Property for the succeeding fiscal
year commencing January 1 and ending December 31 (the "Annual Budget") and,
promptly after preparation thereof, any subsequent revisions to such Annual
Budget. After the occurrence of a Cash Trap Event, the Annual Budget shall be
subject to Lender's approval which approval shall not be unreasonably withheld
or delayed. Lender's failure to approve or disapprove any Annual Budget
requiring Lender's approval within thirty (30) days after Lender's receipt
thereof shall be deemed to constitute Lender's approval thereof. The Annual
Budget shall consist of (i) an operating expense budget (the "Operating Budget")
showing, on a month-by-month basis, in reasonable detail, each line item of the
Borrower's anticipated income and Operating Expenses (on a cash modified basis),
including amounts required to establish, maintain and/or increase reserves, (ii)
a Capital Expense Budget (the "Capital Budget") showing, on a month-by-month
basis, in reasonable detail, each line item of anticipated Capital Expenses. A
copy of the Budget for the period commencing on the date hereof and ending on
December 31, 1998 shall be delivered to Lender for its approval within
forty-five (45) days after the date hereof.
(s) Confirmation of Representations. In addition to and not in limitation
of the covenants and agreements of Borrower contained in Section 9.1, Borrower
shall deliver, in connection with any Secondary Market Transaction, (i)
Officer's Certificates certifying as to the accuracy of all representations made
by Borrower in the Loan Documents (with changes made to such representations as
necessary to render them factually accurate) as of the date of the closing of
such Secondary Market Transaction and (ii) certificates of the relevant
Governmental Authorities in all relevant jurisdictions indicating the good
standing and qualification of Borrower as of the date of the Secondary Market
Transaction.
(t) No Joint Assessment. Borrower shall not suffer, permit or initiate the
joint assessment of the Property (i) with any other real property constituting a
tax lot separate from the Property and (ii) with any portion of the Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Property.
(u) Leasing Matters. Borrower shall not, without Lender's prior written
consent, enter into, modify, amend or renew any Lease (x) for 10,000 or more
square feet while an Event of Default is not occurring or (y) for any size while
an Event of Default is continuing. Any Lease for less than 10,000 square feet
that is entered into, modified, amended or renewed during a period of time when
no Event of Default exists shall be deemed approved by Lender (such Lease, a
"Deemed Approved Lease"). If Lender does not approve or disapprove a Lease
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(other than a Deemed Approved Lease) within ten (10) Business Days of Lender's
receipt of such Lease and all information relating thereto reasonably requested
by Lender, such Lease shall be deemed approved. Upon request, Borrower shall
furnish Lender with executed copies of all Leases. All renewals of Leases and
all proposed Leases shall provide for rental rates that are at or greater than
existing local market rates for space at properties similar to the Property. All
proposed Leases shall be on commercially reasonable terms and shall not contain
any terms which would materially adversely affect Lender's rights under the Loan
Documents. All Leases shall provide that they are subordinate to the Mortgage
encumbering the Property and that the lessee agrees to attorn to Lender if it
succeeds to the interest of Borrower in the Property. Borrower (i) shall observe
and perform the obligations imposed upon the lessor under the Leases, other than
immaterial obligations the failure of which to perform is not likely to have a
material adverse effect on the Property or the applicable Lease(s); (ii) shall,
in the exercise of its prudent business judgment, enforce the terms, covenants
and conditions contained in the Leases upon the part of the lessee thereunder to
be observed or performed; (iii) shall not collect any of the rents more than one
(1) month in advance (other than security deposits); (iv) shall not execute any
other assignment of lessor's interest in the Leases or the Rents (except as
contemplated by the Loan Documents); (v) shall not alter, modify or change the
terms of the Leases in a manner inconsistent within the provisions of the Loan
Documents; and (vi) shall execute and deliver at the request of Lender all such
further assurances, confirmations and assignments in connection with the Leases
as Lender shall from time to time reasonably require.
(v) Principal Place of Business. Borrower shall not change its principal
place of business set forth on the first page of this Agreement without first
giving Lender thirty (30) days prior written notice.
(w) Management Agreement. Borrower shall cause the Property to be operated
pursuant the Management Agreement. Borrower shall:
(i) promptly perform and/or observe all of the covenants and
agreements required to be performed and observed by it under the Management
Agreement and do all things necessary to preserve and to keep unimpaired its
material rights thereunder;
(ii) promptly notify Lender of any default under the Management
Agreement of which it is aware;
(iii) promptly, upon Lender's request, deliver to Lender a copy of
each financial statement, business plan, capital expenditures plan, property
improvement plan and any other notice, report and estimate received by it under
the Management Agreement; and
(iv) promptly enforce the performance and observance of all of the
covenants and agreements required to be performed and/or observed by the Manager
under the Management Agreement.
VI. NEGATIVE COVENANTS
------------------
Section 6.1 BORROWER'S NEGATIVE COVENANTS. From the date hereof until
payment and performance in full of all obligations of Borrower under the Loan
Documents or the earlier release of the Lien of the Mortgage in accordance with
the terms of this Agreement and the other Loan Documents, Borrower covenants and
agrees with Lender that it will not do, directly or indirectly, any of the
following:
(a) Operation of Property. Borrower shall not, without Lender's prior
consent: (i) surrender, terminate or cancel the Management Agreement or
otherwise replace the Manager of the Property or enter into any other management
agreements with respect to the Property (except pursuant to Section 9.5); (ii)
reduce or consent to the reduction of the term of the Management Agreement;
(iii) increase or consent to the increase of the amount of any charges under the
Management Agreement; or (iv) otherwise modify, change, supplement, alter or
amend, or waive or release any of its rights and remedies under the Management
Agreement in any material respect.
(b) Liens. Borrower shall not, without the prior written consent of Lender,
create, incur, assume or suffer to exist any Lien on any portion of the Property
or permit any such action to be taken, except (i) Permitted Encumbrances, (ii)
Liens created by or permitted pursuant to the Loan Documents and (iii) Liens for
Taxes or Other Charges not yet due.
(c) Dissolution. Borrower shall not dissolve, terminate, liquidate, merge
with or consolidate into another Person.
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(d) Change In Business. Borrower shall not enter into any line of business
other than the ownership and operation of the Property, or make any material
change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.
(e) Debt Cancellation. Borrower shall not cancel or otherwise forgive or
release any claim or debt owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business in its
reasonable judgment.
(f) Affiliate Transactions. Borrower shall not enter into, or be a party
to, any transaction with an Affiliate of Borrower or any of the members of
Borrower except in the ordinary course of business and on terms which are fully
disclosed to Lender in advance and are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arms-length transaction with an
unrelated third party.
(g) Zoning. Borrower shall not initiate or consent to any zoning
reclassification of any portion of any of the Property or seek any variance
under any existing zoning ordinance or use or permit the use of any portion of
any of the Property in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender.
(h) Assets. Borrower shall not purchase or own any real properties other
than the Property.
(i) Debt. Borrower shall not create, incur or assume any debt (including
subordinate debt) other than the Debt and other than Permitted Indebtedness. In
addition, no Person owning any interest in Borrower shall pledge, transfer or
otherwise dispose of its interest in Borrower to secure any financing for the
benefit of such Person, Borrower or the Property.
(j) Transfers. Borrower shall not, without the prior written consent of
Lender, suffer or permit the sale, assignment or transfer (collectively,
"Transfer") of (i) all or any part of the Property (except pursuant to any
Lease) other than in connection with a Special Transfer, (ii) any direct
interest in Borrower or (iii) any direct or indirect interest in any member of
Borrower other than (A) the issuance or transfer of beneficial interests in
Prime Group Realty Trust, a Maryland real estate investment trust, so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty Trust and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower, and (B) the issuance or
transfer of limited partner interests in Prime Group Realty L.P., a Delaware
limited partnership, or a conversion of a one percent general partnership
interest owned beneficially by The Nardi Group, L.L.C. in Prime Group Realty
L.P. into a limited partnership interest in Prime Group Realty L.P., so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty L.P. and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower; provided, however, that
Borrower may grant the easements and other rights in the Property specifically
permitted under Section 8(f) of the Mortgage. No Transfer consented to by Lender
pursuant to clause (ii) or (iii) above shall be permitted unless Lender shall
have received (a) evidence in writing from the applicable Rating Agencies to the
effect that such a Transfer will not result in a qualification, withdrawal or
downgrading of the ratings in effect immediately prior to such Transfer for the
Securities issued in connection with the Securitization which are then
outstanding and (b) a non-consolidation opinion satisfactory to Lender from the
transferee's counsel. On or before the completion of any such permitted
Transfer, Borrower will pay all reasonable expenses of Lender incurred in
connection therewith. Notwithstanding anything to the contrary contained in this
clause (j), holders of interests in Borrower (or holders of interests in any
entity directly or indirectly holding an interest in Borrower) as of the date
hereof (the "Interest Holders") shall have the right to transfer their interest
in Borrower (or any entity directly or indirectly holding an interest in
Borrower) to another Person who is not an Interest Holder, including without
limitation immediate family members for estate planning purposes, without
Lender's consent; provided, however, that:
(i) after taking into account any prior transfers pursuant to this
sentence, whether to the proposed transferee or otherwise, no such transfer (or
series of transfers) shall result in (A) the proposed transferee, together with
all members of his/her immediate family or any affiliates thereof, owning in the
aggregate (directly, indirectly or beneficially) more than 20% of the interests
in Borrower (or any entity directly or indirectly holding an interest in
Borrower) or (B) a transfer in the aggregate of more than 20% of the interests
in Borrower as of the date hereof;
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(ii) no such transfer of interest shall result in a change of control
of Borrower or the day-to-day operations of the Property;
(iii) Borrower shall give Lender notice of such transfer together with
copies of all instruments effecting such transfer not less than ten (10) days
prior to the date of such transfer;
(iv) no Event of Default has occurred and remains uncured; and
(v) the legal and financial structure of Borrower after such transfer
and its members and the single purpose nature and bankruptcy remoteness of
Borrower and its shareholders, partners or members satisfies Lender's then
current applicable underwriting criteria and requirements, including without
limitation the requirement at the request of Lender to deliver written
confirmations from the Rating Agencies that such transfer or series of transfers
will not result in a qualification, downgrade or withdrawal of the then
applicable ratings.
For purposes of this clause (j), (A) a change of control of Borrower shall be
deemed to have occurred if there is any change in the identity of the individual
or entities or group of individuals or entities who have the right, by virtue of
any partnership agreement, articles of incorporation, bylaws, articles of
organization, operating agreement or any other agreement, with or without taking
any formative action, to cause Borrower to take some action or to prevent,
restrict or impede Borrower from taking some action which, in either case,
Borrower could take or could refrain from taking were it not for the rights of
such individuals; and (B) an "immediate family member" shall mean a spouse or a
child of any Interest Holder.
VII. CASUALTY; CONDEMNATION; ESCROWS
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Section 7.1 INSURANCE; CASUALTY AND CONDEMNATION.
7.1.1 INSURANCE.
(a) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall keep the Property insured and obtain and maintain
during the Term policies of insurance insuring against loss or damage by
standard, "all-risk" perils. Such insurance (i) shall be in an amount equal to
the greatest of (A) the then full replacement cost of the Property without
deduction for physical depreciation, (B) the outstanding principal balance of
the Loan and (C) such amount that the insurer would not deem Borrower a
co-insurer under said policies and (ii) and shall have deductibles no greater
than five percent (5%) of the full replacement cost of the Property. The
premiums for such policies of insurance carried in accordance with this
paragraph shall be paid annually in advance and shall contain a "Replacement
Cost Endorsement" with a waiver of depreciation.
(b) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall also obtain and maintain during the Term the
following policies of insurance:
(i) Flood insurance if any part of the Property is located in an area
identified by the Federal Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Program in an amount at least equal to the Debt or the
maximum limit of coverage available with respect to the Property under said
program, whichever is less.
(ii) Commercial general liability insurance, including broad form
property damage, blanket contractual and personal injuries (including death
resulting therefrom) coverages and containing minimum limits per occurrence of
$1,000,000 and $2,000,000 in the aggregate for any policy year. In addition, at
least $10,000,000 excess and/or umbrella liability insurance shall be obtained
and maintained for any and all claims, including all legal liability imposed
upon Borrower and all court costs and attorneys' fees incurred in connection
with the ownership, operation and maintenance of the Property.
(iii) Rental loss and/or business interruption insurance in an amount
equal to the greater of (A) the estimated gross revenues from the operations of
the Property for the next succeeding eighteen (18) month period or (B) the
projected operating expenses (including Debt Service) for the maintenance and
operation of the Property for the next succeeding eighteen (18) month period.
The amount of such insurance shall be increased from time to time during the
Term as and when the Rents increase or the estimate of (or the actual) gross
revenue, as may be applicable, increases.
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(iv) Insurance against loss or damage from (A) leakage of sprinkler
systems and (B) explosion of steam boilers, air conditioning equipment, high
pressure piping, machinery and equipment, pressure vessels or similar apparatus
now or hereafter installed in any of the Improvements (without exclusion for
explosions), in an amount at least equal to $2,000,000 for the Property.
(v) Worker's compensation insurance with respect to any employees of
Borrower, as required by any governmental authority or legal requirement.
(vi) During any period of repair or restoration, builder's "all risk"
insurance in an amount equal to not less than the full insurable value of the
Property against such risks (including fire and extended coverage and collapse
of the Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender.
(vii) Coverage to compensate for the cost of demolition and the
increased cost of construction for the Property in an amount satisfactory to
Lender.
(viii) Such other insurance as may from time to time be reasonably
required by Lender in order to protect its interests.
(c) All policies of insurance (the "Policies") required pursuant to Section
7.1.1(b) shall be issued by companies reasonably approved by Lender and licensed
to do business in the State, with a claims paying ability rating of "A" or
better by Standard & Poor's Ratings Group; (ii) shall name Lender and its
successors and/or assigns as their interest may appear as the mortgagee; (iii)
shall contain a Non-Contributory Standard Lender Clause and a Lender's Loss
Payable Endorsement, or their equivalents, naming Lender as the person to which
all payments made by such insurance company shall be paid; (iv) shall contain a
waiver of subrogation against Lender; (v) shall be maintained throughout the
Term without cost to Lender; (vi) shall be assigned and the certificates thereof
delivered to Lender; and (vii) shall contain endorsements providing that neither
Borrower, Lender nor any other party shall be a co-insurer under said Policies
and that Lender shall receive at least thirty (30) days prior written notice of
any modification, reduction or cancellation of any of the Policies; and (viii)
shall be satisfactory in form and substance to Lender and shall be approved by
Lender as to amounts, form, risk coverage, deductibles, loss payees and
insureds. Borrower shall pay the premiums for such Policies (the "Insurance
Premiums") as the same become due and payable and shall furnish to Lender
evidence of the renewal of each of the Policies with receipts for the payment of
the Insurance Premiums or other evidence of such payment reasonably satisfactory
to Lender (provided, however, that Borrower is not required to furnish such
evidence of payment to Lender if such Insurance Premiums have been paid by
Lender pursuant to Section 7.3 hereof). If Borrower does not furnish such
evidence and receipts at least ten (10) days prior to the expiration of any
expiring Policy, then Lender may procure, but shall not be obligated to procure,
such insurance and pay the Insurance Premiums therefor, and Borrower agrees to
reimburse Lender for the cost of such Insurance Premiums promptly on demand.
Within thirty (30) days after request by Lender, Borrower shall obtain such
increases in the amounts of coverage required hereunder as may be reasonably
requested by Lender, taking into consideration changes in the value of money
over time, changes in liability laws, and changes in prudent customs and
practices.
(d) If any Property is damaged or destroyed, in whole or in part, by fire
or other casualty (an "Insured Casualty"), Borrower shall give prompt notice
thereof to Lender. Following the occurrence of an Insured Casualty, unless the
Loan is repaid in full, Borrower shall promptly proceed to restore, repair,
replace or rebuild the Property to be of at least equal value and of
substantially the same character as prior to such damage or destruction, all to
be effected in accordance with Legal Requirements. The expenses incurred by
Lender in the adjustment and collection of insurance proceeds shall become part
of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender
upon demand.
7.1.2 CASUALTY AND APPLICATION OF PROCEEDS.
(a) In case of loss or damages covered by any of the Policies, the
following provisions shall apply:
(i) If an Insured Casualty does not exceed $200,000, Borrower may
settle and adjust any claim without the consent of Lender; provided that such
adjustment is carried out in a competent and timely manner. In such case,
Borrower is hereby authorized to collect and receipt for any such insurance
proceeds.
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(ii) If an Insured Casualty shall equal or exceed $200,000, Lender may
settle and adjust any claim without the consent of Borrower and agree with the
insurance company or companies on the amount to be paid on the loss, and the
proceeds of any such policy shall be due and payable solely to Lender and held
in escrow by Lender in accordance with the terms hereof.
(b) In the event of an Insured Casualty where the loss is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months and prior to the Optional
Prepayment Date to an economic unit not less valuable and not less useful than
the same was prior to the Insured Casualty, and after such restoration will
adequately secure the Debt, then, if no Default or Event of Default shall have
occurred and be then continuing, the proceeds of insurance (after reimbursement
of any expenses incurred by Lender) shall be applied to reimburse Borrower for
the cost of restoring, repairing, replacing or rebuilding the Property or part
thereof subject to the Insured Casualty (the "Restoration"), in the manner set
forth herein. Borrower hereby covenants and agrees to commence and diligently
prosecute such Restoration; provided that (i) Borrower shall pay all costs (and
if required by Lender, Borrower shall deposit the total thereof with Lender in
advance) of such Restoration in excess of the net proceeds of insurance made
available pursuant to the terms hereof; (ii) the Restoration shall be done in
compliance with all Legal Requirements; and (iii) Lender shall have received
evidence reasonably satisfactory to it that, during the period of the
Restoration, the sum of (A) income derived from the Property, as reasonably
determined by Lender, plus (B) proceeds of rent loss insurance or business
interruption insurance, if any, to be paid will equal or exceed the sum of (I)
expenses in connection with the operation of the Property and (II) the Debt
Service under the Loan.
(c) Except as provided above, the proceeds of insurance collected upon any
Insured Casualty shall, at the option of Lender in its sole discretion, be
applied to the payment of the Debt or applied to reimburse Borrower for the cost
of any Restoration, in the manner set forth below. Any such application to the
Debt shall be without any prepayment consideration except that if an Event of
Default has occurred and is continuing at the time the insurance proceeds are
received, then Borrower shall pay to Lender an additional amount equal to the
Yield Maintenance Premium, if any, that would be required under Section 2.3.3
hereof if a Defeasance Deposit was to be made by Borrower. Any such application
to the Debt shall be applied to those payments of principal and interest last
due under the Note but shall not postpone or reduce any payments otherwise
required pursuant to the Note other than such last due payments.
(d) If Borrower is entitled to reimbursement out of insurance proceeds held
by Lender, such proceeds shall be deposited by Lender into the
Casualty/Condemnation Subaccount (as described in the Cash Collateral Agreement)
and disbursed from time to time from the Casualty/Condemnation Subaccount upon
Lender being furnished with (i) evidence satisfactory to it of the estimated
cost of completion of the Restoration, (ii) funds or, at Lender's option,
assurances satisfactory to Lender that such funds are available, sufficient in
addition to the proceeds of insurance to complete the proposed Restoration,
(iii) such architect's certificates, waivers of lien, contractor's sworn
statements, title insurance endorsements, bonds, plats of survey and such other
evidences of cost, payment and performance as Lender may reasonably require and
approve and (iv) all plans and specifications for such Restoration, such plans
and specifications to be approved by Lender prior to commencement of any work.
In addition, no payment made prior to the final completion of the Restoration
shall exceed ninety percent (90%) of the value of the work performed from time
to time; funds other than proceeds of insurance shall be disbursed prior to
disbursement of such proceeds; and at all times, the undisbursed balance of such
proceeds remaining in the hands of Lender, together with funds deposited for
that purpose or irrevocably committed to the satisfaction of Lender by or on
behalf of Borrower for that purpose, shall be at least sufficient in the
reasonable judgment of Lender to pay for the cost of completion of the
Restoration, free and clear of all liens or claims for lien. Any surplus which
may remain out of insurance proceeds held by Lender after payment of such costs
of Restoration shall be paid to Borrower.
7.1.3 Condemnation.
(a) Borrower shall promptly give Lender written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Property (a "Condemnation") and shall deliver to Lender copies of
any and all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation, Borrower, regardless of whether an Award is
available, shall promptly proceed to restore, repair, replace or rebuild the
Property to the extent practicable to be of at least equal value and of
substantially the same character as prior to such Condemnation, all to be
effected in accordance with Legal Requirements.
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(b) Lender is hereby irrevocably appointed as Borrower's attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment in respect of a Condemnation (an "Award") and to make any
compromise or settlement in connection with such Condemnation, subject to the
provisions of this Section. Notwithstanding any Condemnation by any public or
quasi-public authority (including any transfer made in lieu of or in
anticipation of such a Condemnation), Borrower shall continue to pay the Debt at
the time and in the manner provided for in the Note, in this Agreement and the
other Loan Documents and the Debt shall not be reduced unless and until any
Award shall have been actually received and applied by Lender to expenses of
collecting the Award and to discharge of the Debt. Lender shall not be limited
to the interest paid on the Award by the condemning authority but shall be
entitled to receive out of the Award interest at the rate or rates provided in
the Note. Borrower shall cause any Award that is payable to Borrower to be paid
directly to Lender.
(c) In the event of any Condemnation where the Award is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months and prior to the Optional
Prepayment Date to an economic unit not less valuable and not less useful than
the same was prior to the Condemnation, and after such restoration will
adequately secure the Debt, then, if no Default or Event of Default shall have
occurred and be then continuing, the proceeds of the Award (after reimbursement
of any expenses incurred by Lender) shall be applied to reimburse Borrower for
the cost of restoring, repairing, replacing or rebuilding the Property or part
thereof subject to Condemnation (the "Condemnation Restoration") in the manner
set forth below. Borrower hereby covenants and agrees to commence and diligently
to prosecute such Condemnation Restoration; provided that (i) Borrower shall pay
all costs (and if required by Lender, Borrower shall deposit the total thereof
with Lender in advance) of such Condemnation Restoration in excess of the Award
made available pursuant to the terms hereof; (ii) the Condemnation Restoration
shall be done in compliance with all Legal Requirements; and (iii) Lender shall
have received evidence reasonably satisfactory to it that, during the period of
the Condemnation Restoration, the sum of (A) income derived from the Property,
as reasonably determined by Lender, plus (B) proceeds of rent loss insurance or
business interruption insurance, if any, to be paid will equal or exceed the sum
of (I) expenses in connection with the operation of the Property and (II) the
Debt Service under the Loan.
(d) Except as provided above, the Award collected upon any Condemnation
shall, at the option of Lender in its sole discretion, be applied to the payment
of the Debt or applied to reimburse Borrower for the cost of the Condemnation
Restoration in the manner set forth below. Any such application to the Debt
shall be without any prepayment consideration except that if an Event of Default
has occurred and is continuing at the time the Award is received, then Borrower
shall pay to Lender an additional amount equal to the Yield Maintenance Premium,
if any, that would be required under Section 2.3.3 hereof if a Defeasance
Deposit was to be made by Borrower. Any such application to the Debt shall be
applied to those payments of principal and interest last due under the Note but
shall not postpone or reduce any payments otherwise required pursuant to the
Note other than such last due payments. If the Property is sold, through
foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall be
recoverable or shall have been sought, recovered or denied, to receive all or a
portion of said Award sufficient to pay the Debt.
(e) In the event Borrower is entitled to reimbursement out of the Award
received by Lender, such proceeds shall be disbursed from time to time upon
Lender being furnished with (i) evidence satisfactory to it of the estimated
cost of completion of the Condemnation Restoration, (ii) funds or, at Lender's
option, assurances satisfactory to Lender that such funds are available,
sufficient in addition to the proceeds of the Award to complete the Condemnation
Restoration, (iii) such architect's certificates, waivers of lien, contractor's
sworn statements, title insurance endorsements, bonds, plats of survey and such
other evidences of costs, payment and performance as Lender may reasonably
require and approve; and (iv) all plans and specifications for such Condemnation
Restoration, such plans and specifications to be approved by Lender prior to
commencement of work. In addition, no payment made prior to the final completion
of the restoration, repair, replacement and rebuilding shall exceed ninety
percent (90%) of the value of the work performed from time to time; (y) funds
other than proceeds of the Award shall be disbursed prior to disbursement of
such proceeds; and (z) at all times, the undisbursed balance of such proceeds
remaining in the hands of Lender, together with funds deposited for that purpose
or irrevocably committed to the satisfaction of Lender by or on behalf of
Borrower for that purpose, shall be at least sufficient in the reasonable
judgment of Lender to pay for the costs of completion of the Condemnation
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Restoration free and clear of all liens or claims for lien. Any surplus which
may remain out of the Award received by Lender after payment of such costs of
restoration, repair, replacement or rebuilding shall, in the sole and absolute
discretion of Lender, be retained by Lender and applied to payment of the Debt.
Section 7.2 REQUIRED REPAIR; REQUIRED REPAIR FUNDS.
7.2.1 REQUIRED REPAIRS: DEPOSITS. Borrower shall perform the repairs at the
Property set forth on Schedule 3 annexed hereto (the "Required Repairs").
Borrower shall complete each of the Required Repairs on or before the deadline
for same set forth on Schedule 3. On the Closing Date, Borrower shall deposit
with Lender the amount set forth on Schedule 3 hereto to perform the Required
Repairs for the Property. Amounts so deposited with Lender (the "Required Repair
Fund") shall be held by Lender in an account (the "Required Repair Account") in
Lender's name at a financial institution selected by Lender in its sole
discretion and shall be invested in Permitted Investments.
7.2.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due in
respect of the Loan and the performance of all other terms, conditions and
covenants of the Loan Documents and this Agreement on Borrower's part to be paid
and performed, all of Borrower's right, title and interest in and to the
Required Repair Fund and the Required Repair Account. Borrower shall not,
without obtaining the prior written consent of Lender, further pledge, assign or
grant any security interest in the Required Repair Fund or the Required Repair
Account or permit any lien or encumbrance to attach thereto, or any levy to be
made thereon, or any UCC-l Financing Statements, except those naming Lender as
the secured party, to be filed with respect thereto.
7.2.3 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower
all Required Repair Funds in the Required Repair Account upon satisfaction by
Borrower of each of the following conditions: (a) Borrower shall submit a
written request for payment to Lender at least thirty (30) days prior to the
date on which Borrower requests such payment be made (except in the case of an
emergency repair which requires immediate attention, in which event Borrower may
submit such payment request within ten (10) days), (b) on the date such request
is received by Lender and on the date such payment is to be made, no Event of
Default shall exist and remain uncured, (c) Lender shall have received an
Officer's Certificate from Borrower certifying that all Required Repairs at the
Property for which disbursement has been requested have been completed (i) in a
good and workmanlike manner and (ii) in accordance with all applicable Legal
Requirements, such certificate to be accompanied by a copy of each license,
permit or other approval required by any Governmental Authority for the use or
occupancy of the Property, (d) Lender shall have received an Officer's
Certificate from Borrower (i) identifying each Person that supplied materials or
labor in connection with the Required Repairs for which disbursement has been
requested (ii) stating that each such Person has been paid in full or will be
paid in full with the funds disbursed, such certificate to be accompanied by a
copy of appropriate lien waivers or other evidence of payment satisfactory to
Lender, (e) at Lender's option, a title search for the Property indicating that
the Property is free from all liens, claims and other encumbrances not
previously approved by Lender and (f) Lender shall have received such other
evidence as Lender shall reasonably request that the Required Repairs at the
Property have been completed and paid for or will be paid for with the proceeds
of such disbursement. Lender shall be required to make only one disbursement
from the Required Repair Account during a month and such disbursement shall be
made only upon satisfaction of each condition contained in this Section 7.2.3.
Upon completion of all Required Repairs in accordance with the terms hereof,
Lender shall disburse to Borrower any amounts then remaining in the Required
Repair Account.
7.2.4 FAILURE TO PERFORM REQUIRED REPAIRS. It shall be a Default under this
Agreement if (a) Borrower does not complete the Required Repairs at the Property
by the required deadline for each repair as set forth on Schedule 3 or (b)
Borrower does not satisfy each condition contained in Section 7.2.3 hereof. Upon
the occurrence of an Event of Default, Lender, at its option, may withdraw all
Required Repair Funds from the Required Repair Account and Lender may apply such
funds either to completion of the Required Repairs at the Property or toward
payment of the Debt in such order, proportion and priority as Lender may
determine in its sole discretion. Lender's right to withdraw and apply Required
Repair Funds shall be in addition to all other rights and remedies provided to
Lender under this Agreement and the other Loan Documents.
Section 7.3 TAX AND INSURANCE ESCROW FUND.
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7.3.1 TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender (a) on
each Payment Date, (i) one-twelfth (1/12) of the Taxes that Lender reasonably
estimates will be payable during the next ensuing twelve (12) months in order to
accumulate with Lender sufficient funds to pay all such Taxes at least thirty
(30) days prior to their respective due dates and (ii) one-twelfth (1/12) of the
Insurance Premiums that Lender estimates will be payable for the renewal of the
coverage afforded by the Policies upon the expiration thereof in order to
accumulate with Lender sufficient funds to pay all such Insurance Premiums at
least thirty (30) days prior to the expiration of the Policies and (b) on the
Closing Date, an amount which, when combined with the monthly deposits described
in (a) above, shall be sufficient to pay the next installment of Taxes and the
next required payment of Insurance Premiums on the due date therefor (said
amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow
Fund"). The Tax and Insurance Escrow Fund, and the payments of interest or
principal or both, payable pursuant to the Note, shall be added together and
shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the
Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums
required to be made by Borrower pursuant to Section 5.1 hereof and under the
Mortgage, or to reimburse Borrower for such amounts upon presentation of
evidence of payment and an Officer's Certificate in form and substance
satisfactory to Lender; subject, however, to Borrower's right to contest Taxes
in accordance with Section 5.1(b) hereof. In making any payment relating to the
Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement
or estimate procured from the appropriate public office (with respect to Taxes)
or insurer or agent (with respect to Insurance Premiums), without inquiry into
the accuracy of such bill, statement or estimate or into the validity of any
tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the
amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for
Taxes and Insurance Premiums pursuant to Section 5.1 hereof, Lender shall return
any excess to Borrower or credit such excess against future payments to be made
to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal
with the Person shown on the records of Lender to be the owner of the Property.
If at any time Lender determines that the Tax and Insurance Escrow Fund is not
or will not be sufficient to pay the items set forth in (a) and (b) above,
Lender shall notify Borrower of such determination and Borrower shall increase
its monthly payments to Lender by the amount that Lender reasonably estimates is
sufficient to make up the deficiency at least thirty (30) days prior to
delinquency of the Taxes and/or expiration of the Policies, as the case may be.
7.3.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due
under the Loan and the performance of all other terms, conditions and provisions
of the Loan Documents and this Agreement on Borrower's part to be paid and
performed, of all Borrower's right, title and interest in and to the Tax and
Insurance Escrow Fund. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Tax and Insurance Escrow Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
7.3.3 APPLICATION OF TAX AND INSURANCE ESCROW FUND. Upon the occurrence and
during the continuance of an Event of Default, Lender may apply any sums then
present in the Tax and Insurance Escrow Fund to the payment of the following
items in any order in its sole discretion: (a) Taxes and Other Charges; (b)
Insurance Premiums; (c) interest on the unpaid principal balance of the Note;
(d) amortization of the unpaid principal balance of the Note; or (e) all other
sums payable pursuant to this Agreement and the other Loan Documents. The Tax
and Insurance Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Lender. Sums in the Tax and Insurance
Escrow Fund shall be held by Lender in an account in Lender's name at a
financial institution selected by Lender in its sole discretion and shall be
invested in Permitted Investments. Earnings or interest, if any, thereon shall
be retained as part of such funds and applied in accordance with this Section
7.3. Lender shall not be liable for any loss sustained on the investment of any
funds constituting the Tax and Insurance Escrow Fund.
Section 7.4 CAPITAL RESERVE FUND.
7.4.1 CAPITAL RESERVE FUND. Borrower shall pay to Lender on each Payment
Date an amount equal to one-twelfth (1/12th) of the product obtained by
multiplying $0.27 by the aggregate amount of square feet of rentable space in
the Property (said amounts hereinafter called the "Capital Reserve Fund").
Lender will apply the Capital Reserve Fund to payment of Approved Capital
Expenses pursuant to the terms hereof; provided, however, if the Loan shall have
been accelerated or if there is an Event of Default which is continuing, then
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Lender may credit such Capital Reserve Fund against the Debt in such priority
and proportions as Lender in its sole and absolute discretion shall deem proper.
If the amount of the Capital Reserve Fund shall exceed the amounts due for
Approved Capital Expenses pursuant to the terms hereof, Lender shall, in its
discretion, return any excess to Borrower or, if future Capital Reserve Fund
payments are then required, credit such excess against such future payments;
provided, however, if the Loan shall have been accelerated or if there is an
Event of Default which is continuing, then Lender may credit such excess against
the Debt in such priority and proportions as Lender in its sole and absolute
discretion shall deem proper.
7.4.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in all Borrower's right, title
and interest in and to the Capital Reserve Fund, as security for payment of all
sums due under the Loan and the performance of all other terms, conditions and
provisions of the Loan Documents and this Agreement on Borrower's part to be
paid and performed. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Capital Reserve Fund, or permit any lien or encumbrance to attach thereto, or
any levy to be made thereon, or any UCC-1 Financing Statements, except those
naming Lender as the secured party, to be filed with respect thereto. This
Agreement is, among other things, intended by the parties to be a security
agreement for purposes of the Illinois Uniform Commercial Code.
7.4.3 APPLICATION OF CAPITAL RESERVE FUND. Upon the occurrence and during
the continuance of an Event of Default, Lender may apply any sums then present
in the Capital Reserve Fund to the payment of the following items in any order
in its sole discretion: (a) Capital Expenses; (b) interest on the unpaid
principal balance of the Note; (c) amortization of the unpaid principal balance
of the Note; or (d) all other sums payable pursuant to this Agreement and the
other Loan Documents. The Capital Reserve Fund shall not constitute a trust fund
and may be commingled with other monies held by Lender. Sums in the Capital
Reserve Fund shall be held by Lender in an account in Lender's name at a
financial institution selected by Lender in its sole discretion and shall be
invested in Permitted Investments. Earnings or interest, if any, thereon shall
be retained as part of such funds and applied in accordance with this Section
7.4. Lender shall not be liable for any loss sustained on the investment of any
funds constituting the Capital Reserve Fund.
7.4.4 PAYMENT OF CAPITAL EXPENSES. Funds held in the Capital Reserve Fund
may be used for Approved Capital Expenses. From time to time, Borrower may send
a request for disbursement of funds in the Capital Reserve Fund, but not more
than one (1) time per month and, to the extent there are sufficient funds
available in the Capital Reserve Fund, such disbursements shall be made by
Lender so long as (a) no Event of Default shall have occurred and be continuing;
(b) such expenditure is for an Approved Capital Expense; and (c) the request for
disbursement is accompanied by (i) an Officer's Certificate certifying (A) the
amount of funds to be disbursed, (B) that such funds will be used to pay
Approved Capital Expenses and a description thereof, (C) that the same has not
been the subject of a previous disbursement, (D) that all outstanding trade
payables (other than those to be paid from the requested disbursement or those
otherwise permitted to be outstanding under Section 6.1(i) hereof) have been
paid in full and (E) that all previous disbursements have been used to pay the
previously identified Approved Capital Expenses and (ii) reasonably detailed
documentation as to the amount, necessity and purpose therefor.
Section 7.5 ROLLOVER RESERVE FUND.
7.5.1 ROLLOVER RESERVE FUND.
(a) Borrower shall pay to Lender on each Payment Date commencing January 1,
2000, and continuing through December 31, 2000, the sum of $35,817.00 (each such
payment a "Rollover Payment" and such Rollover Payments cumulatively, the
"Rollover Reserve Fund"), to be applied in accordance with the terms of this
Section 7.5; provided, however, that
(i) if the unsecured debt rating of Prime Group Realty Trust,
Inc. is BBB- or better as determined by Standard & Poor's Ratings
Services as of January 1, 2000, then Borrower may, in lieu of making
Rollover Payments, deliver to Lender on or before January 1, 2000 the
Prime Group Guaranty (as defined below);
(ii) Borrower shall not be required to make any Rollover
Payments if, as determined by Lender as of January 1, 2000, the Leases
that expire during a single calendar year at no time represent more
than fifteen percent (15%) of the gross leasable area of the Property;
and
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(iii) Borrower shall not be required to make any Rollover
Payments if Borrower delivers to Lender, on or before January 1, 2000,
an irrevocable letter of credit in the amount of $429,799.00 in a form
and issued by a bank reasonably acceptable to Lender, and Lender shall
have the right to draw upon and apply the proceeds from such letter of
credit at the times and in the manner provided in this Section 7.5 for
application of funds deposited in the Rollover Reserve Fund.
For purposes of this Section 7.5, the "Prime Group Guaranty"
shall mean a guaranty in form and substance reasonably satisfactory to
Lender from Prime Group Realty, L.P., pursuant to which Prime Group
Realty, L.P. unconditionally guarantees the payment of all costs and
expenses, up to a maximum amount of $429,799.00, incurred in connection
with Approved Leasing Expenses. Lender shall have the right to enforce
the Prime Group Guaranty and apply the proceeds from the Prime Group
Guaranty at the times and in the manner provided in this Section 7.5
for application of funds deposited in the Rollover Reserve Fund.
(b) Lender will apply the Rollover Reserve Fund to the payment of Approved
Leasing Expenses pursuant to the terms of this Section 7.5; provided, however,
if there is an Event of Default which is continuing, then Lender may credit such
Rollover Reserve Fund against the Debt in such priority and proportions as
Lender in its sole and absolute discretion shall deem proper. If the amount of
the Rollover Reserve Fund shall exceed the amounts due for Approved Leasing
Expenses pursuant to the terms hereof, Lender shall, in its reasonable
discretion, return any excess to Borrower; provided, however, if there is an
Event of Default which is continuing, then Lender may credit such excess against
the Debt in such priority and proportions as Lender in its sole and absolute
discretion shall deem proper.
7.5.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in, all of Borrower's right,
title and interest in and to the Rollover Reserve Fund, as security for payment
of all sums due under the Loan and the performance of all other terms,
conditions and provisions of the Loan Documents and this Agreement on Borrower's
part to be paid and performed. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in the Rollover Reserve Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto. This Agreement is, among other things, intended by the parties to be a
security agreement for purposes of the Illinois Uniform Commercial Code.
7.5.3 APPLICATION OF ROLLOVER RESERVE FUND. Upon the occurrence and during
the continuance of an Event of Default, Lender may apply any sums then present
in the Rollover Reserve Fund to the payment of the following items in any order
in its sole discretion: (a) Approved Leasing Expenses; (b) interest on the
unpaid principal balance of the Note; (c) amortization of the unpaid principal
balance of the Note; or (d) all other sums payable pursuant to this Agreement
and the other Loan Documents. The Rollover Reserve Fund shall not constitute a
trust fund and may be commingled with other monies held by Lender. Sums in the
Rollover Reserve Fund shall be held by Lender or Servicer in an account in
Lender's or Servicer's name at a financial institution selected by Lender in its
sole discretion and shall be invested in Permitted Investments. Earnings or
interest, if any, thereon shall be retained as part of such funds and applied in
accordance with this Section 7.5. Lender shall not be liable for any loss
sustained on the investment of any funds constituting the Rollover Reserve Fund.
7.5.4 PAYMENT OF APPROVED LEASING EXPENSES. Funds held in the Rollover
Reserve Fund may be used for Approved Leasing Expenses. From time to time,
Borrower may send a request for disbursement of funds in the Rollover Reserve
Fund, but not more than one (1) time per month and, to the extent there are
sufficient funds available in the Rollover Reserve Fund, such disbursements
shall be made by Lender within five (5) Business Days of such request so long as
(a) no Event of Default shall have occurred and be continuing; (b) such
expenditure is for an Approved Leasing Expense; and (c) the request for
disbursement is accompanied by (i) an Officer's Certificate certifying (A) the
amount of funds to be disbursed, (B) that such funds will be used to pay
Approved Leasing Expenses and a description thereof, (C) that all outstanding
trade payables (other than those to be paid from the requested disbursement or
those otherwise permitted to be outstanding under Section 6.1(i) hereof) have
been paid in full, (D) that the same has not been the subject of a previous
disbursement, and (E) that all previous disbursements have been used to pay the
previously identified Approved Leasing Expenses and (ii) if requested by Lender,
reasonably detailed supporting documentation as to the amount, necessity and
purpose therefor. Should Borrower deliver to Lender an irrevocable letter of
credit in accordance with the terms of Section 7.5.1(a)(iii), above, to the
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extent that Borrower is entitled to request funds and receive disbursements from
the Rollover Reserve Fund pursuant to this Section 7.5.4, Lender shall be
entitled to make partial draw requests on said letter of credit for the amounts
so requested by Borrower and shall disburse such amounts in accordance with the
terms of this Section; provided, however, that if partial draw requests are not
permitted under said letter of credit then, upon Borrower's first request for
disbursement of Rollover Reserve Fund sums, Lender shall make a draw request for
the full amount of the letter of credit and shall hold such funds in the
Rollover Reserve Fund and disburse such funds in accordance with this Section
7.5.
Section 7.6 PAYMENT OF APPROVED OPERATING EXPENSES. After a Cash Trap
Event, Funds held in the Cash Collateral Account may be used for Approved
Operating Expenses, provided that such use shall be in Lender's discretion if an
Event of Default has occurred and remains uncured. Provided an Event of Default
has not occurred, Borrower may from time to time send a request for disbursement
of funds in the Cash Collateral Account for payment of Approved Operating
Expenses, but not more than one (1) time per month. To the extent there are
funds available in the Cash Collateral Account in excess of the amounts required
to fund the Tax and Insurance Escrow Fund, the Capital Reserve Fund and to pay
the Monthly Debt Service Payment Amount due in respect of the Loan on the next
Payment Date, such disbursements for Approved Operating Expenses shall be made
by the Lender so long as (a) no Event of Default shall have occurred and be
continuing; (b) such expenditure is for an Approved Operating Expense; and (c)
the request for disbursement is accompanied by (i) an Officer's Certificate
certifying (A) the amount of funds to be disbursed, (B) that such funds will be
used to pay Approved Operating Expenses and a description thereof, (C) that all
outstanding trade payables (other than those to be paid from the requested
disbursement or those otherwise permitted to be outstanding under Section 6.1(i)
hereof) have been paid in full, (D) that the same has not been the subject of a
previous disbursement and (E) that all previous disbursements have been or will
be used to pay the previously identified Approved Operating Expenses, and (ii)
reasonably detailed documentation as to the amount, necessity and purpose
therefor. Subject to satisfaction of the preceding conditions, if the Lender
receives from the Borrower a valid request for a disbursement for payment of
Approved Operating Expenses for the then Current Month at least five (5)
Business Days prior to the Payment Date occurring in such Current Month, then
the disbursement in respect of such Approved Operating Expenses shall be made to
Borrower on such Payment Date. If the Borrower shall fail to validly request a
disbursement for payment of Approved Operating Expenses for the then Current
Month at least five (5) Business Days prior to the Payment Date in such Current
Month, then the Lender shall retain in the Deposit Account an amount equal to
the anticipated Operating Expenses for the then Current Month as set forth in
the approved Operating Budget for such month, and the Lender shall, subject to
satisfaction of the preceding conditions, disburse same to the Borrower five (5)
Business Days after the Lender receives a valid request therefor. Amounts
disbursed to the Borrower under this Section 7.6 shall be used by the Borrower
to pay current Approved Operating Expenses and for no other purpose. The
Borrower shall furnish the Lender with copies of bills, statements, invoices,
receipts or other evidence as the Lender may reasonably request in connection
with a request for disbursement.
VIII. DEFAULTS
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Section 8.1 EVENT OF DEFAULT.
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default"):
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid when the same
are due and payable, subject to Borrower's right to contest Taxes and Other
Charges in accordance with Section 5.1(b) hereof, provided that such event shall
not have been cured within five (5) days;
(iii) if the Policies are not kept in full force and effect, or if the
certificates are not delivered to Lender within five (5) Business Days following
request;
(iv) if, without Lender's prior written consent, (A) Borrower
transfers or encumbers all or any portion of the Property other than as may be
permitted hereunder or (B) any direct or indirect interest in Borrower is
transferred or assigned except as expressly permitted under Section 6.1(j)
hereof;
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(v) if any representation or warranty made by Borrower herein or in
any other Loan Document, or in any report, certificate, financial statement or
other instrument, agreement or document furnished by Borrower in connection with
this Agreement or any other Loan Document, shall be false or misleading in any
material respect as of the date the representation or warranty was made;
(vi) if Borrower shall make an assignment for the benefit of
creditors, or if Borrower shall generally not be paying its debts as they become
due;
(vii) if a receiver, liquidator or trustee shall be appointed for
Borrower or if Borrower shall be adjudicated a bankrupt or insolvent, or if any
petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to, or acquiesced in by, Borrower, or if any proceeding for
the dissolution or liquidation of Borrower shall be instituted; and if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by Borrower, the same is not discharged, stayed or dismissed within
sixty (60) days;
(viii) if Borrower attempts to assign its respective rights under this
Agreement in contravention of the Loan Documents or any of the other Loan
Documents or any interest herein or therein;
(ix) if Borrower defaults in any of its negative covenants contained
in Section 6.1 or any covenant contained in Section 4.1(dd) hereof;
(x) if an Event of Default as defined or described in any of the other
Loan Documents occurs, whether as to Borrower or the Property, or if any other
such event shall occur or condition shall exist, if the effect of such event or
condition is to accelerate the maturity of any portion of the Debt or to permit
Lender to accelerate the maturity of all or any portion of the Debt;
(xi) if Borrower shall be in default of its obligations to make
deposits into the Required Repair Fund or the Tax and Insurance Escrow Fund or
the Capital Reserve Fund, provided that such event shall not have been cured
within five (5) days;
(xii) if Borrower shall be in default under any term, covenant or
provision set forth herein which specifically contains a notice requirement or
grace period after the giving of such notice or the expiration of such grace
period; or
(xiii) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsections (i) to (xii) above, for fifteen (15) days after notice to Borrower
from Lender, in the case of any Default which can be cured by the payment of a
sum of money, or for thirty (30) days after notice from Lender in the case of
any other Default; provided, however, that if such non-monetary Default is
susceptible of cure but cannot reasonably be cured within such 30-day period and
provided further that Borrower shall have commenced to cure such Default within
such 30-day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to cure
such Default, such additional period not to exceed sixty (60) days.
(b) Upon the occurrence of an Event of Default (other than an Event of
Default described in clauses (vi), (vii) or (viii) above) and at any time
thereafter Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to the Property,
including declaring the Debt to be immediately due and payable, and Lender may
enforce or avail itself of any or all rights or remedies provided in the Loan
Documents against Borrower and the Property, including all rights or remedies
available at law or in equity; and upon any Event of Default described in
clauses (vi), (vii) or (viii) above, the Debt and all other obligations of
Borrower hereunder and under the other Loan Documents shall immediately and
automatically become due and payable, without notice or demand, and Borrower
hereby expressly waives any such notice or demand, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
Section 8.2 REMEDIES.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents executed and
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delivered by Borrower or at law or in equity may be exercised by Lender at any
time and from time to time, whether or not all or any of the Debt shall be
declared due and payable, and whether or not Lender shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan Documents with respect to the Property. Any such
actions taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein
or in the other Loan Documents. Without limiting the generality of the
foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender
is not subject to any "one action" or "election of remedies" law or rule and
(ii) all liens and other rights, remedies or privileges provided to Lender shall
remain in full force and effect until Lender has exhausted all of its remedies
against the Property and the Mortgage has been foreclosed, sold and/or otherwise
realized upon in satisfaction of the Debt or the Debt has been paid in full.
(b) Lender shall have the right from time to time to partially foreclose
the Mortgage in any manner and for any amounts secured by the Mortgage then due
and payable as determined by Lender in its sole discretion including, without
limitation, the following circumstances: (i) in the event Borrower defaults in
the payment of one or more scheduled payments of principal and interest, Lender
may foreclose the Mortgage to recover such delinquent payments or (ii) in the
event Lender elects to accelerate less than the entire outstanding principal
balance of the Loan, Lender may foreclose the Mortgage to recover so much of the
principal balance of the Loan as Lender may accelerate. Notwithstanding one or
more partial foreclosures, the Property shall remain subject to the Mortgage to
secure payment of sums secured by the Mortgage and not previously recovered.
(c) Lender shall have the right from time to time to sever the Note and the
other Loan Documents into one or more separate notes, mortgages and other
security documents in such denominations as Lender shall determine in its sole
discretion for purposes of evidencing and enforcing its rights and remedies
provided hereunder. Borrower shall execute and deliver to Lender from time to
time, promptly after the request of Lender, a severance agreement and such other
documents as Lender shall request in order to effect the severance described in
the preceding sentence, all in form and substance reasonably satisfactory to
Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true
and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the aforesaid severance,
Borrower ratifying all that its said attorney shall do by virtue thereof.
Section 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of Lender
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Borrower shall not be construed to be a waiver of any subsequent Default or
Event of Default by Borrower or to impair any remedy, right or power consequent
thereon.
IX. SPECIAL PROVISIONS
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Section 9.1 SALE OF NOTE AND SECONDARY MARKET TRANSACTION.
9.1.1 COOPERATION. At Lender's request (to the extent not already required
to be provided by Borrower under this Agreement), Borrower shall use reasonable
efforts to satisfy the market standards to which Lender customarily adheres or
which may be reasonably required in the marketplace or by the Rating Agencies in
connection with one or more sales or assignments of the Note or participations
therein or securitizations of rated single or multiclass securities (the
"Securities") secured by or evidencing ownership interests in the Note and the
Mortgage (each such sale, assignment, participation and/or securitization, a
"Secondary Market Transaction"). Without limiting the generality of the
foregoing, Borrower shall, at the request of Lender in connection with any
Secondary Market Transaction, and so long as the Loan is still outstanding:
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(a) (i) provide such financial and other information with respect to the
Property, Borrower and its Affiliates, Manager and any tenants of the Property,
(ii) provide business plans and budgets relating to the Property and (iii)
perform or permit or cause to be performed or permitted such site inspection,
appraisals, surveys, market studies, environmental reviews and reports (Phase
I's and, if appropriate, Phase II's), engineering reports and other due
diligence investigations of the Property, as may be reasonably requested from
time to time by Lender or the Rating Agencies or as may be necessary or
appropriate in connection with a Secondary Market Transaction or Exchange Act
requirements (the items provided to Lender pursuant to this paragraph (a) being
called the "Provided Information"), together, if customary, with appropriate
verification of and/or consents to the Provided Information through letters of
auditors or opinions of counsel of independent attorneys acceptable to Lender
and the Rating Agencies;
(b) at Borrower's expense, cause counsel to render opinions as to
non-consolidation, fraudulent conveyance, true sale and true contribution and
any other opinion customary in securitization transactions with respect to the
Property, Borrower and its Affiliates, which counsel and opinions shall be
reasonably satisfactory to Lender and the Rating Agencies;
(c) make such representations and warranties as of the closing date of any
Secondary Market Transaction with respect to the Property, Borrower and the Loan
Documents as are customarily provided in such transactions and as may be
reasonably requested by Lender or the Rating Agencies and consistent with the
facts covered by such representations and warranties as they exist on the date
thereof, including the representations and warranties made in the Loan
Documents;
(d) provide current certificates of good standing and qualification with
respect to Borrower from appropriate Governmental Authorities; and
(e) execute such amendments to the Loan Documents and Borrower's
organizational documents, enter into a lock-box or similar arrangement with
respect to the Rents and establish and fund such reserve funds (including
reserve funds for deferred maintenance and capital improvements) as may be
requested by Lender or the Rating Agencies or otherwise to effect a Secondary
Market Transaction, provided that nothing contained in this subsection (e) shall
result in a material economic change in the transaction.
Borrower shall pay all reasonable third party costs and expenses incurred by
Lender in connection with a Secondary Market Transaction
9.1.2 USE OF INFORMATION. Borrower understands that all or any portion of
the Provided Information and the Required Records may be included in disclosure
documents in connection with a Secondary Market Transaction, including a
prospectus or private placement memorandum (each, a "Disclosure Document") and
may also be included in filings with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
provided or made available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers or other parties relating
to the Secondary Market Transaction. In the event that the Disclosure Document
is required to be revised, Borrower shall cooperate with Lender in updating the
Provided Information or Required Records for inclusion or summary in the
Disclosure Document or for other use reasonably required in connection with a
Secondary Market Transaction by providing all current information pertaining to
Borrower, Manager and the Property necessary to keep the Disclosure Document
accurate and complete in all material respects with respect to such matters.
Such disclosure may include the opinion or judgment of Lender or Servicer
concerning the Provided Information or other matters disclosed, and despite
reasonable good faith efforts by Lender and/or Servicer, the disclosure may be
erroneous or incomplete. Borrower hereby consents to any and all such
disclosures of such information.
9.1.3 BORROWER OBLIGATIONS REGARDING DISCLOSURE DOCUMENTS. In connection
with a Disclosure Document, Borrower shall:
(a) if requested by Lender, certify in writing that Borrower has carefully
examined those portions of such Disclosure Document, pertaining to Borrower, the
Property, the Manager and the Loan, including applicable portions of the
sections entitled "Special Considerations", "Description of the Mortgages",
"Description of the Mortgage Loans and Mortgaged Property", "The Manager", "The
Borrower" and "Certain Legal Aspects of the Mortgage Loan", and such portions
(and portions of any other sections reasonably requested and pertaining to
Borrower, the Property, the Manager or the Loan) do not contain any untrue
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statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
were made, not misleading;
(b) indemnify (i) any underwriter, syndicate member or placement agent
(collectively, the "Underwriters") retained by Lender or its issuing company
affiliate (the "Issuer") in connection with a Secondary Market Transaction, (ii)
Lender and (iii) the Issuer that is named in the Disclosure Document or
registration statement relating to a Secondary Market Transaction (the
"Registration Statement"), and each of the Issuer's directors, each of its
officers who have signed the Registration Statement and each person or entity
who controls the Issuer or the Lender within the meaning of Section 15 of the
Securities Act or Section 30 of the Exchange Act (collectively within (iii), the
"CCA Group"), and each of its directors and each person who controls each of the
Underwriters, within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act (collectively, the "Underwriter Group") for any losses,
claims, damages or liabilities (the "Liabilities") to which Lender, the CCA
Group or the Underwriter Group may become subject (including reimbursing all of
them for any legal or other expenses actually incurred in connection with
investigating or defending the Liabilities) insofar as the Liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any of the Required Records or in any of the
applicable portions of such sections of the Disclosure Document applicable to
Borrower, Manager, the Property or the Loan, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated in the applicable portions of such sections or necessary in order to make
the statements in the applicable portions of such sections in light of the
circumstances under which they were made, not misleading, provided, however,
that Borrower shall not be required to indemnify Lender for any Liabilities
relating to untrue statements or omissions which Borrower identified to Lender
in writing at the time of Borrower's examination of such Disclosure Document;
and
(c) reimburse any member of the CCA Group for any legal or other expenses
reasonably incurred by such member in connection with investigating or defending
the Liabilities. Borrower's Liability under clause (a) or (b) above shall be
limited to Liabilities arising out of or based upon any such untrue statement or
omission made therein in reliance upon and in conformity with information
furnished to Lender by or on behalf of Borrower in connection with the
preparation of those portions of the Disclosure Document pertaining to Borrower,
Manager, the Property or the Loan or in connection with the underwriting of the
debt, including financial statements of Borrower, operating statements, rent
rolls and other Required Records, environmental site assessment reports and
property condition reports with respect to the Property. The foregoing indemnity
will be in addition to any liability which Borrower may otherwise have.
9.1.4 BORROWER INDEMNITY REGARDING FILINGS. In connection with filings
under the Exchange Act, Borrower shall (i) indemnify Lender, the CCA Group and
the Underwriter Group for any Liabilities to which Lender, the CCA Group or the
Underwriter Group may become subject insofar as the Liabilities arise out of or
are based upon the omission or alleged omission to state in the Provided
Information or Required Records a material fact required to be stated in the
Provided Information or Required Records in order to make the statements in the
Provided Information or Required Records, in light of the circumstances under
which they were made not misleading and (ii) reimburse Lender, the CCA Group or
the Underwriter Group for any legal or other expenses actually incurred by
Lender, CCA Group or the Underwriter Group in connection with defending or
investigating the Liabilities.
9.1.5 INDEMNIFICATION PROCEDURE. Promptly after receipt by an indemnified
party under Section 9.1.3 or 9.1.4 of notice of the commencement of any action
for which a claim for indemnification is to be made against Borrower, such
indemnified party shall notify Borrower in writing of such commencement, but the
omission to so notify the Borrower will not relieve Borrower from any liability
that it may have to any indemnified party hereunder except to the extent that
failure to notify causes prejudice to Borrower. In the event that any action is
brought against any indemnified party, and it notifies Borrower of the
commencement thereof, Borrower will be entitled, jointly with any other
indemnifying party, to participate therein and, to the extent that it (or they)
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice of commencement, to assume the defense thereof
with counsel satisfactory to such indemnified party in its discretion. After
notice from Borrower to such indemnified party under this Section 9.1.5,
Borrower shall not be responsible for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, if the defendants in
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any such action include both Borrower and an indemnified party, and any
indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to Borrower, then the indemnified party or
parties shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Borrower shall not be liable for the expenses
of more than one separate counsel unless there are legal defenses available to
it that are different from or additional to those available to another
indemnified party.
9.1.6 CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 9.1.3
or 9.1.4 is for any reason held to be unenforceable by an indemnified party in
respect of any Liabilities (or action in respect thereof) referred to therein
which would otherwise be indemnifiable under Section 9.1.3 or 9.1.4, Borrower
shall contribute to the amount paid or payable by the indemnified party as a
result of such Liabilities (or action in respect thereof); provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person not guilty of such fraudulent misrepresentation. In determining the
amount of contribution to which the respective parties are entitled, the
following factors shall be considered: (i) the CCA Group's and Borrower's
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted; (ii) the opportunity to correct and prevent any
statement or omission; and (iii) any other equitable considerations appropriate
in the circumstances. Lender and Borrower hereby agree that it may not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation.
9.1.7 RATING SURVEILLANCE. Lender will retain the Rating Agencies to
provide rating surveillance services on Securities. The pro rata expenses of
such surveillance will be paid for by Borrower based on the applicable
percentage of such expenses determined by dividing the then outstanding
Principal by the then aggregate outstanding amount of the pool created in the
Secondary Market Transaction which includes the Loan.
Section 9.2 RESERVED
Section 9.3 RESERVED.
Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall
not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in the Note, this Agreement, the Mortgage or the other
Loan Documents by any action or proceeding wherein a money judgment shall be
sought against Borrower, except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Property, the
Rents, or any other collateral given to Lender pursuant to the Loan Documents;
provided, however, that, except as specifically provided herein, any judgment in
any such action or proceeding shall be enforceable against Borrower only to the
extent of Borrower's interest in the Property, in the Rents and in any other
collateral given to Lender, and Lender, by accepting the Note, this Agreement,
the Mortgage and the other Loan Documents, agrees that it shall not sue for,
seek or demand any deficiency judgment against Borrower in any such action or
proceeding under or by reason of or under or in connection with the Note, this
Agreement, the Mortgage or the other Loan Documents. The provisions of this
section shall not, however, (a) constitute a waiver, release or impairment of
any obligation evidenced or secured by any of the Loan Documents; (b) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under the Mortgage; (c) affect the validity or
enforceability of or any guaranty made in connection with the Loan or any of the
rights and remedies of Lender thereunder; (d) impair the right of Lender to
obtain the appointment of a receiver; (e) impair the enforcement of any of the
Assignments of Leases; (f) constitute a prohibition against Lender commencing
any other appropriate action or proceeding in order for Lender to fully realize
the security granted by the Mortgage or to exercise its remedies against the
Property; or (g) constitute a waiver of the right of Lender to enforce the
liability and obligation of Borrower, by money judgment or otherwise, to the
extent of any loss, damage, cost, expense, liability, claim or other obligation
incurred by Lender (including attorneys' fees and costs reasonably incurred)
arising out of or in connection with the following:
(i) fraud or intentional misrepresentation by Borrower or any guarantor in
connection with the Loan;
(ii) the gross negligence or willful misconduct of Borrower;
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(iii) the breach of any provision in that certain Environmental and
Hazardous Substance Indemnification Agreement of even date herewith given by
Borrower to Lender or in the Mortgage concerning environmental laws, hazardous
substances and asbestos and any indemnification of Lender with respect thereto
in either document;
(iv) physical waste of the Property, or the removal or disposal of any
portion of the Property;
(v) the misapplication or conversion by Borrower of (A) any insurance
proceeds paid by reason of any loss, damage or destruction to the Property, (B)
any awards or other amounts received in connection with the condemnation of all
or a portion of the Property, or (C) any Rents following an Event of Default;
(vi) failure to pay charges for labor or materials or other charges that
can create liens on any portion of the Property unless such charges are the
subject of a bona fide dispute in which Borrower is contesting the amount or
validity thereof;
(vii) any security deposits collected with respect to the Property which
are not delivered to Lender upon a foreclosure of the Property or action in lieu
thereof, except to the extent any such security deposits were applied in
accordance with the terms and conditions of any of the Leases prior to the
occurrence of the Event of Default that gave rise to such foreclosure or action
in lieu thereof; and
(viii) Borrower's indemnification of Lender set forth in Section 9.2.
Notwithstanding anything to the contrary in this Agreement or any of the Loan
Documents, (x) Lender shall not be deemed to have waived any right which Lender
may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the
U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by
the Mortgage or to require that all collateral shall continue to secure all of
the Debt owing to Lender in accordance with the Loan Documents, and (y) the Debt
shall be fully recourse to Borrower in the event that: (aa) the first full
monthly payment of principal and interest under the Note is not paid when due;
(bb) Borrower fails to permit on-site inspections of the Property, fails to
provide financial information, fails to maintain its status as a single purpose
entity or fails to appoint a new property manager upon the request of Lender
after an Event of Default, each as required by, and in accordance with the terms
and provisions of, this Loan Agreement and the Mortgage (cc) Borrower fails to
obtain Lender's prior written consent to any subordinate financing or other
voluntary lien encumbering the Property other than a Permitted Encumbrance; or
(dd) Borrower fails to obtain Lender's prior written consent to any assignment,
transfer, or conveyance of the Property or any interest therein as required by
the Mortgage.
Section 9.5 TERMINATION OF MANAGER. If an Event of Default is continuing,
Borrower shall, at the request of Lender, terminate the Management Agreement and
replace the Manager with a manager approved by Lender on terms and conditions
satisfactory to Lender. In the event that Borrower does not propose a
replacement manager to Lender for its approval within fifteen (15) business days
after the Lender's request that Borrower do so, Lender may propose two or more
such property managers for Borrower's consideration. If Borrower then fails to
select and retain one of such property managers within fifteen (15) business
days thereafter, Lender shall have the right to select a property manager for
the Property, and to enter into a management agreement with such manager in the
name of Borrower. Borrower hereby appoints Lender its attorney-in-fact, which
appointment is coupled with an interest, for the purpose of entering into such
management agreement. The management agreement entered into between Borrower and
any Manager shall be in form and substance reasonably acceptable to Lender.
Section 9.6 RETENTION OF SERVICER. Lender reserves the right to retain the
Servicer to act as its agent hereunder with such powers as are specifically
delegated to the Servicer by Lender, whether pursuant to the terms of this
Agreement, the Pooling and Servicing Agreement or the Cash Collateral Account
Agreement or otherwise, together with such other powers as are reasonably
incidental thereto. Borrower shall pay any reasonable fees and expenses of the
Servicer in connection with a Defeasance of the Note, release of Property,
assumption or modification of the Loan or enforcement of the Loan Documents.
X. MISCELLANEOUS
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Section 10.1 SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
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and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Debt is outstanding and unpaid (but the accuracy
thereof shall be determined as of the Closing Date). Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the legal representatives, successors and assigns of such party. All
covenants, promises and agreements in this Agreement made by Borrower, shall
inure to the benefit of the respective legal representatives, successors and
assigns of Lender.
Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement,
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.
Section 10.3 GOVERNING LAW.
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF ILLINOIS, AND MADE BY
LENDER AND ACCEPTED BY BORROWER IN THE STATE OF ILLINOIS, AND THE PROCEEDS OF
THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF ILLINOIS,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF
ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER
OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN CHICAGO, ILLINOIS, AND BORROWER AND LENDER WAIVE ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING, AND BORROWER AND LENDER HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CT CORPORATION, AS ITS AUTHORIZED AGENT TO ACCEPT
AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN CHICAGO,
ILLINOIS, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
ILLINOIS. BORROWER (i) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS
OF ITS AUTHORIZED AGENT HEREUNDER, (ii) MAY AT ANY TIME AND FROM TIME TO TIME
DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN CHICAGO, ILLINOIS
(WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS) AND
(iii) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN OFFICE IN CHICAGO, ILLINOIS OR IS DISSOLVED WITHOUT LEAVING A
SUCCESSOR.
Section 10.4 MODIFICATION, WAIVER IN WRITING. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
or of the Note, or of any other Loan Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.
Section 10.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the
part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under the Note or under any other Loan Document, or any other
instrument given as security therefor, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
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future exercise, or the exercise of any other right, power, remedy or privilege.
In particular, and not by way of limitation, by accepting payment after the due
date of any amount payable under this Agreement, the Note or any other Loan
Document, Lender shall not be deemed to have waived any right either to require
prompt payment when due of all other amounts due under this Agreement, the Note
or the other Loan Documents, or to declare a default for failure to effect
prompt payment of any such other amount.
Section 10.6 NOTICES. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid or (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, and by telecopier (with answer back
acknowledged), addressed as follows (or at such other address and person as
shall be designated from time to time by any party hereto, as the case may be,
in a written notice to the other parties hereto in the manner provided for in
this Section):
If to Lender:
The Capital Company of America
c/o The Capital Company of America
Client Services, LLC
600 East Colinas Blvd., Suite 1300
Irving, Texas 75639
Attention: Legal Department
Telecopier: 972-401-8554
with copies to:
The Capital Company of America
311 S. Wacker Drive, Suite 5400
Chicago, Illinois 60606
Attention: David Murdoch, Jr.
Telecopier: 312-692-2400
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Steven R. Davidson
Telecopier: 312-876-7934
If to Borrower:
c/o Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Louis Conforti
Telecopier: 312-917-0460
with copies to:
Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: James F. Hoffman, Esq.
Telecopier: 312-917-0460
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg
Telecopier: 312-558-5700
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day.
Section 10.7 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR
OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY
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JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND BORROWER ARE EACH HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER.
Section 10.8 HEADINGS. The Article and/or Section headings and the Table of
Contents in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.
Section 10.9 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable 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 Agreement.
Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments by Borrower to any
portion of the obligations of Borrower hereunder. To the extent Borrower makes a
payment or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice. To the extent permitted by law,
Borrower hereby expressly waives the right to receive any notice from Lender
with respect to any matter for which this Agreement or the other Loan Documents
do not specifically and expressly provide for the giving of notice by Lender to
Borrower.
Section 10.12 REMEDIES OF BORROWER. In the event that a claim or
adjudication is made that Lender or its agents, including Servicer, have acted
unreasonably or unreasonably delayed acting in any case where by law or under
this Agreement or the other Loan Documents, Lender or such agent, as the case
may be, has an obligation to act reasonably or promptly, Borrower agrees that
neither Lender nor its agents, including Servicer, shall be liable for any
monetary damages, and Borrower's sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
Section 10.13 EXPENSES; INDEMNITY.
(a) Borrower covenants and agrees to reimburse Lender (or the holder of the
Loan, as applicable) upon receipt of written notice from such holder for all
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by Lender in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby and
thereby and all the costs of furnishing all opinions by counsel for Borrower
(including any opinions requested by Lender as to any legal matters arising
under this Agreement or the other Loan Documents with respect to the Property);
(ii) Borrower's ongoing performance of and compliance with Borrower's respective
agreements and covenants contained in this Agreement and the other Loan
Documents on its part to be performed or complied with after the Closing Date,
including confirming compliance with environmental and insurance requirements;
(iii) Lender's ongoing performance and compliance with all agreements and
conditions contained in this Agreement and the other Loan Documents on its part
to be performed or complied with after the Closing Date; (iv) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers or other modifications to this Agreement and the other Loan Documents
and any other documents or matters requested by Lender; (v) Borrower complying
with any requests made pursuant to Section 9.1 hereof (subject to the
limitations contained in such section); (vi) the filing and recording fees and
expenses, title insurance and reasonable fees and expenses of counsel for
providing to Lender all required legal opinions, and other similar expenses
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incurred in creating and perfecting the Liens in favor of Lender pursuant to
this Agreement and the other Loan Documents; (vii) enforcing or preserving any
rights, in response to third party claims or the prosecuting or defending of any
action or proceeding or other litigation, in each case against, under or
affecting Borrower, this Agreement, the other Loan Documents, the Property, or
any other security given for the Loan; and (viii) enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other
Loan Documents or with respect to the Property or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any
costs and expenses due and payable to Lender hereunder which are not paid by
Borrower within ten (10) days after demand may be paid from any amounts in the
Cash Collateral Account, with notice thereof to Borrower.
(b) Borrower shall indemnify and hold harmless Lender from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel
for Lender in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not Lender shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against Lender
in any manner relating to or arising out of (i) any breach by Borrower of its
obligations under, or any material misrepresentation by Borrower contained in
this Agreement or the other Loan Documents, (ii) the use or intended use of the
proceeds of the Loan or (iii) any information provided by Borrower, or contained
in any documentation approved by Borrower and in any way relating to the
issuance, offering and sale of the Securities (collectively, the "Indemnified
Liabilities"); provided, however, that Borrower shall not have any obligation to
Lender hereunder to the extent that such Indemnified Liabilities arise from the
gross negligence, illegal acts, fraud or willful misconduct of Lender. To the
extent that the undertaking to indemnify and hold harmless set forth in the
preceding sentence may be unenforceable because it violates any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by Lender.
Section 10.14 EXHIBITS INCORPORATED. The Exhibits annexed hereto are hereby
incorporated herein as a part of this Agreement with the same effect as if set
forth in the body hereof.
Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's
interest in and to this Agreement, the Note and the other Loan Documents shall
take the same free and clear of all offsets, counterclaims or defenses which are
unrelated to such documents which Borrower may otherwise have against any
assignor of such documents, and no such unrelated counterclaim or defense shall
be interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon such documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.
Section 10.16 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lender intend
that the relationships created hereunder and under the other Loan Documents be
solely that of borrower and lender. Nothing herein or therein is intended to
create a joint venture, partnership, tenancy-in-common, or joint tenancy
relationship between Borrower and Lender nor to grant Lender any interest in the
Property other than that of mortgagee or lender.
Section 10.17 PUBLICITY. All news releases, publicity or advertising by
Borrower or their Affiliates through any media intended to reach the general
public which refers to the Loan Documents or the financing evidenced by the Loan
Documents, to Lender, CCA Group, the Loan purchaser, the Servicer or the trustee
in a Securitization shall be subject to the prior written approval of Lender.
Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest
extent Borrower may legally do so, Borrower waives all rights to a marshalling
of the assets of Borrower, Borrower's partners, if any, and others with
interests in Borrower, and of Borrower's properties, or to a sale in inverse
order of alienation in the event of foreclosure of the interests hereby created,
and agrees not to assert any right under any laws pertaining to the marshalling
of assets, the sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever to
defeat, reduce or affect the right of Lender under the Loan Documents to a sale
of the Property for the collection of the related indebtedness without any prior
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or different resort for collection, of the right of Lender or any deed of trust
trustee to the payment of the related indebtedness out of the net proceeds of
the Property in preference to every other claimant whatsoever.
Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to
assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents, including Servicer.
Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of any
conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents
that it has dealt with no financial advisors, brokers, underwriters, placement
agents, agents or finders in connection with the transactions contemplated by
this Agreement. Borrower and Lender hereby agree to indemnify and hold the other
harmless from and against any and all claims, liabilities, costs and expenses of
any kind in any way relating to or arising from a claim by any Person that such
Person acted on behalf of the indemnifying party in connection with the
transactions contemplated herein. The provisions of this Section 10.21 shall
survive the expiration and termination of this Agreement and the repayment of
the Debt.
Section 10.22 NO THIRD PARTY BENEFICIARIES. This Agreement and the other
Loan Documents are solely for the benefit of Lender and Borrower and nothing
contained in this Agreement or the other Loan Documents shall be deemed to
confer upon anyone other than Lender and Borrower any right to insist upon or to
enforce the performance or observance of any of the obligations contained herein
or therein. All conditions to the obligations of Lender to make the Loan
hereunder are imposed solely and exclusively for the benefit of Lender and no
other Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that Lender will refuse to
make the Loan in the absence of strict compliance with any or all thereof and no
other Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lender if, in Lender's sole discretion, Lender deems it advisable or desirable
to do so.
Section 10.23 PRIOR AGREEMENTS. This Agreement and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between such parties, whether oral or written, are superseded by the terms of
this Agreement and the other Loan Documents.
Section 10.24 INTERPRETATION. Notwithstanding anything to the contrary in
this Agreement or the other Loan Documents, all references in this Loan
Agreement and the other Loan Documents to "the continuance of an Event of
Default until cured" or analogous language shall specifically require the
acceptance by Lender, in its sole discretion, of such cure for such Event of
Default to be deemed cured.
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IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
BORROWER: TWO CENTURY CENTRE, L.L.C.
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By: Prime Group Realty, L.P., a Delaware limited
partnership, as Administrative Member
By: Prime Group Realty Trust, a Maryland
real estate investment trust, as
managing general partner
By: /s/ Louis Conforti
-------------------
Name: Louis Conforti
Title: Senior Vice President
LENDER: THE CAPITAL COMPANY OF AMERICA LLC,
------ a Delaware limited liability company
By: /s/ John Burke
--------------------------------
Name: John Burke
Title: Director
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SCHEDULE 1
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Matters Regarding Representations
---------------------------------
1. Burlington Northern Santa Fe owes approximately $37,650 in 1997 CAM
adjustments.
2. Contracts not cancelable on 30 days notice:
(a) Copier Lease with Modern Business Systems for $135 per month rent
expires August 24, 1999.
(b) Video Equipment Lease with N.T.C. Electronics for $225 per quarter rent
expires December 31, 1999.
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SCHEDULE 2
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Rent Roll
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[Exhibit Omitted]
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SCHEDULE 3
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Required Repairs
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Borrower shall complete the repairs described on the pages attached to this
Schedule 3 within one (1) year after the date of execution of this Agreement.
Borrower shall deposit or cause to be deposited with Lender on or prior to the
Closing Date $62,375.00, which sum represents one hundred twenty-five percent
(125%) of the cost of completing said repairs.
EXHIBIT A
---------
Form of Note
------------
[Exhibit Omitted]
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EXHIBIT B
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Form of Management Agreement
----------------------------
[Exhibit Omitted]
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EXHIBIT 10.15
================================================================================
LOAN AGREEMENT
Dated as of October 21, 1998
Between
180 N. LASALLE, L.L.C.
as Borrower
AND
THE CAPITAL COMPANY OF AMERICA LLC
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
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Page
----
SCHEDULES
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Schedule 1 - Matters Regarding Representations
Schedule 2 - Rent Roll
Schedule 3 - Required Repairs
EXHIBITS
--------
Exhibit A - Form of Guaranty
Exhibit B - Form of Note
Exhibit C - List of Property Loan Documents
Exhibit D - Form of Rate Lock Agreement
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LOAN AGREEMENT
--------------
LOAN AGREEMENT dated as of October 21, 1998 (the "Agreement") between 180
N. LASALLE, L.L.C., a limited liability company duly organized and validly
existing under the laws of the State of Delaware ("Borrower") and THE CAPITAL
COMPANY OF AMERICA LLC, a limited liability company organized under the laws of
the State of Delaware (together with its permitted successors and assigns,
"Lender").
All capitalized terms used herein shall have the respective meanings set
forth in Section 1 hereof.
W I T N E S S E T H :
---------------------
WHEREAS, Borrower desires to obtain the Loan from Lender;
WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by
Lender and the covenants, agreements, representations and warranties set forth
in this Agreement, the parties hereto hereby covenant, agree, represent and
warrant as follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly required or unless the context clearly indicates a contrary
intent:
"AFFILIATE" shall mean, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such Person or of an Affiliate
of such Person.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"APPROVED CAPITAL EXPENSES" shall mean Capital Expenses incurred by Owner
with respect to the Property which (i) are included in the Operating Budget for
the Current Month for the Property which has been approved by Lender, (ii) are
not included in the Operating Budget for the Current Month, but are entitled to
be incurred by Owner under the Cash Collateral Account Agreement without
Borrower's approval, or (iii) are approved by Lender.
"APPROVED OPERATING EXPENSES" shall mean Operating Expenses incurred by
Owner with respect to the Property which (i) are included in the Operating
Budget for the Property for the Current Month which has been approved by Lender,
(ii) are not included in the approved Operating Budget for the Property for the
Current Month, but are entitled to be incurred by Owner under the Cash
Collateral Account Agreement without Borrower's approval, or (iii) are approved
by Lender.
"ASSIGNMENT OF MANAGEMENT FEES" shall mean, with respect to the Property,
that certain first priority Collateral Assignment of Rights To Management Fees
and Security Agreement, dated as of the date hereof, from Manager, as assignor,
to Lender, as assignee, assigning to Lender as security for the Loan, all of
Manager's rights pursuant to receiving payments of any kind or nature pursuant
to the Management Agreement (including fees received pursuant thereto), as the
same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.
"ASSIGNMENT OF LOAN DOCUMENTS" shall mean, with respect to the Property,
that certain first priority Collateral Assignment of Loan Documents and Pledge
Agreement dated as of the date hereof, from Borrower, as assignor, to Lender, as
assignee, assigning to Lender as security for the Loan, all of Borrower's
interest in and to the Property Loan Documents, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"AWARD" shall have the meaning set forth in Section 7.1.3.
"BORROWER" shall mean 180 N. LaSalle, L.L.C., together with its permitted
successors and assigns.
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"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in New York or Illinois are not open for
business.
"CAPITAL AMERICA" shall mean The Capital Company of America LLC.
"CAPITAL EXPENSES" shall mean capital expenditures as determined in
accordance with GAAP.
"CASH COLLATERAL ACCOUNT" shall mean that account established and
maintained pursuant to the Cash Collateral Account Agreement.
"CASH COLLATERAL ACCOUNT AGREEMENT" shall mean that certain Account
Assignment, Security and Cash Collateral Agreement dated as of January 30, 1995,
as amended among Borrower (as assignee of Allstate Life Insurance Company), and
LaSalle Lake Investors, one of the entities comprising Owner, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"CASH COLLATERAL ACCOUNT BANK" shall mean LaSalle National Bank, or any
successor approved by Lender.
"CASUALTY/CONDEMNATION PREPAYMENTS" shall have the meaning set forth in
Section 2.3.2.
"CLOSING DATE" shall mean the date of the funding of the Loan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"CONDEMNATION" shall have the meaning set forth in Section 7.1.3.
"CONDEMNATION RESTORATION" shall have the meaning set forth in Section
7.1.3.
"CONTROL" shall mean with respect to any Person either (i) ownership
directly or through other entities, of more than 50% of all beneficial equity
interest in such Person or (ii) the power to direct the management, operation
and business of such Person.
"CUSTODY AGREEMENT" shall mean that certain Custody Agreement dated as of
January 30, 1995, among Borrower (as assignee of Allstate Insurance Company),
LaSalle National Bank, and LaSalle Investors as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"CURRENT MONTH" shall mean, as of the date of determination, the then
current calendar month.
"DEBT" shall mean the outstanding principal amount set forth in, and
evidenced by, the Note, together with all interest accrued and unpaid thereon
and all other sums due to Lender in respect of the Loan, including any sums due
under the Note, this Agreement, the Mortgage or in any other Loan Document.
"DEBT CONSTANT" shall mean at any time the greater of (a) 9.23% and (b) the
Hypothetical Loan Constant.
"DEBT SERVICE" shall mean, with respect to any particular period of time,
scheduled principal and interest payments under the Note.
"DEBT SERVICE COVERAGE RATIO" shall mean, as of any date, a ratio in which
(a) the numerator is the Net Operating Income for the 12-month period
immediately preceding such date and (b) the denominator is the Debt constant
multiplied by the outstanding principal balance of the loan as of the date of
determination.
"DEFAULT" shall mean the occurrence of any event hereunder or under any
other Loan Document which, but for the giving of notice or passage of time, or
both, would be an Event of Default.
"DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal
to the lesser of (a) the maximum rate permitted by applicable law or (b) five
percent (5%) above the Interest Rate.
"DEVELOPMENT BUDGET" shall mean the Construction/Development Budget
delivered to and approved by Lender, as amended from time to time.
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"EXCHANGE ACT" shall have the meaning set forth in Section 9.2(a).
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1.
"FISCAL YEAR" shall mean each twelve month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence having jurisdiction over Borrower or the Property.
"GUARANTOR" shall mean Prime Group Realty, L.P.
"GUARANTY" shall mean the Guaranty from Guarantor in the form of Exhibit A.
"HYPOTHETICAL LOAN CONSTANT" shall mean the mortgage loan constant
calculated using a 360-month amortization schedule and an interest rate equal to
the sum of the Treasury Rate plus 2.00%.
"IMPROVEMENTS" shall mean the improvements located on the Property.
"including" shall mean "including, without limitation".
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section
10.13(b).
"INDEPENDENT DIRECTOR" shall have the meaning set forth in Section 4.1(dd).
"INSURANCE PREMIUMS" shall have the meaning set forth in Section 7.1.1.
"INSURANCE PROCEEDS" means the proceeds of any insurance policies carried
pursuant to the Loan Documents or otherwise with respect to the Property.
"INSURED CASUALTY" shall have the meaning specified in Section 7.1.1(d).
"INTEREST RATE" shall mean the rate of interest determined in accordance
with terms of the Note.
"LEASE" shall mean any lease, sublease or sub-sublease, letting, license,
concession or other agreement (whether written or oral and whether now or
hereafter in effect) pursuant to which any Person is granted a possessory
interest in, or right to use or occupy all or any portion of any space in the
Property, and every modification, amendment or other agreement relating to such
lease, sublease, sub-sublease, or other agreement entered into in connection
with such lease, sublease, sub-sublease, or other agreement and every guarantee
of the performance and observance of the covenants, conditions and agreements to
be performed and observed by the other party thereto.
"LEGAL REQUIREMENTS" shall mean, with respect to the Property, all federal,
state, county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting the Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, whether now or hereafter
enacted and in force, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Borrower, at any time in force affecting the Property or any part thereof,
including any which may (i) require repairs, modifications or alterations in or
to the Property or any part thereof or (ii) in any way limit the use and
enjoyment thereof.
"LENDER" shall mean The Capital Company of America LLC, together with its
successors and assigns.
"LIABILITIES" shall have the meaning set forth in Section 9.2(b).
"LICENSES" shall have the meaning set forth in Section 4.1(w).
"LIEN" shall mean, with respect to the Property, any mortgage, deed of
trust, lien, pledge, hypothecation, assignment, security interest, or any other
encumbrance, charge or transfer of, on or affecting the Property or Property
Loan or any portion thereof or Borrower, including any conditional sale or other
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title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, the filing of any financing statement,
and mechanic's, materialmen's and other similar liens and encumbrances.
"LOAN" shall mean the loan made to Borrower by Lender pursuant hereto in
the original principal amount of $20,000,000.00 subject to possible increase as
provided in Section 2.7 to an amount no greater than $45,000,000 and evidenced
by the Note and secured by the other Loan Documents.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the
Assignment of Loan Documents, the Assignment of Management Fees, the Guaranty
and all other documents, agreements and instruments evidencing, securing or
delivered to Lender in connection with the Loan.
"MANAGEMENT AGREEMENT" shall mean, with respect to the Property, a
management agreement entered into by and between Owner and the Manager, pursuant
to which the Manager is to provide management and other services with respect to
the Property, as the same may be amended, restated, replaced, supplemented, or
otherwise modified from time to time.
"MANAGEMENT FEE" shall mean the fee payable to Manager pursuant to the
Management Agreement.
"MANAGER" shall mean Prime Group Realty Services, Inc., a Maryland
corporation, or Prime Group Realty, L.P.
"MATURITY DATE" shall mean the date on which the final payment of principal
of the Note becomes due and payable as therein provided, whether at the Stated
Maturity Date by declaration of acceleration, or otherwise.
"MORTGAGE" shall mean that certain first priority Mortgage, Assignment of
Leases and Rents, Security Agreement and Financing Statement executed and
delivered by Owner and encumbering the Property, as the same may be amended,
restated, replaced, supplemented, consolidated or otherwise modified from time
to time, which is collaterally assigned to Lender pursuant to the Assignment of
Loan Documents.
"NET OPERATING INCOME" shall mean, for any period, the difference between
all Operating Income during such period, minus all Operating Expenses during
such period. Net Operating Income shall be audited, or shall be determined in
accordance with agreed-upon procedures determined by Lender.
"NOTE" shall mean that certain Note of even date herewith, made by Borrower
in favor of Lender, substantially in the form of Exhibit B annexed hereto, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time.
"OFFICERS' CERTIFICATE" shall mean a certificate delivered to Lender by
Borrower which is signed by a senior executive officer of Borrower.
"OPERATING BUDGET" shall mean the budget for the Property delivered to and
approved by Lender, as amended from time to time.
"OPERATING EXPENSES" shall mean, as to any period, all operating expenses
relating to the Property during such period, including the following items:
(i) all expenses for the operation of the Property including management
fees in respect thereof, all insurance premiums and expenses, accounting
expenses, advertising expenses, expenses for architectural services, bank
charges, utility charges, expenses for extermination, cleaning and trash removal
services, expenses relating to window washing, landscaping and security
services, reasonable and necessary legal expenses incurred in connection with
the operation of the Property, tenant improvements and marketing costs;
(ii) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest on such impositions (or portions
thereof) that are payable by reason of Borrower's failure to pay an imposition
timely;
(iii) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP; and
(iv) wages, benefits, payroll taxes, uniforms and other related expenses
for employees of Borrower of its Affiliates to the extent engaged in the repair,
operation, or maintenance of the Property.
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Operating Expenses will not include debt service, capital expenses, non-cash
items such as depreciation and amortization and any extraordinary one-time
expenditures not considered operating expenses under GAAP.
"OPERATING INCOME" shall mean, as to any period, all regular on-going
revenues received by Owner from the operation of the Property during such
period, including (i) Rents and (ii) all other amounts received which in
accordance with GAAP are required to be or are included in Owner's annual
financial statements as operating income of the Property; provided, that
Operating Income will not include (1) income from non-recurring income sources;
(2) advance Rents or other payments; (3) deposits or escrows; (4) any income
otherwise includable in Operating Income but paid to a Person other than
Borrower; (5) proceeds of Casualty insurance or Condemnation Awards; or (6)
income from a sale, financing or other capital transaction.
"OTHER CHARGES" shall mean all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including vault charges and
license fees for the use of vaults, chutes and similar areas adjoining the
Property, now or hereafter levied or assessed or imposed against the Property or
any part thereof.
"OWNER" shall mean collectively or individually as the context may require,
the owners of fee title to the Property, the lessee's interest in any ground
lease of the Property, and to the extent any of the foregoing are land trusts,
the beneficiaries thereof.
"PAYMENT DATE" shall mean the eleventh (11th) day of each calendar month
or, if in any month the eleventh (11th) day is not a Business Day, then the
Payment Date for such month shall be the first Business Day thereafter.
"PERMITTED ENCUMBRANCES" shall mean, with respect to the Property,
collectively, (i) the Liens and security interests created by the Property Loan
Documents, (ii) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policy relating to the Property or any part thereof, (iii) Liens, if
any, for Taxes or Other Charges not yet payable or delinquent or which are being
protested in accordance with the provisions of Section 5.1(b), (iv) such other
title and survey exceptions as Lender has approved or may approve in writing in
Lender's sole discretion, or are hereafter created in accordance with this
Agreement or the Mortgage and (v) Liens which attach in accordance with the
provisions of Section 6.1(b).
"PERMITTED INDEBTEDNESS" shall mean the Debt.
"PERMITTED INVESTMENTS" shall mean investments permitted under the terms of
the Cash Collateral Account Agreement.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"POLICIES" shall have the meaning specified in Section 7.1.1(c).
"POOLING AND SERVICING AGREEMENT" shall mean the Servicing Agreement
entered into with the Servicer in connection with any Securitization of the
Loan.
"PROPERTY" shall mean that certain parcel of real property and improvements
thereon owned by Owner and encumbered by the Property Loan Documents, together
with all rights pertaining to such property and improvements, and known as 180
N. LaSalle Street, Chicago, Illinois.
"PROPERTY LOAN" shall mean that certain loan evidenced and secured by the
Property Loan Documents.
"PROPERTY LOAN DOCUMENTS" shall mean the documents evidencing and securing
a loan to Owner as described on Exhibit C hereto.
"PROPERTY VALUE" shall mean the lesser of (A) the most recent appraised
value of the Property determined by an appraisal satisfactory to Lender and (B)
Net Operating Income of the trailing twelve month period divided by 10%.
"PROVIDED INFORMATION" shall have the meaning set forth in Section 9.1.
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"QUALIFIED SURVEy" shall mean a current title survey, certified to the
title company and Lender and their successors and assigns, that (A) is in form
and content reasonably satisfactory to Lender, (B) is prepared by a professional
and properly licensed land surveyor satisfactory to Lender in accordance with
the 1997 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,
(C) meets the classification of an "Urban Survey" and includes the following
additional items from the list of "Optional Survey Responsibilities and
Specifications" (Table A): 1, 2, 3, 4, 5, 6, 7a-b, 8, 9, 10, 11 and 13, (D)
reflects the same legal description contained in the Title Insurance Policy
relating to the Property, and (E) contains a certification in form and substance
reasonably acceptable to Lender.
"QUALIFIED TITLE INSURANCE POLICY" shall mean a Title Insurance Policy
issued by First American Title Insurance Company or another title company
acceptable to Lender, with reinsurance and direct access agreements acceptable
to Lender, which Title Insurance Policy shall (A) provide coverage in the amount
of the Loan, (B) insure Lender that the Mortgage creates a valid lien on the
Property encumbered thereby of the requisite priority, free and clear of all
exceptions from coverage other than Permitted Encumbrances and standard
exceptions and exclusions from coverage (as modified by the terms of any
endorsements), (C) contain such endorsements and affirmative coverages as Lender
may reasonably request, (D) name Lender as the insured and (E) be assignable.
"RATING AGENCY" shall mean each of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch Investors Service, Inc. or any other
nationally-recognized statistical rating agency which has been approved by
Lender.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
9.2(b).
"RENTS" shall mean, with respect to the Property, all rents, rent
equivalents, moneys payable as damages or in lieu of rent or rent equivalents,
royalties (including all oil and gas or other mineral royalties and bonuses),
income, receivables, receipts, revenues, deposits (including security, utility
and other deposits), accounts, cash, issues, profits, charges for services
rendered, and other consideration of whatever form or nature received by or paid
to or for the account of or benefit of Owner or its agents or employees from any
and all sources arising from or attributable to the Property, including all
receivables, customer obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of the sale, lease,
sublease, license, concession or other grant of the right of the use and
occupancy of the Property and proceeds, if any, from business interruption or
other loss of income insurance.
"RENT ROLL" shall have the meaning set forth in Section 4.1(aa).
"REQUIRED RECORDS" shall have the meaning set forth in Section 5.1(k).
"RESIZING DATE" shall mean each March 11 and September 11, commencing on
March 11, 2000.
"RESTORATION" shall have the meaning set forth in Section 7.1.2(b).
"SPE MEMBER" shall have the meaning set forth in Section 4.1(dd).
"SECONDARY MARKET TRANSACTION" shall mean any transaction in which Lender
(i) sells the Loan, the Note and the other Loan Documents to one or more
investors as a whole loan, (ii) participates the Loan to one or more investors,
(iii) deposits the Loan, the Mortgage, the Note and other Loan Documents with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets or (iv) otherwise sells the Loan or an interest
therein to investors.
"SECURITIES" shall have the meaning set forth in Section 9.1.
"SECURITIES ACT" shall have the meaning set forth in Section 9.2(a).
"SECURITIZATION" shall have the meaning set forth in Section 9.1.
"SECURITY AGREEMENT" shall have the meaning set forth in Section
2.3.3(vii).
"SERVICER" shall mean the entity appointed by Lender to service the Loan or
its successor in interest, or if any successor servicer is appointed pursuant to
the Pooling and Servicing Agreement, such successor servicer.
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"STATE" shall mean the State of Illinois.
"STATED MATURITY DATE" shall mean November 11, 2001, subject to extension
in accordance with Section 2.3.2.
"SUBORDINATION AGREEMENT" shall mean collectively, all of the agreements
entered into in connection with subordinating the Subordinate Loan to the
Property Loan.
"SUBORDINATE PROPERTY LOAN" shall mean the loan secured by a second
mortgage on the Property.
"SUCCESSOR BORROWER" shall have the meaning set forth in Section 2.3.3(c).
"SURVEY" shall mean a survey of the Property in question prepared by a
surveyor licensed in the State and satisfactory to Lender and the company or
companies issuing the Title Insurance Policies, and containing a certification
of such surveyor satisfactory to Lender.
"TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section
7.3.1.
"TAXES" shall mean all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against the Property or part thereof.
"TERM" shall mean the entire term of this Agreement, which shall expire
upon repayment in full of the Debt and full performance of each and every
obligation to be performed by Borrower pursuant to the Loan Documents.
"TITLE INSURANCE POLICY" shall mean, with respect to the Property, the ALTA
mortgagee title insurance policy in the form (acceptable to Lender) issued with
respect to the Property and insuring the lien of the Mortgage encumbering the
Property.
"TRANSFER" shall have the meaning set forth in Section 6.1(j).
"TREASURY RATE" shall mean, at any time of determination, the yield on the
bid price appear on such date on Telerate page 500 for the second most recently
issued 10-year, non-callable U.S. Treasury security or, if there is no such U.S.
Treasury security, the then prevailing yield on the U.S. Treasury security then
being used by Lender to price 10-year fixed rate mortgage loans.
"UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code
as in effect in the State.
"UNDERWRITER GROUP" shall have the meaning set forth in Section 9.2(b).
"UNDERWRITTEN NET OPERATING INCOME" for the 12-month period ending with the
most recently completed calendar month, all Operating Income minus all Operating
Expenses during such period, as determined by Lender; provided that, in
determining Underwritten Net Operating Income, adjustments shall be made to
reflect market and submarket occupancy and other factors determined to be
relevant by Lender, including the following adjustments: (i) Operating Income
will be adjusted (A) to include only Rents based on such trailing 12 month
period plus credit (as determined by Lender) for investment grade credit rated
tenants and other tenants approved by Lender which have been in occupancy for
less than one year; (B) to exclude Rents from temporary or month to month
tenants; provided, however, that such income will be included only to the extent
it is determined by Lender to be both stabilized and recurring, but only in an
amount not to exceed a maximum of 50% of such Rent collected in such trailing 12
month period; (C) to exclude Rents from tenants operating under bankruptcy
protection; (D) to mark any above market Leases to market rents; (E) to reflect
any Rent adjustments or cancellation option in any Leases; (F) for
reimbursements (not in excess of corresponding expense items) based on such
trailing 12 month period to the extent it is determined by Lender, in its
discretion, to be both stabilized and recurring; (G) to include other income on
a case-by-case basis but only to the extent it is determined by Lender to be
both stabilized and recurring and (H) a vacancy and credit loss allowance equal
to the greater of: (1) actual historical vacancy and/or credit loss (2) 10% of
underwritten gross revenues and (3) market vacancy allowances as determined by
Lender. (ii) Operating Expenses will be adjusted to reflect (A) the greater of:
(1) the actual expenses for such trailing 12 month period (except real estate
taxes and insurance, which will be included at their stabilized, recurring
levels), (2) the average actual annual expenses over the past three years but
excluding any non-recurring items Capital Expenses; and (3) projected annual
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expenses based on then current occupancy levels; (B) a normalized allowance for
costs of free rent, downtime, tenant improvement and leasing commissions
pursuant to Lender's standard underwriting assumptions and other assumptions
based on market information as determined by Lender during its due diligence,
without duplication for costs deducted under other sections of this definition
and subject to a minimum of $1.25 per occupied square foot; (C) a reserve for
Capital Expenses equal to at least $0.25 per square foot of rentable space per
annum (or such higher amount as is recommended in a third-party engineering
report); (D) a management fee equal to the greater of the Management Fee or 5%
of total revenues; and (E) other adjustments as determined by Lender in its
discretion consistent with its due diligence findings and prevailing market
conditions. In determining Underwritten Net Operating Income, all pro forma
adjustments to revenue and expenses shall be approved by Lender in its
discretion and shall be subject to Lender's full due diligence.
"U.S. OBLIGATION" shall mean direct non-callable obligations of the United
States of America.
Section 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. Unless otherwise specified, the words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. Unless otherwise specified, all meanings attributed
to defined terms herein shall be equally applicable to both the singular and
plural forms of the terms so defined. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, as modified herein.
II. GENERAL
Section 2.1 THE LOAN.
2.1.1 COMMITMENT. Subject to and upon the terms and conditions set forth
herein, including the conditions precedent set forth in Section 3.1, Lender
hereby agrees to make the Loan to Borrower on the Closing Date, in the aggregate
original principal amount set forth in the Note and which Loan shall mature on
the Stated Maturity Date. Borrower hereby agrees to accept the Loan on the
Closing Date, subject to and upon the terms and conditions set forth herein.
2.1.2 DISBURSEMENT TO BORROWER. Borrower may request and receive only one
borrowing hereunder in respect of the Loan, except to the extent Borrower
qualifies for additional disbursements pursuant to Section 2.7. Borrower shall
receive the Loan upon the Closing, subject to the direction given by Borrower as
to the application of Loan proceeds for the uses set forth in Section 2.1.4. Any
amount borrowed and repaid hereunder in respect of the Loan may not be
reborrowed.
2.1.3 THE NOTE. The Loan shall be evidenced by the Note, in the aggregate
original principal amount of the Loan. The Note shall bear interest as provided
therein. The Note shall be subject to repayment as provided in Section 2.3,
shall be entitled to the benefits of this Agreement and shall be secured by the
Mortgage and the other Loan Documents.
2.1.4 USE OF PROCEEDS OF LOAN. Borrower shall use the proceeds of the Loan
(i) to pay costs and expenses incurred in connection with the Closing of the
Loan, as approved by Lender and (ii) with respect to the remainder, if any, as
Borrower directs.
Section 2.2 INTEREST; MONTHLY PAYMENTS.
2.2.1 GENERALLY. Borrower shall pay interest on the outstanding principal
balance of the Loan in accordance with the terms of the Note.
2.2.2 DEFAULT RATE. After the occurrence and during the continuance of an
Event of Default, the entire outstanding principal balance of the Loan shall
bear interest at the Default Rate, and shall be payable upon demand from time to
time, to the extent permitted by applicable law. Payment or acceptance of the
increased rates provided for in this subsection is not a permitted alternative
to timely payment and shall not constitute a waiver of any Default or Event of
Default or an amendment to this Agreement or any other Loan Document and shall
not otherwise prejudice or limit any rights or remedies of Lender.
Section 2.3 LOAN REPAYMENT.
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2.3.1 REPAYMENT AND EXIT FEE. Borrower shall repay any outstanding
principal indebtedness of the Loan in full on the Maturity Date of the Loan,
together with interest thereon to (but excluding) the date of repayment.
Borrower shall have the right to prepay all or any portion of Loan at any time.
Any repayment of the Loan (whether at maturity, by acceleration, pursuant to
Section 2.7, or otherwise) shall be accompanied by a fee equal to 1% of any
principal portion of the Loan that is repaid prior to the date which is one year
from the date hereof, and 2% of any portion of the Loan that is repaid
thereafter, unless such repayment is from the proceeds of permanent financing
provided by Lender.
2.3.2 EXTENSION OPTION. The Stated Maturity may be extended for up to two
one-year periods, so long as for each extension: (i) Borrower provides notice to
Lender exercising such one year extension option no later than ninety days prior
to the then current Stated Maturity, (ii) no Default exists at the time the
extension is exercised or the time the extension period commences, (iii) the
Debt Service Coverage Ratio is not less than 1.40:1 at the time the extension is
exercised and at the commencement of the extension period, (iv) no Default
exists under the terms of the Guaranty by the Guarantor, and (v) Borrower pays
an extension fee to Lender of 1% of the then outstanding Loan amount in
connection with the first extension period and .5% of the then outstanding Loan
amount for the second extension period.
Section 2.4 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written
request and at the expense of Borrower, upon payment in full of all principal
and interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms thereof, release the Lien of the Loan
Documents if not theretofore released.
Section 2.5 PAYMENTS AND COMPUTATIONS.
2.5.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the
Note shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender by
11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to Borrower.
Whenever any payment hereunder or under the Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the first
Business Day thereafter.
2.5.2 COMPUTATIONS. Interest payable hereunder or under the Note by
Borrower shall be computed on the basis of the actual number of days elapsed in
a 360-day year.
2.5.3 LATE PAYMENT CHARGE. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Loan Documents.
Section 2.6 CASH MANAGEMENT ARRANGEMENTS.
(a) All Rents (other than security deposits) will be transmitted directly
into an account maintained by Owner but pledged to Borrower at the Cash
Collateral Account Bank pursuant to the Cash Collateral Account Agreement. All
other income or revenue received by Borrower or Manager in connection with the
Property will be deposited into the Cash Collateral Account on the date of
receipt. Any amounts so deposited into the Cash Collateral Account shall be
applied and disbursed in accordance with the terms and provisions of this
Agreement and the Cash Collateral Account Agreement.
(b) Borrower hereby assigns and pledges to Lender all of its right, title
and interest in the Cash Collateral Account Agreement and Custody Agreement and
agrees to notify the Cash Collateral Account Bank of Lender's interest, and that
the Lender shall be entitled to exercise all of Borrower's rights under the Cash
Collateral Account Agreement and Custody Agreement.
(c) Anything hereinabove in this Section to the contrary notwithstanding,
from and after the occurrence and during the continuance of an Event of Default,
Lender shall be entitled to notify the Cash Collateral Account Bank, subject to
the terms of the Cash Collateral Account Agreement, to deliver, assign and sell
the Collateral (as defined in the Cash Collateral Account Agreement) to Lender
and such proceeds shall be applied to the payment of Debt Service on the Loan
(including, if applicable, interest at the Default Rate), required reserves and
Approved Operating Expenses and/or to the payment of the principal amount of the
Note, in such order as Lender shall determine in its sole discretion.
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Section 2.7 RESIZING. As of each Resizing Date, Lender shall resize the
Loan based upon the following formula. The resized Loan Amount shall be equal to
(a) Underwritten Net Operating Income divided by 1.4, divided by (b) the Debt
Constant. Borrower, at its sole cost and expense, shall promptly provide to
Lender upon request all documentation and information determined by Lender in
its sole discretion to be necessary to complete its underwriting analysis in
connection with the resizing of the Loan, including without limitation, leases,
rent rolls, property operating and financial statements, and such third party
reports and other information and documents determined by Lender in its sole
discretion to be necessary to assess the condition, operation and value of the
Property. Borrower shall provide all such information not later than sixty days
prior to the Resizing Date. If any information requested by Lender is not
provided, then Lender shall be entitled to make its own good faith judgment with
regard to the missing information when making its resizing determination. Lender
agrees to notify Borrower as to the Resizing Amount thirty days prior to the
Resizing Date provided it has received the requested information in a timely
fashion. If the Resized Loan Amount is less than the then current outstanding
Loan amount, Borrower shall repay such difference on the Resizing Date. If the
resized Loan Amount is greater than the then outstanding amount of the Loan, as
of any Resizing Date occurring on March 11th, then Lender shall advance to
Borrower on the Resizing Date upon request made by Borrower no later than two
(2) business days prior to the Resizing Date, the amount requested by Borrower
for an additional disbursement of the Loan so long as (i) such amount does not
increase the outstanding balance of the Loan to an amount greater than the
Resized Loan Amount (or 85% of the outstanding principal balance of the Property
Loan, whichever is less), (ii) no Default has occurred and is continuing, (iii)
all of Borrower's representations and warranties contained herein and in the
other Loan Documents shall be true and correct in all material respects as of
the Resizing Date, (iv) the outstanding principal balance of the Property Loan
is not more than 70% of the Property Value, (v) Borrower pays a fee to Lender
equal to 1% of the incremental loan proceeds advanced, and (vi) Borrower
delivers to Lender a disbursement request that has been consented to by Lake
Investors, LaSalle Land Partnership, L.P., and LaSalle Mayfair Joint Venture.
III. CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO THE LOAN. The obligation of Lender to
make the Loan hereunder is subject to the fulfillment by Borrower or waiver by
Lender of the following conditions precedent no later than the Closing Date:
(a) REPRESENTATION AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
(b) LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.
(c) DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; LEASES.
(i) Loan Documents. Lender shall have received from Borrower fully
executed and acknowledged counterparts of the Other Loan Documents.
(ii) Title Insurance. Lender shall have received an update of the
Qualified Title Insurance Policy for the Property Loan.
(iii) Survey. Lender shall have received a Qualified Survey for the
Property.
(iv) Insurance. Lender shall have received valid certificates of
insurance for the policies of insurance required hereunder, satisfactory to
Lender in its reasonable discretion, and evidence of the payment of all premiums
payable for the existing policy period which period shall not be less than one
year in advance. Lender shall also have received an acknowledgement from the
insurer of Lender's collateral assignment of the Borrower's right to receive
insurance proceeds and make decisions in connection with such insurance
policies.
(v) Environmental Reports. Lender shall have received an environmental
report in respect of the Property reasonably satisfactory to Lender.
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(vi) Zoning. With respect to the Property, Lender shall have received,
at Lender's option, an ALTA 3.1 zoning endorsement for the Title Insurance
Policy in substance reasonably satisfactory to Lender.
(d) Related Documents. Each additional document not specifically referenced
herein, but relating to the transactions contemplated herein, shall have been
duly authorized, executed and delivered by all parties thereto and Lender shall
have received and approved certified copies thereof.
(e) Delivery of Organizational Documents. On or before the Closing Date,
Borrower shall deliver or cause to be delivered to Lender (i) copies certified
by Borrower of all organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or qualification to do
business, as Lender may reasonably request, including good standing
certificates, qualifications to do business in the appropriate jurisdictions,
resolutions authorizing the entering into of the Loan and incumbency
certificates as may be requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received opinions of
Borrower's counsel (i) with respect to non-consolidation, true sale or true
contribution, and fraudulent transfer issues and (ii) with respect to due
execution, authority, enforceability of the Loan Documents and such other
matters as Lender may reasonably require, all such opinions in form, scope and
substance reasonably satisfactory to Lender and Lender's counsel.
(g) Delivery of Property Loan Documents. Lender shall have received the
originals of the Property Loan Documents, endorsed or assigned in blank.
(h) Basic Carrying Costs. Borrower or Owner shall have paid or deposited
into an applicable reserve fund all deposits required pursuant to the terms of
the Property Loan Documents.
(i) Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Agreement
and other Loan Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall have received all
such counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Financial Statements. Lender shall have received financial statements
prepared in accordance with agreed upon procedures for the Property for such
periods as Lender may request.
(k) Leases, Rent Roll and Estoppel Certificates. Borrower shall have
provided Lender with original executed or certified copies of each of the Leases
in effect as of the date hereof, a current rent roll, and original executed
copies of estoppel certificates (or confirmations by the tenant of estoppel
certificates previously provided) in the form previously approved by Lender,
from those tenants as Lender may request.
(l) Debt Service Coverage Ratio. The Debt Service Coverage Ratio shall be
at least 1.10 to 1.
(m) Appraisals. Lender shall have received an appraisal for the Property
satisfactory to Lender.
(n) Engineering Reports. Lender shall have received a structural
engineering report, reasonably acceptable to Lender, identifying, among other
things, (i) deferred maintenance for the Property and the cost thereof and (ii)
a ten (10) year schedule of anticipated capital expenditures and the per annum
cost thereof.
(o) Utility Service and Tax Assessment. Borrower shall have delivered
evidence that all utility services required for the Property are available and
that the Property is subject to separate tax assessment.
(p) Absence of Adverse Changes. Lender shall have determined that there
have been no material developments prior to the Closing Date which could, in
Lender's sole judgment, adversely affect the operation of the Property or the
ability of Borrower to repay the Loan or the ability of Borrower to perform any
of its covenants and agreements set forth in this Agreement and the other Loan
Documents.
(q) Fee. Lender shall have received a structuring fee in the amount of 1%
of the principal amount of the Loan disbursed.
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IV. REPRESENTATIONS AND WARRANTIES
Section 4.1 BORROWER REPRESENTATIONS CONCERNING BORROWER AND LOAN
DOCUMENTS. Borrower represents and warrants as of the date hereof and as of the
Closing Date that:
(a) Organization. Borrower has been duly organized and is validly existing
and in good standing with requisite limited liability company power and
authority to own its properties and to transact the businesses in which it is
now engaged. Borrower is duly qualified to do business and is in good standing
in each jurisdiction where it is required to be so qualified in connection with
its properties, businesses and operations. Borrower possesses all rights,
licenses, permits and authorizations, governmental or otherwise, necessary to
entitle it to own its properties and to transact the businesses in which it is
now engaged (other than those which the failure to have would not reasonably be
expected to have a material adverse effect on the Borrower, the Property or the
Loan), and the sole business of Borrower is the ownership of the Property Loan.
(b) Proceedings. Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and such other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective 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).
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the other Loan Documents by Borrower will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance (other
than pursuant to the Loan Documents) upon any of the property or assets of
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, partnership agreement or other agreement or instrument to which
Borrower is a party or by which Borrower's property or assets is subject, nor
will such action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Borrower or any of its properties or assets (other than such
actions described herein which would not reasonably be expected to have a
material adverse effect on the Borrower, the Property, or the Loan), and any
consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental agency or
body required for the execution, delivery and performance by any Borrower of
this Agreement or any other Loan Documents has been obtained and is in full
force and effect.
(d) Litigation. There are no actions, suits or proceedings at law or in
equity by or before any Governmental Authority or other agency now pending or
threatened against or affecting Borrower, which actions, suits or proceedings,
if determined against Borrower or the Property, is reasonably likely to
materially adversely affect the condition (financial or otherwise) or business
of Borrower.
(e) Agreements. Borrower is not a party to any agreement or instrument or
subject to any restriction which would reasonably be expected to materially
adversely affect Borrower, or Borrower's business, properties or assets,
operations or condition, financial or otherwise. Borrower is not in default in
any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to
which it is a party or by which it or the Property is bound.
(f) No Bankruptcy Filing. Borrower is not contemplating either the filing
of a petition by it under any state or federal bankruptcy or insolvency laws or
the liquidation of all or a major portion of its assets or property, and
Borrower has no knowledge of any Person contemplating the filing of any such
petition against it.
(g) Full and Accurate Disclosure. To Borrower's knowledge no statement of
fact made by Borrower in this Agreement or in any of the other Loan Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary to make statements contained herein or therein not misleading.
There is no material fact presently known to Borrower which has not been
disclosed to Lender which adversely affects, nor as far as Borrower can foresee,
might materially adversely affect, the Property or the business, operations or
condition (financial or otherwise) of Borrower.
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(h) No Plan Assets. Borrower is not an "employee benefit plan," as defined
in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101.
(i) Financial Information. All financial data, including the statements of
cash flow and income and operating expense, that have been delivered to Lender
by Borrower in respect of the Property (i) are true, complete and correct in all
material respects, (ii) accurately represent the financial condition of the
Property as of the date of such reports and (iii) to the extent prepared by an
independent certified public accounting firm, have been prepared in accordance
with GAAP consistently applied throughout the periods covered, except as
disclosed therein. Borrower has no contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are known to Borrower and
reasonably likely to have a materially adverse effect on the Property or the
operation thereof, except as referred to or reflected in said financial
statements. Since the date of such financial statements, there has been no
materially adverse change in the financial condition, operations or business of
Borrower from that set forth in said financial statements.
(j) Federal Reserve Regulations. No part of the proceeds of the Loan will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
or for any other purpose which would be inconsistent with such Regulation U or
any other Regulations of such Board of Governors, or for any purposes prohibited
by Legal Requirements or by the terms and conditions of this Agreement or the
other Loan Documents.
(k) Not a Foreign Person. Borrower is not a "foreign person" within the
meaning ofss.1445(f)(3) of the Code.
(l) Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, including the defense
of usury, nor would the exercise of any of the terms of the Loan Documents, or
the exercise of any right thereunder, render the Loan Documents unenforceable,
and Borrower has not asserted any right of rescission, set-off, counterclaim or
defense with respect thereto.
(m) Single-Purpose. Borrower hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower does not and will not own any asset or property other
than (A) the Property Loan and (B) incidental personal property necessary for
the ownership or operation of the Property Loan.
(ii) Borrower will not engage in any business other than the ownership
of the Property Loan and will in all material respects conduct and operate its
business as presently conducted and operated.
(iii) Borrower will not enter into any contract or agreement with any
of its Affiliates or constituent parties, Guarantor or any Affiliate of any
constituent party or Guarantor, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties other than any such party.
(iv) Borrower has not incurred, and Borrower will not incur, any
indebtedness, secured or unsecured, direct or indirect, absolute or contingent
(including guaranteeing any obligation), other than the Permitted Indebtedness.
Except as set forth in the immediately preceding sentence, no indebtedness other
than the Debt may be secured (subordinate or pari passu) by the Property Loan.
(v) Borrower has not made and will not make any loans or advances to
any third party (including any Affiliate or constituent party, Guarantor or any
Affiliate of any constituent party or Guarantor), except for advances approved
by Lender to pay redevelopment costs in connection with the Property that are
secured by the Property Loan Documents.
(vi) Borrower is and will remain solvent and will pay its debts and
liabilities (including employment and overhead expenses) from its assets as the
same shall become due.
(vii) Borrower has done or caused to be done and will do all things
necessary to observe corporate, partnership, or limited liability company
formalities, as the case may be, and preserve its existence.
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(viii) Borrower will not permit any constituent party or Guarantor to,
amend, modify or otherwise change the partnership certificate, partnership
agreement, articles of incorporation and bylaws, trust, operating agreement or
other organizational documents of Borrower or such constituent party or
Guarantor in a manner which would adversely affect Borrower's existence as a
single purpose entity.
(ix) Borrower will maintain books and records and bank accounts
separate from those of its Affiliates and any constituent party and Borrower
will file its own tax returns.
(x) Borrower will be, and at all times will hold itself out to the
public as, a legal entity separate and distinct from any other entity (including
any Affiliate, any constituent party, Guarantor or any Affiliate of any
constituent party or Guarantor), shall conduct business in its own name and
shall maintain and utilize separate stationery, invoices and checks.
(xi) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations.
(xii) Neither Borrower nor any constituent party will seek the
dissolution or winding up, in whole or in part, of Borrower.
(xiii) Borrower will not commingle its funds and other assets with
those of any Affiliate or constituent party, Guarantor, or any Affiliate of any
constituent party or Guarantor, or any other person.
(xiv) Borrower has and will maintain its assets in such a manner that
it will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or constituent party, Guarantor,
or any Affiliate of any constituent party or Guarantor, or any other Person.
(xv) Borrower does not and will not hold itself out to be responsible
for the debts or obligations of any other Person.
(xvi) Borrower shall at all times have one member (the "SPE Member")
who is a "single purpose entity" and shall at all times comply with each of the
representations, warranties, and covenants contained in this Section 4.1 as if
such representation, warranty or covenant was made directly by such SPE Member.
(xvii) The charter of the SPE Member shall at all times have at least
one duly appointed member of its board of directors (an "Independent Director")
reasonably satisfactory to Lender who shall not have been at the time of such
individual's appointment, and may not have been at any time during the preceding
five (5) years (i) a member of, or an officer or employee of, Borrower or any of
its shareholders, subsidiaries or Affiliates (except as an Independent Director
on any of their boards of directors), (ii) a customer, or supplier, Borrower or
any of its members, subsidiaries or Affiliates (except as an Independent
Director on any of their boards of directors), (iii) a person or other entity
controlling any such member, supplier or customer or (iv) a member of the
immediate family of any such shareholder, officer, employee, supplier or
customer of any other director of the SPE Member. As used herein, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person or entity,
whether through ownership of voting securities, by contract or otherwise.
(xviii) The board of directors of the SPE Member shall not take any
action which, under the terms of any certificate of incorporation, bylaws or any
voting trust agreement with respect to any common stock, requires the vote of
the board of directors of the SPE Member unless at the time of such action there
shall be at least one member who is an Independent Director.
(xix) Borrower shall conduct its business so that the assumptions made
with respect to Borrower in that certain opinion letter dated as of the Closing
Date delivered by Borrower's counsel in connection with the Loan shall be true
and correct in all respects.
(n) Investment Company Act. Borrower is not (i) an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.
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(o) Fraudulent Transfer. Borrower has not entered into the Loan or any Loan
Document with the actual intent to hinder, delay, or defraud any creditor, and
Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed Borrower's total liabilities, including subordinated,
unliquidated, disputed or contingent liabilities. The fair saleable value of
Borrower's assets is and will, immediately following the execution and delivery
of the Loan Documents, be greater than Borrower's probable liabilities,
including the maximum amount of its contingent liabilities or its debts as such
debts become absolute and matured. Borrower's assets do not and, immediately
following the execution and delivery of the Loan Documents will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it will,
incur debts and liabilities (including contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
Borrower).
Section 4.2 BORROWER REPRESENTATIONS CONCERNING PROPERTY AND PROPERTY LOAN
DOCUMENTS. Borrower represents and warrants as of the date hereof and as of the
Closing Date.
(a) The Property Loan Documents are not subject to an assignment or pledge,
and the Borrower has good and marketable title to, and is the sole owner of, the
Property Loan Documents, free and clear of any loan participations, third party
claims or other Liens.
(b) The Borrower has full right and authority to sell, assign and transfer
the Property Loan and the collateral assignment to the Lender constitutes a
legal, valid and binding assignment of the Property Loan.
(c) The Borrower is pledging the Property Loan free and clear of any and
all liens, pledges, charges or security interests of any nature encumbering the
Property Loan.
(d) The Property Loan Documents are legal, valid and binding obligations of
the Owner, enforceable in accordance with their terms, and there is no valid
defense, counterclaim, right of rescission or right of set-off or abatement
available to the Owner with respect to such Property Loan Documents.
(e) The Property Loan Documents create a valid, collateral or first
priority assignment of, or a valid first priority security interest in, certain
rights under the Leases, subject only to a license granted to the Owner to
exercise certain rights and to perform certain obligations of the lessor under
such leases, including the right to operate the Property, no Person other than
the Owner owns any interest in any payments due under such leases that is
superior to or of equal priority with the Borrower's interest therein.
(f) The Property Loan has not been waived, modified, altered, satisfied,
canceled, subordinated or rescinded and the Property has not been released from
the lien of the Property Loan Documents in any manner except as provided in the
documents identified in Exhibit C.
(g) The Property Loan Documents create a valid and enforceable first lien
on the Property, and the Property, is free and clear of any mechanic's and
materialmen's liens which are prior to or equal with the lien of the Property
Loan Documents, except those which are insured against by a lender's title
insurance policy (as described below).
(h) The Borrower has not taken any action, nor has knowledge that the Owner
has taken any action, that would cause the representations and warranties made
by the Owner with respect to the Property Loan not to be true.
(i) The Borrower has no knowledge that the representations an warranties
made by the Owner with respect to the Property Loan are not true in any material
respect.
(j) The lien created by the Property Loan Documents is insured by an ALTA
lender's title insurance policy, or its equivalent as adopted in the applicable
jurisdiction issued by one or more nationally recognized title insurance
companies, insuring the Borrower as to a valid and first priority lien of the
Mortgage in at least the original principal amount of such Loan, subject only to
(a) the lien of current real property taxes, ground rents, water charges, sewer
rents and assessments not yet due and payable, (b) covenants, conditions and
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restrictions, rights of way, easements and other matters of public record set
forth in the Title Policy, none of which, individually or in the aggregate,
materially interferes with the current use or operation of the Property or the
security intended to be provided by such Mortgage or with the Owner's ability to
pay its obligations when they become due or the value, use or operation of the
related Mortgaged Property and (c) the exceptions (general and specific) set
forth in such insurance policy, none of which, individually or in the aggregate,
materially interferes with the security intended to be provided by such Mortgage
or with the Owner's ability to pay its obligations when they become due or the
value, use or operation of the Property; the Borrower and Lender, its successors
or assigns are the sole named insureds of such policy as their interests may
appear; no claims have been made under such policy and the Borrower has not done
anything (by act or omission), and the Borrower has no knowledge of any matter,
which would impair or diminish the coverage of such policy in any material
respect.
(k) The current outstanding principal balance of the Property Loan is
$62,518,231.47. Borrower has no obligation to make any additional advances under
the Property Loan Documents.
(l) No building or other improvement on the Property has been affected in
any material manner or suffered any material loss as a result of any fire, wind,
explosion, accident or other cause and the Property is free of any damage that
would materially and adversely affect the value of the Property as security for
the Property Loan and is in good repair; there is no proceeding pending for the
total or partial condemnation of the Property.
(m) To Borrower's knowledge the Owner is in possession of all material
licenses, permits and other authorizations necessary and required by all
applicable laws for the conduct of its business and all such licenses, permits
and authorizations are valid and in full force and effect.
(n) (i) The Property is insured by a fire and extended perils insurance
policy, issued by an insurer meeting the requirements under the Property Loan in
an amount not less than the replacement cost and the amount necessary to avoid
the operation of any co-insurance provisions with respect to the Property;
(ii) The Property is covered by business interruption insurance (for
at least 18 months of rent interruptions) and the Property is covered by
comprehensive general liability insurance in amounts generally required by
institutional lenders for similar properties;
(iii)All premiums on any insurance policies required to be paid as of
the Closing Date have been paid;
(iv) The insurance policies require at least 30 days prior notice to
the insured of termination or cancellation, and no such notice has been
received; and
(v) The Property Loan Documents obligate the Owner to maintain all
such insurance and, at such Owner's failure to do so, authorize the Borrower to
maintain such insurance at the Owner's cost and expense and to seek
reimbursement therefor from such Owner.
(o) There is no default, breach, violation or event of acceleration
existing under the Property Loan Documents and, to the Borrower's knowledge, no
event that, with the passage of time or with notice and the expiration of any
grace or cure period, would and does constitute a default, breach, violation or
event of acceleration and the Borrower has not waived any default, breach,
violation or event of acceleration.
(p) To the best of Borrower's knowledge, Owner is not a debtor in a state
or federal bankruptcy or insolvency preceding. To the best of Borrower's
knowledge, the Property, is in material compliance with all applicable federal,
state and local laws pertaining to environmental hazards, and no notice of
violation of such laws has been issued by any governmental agency or authority;
the Borrower has not taken any action that would cause the Property not to be in
material compliance with all federal, state and local laws pertaining to
environmental hazards.
(q) To Borrower's knowledge the Property is in compliance, in all material
respects, with all applicable laws, zoning ordinances, rules, covenants and
restrictions affecting the construction, occupancy, use and operation of such
Property. All inspections, licenses and certificates required, including
certificates of occupancy (if applicable), whether by law, ordinance, regulation
or insurance standards to be made or issued with respect to the Property, have
been obtained and are in full force and effect.
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(r) The Property is not located in a special flood hazard area as defined
by the Federal Insurance Administration, or if it is, and flood insurance was
available, a flood insurance policy meeting any requirements of the Federal
Insurance Administration is in effect.
(s) The Property (i) is located on or adjacent to a dedicated road, or has
access to an irrevocable easement permitting ingress and egress, (ii) is served
by public utilities, water and sewer (or septic facilities), (iii) is a separate
tax parcel (or has reserved funds sufficient to cover taxes for the entire tax
parcel) and (iv) has parking as required under applicable law.
(t) The Borrower has not advanced additional funds for principal and
interest or taxes and insurance or knowingly received any advance of funds from
a party other than the Owner for the payment of any amount required by the
Property.
(u) The Property Loan Documents contain no provision
limiting the right or ability of the Borrower to assign, transfer and convey the
Property Loan Documents to any other Person.
(v) Attached hereto as Schedule 2 is a rent roll (the "Rent Roll") for the
Property. The Rent Roll is true, correct and complete in all material respects
with respect to the subject matter thereof. The only Leases affecting the
Property are those reflected in the Rent Roll. To Borrower's knowledge following
inquiry as a duly diligent lender, except as set forth in Schedule 1: (i) each
Lease is in full force and effect; (ii) except for those Leases with terms that
have not yet commenced, the tenants under the Leases have accepted possession of
and are in occupancy of all of their respective demised premises (unless such
demised premises or portions thereof, have been subleased), have commenced the
payment of rent under such Leases and there are no offsets, claims or defenses
to the enforcement thereof; (iii) all rents due and payable under the Leases
have been paid and no portion thereof has been paid for any period more than
thirty (30) days in advance; (iv) the rent payable under each Lease is the
amount set forth in the Rent Roll and there is no claim or basis for a claim by
the tenant thereunder for an adjustment to the rent; (v) no tenant has made any
claim against the landlord under the Leases which remains outstanding and there
are no defaults on the part of the landlord under any Lease and no event has
occurred which, with the giving of notice or passage of time, or both, would
constitute such default; and (vi) there is no present material default by any
tenant under any Lease. None of the Leases contains any option to purchase or
right of first refusal to purchase the Property or any part thereof. The Leases
have not been assigned or pledged except to Lender and Borrower, and no other
person whatsoever has any interest therein except the tenants and Landlord
thereunder pursuant to the Leases.
(w) To Borrower's actual knowledge, the survey for the Property delivered
to Lender in connection with this Agreement does not fail to reflect any
material matter affecting the Property or the title thereto.
Section 4.3 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the
representations and warranties of Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under this Agreement or any of the
other Loan Documents by Borrower. All representations, warranties, covenants and
agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
---------------------
Section 5.1 BORROWER COVENANTS. From the date hereof and until payment and
performance in full of all obligations of Borrower under the Loan Documents,
Borrower hereby covenants and agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
and comply with all Legal Requirements applicable to it and cause the Owner to
comply with all Legal Requirements applicable to Owner or the Property. Borrower
shall at all times maintain, preserve and protect all franchises and trade names
and preserve all the remainder of its property used or useful in the conduct of
its business and shall cause the Owner to keep the Property in good working
order and repair, and from time to time make, or cause to be made, all
reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto.
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(b) Taxes and Other Charges. Borrower shall cause Owner to pay all Taxes
and Other Charges now or hereafter levied or assessed or imposed against the
Property or any part thereof as the same become due and payable, other than
those which it is protesting in good faith by appropriate proceedings diligently
pursued in accordance with this Section. Borrower will deliver to Lender
receipts for payment or other evidence satisfactory to Lender that the Taxes and
Other Charges have been so paid or are not then delinquent no later than thirty
(30) days prior to the date on which the Taxes and/or Other Charges would
otherwise be delinquent if not paid. Borrower shall permit suffer and when due
shall cause to be paid and discharged by owner any lien or charge whatsoever
which may be or become a lien or charge against the Property (other than those
liens or charges which Owner is protesting in good faith by appropriate
proceedings, diligently pursued in accordance with the terms of the Property
Loan Documents).
(c) Litigation. Borrower shall give prompt written notice to Lender of any
litigation or governmental proceedings pending or threatened against Borrower
which is reasonably likely to materially adversely affect Borrower's condition
(financial or otherwise) or business or, to Borrower's knowledge, the Property
or Owner.
(d) Premises. Borrower shall cooperate with Lender in exercising its
inspection rights under the Property Loan Documents to permit agents,
representatives and employees of Lender to inspect the Property or any part
thereof at reasonable hours upon reasonable advance notice.
(e) Notice of Default. Borrower shall promptly advise Lender of any
material adverse change in Borrower's or the Property's condition, financial or
otherwise, or of the occurrence of any Default or Event of Default of which
Borrower has knowledge hereunder or under the Property Loan Documents.
(f) Cooperate in Legal Proceedings. Borrower shall cooperate fully with
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way materially adversely affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.
(g) Perform Loan Documents. Borrower shall observe, perform and satisfy all
the terms, provisions, covenants and conditions of, and shall pay when due all
costs, fees and expenses to the extent required under the Loan Documents
executed and delivered by Borrower.
(h) Insurance Benefits. Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any Insurance Proceeds lawfully or equitably payable
in accordance with Section 7.1 hereof in connection with the Property, and
Lender shall be reimbursed for any expenses incurred in connection therewith
(including attorneys' fees and disbursements, and the expense of an appraisal on
behalf of Lender in case of a fire or other casualty affecting the Property or
any part thereof) out of such Insurance Proceeds.
(i) Further Assurances. Borrower shall, at Borrower's sole cost and
expense:
(A) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement and instrument furnished to it pursuant
to the terms of the Property Loan Documents.
(B) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure its obligations under the Loan Documents, as
Lender may reasonably require, so long as Borrower's obligations or liability
are not materially increased thereby or any of Borrower's rights or remedies are
not materially diminished thereby; and
(C) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents, as
Lender shall reasonably require from time to time, so long as Borrower's
obligations and liability are not materially increased thereby and Borrower's
rights and remedies are not materially diminished thereby.
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(j) Financial Reporting.
(i) Borrower will cause Owner to keep and maintain on a Fiscal Year
basis, in accordance with GAAP or another method of preparation approved by
Lender, proper and accurate books, records and accounts reflecting all of the
financial affairs of the Property and all items of income and expense in
connection with the operation of the Property and in connection with any
services, equipment or furnishings provided in connection with the operation of
the Property, whether such income or expense be realized by Owner or by any
other Person whatsoever, excepting lessees unrelated to and unaffiliated with
Owner who have leased from Owner portions of the Property for the purpose of
occupying the same. Lender shall have the right from time to time at all times
during normal business hours upon reasonable notice to examine such books,
records and accounts at the office of Borrower or other Person maintaining such
books, records and accounts and to make such copies or extracts thereof as
Lender shall desire. After the occurrence and during the continuance of an Event
of Default, Borrower shall pay any costs and expenses incurred by Lender to
examine accounting records with respect to the Property, as Lender shall
determine to be necessary or appropriate in the protection of Lender's interest.
(ii) Borrower will furnish to Lender promptly upon receipt all
financial reports and other information and documentation provided to Borrower
under the Property Loan Documents. Borrower shall also cause Manager to provide
such information regarding the Property as may be requested from time to time
provided such information is customarily maintained by Borrower.
(k) Business and Operations. Borrower will continue to engage in the
business presently conducted by it. Borrower will qualify to do business and
will remain in good standing under the laws of each jurisdiction as and to the
extent the same are required for the conduct of its business.
(l) Title to the Property Loan. Borrower will warrant and defend (i) the
title to the Property Loan and (ii) the validity and priority of the Lien of the
Assignment of Loan Documents, in each case against the claims of all Persons
whomsoever. Borrower shall reimburse Lender for any losses, costs, damages or
expenses (including reasonable attorneys' fees and court costs) incurred by
Lender if an interest in the Property Loan, other than as permitted hereunder,
is claimed by another Person.
(m) Costs of Enforcement. In the event (i) that the Loan Documents are put
into the hands of an attorney for collection, suit, action or foreclosure, or
(ii) of the bankruptcy, insolvency, rehabilitation or other similar proceeding
in respect of Borrower or Owner or an assignment by Borrower or Owner for the
benefit of its creditors, Borrower, its successors or assigns, shall be
chargeable with and agrees to pay all costs of collection and defense, including
reasonable attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
(n) Estoppel Statement.
(i) After request by Lender, Borrower shall within ten (10) days
furnish Lender with a statement, duly acknowledged and certified, setting forth
(A) the unpaid principal amount of the Note and the Property Loan, (B) the
Interest Rate of the Note, (C) the date installments of interest and/or
principal were last paid on the Note and Property Loan, (D) any offsets or
defenses to the payment of the Debt, if any and (E) that the Note, this
Agreement, the Mortgage and the other Loan Documents are valid, legal and
binding obligations and have not been modified or if modified, giving
particulars of such modification.
(ii) After request by Lender (but no more frequently than once in any
year), Borrower shall within ten (10) days furnish Lender with a certificate
reaffirming all representations and warranties of Borrower set forth herein and
in the other Loan Documents as of the date requested by Lender or, to the extent
of any changes to any such representations and warranties, so stating such
changes.
(o) Loan Proceeds. Borrower shall use the proceeds of the Loan received by
it on the Closing Date only for the purposes set forth in Section 2.1.4.
(p) Amendments by Borrower. Borrower shall not enter into or otherwise
suffer or permit any amendment, waiver, supplement, termination or other
modification of any Loan Document executed and delivered by Borrower without the
prior written consent of Lender.
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(q) Confirmation of Representations. In addition to and not in limitation
of the covenants and agreements of Borrower contained in Section 9.1, Borrower
shall deliver, in connection with any Secondary Market Transaction, (i)
Officer's Certificates certifying as to the accuracy of all representations made
by Borrower in the Loan Documents as of the date of the closing of such
Secondary Market Transaction (with such modification thereto to make such
representation factually accurate) and (ii) certificates of the relevant
Governmental Authorities in all relevant jurisdictions indicating the good
standing and qualification of Borrower as of the date of the Secondary Market
Transaction.
(r) Budgets. Borrower shall furnish to Lender promptly upon receipt all
budgets and other information received by Borrower under the terms of the Cash
Collateral Account Agreement or Management Agreement. Borrower shall not approve
any budget or consent to any disbursement requiring its approval without the
prior consent of Lender.
(s) No Joint Assessment. Borrower shall not suffer, permit or initiate the
joint assessment of the Property (i) with any other real property constituting a
tax lot separate from the Property and (ii) with any portion of the Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Property.
(t) Principal Place of Business. Borrower shall not change its principal
place of business set forth on the first page of this Agreement without first
giving Lender thirty (30) days prior written notice.
(u) Interest Rate Protection. Attached hereto as Exhibit D is Lender's
standard form of forward rate lock agreement (the "Rate Lock Agreement"). The
defined terms used in this Section 5.1(x) and not otherwise defined herein shall
have the meanings set forth in the Rate Lock Agreement. If at any time during
the term of the Loan the hypothetical loan constant determined by using the
Benchmark Treasury Rate, a loan spread of 200 basis points, and assuming a
thirty year amortization schedule would exceed 9.23%, then Borrower will be
required to immediately lock an interest rate pursuant to the Rate Lock
Agreement for an Anticipated Loan Amount equal to the outstanding balance of the
Loan, for an effective term of ten years, and for a Rate Lock Period expiring no
earlier than the Stated Maturity Date. The "number of months forward" for
purposes of the Rate Lock Agreement shall be the number of months from the time
of the rate lock to the Stated Maturity Date. Borrowers agree to enter execute a
Rate Lock Agreement reflecting the terms of the rate lock upon notice from
Lender but all references to a Rate Lock Deposit shall be deleted. Borrower
hereby irrevocably designates Capital America as its attorney-in-fact to lock
its interest rate in accordance with the foregoing and do all things necessary
and required in order to effectuate and consummate the rate lock and such rate
lock shall be governed by the terms of the Rate Lock Agreement with the same
effect as if Borrower and Capital America had actually executed it. Any such
agreement shall be considered a Loan Document hereunder and shall be secured by
all the Loan Documents and covered by the terms of the Guaranty. Borrower
acknowledges and agrees that although Lender has the right to unilaterally lock
the rate at any time the hypothetical debt service constant exceeds 9.23%,
Lender shall have no liability to Borrower if it does not lock such rate or if
it does not lock the rate at the lowest possible rate provided that Lender
agrees to act in good faith to lock the rate at a market rate at the time the
rate lock occurs. Borrower further acknowledges that the rate locked will affect
the pricing on any permanent financing that may be available from Lender in
order to repay this Facility. If Borrower obtains permanent financing from
Lender the hedge position pursuant to the Rate Lock Agreement can be used in
connection with such permanent financing. If Borrower repays the Loan and does
not obtain permanent financing from Lender, then Borrower acknowledges that the
corresponding hedge positions in connection with the Rate Lock Agreement will
need to be unwound and that any losses incurred shall be the responsibility of
Borrower. If any gains are realized in connection with the unwinding of such
hedge position, then such gains will be applied by Lender to reduce the
outstanding balance of the Loan.
Section 5.2 SPECIAL COVENANTS REGARDING THE PROPERTY LOAN.
(a) Notice of Defaults. Promptly upon becoming aware of the same, the
Borrower shall notify the Lender of any default or event of default (howsoever
denominated) under any Property Loan Document which continues beyond any
applicable notice or grace period. The Borrower shall deliver to the Lender,
promptly after receipt thereof, copies of all material notices and other
material correspondence from Owner.
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(b) Enforcement. Subject to the Loan Documents, Borrower shall, with
Lender's prior written consent (which shall not be unreasonably withheld or
delayed), enforce all of the material terms, conditions and provisions of the
Property Loan Documents; provided, however, Borrower will not take any
enforcement or other action that could adversely affect the priority of the
Property Loan Documents. If an event of default (however denominated) shall
occur under the Property Loan, Borrower shall, at Lender's direction, take such
lawful and appropriate enforcement or other remedial actions as deemed
reasonably necessary by Lender subject to the Loan Documents. If Lender consents
to Borrower foreclosing the Mortgage or acquiring the Property by conveyance in
lieu of foreclosure, then Borrower shall take all steps reasonably necessary so
that upon such foreclosure, Lender shall simultaneously receive a first mortgage
on the Property to secure the Loan and such related collateral as may be
customary for Lender to receive in connection with similar first mortgage loans.
(c) Subordinate Loan. Borrower shall not consent to any modification or
amendment of, or waive any of the terms and conditions of, the Subordination
Agreement or any of the documents evidencing or securing the Subordinate Loan,
Borrower shall not consent to the granting of any additional security or any
guaranty for all or any part of the Subordinate Loan.
(d) Application of Funds. Any funds received or collected by Borrower in
respect of the Property Loan in any manner whatsoever, whether by payment,
prepayment, foreclosure or otherwise, shall be received and held by Borrower in
accordance with and subject to the provisions of this Agreement and the other
Loan Documents and the same shall be paid to such escrow or other accounts or
over to Lender as required under this Agreement and the other Loan Documents. If
Borrower receives any prepayment of principal, Borrower shall be required to
prepay a like amount of the outstanding balance of the Loan. Borrower shall not
modify or attempt to modify the instructions to the Cash Collateral Account Bank
and any such attempted modification shall be deemed null and void and of no
force and effect.
(e) Notice of Casualty or Condemnation. Borrower shall promptly notify
Lender of any casualty or the commencement of any condemnation proceedings which
affect any portion of the Property.
(f) Release or Amendment. The Borrower shall not release any collateral
securing, or any Person liable for, the payment or performance of all or any
part of the Property Loan or amend or modify any of the Property Loan Documents
without the prior written consent of Lender. Without limiting the foregoing
Borrower shall not accept a conveyance of the Property in lieu of foreclosure
with Lender's prior written consent.
(g) Performance. Borrower shall perform all of its material obligations
under the Property Loan Documents.
(h) Management Agreement. The Borrower shall not consent to any waiver,
termination, amendment or cancellation of any management agreement, without the
Lender's prior written consent.
(i) Leases. If, under the terms of any of the Property Documents, Owner is
obligated to obtain Borrower's consent to any new Lease or other occupancy
arrangement relating to the Property, or any amendment to an existing Lease,
then, prior to granting such consent, Borrower shall be obligated to provide to
Lender any information provided to Borrower by Owner regarding such Lease and to
obtain Lender's prior written approval of Borrower granting such consent (which
approval shall not be unreasonably withheld or delayed) and shall be deemed
given unless Lender affirmatively denies such request within ten (10) Business
Days.
(j) Consents and Waivers. Borrower shall not grant any consents or waivers
under the terms of the Property Loan Documents without the prior written consent
of Lender.
VI. NEGATIVE COVENANTS
------------------
Section 6.1 Borrower's Negative Covenants. From the date hereof until
payment and performance in full of all obligations of Borrower under the Loan
Documents, Borrower covenants and agrees with Lender that it will not do,
directly or indirectly, any of the following:
(a) Dissolution. Borrower shall not dissolve, terminate, liquidate,
merge with or consolidate into another Person.
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(b) Change In Business. Borrower shall not enter into any line of
business other than the ownership and operation of the Property Loan.
(c) Debt Cancellation. Borrower shall not cancel or otherwise forgive
or release any claim or debt owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business in its
reasonable judgment.
(d) Affiliate Transactions. Borrower shall not enter into, or be a
party to, any transaction with an Affiliate of Borrower or any of the members of
Borrower except in the ordinary course of business and on terms which are fully
disclosed to Lender in advance and are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arms-length transaction with an
unrelated third party.
(e) Zoning. Borrower shall not initiate or consent to any zoning
reclassification of any portion of any of the Property or seek any variance
under any existing zoning ordinance or permit the use of any portion of any of
the Property in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender.
(f) Debt. Borrower shall not create, incur or assume any debt
(including subordinate debt) other than the Debt. In addition, no Person owning
any interest in Borrower shall pledge, transfer or otherwise dispose of its
interest in Borrower to secure any financing for the benefit of such Person,
Borrower or the Property.
(g) Transfers. Borrower shall not, without the prior written consent
of Lender, suffer or permit the sale, assignment or transfer (collectively,
"Transfer") of (i) all or any part of the Property Loan, (ii) any direct
interest in Borrower or (iii) any direct or indirect interest in any member of
Borrower other than (A) the issuance or transfer of beneficial interests in
Prime Group Realty Trust, a Maryland real estate investment trust, so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty Trust and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower, and (B) the issuance or
transfer of limited partner interests in Prime Group Realty L.P., a Delaware
limited partnership, or a conversion of a one percent general partnership
interest owned beneficially by The Nardi Group, L.L.C. in Prime Group Realty
L.P. into a limited partnership interest in Prime Group Realty L.P., so long as
such issuance or transfer does not result in a change in Control of Prime Group
Realty L.P. and so long as such issuance or transfer does not affect the
non-consolidation opinion delivered by Borrower. No Transfer consented to by
Lender pursuant to clause (ii) or (iii) above shall be permitted unless Lender
shall have received (a) evidence in writing from the applicable Rating Agencies
to the effect that such a Transfer will not result in a qualification,
withdrawal or downgrading of the ratings in effect immediately prior to such
Transfer for the Securities issued in connection with the Securitization which
are then outstanding and (b) a non-consolidation opinion satisfactory to Lender
from the transferee's counsel. On or before the completion of any such permitted
Transfer, Borrower will pay all reasonable expenses of Lender incurred in
connection therewith. Notwithstanding anything to the contrary contained in this
clause (j), holders of interests in Borrower (or holders of interests in any
entity directly or indirectly holding an interest in Borrower) as of the date
hereof (the "Interest Holders") shall have the right to transfer their interest
in Borrower (or any entity directly or indirectly holding an interest in
Borrower) to another Person who is not an Interest Holder, including without
limitation immediate family members for estate planning purposes, without
Lender's consent; provided, however, that:
(i) after taking into account any prior transfers pursuant to
this sentence, whether to the proposed transferee or otherwise, no such transfer
(or series of transfers) shall result in (A) the proposed transferee, together
with all members of his/her immediate family or any affiliates thereof, owning
in the aggregate (directly, indirectly or beneficially) more than 20% of the
interests in Borrower (or any entity directly or indirectly holding an interest
in Borrower) or (B) a transfer in the aggregate of more than 20% of the
interests in Borrower as of the date hereof;
(ii) no such transfer of interest shall result in a change of
control of Borrower;
(iii) Borrower shall give Lender notice of such transfer together
with copies of all instruments effecting such transfer not less than ten (10)
days prior to the date of such transfer;
(iv) no Event of Default has occurred and remains uncured; and
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(v) the legal and financial structure of Borrower after such
transfer and its members and the single purpose nature and bankruptcy remoteness
of Borrower and its shareholders, partners or members satisfies Lender's then
current applicable underwriting criteria and requirements, including without
limitation the requirement at the request of Lender to deliver written
confirmations from the Rating Agencies that such transfer or series of transfers
will not result in a qualification, downgrade or withdrawal of the then
applicable ratings.
For purposes of this clause (j), (A) a change of control of Borrower shall be
deemed to have occurred if there is any change in the identity of the individual
or entities or group of individuals or entities who have the right, by virtue of
any partnership agreement, articles of incorporation, bylaws, articles of
organization, operating agreement or any other agreement, with or without taking
any formative action, to cause Borrower to take some action or to prevent,
restrict or impede Borrower from taking some action which, in either case,
Borrower could take or could refrain from taking were it not for the rights of
such individuals; and (B) an "immediate family member" shall mean a spouse or a
child of any Interest Holder.
VII. CASUALTY; CONDEMNATION; ESCROWS
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Section 7.1 INSURANCE; CASUALTY AND CONDEMNATION.
7.1.1 INSURANCE.
(a) Borrower, at no cost to Lender, for the mutual benefit of Borrower and
Lender, shall cause Owner to keep the Property insured and obtain and maintain
during the Term policies of insurance insuring against loss or damage by
standard, "all-risk" perils in accordance with the Property Loan Documents. Such
insurance (i) shall be in an amount equal to the greatest of (A) the then full
replacement cost of the Property without deduction for physical depreciation,
(B) the outstanding principal balance of the Loan and (C) such amount that the
insurer would not deem Borrower a co-insurer under said policies and (ii) and
shall have deductibles no greater than five percent (5%) of the full replacement
cost of the Property. The premiums for such policies of insurance carried in
accordance with this paragraph shall be paid annually in advance and shall
contain a "Replacement Cost Endorsement" with a waiver of depreciation.
(b) Borrower, at no cost to Lender, for the mutual benefit of Borrower and
Lender, shall also cause Owner to obtain and maintain during the Term the
following policies of insurance:
(i) Flood insurance if any part of the Property is located in an area
identified by the Federal Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Program in an amount at least equal to the Debt or the
maximum limit of coverage available with respect to the Property under said
program, whichever is less.
(ii) Commercial general liability insurance, including broad form
property damage, blanket contractual and personal injuries (including death
resulting therefrom) coverages and containing minimum limits per occurrence of
$1,000,000 and $2,000,000 in the aggregate for any policy year. In addition, at
least $10,000,000 excess and/or umbrella liability insurance shall be obtained
and maintained for any and all claims, including all legal liability imposed
upon Borrower and all court costs and attorneys' fees incurred in connection
with the ownership, operation and maintenance of the Property.
(iii) Rental loss and/or business interruption insurance in an amount
equal to the greater of (A) the estimated gross revenues from the operations of
the Property for the next succeeding eighteen (18) month period or (B) the
projected operating expenses (including Debt Service) for the maintenance and
operation of the Property for the next succeeding eighteen (18) month period.
The amount of such insurance shall be increased from time to time during the
Term as and when the Rents increase or the estimate of (or the actual) gross
revenue, as may be applicable, increases.
(iv) Insurance against loss or damage from (A) leakage of sprinkler
systems and (B) explosion of steam boilers, air conditioning equipment, high
pressure piping, machinery and equipment, pressure vessels or similar apparatus
now or hereafter installed in any of the Improvements (without exclusion for
explosions), in an amount at least equal to $2,000,000 for the Property.
(v) Worker's compensation insurance with respect to any employees of
Borrower, as required by any governmental authority or legal requirement.
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(vi) During any period of repair or restoration, builder's "all risk"
insurance in an amount equal to not less than the full insurable value of the
Property against such risks (including fire and extended coverage and collapse
of the Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender.
(vii) Coverage to compensate for the cost of demolition and the
increased cost of construction for the Property in an amount satisfactory to
Lender.
(viii) Such other insurance as may from time to time be reasonably
required by Lender in order to protect its interests.
(c) All policies of insurance (the "Policies") required pursuant to Section
7.1.1(b) shall be issued by companies reasonably approved by Lender and licensed
to do business in the State, with a claims paying ability rating of "A" or
better by Standard & Poor's Ratings Group; (ii) shall name Borrower and its
successors and/or assigns as their interest may appear as the mortgagee; (iii)
shall contain a Non-Contributory Standard Lender Clause and a Lender's Loss
Payable Endorsement, or their equivalents, naming Borrower as the person to
which all payments made by such insurance company shall be paid; (iv) shall
contain a waiver of subrogation against Lender; (v) shall be maintained
throughout the Term without cost to Lender; (vi) shall be assigned and the
certificates thereof delivered to Lender; and (vii) shall contain endorsements
providing that neither Borrower, Lender nor any other party shall be a
co-insurer under said Policies and that Lender shall receive at least thirty
(30) days prior written notice of any modification, reduction or cancellation of
any of the Policies; and (viii) shall be satisfactory in form and substance to
Lender and shall be approved by Lender as to amounts, form, risk coverage,
deductibles, loss payees and insureds. Borrower shall require Owner to pay the
premiums for such Policies (the "Insurance Premiums") as the same become due and
payable and shall furnish to Lender evidence of the renewal of each of the
Policies with receipts for the payment of the Insurance Premiums or other
evidence of such payment reasonably satisfactory to Lender. If Borrower does not
furnish such evidence and receipts at least ten (10) days prior to the
expiration of any expiring Policy, then Lender may procure, but shall not be
obligated to procure, such insurance and pay the Insurance Premiums therefor,
and Borrower agrees to reimburse Lender for the cost of such Insurance Premiums
promptly on demand. Within thirty (30) days after request by Lender, Borrower
shall require Owner to obtain, provided Borrower has the right to do so under
the Property Loan Documents, such increases in the amounts of coverage required
hereunder as may be reasonably requested by Lender, taking into consideration
changes in the value of money over time, changes in liability laws, and changes
in prudent customs and practices.
(d) If any Property is damaged or destroyed, in whole or in part, by fire
or other casualty (an "Insured Casualty"), Borrower shall give prompt notice
thereof to Lender. Following the occurrence of an Insured Casualty, unless the
Loan is repaid in full, Borrower shall cause Owner to promptly proceed to
restore, repair, replace or rebuild the Property to be of at least equal value
and of substantially the same character as prior to such damage or destruction,
all to be effected in accordance with Legal Requirements. The expenses incurred
by Lender in the adjustment and collection of insurance proceeds shall become
part of the Debt and be secured hereby and shall be reimbursed by Borrower to
Lender upon demand.
7.1.2 CASUALTY AND APPLICATION OF PROCEEDS.
(a) In case of loss or damages covered by any of the Policies, the
following provisions shall apply subject to the terms, provisions and conditions
of the Property Loan Documents:
(i) If an Insured Casualty does not exceed $200,000, Borrower may
settle and adjust (or allow Owner to settle and adjust) any claim without the
consent of Lender; provided that such adjustment is carried out in a competent
and timely manner. In such case, Borrower is hereby authorized to collect and
receipt for any such insurance proceeds.
(ii) If an Insured Casualty shall equal or exceed $200,000, Borrower
may settle and adjust (or allow Owner to settle and adjust) any claim but only
with the consent of Lender and agree with the insurance company or companies on
the amount to be paid on the loss, and the proceeds of any such policy shall be
due and payable solely to Borrower, as mortgagee, but in accordance with the
terms hereof held in escrow by Lender (to the extent permitted under the
Property Loan Documents) and otherwise pursuant to the Cash Collateral Account
Agreement and Custody Agreement.
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(b) In the event of an Insured Casualty where the loss is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months to an economic unit not less
valuable and not less useful than the same was prior to the Insured Casualty,
and after such restoration will adequately secure the Debt, then, if no Default
or Event of Default shall have occurred and be then continuing, the proceeds of
insurance (after reimbursement of any expenses incurred by Lender) shall be
applied to reimburse Owner for the cost of restoring, repairing, replacing or
rebuilding the Property or part thereof subject to the Insured Casualty (the
"Restoration"), in the manner set forth herein. Borrower hereby covenants and
agrees to cause Owner to commence and diligently prosecute such Restoration;
provided that (i) Borrower shall pay all costs (and if required by Lender,
Borrower shall deposit the total thereof with Lender in advance) of such
Restoration in excess of the net proceeds of insurance made available pursuant
to the terms hereof; (ii) the Restoration shall be done in compliance with all
Legal Requirements; and (iii) Lender shall have received evidence reasonably
satisfactory to it that, during the period of the Restoration, the sum of (A)
income derived from the Property, as reasonably determined by Lender, plus (B)
proceeds of rent loss insurance or business interruption insurance, if any, to
be paid will equal or exceed the sum of (I) expenses in connection with the
operation of the Property and (II) the Debt Service under the Loan.
(c) Except as provided above, the proceeds of insurance collected upon any
Insured Casualty shall, at the option of Lender in its sole discretion, be
applied to the payment of the Debt or applied to allow Borrower to reimburse
Owner for the cost of any Restoration, in the manner set forth below. If such
proceeds are applied to the Debit, no fee pursuant to Section 2.3.1 shall be due
in connection with such payment.
(d) If Borrower is entitled to reimbursement out of insurance proceeds held
by Lender, such proceeds shall be disbursed from time to time upon Lender being
furnished with (i) evidence satisfactory to it of the estimated cost of
completion of the Restoration, (ii) funds or, at Lender's option, assurances
satisfactory to Lender that such funds are available, sufficient in addition to
the proceeds of insurance to complete the proposed Restoration, (iii) such
architect's certificates, waivers of lien, contractor's sworn statements, title
insurance endorsements, bonds, plats of survey and such other evidences of cost,
payment and performance as Lender may reasonably require and approve and (iv)
all plans and specifications for such Restoration, such plans and specifications
to be approved by Lender prior to commencement of any work. In addition, no
payment made prior to the final completion of the Restoration shall exceed
ninety percent (90%) of the value of the work performed from time to time; funds
other than proceeds of insurance shall be disbursed prior to disbursement of
such proceeds; and at all times, the undisbursed balance of such proceeds
remaining in the hands of Lender, together with funds deposited for that purpose
or irrevocably committed to the satisfaction of Lender by or on behalf of
Borrower for that purpose, shall be at least sufficient in the reasonable
judgment of Lender to pay for the cost of completion of the Restoration, free
and clear of all liens or claims for lien. Any surplus which may remain out of
insurance proceeds held by Lender after payment of such costs of Restoration
shall be paid to Borrower.
7.1.3 CONDEMNATION.
(a) Borrower shall promptly give Lender written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Property (a "Condemnation") and shall deliver to Lender copies of
any and all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation, Borrower, regardless of whether an Award is
available, shall promptly cause Owner to proceed to restore, repair, replace or
rebuild the Property to the extent practicable to be of at least equal value and
of substantially the same character as prior to such Condemnation, all to be
effected in accordance with Legal Requirements.
(b) Lender is hereby irrevocably appointed as Borrower's attorney-in-fact,
coupled with an interest, with exclusive power to exercise all of Borrower's
rights to collect, receive and retain any award or payment in respect of a
Condemnation (an "Award") and to make any compromise or settlement in connection
with such Condemnation, subject to the provisions of this Section and the
Property Loan Documents. Notwithstanding any Condemnation by any public or
quasi-public authority (including any transfer made in lieu of or in
anticipation of such a Condemnation), Borrower shall continue to pay the Debt at
the time and in the manner provided for in the Note, in this Agreement and the
other Loan Documents and the Debt shall not be reduced unless and until any
Award shall have been actually received and applied by Lender to expenses of
collecting the Award and to discharge of the Debt. Lender shall not be limited
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to the interest paid on the Award by the condemning authority but shall be
entitled to receive out of the Award interest at the rate or rates provided in
the Note. Borrower shall cause any Award that is payable to Borrower to be paid
directly to Lender.
(c) In the event of any Condemnation where the Award is in an aggregate
amount less than $2,000,000, and if, in the reasonable judgment of Lender, the
Property can be restored within six (6) months to an economic unit not less
valuable and not less useful than the same was prior to the Condemnation, and
after such restoration will adequately secure the Debt, then, if no Default or
Event of Default shall have occurred and be then continuing, the proceeds of the
Award (after reimbursement of any expenses incurred by Lender) shall be applied
to reimburse Owner for the cost of restoring, repairing, replacing or rebuilding
the Property or part thereof subject to Condemnation (the "Condemnation
Restoration") in the manner set forth below. Subject to the Loan Documents,
Borrower hereby covenants and agrees to cause Owner to commence and diligently
to prosecute such Condemnation Restoration; provided that (i) Borrower shall
cause Owner to pay all costs (and if required by Lender, Borrower shall deposit
the total thereof with Lender in advance) of such Condemnation Restoration in
excess of the Award made available pursuant to the terms hereof; (ii) the
Condemnation Restoration shall be done in compliance with all Legal
Requirements; and (iii) Lender shall have received evidence reasonably
satisfactory to it that, during the period of the Condemnation Restoration, the
sum of (A) income derived from the Property, as reasonably determined by Lender,
plus (B) proceeds of rent loss insurance or business interruption insurance, if
any, to be paid will equal or exceed the sum of (I) expenses in connection with
the operation of the Property and (II) the Debt Service under the Loan.
(d) Except as provided above, the Award collected upon any Condemnation
shall, at the option of Lender in its sole discretion, be applied to the payment
of the Debt or applied to allow Borrower to reimburse Owner for the cost of the
Condemnation Restoration in the manner set forth below. If the Award is applied
to the Debt, no fee pursuant to Section 2.3.1 shall be due in connection with
such payment.
(e) In the event Borrower is entitled to reimbursement out of the Award
received by Lender, such proceeds shall be disbursed from time to time upon
Lender being furnished with (i) evidence satisfactory to it of the estimated
cost of completion of the Condemnation Restoration, (ii) funds or, at Lender's
option, assurances satisfactory to Lender that such funds are available,
sufficient in addition to the proceeds of the Award to complete the Condemnation
Restoration, (iii) such architect's certificates, waivers of lien, contractor's
sworn statements, title insurance endorsements, bonds, plats of survey and such
other evidences of costs, payment and performance as Lender may reasonably
require and approve; and (iv) all plans and specifications for such Condemnation
Restoration, such plans and specifications to be approved by Lender prior to
commencement of work. In addition, no payment made prior to the final completion
of the restoration, repair, replacement and rebuilding shall exceed ninety
percent (90%) of the value of the work performed from time to time; (y) funds
other than proceeds of the Award shall be disbursed prior to disbursement of
such proceeds; and (z) at all times, the undisbursed balance of such proceeds
remaining in the hands of Lender, together with funds deposited for that purpose
or irrevocably committed to the satisfaction of Lender by or on behalf of
Borrower for that purpose, shall be at least sufficient in the reasonable
judgment of Lender to pay for the costs of completion of the Condemnation
Restoration free and clear of all liens or claims for lien. Any surplus which
may remain out of the Award received by Lender after payment of such costs of
restoration, repair, replacement or rebuilding shall, in the sole and absolute
discretion of Lender, be retained by Lender and applied to payment of the Debt.
Section 7.2 REQUIRED REPAIR; REQUIRED REPAIR FUNDS.
7.2.1 REQUIRED REPAIRS: DEPOSITS. Borrower shall cause the performance of
the repairs, if any, at the Property set forth on Schedule 3 annexed hereto (the
"Required Repairs"). Borrower shall complete each of the Required Repairs on or
before the deadline for same set forth on Schedule 3. On the Closing Date,
Borrower shall deposit with Lender or cause to be deposited the amount set forth
on Schedule 3 hereto to perform the Required Repairs for the Property. Amounts
so deposited with Lender (the "Required Repair Fund") shall be held by Lender in
an account (the "Required Repair Account") in Lender's name at a financial
institution selected by Lender in its sole discretion and shall be invested in
Permitted Investments.
7.2.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due in
respect of the Loan and the performance of all other terms, conditions and
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covenants of the Loan Documents and this Agreement on Borrower's part to be paid
and performed, all of Borrower's right, title and interest in and to the
Required Repair Fund and the Required Repair Account. Borrower shall not,
without obtaining the prior written consent of Lender, further pledge, assign or
grant any security interest in the Required Repair Fund or the Required Repair
Account or permit any lien or encumbrance to attach thereto, or any levy to be
made thereon, or any UCC-l Financing Statements, except those naming Lender as
the secured party, to be filed with respect thereto.
7.2.3 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower
all Required Repair Funds in the Required Repair Account upon satisfaction by
Borrower of each of the following conditions: (a) Borrower shall submit a
written request for payment to Lender at least thirty (30) days prior to the
date on which Borrower requests such payment be made (except in the case of an
emergency repair which requires immediate attention, in which event Borrower may
submit such payment request within ten (10) days), (b) on the date such request
is received by Lender and on the date such payment is to be made, no Event of
Default shall exist and remain uncured, (c) Lender shall have received an
Officer's Certificate from Borrower certifying that all Required Repairs at the
Property for which disbursement has been requested have been completed (i) in a
good and workmanlike manner and (ii) in accordance with all applicable Legal
Requirements, such certificate to be accompanied by a copy of each license,
permit or other approval, if any, required by any Governmental Authority for the
use or occupancy of the Property, (d) Lender shall have received an Officer's
Certificate from Borrower (i) identifying each Person that supplied materials or
labor in connection with the Required Repairs for which disbursement has been
requested (ii) stating that each such Person has been paid in full or will be
paid in full with the funds disbursed, such certificate to be accompanied by a
copy of appropriate lien waivers or other evidence of payment satisfactory to
Lender, (e) at Lender's option, a title search for the Property indicating that
the Property is free from all liens, claims and other encumbrances not
previously approved by Lender and (f) Lender shall have received such other
evidence as Lender shall reasonably request that the Required Repairs at the
Property have been completed and paid for or will be paid for with the proceeds
of such disbursement. Lender shall be required to make only one disbursement
from the Required Repair Account during a month and such disbursement shall be
made only upon satisfaction of each condition contained in this Section 7.2.3.
Upon completion of all Required Repairs in accordance with the terms hereof,
Lender shall disburse to Borrower any amounts then remaining in the Required
Repair Account.
7.2.4 FAILURE TO PERFORM REQUIRED REPAIRS. It shall be an Event of Default
under this Agreement if (a) Borrower does not complete the Required Repairs at
the Property by the required deadline for each repair as set forth on Schedule 3
or (b) Borrower does not satisfy each condition contained in Section 7.2.3
hereof. Upon the occurrence of an Event of Default, Lender, at its option, may
withdraw all Required Repair Funds from the Required Repair Account and Lender
may apply such funds either to completion of the Required Repairs at the
Property or toward payment of the Debt in such order, proportion and priority as
Lender may determine in its sole discretion. Lender's right to withdraw and
apply Required Repair Funds shall be in addition to all other rights and
remedies provided to Lender under this Agreement and the other Loan Documents.
Section 7.3 TAX AND INSURANCE ESCROW FUND.
7.3.1 TAX AND INSURANCE ESCROW FUND. Borrower shall cause to be deposited
in a subaccount under the terms of the Custody Agreement (a) on each Payment
Date, (i) one-twelfth (1/12) of the Taxes that Lender reasonably estimates will
be payable during the next ensuing twelve (12) months in order to accumulate
with Lender sufficient funds to pay all such Taxes at least thirty (30) days
prior to their respective due dates and (ii) one-twelfth (1/12) of the Insurance
Premiums that Lender estimates will be payable for the renewal of the coverage
afforded by the Policies upon the expiration thereof in order to accumulate with
Lender sufficient funds to pay all such Insurance Premiums at least thirty (30)
days prior to the expiration of the Policies and (b) on the Closing Date, an
amount which, when combined with the monthly deposits described in (a) above,
shall be sufficient to pay the next installment of Taxes and the next required
payment of Insurance Premiums on the due date therefor (said amounts in (a) and
(b) above hereinafter called the "Tax and Insurance Escrow Fund"). The Tax and
Insurance Escrow Fund, and the payments of interest or principal or both,
payable pursuant to the Note, shall be added together and shall be paid as an
aggregate sum by Borrower to Lender. Lender will permit the Tax and Insurance
Escrow Fund to be applied to payments of Taxes and Insurance Premiums required
to be made by Borrower pursuant to Section 5.1 hereof or to reimburse Borrower
for such amounts upon presentation of evidence of payment and an Officer's
Certificate in form and substance satisfactory to Lender; subject, however, to
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Borrower's right to contest Taxes in accordance with Section 5.1(b) hereof. In
authorizing any payment relating to the Tax and Insurance Escrow Fund, Lender
may do so according to any bill, statement or estimate procured from the
appropriate public office (with respect to Taxes) or insurer or agent (with
respect to Insurance Premiums), without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof. If at any time Lender determines
that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay
the items set forth in (a) and (b) above, Lender shall notify Borrower of such
determination and Borrower shall increase its monthly payments to Lender by the
amount that Lender reasonably estimates is sufficient to make up the deficiency
at least thirty (30) days prior to delinquency of the Taxes and/or expiration of
the Policies, as the case may be.
7.3.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges, assigns and
grants a security interest to Lender, as security for payment of all sums due
under the Loan and the performance of all other terms, conditions and provisions
of the Loan Documents and this Agreement on Borrower's part to be paid and
performed, of all Borrower's right, title and interest in and to the Tax and
Insurance Escrow Fund. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Tax and Insurance Escrow Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-1 Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
7.3.3 APPLICATION OF TAX AND INSURANCE ESCROW FUND. Upon the occurrence and
during the continuance of an Event of Default, Lender may direct that any sums
then present in the Tax and Insurance Escrow Fund be applied to the payment of
the following items in any order in its sole discretion: (a) Taxes and Other
Charges; (b) Insurance Premiums; (c) interest on the unpaid principal balance of
the Note; (d) amortization of the unpaid principal balance of the Note; or (e)
all other sums payable pursuant to this Agreement and the other Loan Documents.
Section 7.4 CAPITAL RESERVE FUND.
7.4.1 CAPITAL RESERVE FUND. Borrower shall cause to be deposited in a
subaccount under the terms of the Custody Agreement on each Payment Date an
amount equal to one-twelfth (1/12th) of the product obtained by multiplying $.25
by the aggregate amount of square feet of rentable space in the Property (said
amounts hereinafter called the "Capital Reserve Fund"). Lender will consent to
the application the Capital Reserve Fund to payment of Approved Capital Expenses
pursuant to the terms hereof; provided, however, if the Loan shall have been
accelerated or if there is an Event of Default which is continuing, then Lender
may direct that such Capital Reserve Fund be applied against the Debt in such
priority and proportions as Lender in its sole and absolute discretion shall
deem proper.
7.4.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in all Borrower's right, title
and interest in and to the Capital Reserve Fund, as security for payment of all
sums due under the Loan and the performance of all other terms, conditions and
provisions of the Loan Documents and this Agreement on Borrower's part to be
paid and performed. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Capital Reserve Fund, or permit any lien or encumbrance to attach thereto, or
any levy to be made thereon, or any UCC-1 Financing Statements, except those
naming Lender as the secured party, to be filed with respect thereto. This
Agreement is, among other things, intended by the parties to be a security
agreement for purposes of the Illinois Uniform Commercial Code.
7.4.3 APPLICATION OF CAPITAL RESERVE FUND. Upon the occurrence and during
the continuance of an Event of Default, Lender may direct that any sums then
present in the Capital Reserve Fund be applied to the payment of the following
items in any order in its sole discretion: (a) Capital Expenses; (b) interest on
the unpaid principal balance of the Note; (c) amortization of the unpaid
principal balance of the Note; or (d) all other sums payable pursuant to this
Agreement and the other Loan Documents.
7.4.4 PAYMENT OF CAPITAL EXPENSES. Funds held in the Capital Reserve Fund
may be used for Approved Capital Expenses in accordance with the terms of the
Cash Collateral Account Agreement.
Section 7.5 COLLATERAL SHORTFALL RESERVE FUND.
7.5.1 COLLATERAL SHORTFALL RESERVE FUND. Borrower shall cause to be
deposited with Lender the amount of the "Collateral Shortfall Deposit" (said
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amount hereinafter called the "Collateral Shortfall Reserve Fund") required
pursuant to the terms of that certain Standstill Agreement dated as of December
15, 1997 by and between Mayfair Joint Venture, LaSalle Land Partnership, L.P.,
LaSalle Lake Investors, and Borrower (as assignee of Prime Group Realty, L.P.).
7.5.2 GRANT OF SECURITY INTEREST. Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in all Borrower's right, title
and interest in and to the Collateral Shortfall Reserve, as security for payment
of all sums due under the Loan and the performance of all other terms,
conditions and provisions of the Loan Documents and this Agreement on Borrower's
part to be paid and performed. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in the Collateral Shortfall Reserve Fund, or permit any lien or encumbrance to
attach thereto, or any levy to be made thereon, or any UCC-1 Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto. This Agreement is, among other things, intended by the parties
to be a security agreement for purposes of the Illinois Uniform Commercial Code.
7.5.3 APPLICATION OF COLLATERAL SHORTFALL RESERVE. Funds held in the
Collateral Shortfall Reserve Fund shall be used for payment of Debt Service upon
presentation to Lender of evidence satisfactory to Lender that sufficient funds
for payment of such Debt Service are not available in the account held pursuant
to the Custody Agreement for such purpose provided that upon the occurrence and
during the continuance of an Event of Default, Lender may direct that any sums
present in the Collateral Shortfall Reserve Fund be applied to the payment of
all sums payable pursuant to this Agreement and any other Loan Document in such
order as Lender may determine.
Section 7.6 PAYMENT OF APPROVED OPERATING EXPENSES. Funds held in the Cash
Collateral Account may be used for Approved Operating Expenses in accordance
with the terms of the Cash Collateral Account Agreement, provided that such use
shall be in Lender's discretion if an Event of Default has occurred and remains
uncured. VIII. DEFAULTS
Section 8.1 EVENT OF DEFAULT.
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default"):
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid when the same
are due and payable, subject to the right to contest Taxes and Other Charges in
accordance with Section 5.1(b) hereof, provided that such event shall not have
been cured within five (5) days;
(iii) if insurance on the Property is not kept in full force and
effect in accordance with the terms of this Agreement and the Property Loan
Documents, or if the certificates are not delivered to Lender within five (5)
Business Days following request;
(iv) if, without Lender's prior written consent, (A) Borrower
transfers or encumbers all or any portion of the Property Loan or (B) any direct
or indirect interest in Borrower is transferred or assigned except as expressly
permitted under Section 6.1(j) hereof;
(v) if any representation or warranty made by Borrower herein or in
any other Loan Document, or in any report, certificate, financial statement or
other instrument, agreement or document furnished by Borrower in connection with
this Agreement or any other Loan Document, shall be false or misleading in any
material respect as of the date the representation or warranty was made;
(vi) if Borrower or Owner shall make an assignment for the benefit of
creditors, or if Borrower or Owner shall generally not be paying its debts as
they become due;
(vii) if a receiver, liquidator or trustee shall be appointed for
Borrower or Owner or if Borrower or Owner shall be adjudicated a bankrupt or
insolvent, or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state law, shall
be filed by or against, consented to, or acquiesced in by, Borrower or Owner, or
if any proceeding for the dissolution or liquidation of Borrower shall be
instituted; and if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower or Owner, the same is not
discharged, stayed or dismissed within sixty (60) days;
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(viii) if Borrower attempts to assign its respective rights under this
Agreement in contravention of the Loan Documents or any of the other Loan
Documents or any interest herein or therein;
(ix) if Borrower defaults in any of its negative covenants contained
in Section 6.1 or any covenant contained in Section 4.1(dd) hereof;
(x) if an Event of Default as defined or described in any of the other
Loan Documents occurs, whether as to Borrower or the Property, or if any other
such event shall occur or condition shall exist, if the effect of such event or
condition is to accelerate the maturity of any portion of the Debt or to permit
Lender to accelerate the maturity of all or any portion of the Debt;
(xi) if an Event of Default occurs under the Property Loan Documents;
(xii) if Borrower shall be in default under any term, covenant or
provision set forth herein which specifically contains a notice requirement or
grace period after the giving of such notice or the expiration of such grace
period; or (xiii) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsections (i) to (xii) above, for fifteen (15) days after notice to Borrower
from Lender, in the case of any Default which can be cured by the payment of a
sum of money, or for thirty (30) days after notice from Lender in the case of
any other Default; provided, however, that if such non-monetary Default is
susceptible of cure but cannot reasonably be cured within such 30-day period and
provided further that Borrower shall have commenced to cure such Default within
such 30-day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to cure
such Default, such additional period not to exceed sixty (60) days.
(b) Upon the occurrence of an Event of Default (other than an Event of
Default described in clauses (vi), (vii) or (viii) above) and at any time
thereafter Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to the Property
Loan Documents, including declaring the Debt to be immediately due and payable,
and Lender may enforce or avail itself of any or all rights or remedies provided
in the Loan Documents against Borrower and the Property, including all rights or
remedies available at law or in equity; and upon any Event of Default described
in clauses (vi), (vii) or (viii) above, the Debt and all other obligations of
Borrower hereunder and under the other Loan Documents shall immediately and
automatically become due and payable, without notice or demand, and Borrower
hereby expressly waives any such notice or demand, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
Section 8.2 REMEDIES.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents executed and
delivered by Borrower or at law or in equity may be exercised by Lender at any
time and from time to time, whether or not all or any of the Debt shall be
declared due and payable, and whether or not Lender shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan Documents. Any such actions taken by Lender shall
be cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, Borrower agrees
that if an Event of Default is continuing (i) Lender is not subject to any "one
action" or "election of remedies" law or rule and (ii) all liens and other
rights, remedies or privileges provided to Lender shall remain in full force and
effect until Lender has exhausted all of its remedies.
(c) Subject to the Property Loan Documents, Lender shall have the right
from time to time to sever the Note and the other Loan Documents into one or
more separate notes, mortgages and other security documents in such
denominations as Lender shall determine in its sole discretion for purposes of
evidencing and enforcing its rights and remedies provided hereunder. Borrower
shall execute and deliver to Lender from time to time, promptly after the
request of Lender, a severance agreement and such other documents as Lender
shall request in order to effect the severance described in the preceding
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sentence, all in form and substance reasonably satisfactory to Lender. In the
event Borrower fails to execute within five (5) days, Borrower hereby absolutely
and irrevocably appoints Lender as its true and lawful attorney, coupled with an
interest, in its name and stead to make and execute all documents necessary or
desirable to effect the aforesaid severance, Borrower ratifying all that its
said attorney shall do by virtue thereof.
Section 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of Lender
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Borrower shall not be construed to be a waiver of any subsequent Default or
Event of Default by Borrower or to impair any remedy, right or power consequent
thereon.
IX. SPECIAL PROVISIONS
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Section 9.1 SALE OF NOTE AND SECONDARY MARKET TRANSACTION.
9.1.1 COOPERATION. At Lender's request (to the extent not already required
to be provided by Borrower under this Agreement), Borrower, at no cost and
expense to Borrower, shall use reasonable efforts to satisfy the market
standards to which Lender customarily adheres or which may be reasonably
required in the marketplace or by the Rating Agencies in connection with one or
more sales or assignments of the Note or participations therein or
securitizations of rated single or multiclass securities (the "Securities")
secured by or evidencing ownership interests in the Note and the Mortgage (each
such sale, assignment, participation and/or securitization, a "Secondary Market
Transaction"). Without limiting the generality of the foregoing, Borrower shall,
at the request of Lender in connection with any Secondary Market Transaction, at
no cost and expense to Borrower and so long as the Loan is still outstanding:
(a) (i) provide such financial and other information with respect to the
Property, Borrower and its Affiliates, Manager and any tenants of the Property
in Borrower's possession, (ii) provide business plans and budgets relating to
the Property and (iii) subject to the Property Loan Documents perform or permit
or cause to be performed or permitted such site inspection, appraisals, surveys,
market studies, environmental reviews and reports (Phase I's and, if
appropriate, Phase II's), engineering reports and other due diligence
investigations of the Property, as may be reasonably requested from time to time
by Lender or the Rating Agencies or as may be necessary or appropriate in
connection with a Secondary Market Transaction or Exchange Act requirements (the
items provided to Lender pursuant to this paragraph (a) being called the
"Provided Information"), together, if customary, with appropriate verification
of and/or consents to the Provided Information through letters of auditors or
opinions of counsel of independent attorneys acceptable to Lender and the Rating
Agencies;
(b) at Borrower's expense, cause counsel to render opinions as to
non-consolidation, fraudulent conveyance, true sale and true contribution and
any other opinion customary in securitization transactions with respect to the
Property, Borrower and its Affiliates, which counsel and opinions shall be
reasonably satisfactory to Lender and the Rating Agencies;
(c) make such representations and warranties as of the closing date of any
Secondary Market Transaction with respect to the Property, Borrower and the Loan
Documents as are customarily provided in such transactions and as may be
reasonably requested by Lender or the Rating Agencies and consistent with the
facts covered by such representations and warranties as they exist on the date
thereof, including the representations and warranties made in the Loan
Documents;
(d) provide current certificates of good standing and qualification with
respect to Borrower from appropriate Governmental Authorities; and
(e) execute such amendments to the Loan Documents and Borrower's
organizational documents, enter into a lock-box or similar arrangement with
respect to the Rents and establish and fund such reserve funds (including
reserve funds for deferred maintenance and capital improvements) as may be
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requested by Lender or the Rating Agencies or otherwise to effect a Secondary
Market Transaction, provided that nothing contained in this subsection (e) shall
result in a material economic change in the transaction.
Lender shall pay all reasonable third party costs and expenses incurred by
Lender in connection with a Secondary Market Transaction
9.1.2 USE OF INFORMATION. Borrower understands that all or any portion of
the Provided Information and the Required Records may be included in disclosure
documents in connection with a Secondary Market Transaction, including a
prospectus or private placement memorandum (each, a "Disclosure Document") and
may also be included in filings with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
provided or made available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers or other parties relating
to the Secondary Market Transaction. In the event that the Disclosure Document
is required to be revised, Borrower shall cooperate with Lender in updating the
Provided Information or Required Records for inclusion or summary in the
Disclosure Document or for other use reasonably required in connection with a
Secondary Market Transaction by providing all current information pertaining to
Borrower, Manager and the Property necessary to keep the Disclosure Document
accurate and complete in all material respects with respect to such matters.
Such disclosure may include the opinion or judgment of Lender or Servicer
concerning the Provided Information or other matters disclosed, and despite
reasonable good faith efforts by Lender and/or Servicer, the disclosure may be
erroneous or incomplete. Borrower hereby consents to any and all such
disclosures of such information.
9.1.3 BORROWER OBLIGATIONS REGARDING DISCLOSURE DOCUMENTS. In connection
with a Disclosure Document, Borrower shall:
(a) if requested by Lender, certify in writing that Borrower has carefully
examined those portions of such Disclosure Document, pertaining to Borrower, the
Property, the Manager and the Loan, including applicable portions of the
sections entitled "Special Considerations", "Description of the Mortgages",
"Description of the Mortgage Loans and Mortgaged Property", "The Manager", "The
Borrower" and "Certain Legal Aspects of the Mortgage Loan", and such portions
(and portions of any other sections reasonably requested and pertaining to
Borrower, the Property, the Manager or the Loan) do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
were made, not misleading;
(b) indemnify (i) any underwriter, syndicate member or placement agent
(collectively, the "Underwriters") retained by Lender or its issuing company
affiliate (the "Issuer") in connection with a Secondary Market Transaction, (ii)
Lender and (iii) the Issuer that is named in the Disclosure Document or
registration statement relating to a Secondary Market Transaction (the
"Registration Statement"), and each of the Issuer's directors, each of its
officers who have signed the Registration Statement and each person or entity
who controls the Issuer or the Lender within the meaning of Section 15 of the
Securities Act or Section 30 of the Exchange Act (collectively within (iii), the
"CCA Group"), and each of its directors and each person who controls each of the
Underwriters, within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act (collectively, the "Underwriter Group") for any losses,
claims, damages or liabilities (the "Liabilities") to which Lender, the CCA
Group or the Underwriter Group may become subject (including reimbursing all of
them for any legal or other expenses actually incurred in connection with
investigating or defending the Liabilities) insofar as the Liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any of the Required Records or in any of the
applicable portions of such sections of the Disclosure Document applicable to
Borrower, Manager, the Property (but only to the extent such information is
supplied by Borrower) or the Loan, or arise out of or are based upon the
Borrower's omission or alleged omission to state therein a material fact
required to be stated in the applicable portions of such sections or necessary
in order to make the statements in the applicable portions of such sections in
light of the circumstances under which they were made, not materially
misleading, provided, however, that Borrower shall not be required to indemnify
Lender for any Liabilities relating to untrue statements or omissions which
Borrower identified to Lender in writing at the time of Borrower's examination
of such Disclosure Document; and
(c) reimburse any member of the CCA Group for any legal or other expenses
reasonably incurred by such member in connection with investigating or defending
the Liabilities.
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Borrower's Liability under clause (a) or (b) above shall be limited to
Liabilities arising out of or based upon any such materially untrue statement or
omission made therein in reliance upon and in conformity with information
furnished to Lender by or on behalf of Borrower in connection with the
preparation of those portions of the Disclosure Document pertaining to Borrower,
Manager, the Property (but only to the extent such information is supplied by
Borrower) or the Loan or in connection with the underwriting of the debt,
including financial statements of Borrower, operating statements, rent rolls and
other Required Records, environmental site assessment reports and property
condition reports with respect to the Property. The foregoing indemnity will be
in addition to any liability which Borrower may otherwise have.
9.1.4 BORROWER INDEMNITY REGARDING FILINGS. In connection with filings
under the Exchange Act, Borrower shall (i) indemnify Lender, the CCA Group and
the Underwriter Group for any Liabilities to which Lender, the CCA Group or the
Underwriter Group may become subject insofar as the Liabilities arise out of or
are based upon the Borrower's omission or alleged omission to state in the
Provided Information or Required Records a material fact required to be stated
by Borrower in the Provided Information or Required Records in order to make the
statements in the Provided Information or Required Records, in light of the
circumstances under which they were made not misleading and (ii) reimburse
Lender, the CCA Group or the Underwriter Group for any legal or other expenses
actually incurred by Lender, CCA Group or the Underwriter Group in connection
with defending or investigating the Liabilities.
9.1.5 INDEMNIFICATION PROCEDURE. Promptly after receipt by an indemnified
party under Section 9.1.3 or 9.1.4 of notice of the commencement of any action
for which a claim for indemnification is to be made against Borrower, such
indemnified party shall notify Borrower in writing of such commencement, but the
omission to so notify the Borrower will not relieve Borrower from any liability
that it may have to any indemnified party hereunder except to the extent that
failure to notify causes prejudice to Borrower. In the event that any action is
brought against any indemnified party, and it notifies Borrower of the
commencement thereof, Borrower will be entitled, jointly with any other
indemnifying party, to participate therein and, to the extent that it (or they)
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice of commencement, to assume the defense thereof
with counsel satisfactory to such indemnified party in its discretion. After
notice from Borrower to such indemnified party under this Section 9.1.5,
Borrower shall not be responsible for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, if the defendants in
any such action include both Borrower and an indemnified party, and any
indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to Borrower, then the indemnified party or
parties shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Borrower shall not be liable for the expenses
of more than one separate counsel unless there are legal defenses available to
it that are different from or additional to those available to another
indemnified party.
9.1.6 CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 9.1.3
or 9.1.4 is for any reason held to be unenforceable by an indemnified party in
respect of any Liabilities (or action in respect thereof) referred to therein
which would otherwise be indemnifiable under Section 9.1.3 or 9.1.4, Borrower
shall contribute to the amount paid or payable by the indemnified party as a
result of such Liabilities (or action in respect thereof); provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person not guilty of such fraudulent misrepresentation. In determining the
amount of contribution to which the respective parties are entitled, the
following factors shall be considered: (i) the CCA Group's and Borrower's
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted; (ii) the opportunity to correct and prevent any
statement or omission; and (iii) any other equitable considerations appropriate
in the circumstances. Lender and Borrower hereby agree that it may not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation.
9.1.7 RATING SURVEILLANCE. Lender will retain the Rating Agencies to
provide rating surveillance services on Securities. The pro rata expenses of
such surveillance will be paid for by Borrower based on the applicable
percentage of such expenses determined by dividing the then outstanding
Principal by the then aggregate outstanding amount of the pool created in the
Secondary Market Transaction which includes the Loan.
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Section 9.2 RESERVED.
Section 9.3 RESERVED.
Section 9.4 EXCULPATION. Subject to the qualifications below, Lender shall
not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in the Note, this Agreement or the other Loan Documents by
any action or proceeding wherein a money judgment shall be sought against
Borrower, except that subject to the provisions of the Loan Documents governing
remedies, Lender may bring a foreclosure action, an action for specific
performance or any other appropriate action or proceeding to enable Lender to
enforce and realize upon its interest under the Note, this Agreement and the
other Loan Documents, or any other collateral given to Lender pursuant to the
Loan Documents; provided, however, that, except as specifically provided herein,
any judgment in any such action or proceeding shall be enforceable against
Borrower only to the extent of Borrower's interest in the Property Loan, the
Property, in the Rents and in any other collateral given to Lender, and Lender,
by accepting the Note, the Mortgage and the other Loan Documents, agrees that it
shall not sue for, seek or demand any deficiency judgment against Borrower in
any such action or proceeding under or by reason of or under or in connection
with the Note, this Agreement or the other Loan Documents. The provisions of
this section shall not, however, (a) constitute a waiver, release or impairment
of any obligation evidenced or secured by any of the Loan Documents; (b) impair
the right of Lender to name Borrower as a party defendant in any action or suit
for foreclosure and sale under the Loan Documents; (c) affect the validity or
enforceability of or any guaranty made in connection with the Loan or any of the
rights and remedies of Lender thereunder; (d) constitute a prohibition against
Lender commencing any other appropriate action or proceeding in order for Lender
to fully realize the security granted by the Mortgage or to exercise its
remedies against the Property; or (e) constitute a waiver of the right of Lender
to enforce the liability and obligation of Borrower, by money judgment or
otherwise, to the extent of any loss, damage, cost, expense, liability, claim or
other obligation incurred by Lender (including attorneys' fees and costs
reasonably incurred) arising out of or in connection with the following:
(i) fraud or intentional misrepresentation by Borrower or any guarantor in
connection with the Loan;
(ii) the gross negligence or willful misconduct of Borrower;
(iii) the misapplication or conversion by Borrower of (A) any insurance
proceeds paid by reason of any loss, damage or destruction to the Property, (B)
any awards or other amounts received in connection with the condemnation of all
or a portion of the Property, or (C) any Rents following an Event of Default;
and
(iv) Borrower's indemnification of Lender set forth in Section 9.2.
Notwithstanding anything to the contrary in this Agreement or any of the Loan
Documents, (x) Lender shall not be deemed to have waived any right which Lender
may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the
U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by
the Mortgage or to require that all collateral shall continue to secure all of
the Debt owing to Lender in accordance with the Loan Documents, and (y) the Debt
shall be fully recourse to Borrower in the event that: (aa) the first full
monthly payment of principal and interest under the Note is not paid when due;
(bb) Borrower fails to permit on site inspections of the Property, fails to
provide financial information, fails to maintain its status as a single purpose
entity or fails to appoint a new property manager upon the request of Lender
after an Event of Default, each as required by, and in accordance with the terms
and provisions of, this Loan Agreement; (cc) Borrower fails to obtain Lender's
prior written consent to any subordinate financing or other voluntary lien
encumbering the Property Loan; or (dd) Borrower fails to obtain Lender's prior
written consent to any assignment, transfer, or conveyance of the Property Loan
or any interest therein.
Section 9.5 TERMINATION OF MANAGER. If an Event of Default is continuing,
Borrower shall, at the request of Lender, use good faith efforts to cause the
termination of the Management Agreement and the replacement of the Manager with
a manager approved by Lender on terms and conditions satisfactory to Lender.
Section 9.6 RETENTION OF SERVICER. Lender reserves the right to retain the
Servicer to act as its agent hereunder with such powers as are specifically
delegated to the Servicer by Lender, whether pursuant to the terms of this
Agreement, the Pooling and Servicing Agreement or the Cash Collateral Account
Agreement or otherwise, together with such other powers as are reasonably
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incidental thereto. Borrower shall pay any reasonable fees and expenses of the
Servicer in connection with an assumption or modification of the Loan or
enforcement of the Loan Documents.
X. MISCELLANEOUS
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Section 10.1 SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Debt is outstanding and unpaid (but the accuracy
thereof shall be determined as of the Closing Date). Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the legal representatives, successors and assigns of such party. All
covenants, promises and agreements in this Agreement made by Borrower, shall
inure to the benefit of the respective legal representatives, successors and
assigns of Lender.
Section 10.2 LENDER'S DISCRETION. Whenever pursuant to this Agreement,
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.
Section 10.3 GOVERNING LAW.
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF ILLINOIS, AND MADE BY
LENDER AND ACCEPTED BY BORROWER IN THE STATE OF ILLINOIS, AND THE PROCEEDS OF
THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF ILLINOIS,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF
ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER
OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN CHICAGO, ILLINOIS, AND BORROWER AND LENDER WAIVE ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING, AND BORROWER AND LENDER HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CT CORPORATION, AS ITS AUTHORIZED AGENT TO ACCEPT
AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN CHICAGO,
ILLINOIS, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
ILLINOIS. BORROWER (i) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS
OF ITS AUTHORIZED AGENT HEREUNDER, (ii) MAY AT ANY TIME AND FROM TIME TO TIME
DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN CHICAGO, ILLINOIS
(WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS) AND
(iii) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN OFFICE IN CHICAGO, ILLINOIS OR IS DISSOLVED WITHOUT LEAVING A
SUCCESSOR.
Section 10.4 MODIFICATION, WAIVER IN WRITING. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
or of the Note, or of any other Loan Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
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purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.
Section 10.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the
part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under the Note or under any other Loan Document, or any other
instrument given as security therefor, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
future exercise, or the exercise of any other right, power, remedy or privilege.
In particular, and not by way of limitation, by accepting payment after the due
date of any amount payable under this Agreement, the Note or any other Loan
Document, Lender shall not be deemed to have waived any right either to require
prompt payment when due of all other amounts due under this Agreement, the Note
or the other Loan Documents, or to declare a default for failure to effect
prompt payment of any such other amount.
Section 10.6 NOTICES. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid or (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, addressed as follows (or at such other address
and person as shall be designated from time to time by any party hereto, as the
case may be, in a written notice to the other parties hereto in the manner
provided for in this Section):
If to Lender:
The Capital Company of America
c/o The Capital Company of America
Client Services, LLC
600 East Colinas Blvd., Suite 1300
Irving, Texas 75639
Attention: Legal Department
with copies to:
The Capital Company of America
311 S. Wacker Drive, Suite 5400
Chicago, Illinois 60606
Attention: David Murdoch, Jr.
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Steven R. Davidson
If to Borrower:
c/o Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Louis Conforti
with copies to:
Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: James F. Hoffman, Esq.
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg
and
Mayfair Joint Venture
LaSalle Land Partnership, L.P.
LaSalle Lake Investors
180 N. LaSalle St.
Chicago, Illinois 60601
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<PAGE>
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day.
Section 10.7 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR
OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND BORROWER ARE EACH HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER.
Section 10.8 HEADINGS. The Article and/or Section headings and the Table of
Contents in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.
Section 10.9 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable 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 Agreement.
Section 10.10 PREFERENCES. Lender shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments by Borrower to any
portion of the obligations of Borrower hereunder. To the extent Borrower makes a
payment or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 10.11 WAIVER OF NOTICE. Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice. To the extent permitted by law,
Borrower hereby expressly waives the right to receive any notice from Lender
with respect to any matter for which this Agreement or the other Loan Documents
do not specifically and expressly provide for the giving of notice by Lender to
Borrower.
Section 10.12 REMEDIES OF BORROWER. In the event that a claim or
adjudication is made that Lender or its agents, including Servicer, have acted
unreasonably or unreasonably delayed acting in any case where by law or under
this Agreement or the other Loan Documents, Lender or such agent, as the case
may be, has an obligation to act reasonably or promptly, Borrower agrees that
neither Lender nor its agents, including Servicer, shall be liable for any
monetary damages, and Borrower's sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
Section 10.13 EXPENSES; INDEMNITY.
(a) Except as otherwise provided in this Agreement, Borrower covenants and
agrees to reimburse Lender (or the holder of the Loan, as applicable) upon
receipt of written notice from such holder for all reasonable costs and expenses
(including reasonable attorneys' fees and disbursements) incurred by Lender in
connection with (i) the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby and all the costs of furnishing all opinions by
counsel for Borrower (including any opinions requested by Lender as to any legal
matters arising under this Agreement or the other Loan Documents with respect to
the Property); (ii) Borrower's ongoing performance of and compliance with
Borrower's respective agreements and covenants contained in this Agreement and
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<PAGE>
the other Loan Documents on its part to be performed or complied with after the
Closing Date, including confirming compliance with environmental and insurance
requirements; (iii) Lender's ongoing performance and compliance with all
agreements and conditions contained in this Agreement and the other Loan
Documents on its part to be performed or complied with after the Closing Date;
(iv) the negotiation, preparation, execution, delivery and administration of any
consents, amendments, waivers or other modifications to this Agreement and the
other Loan Documents and any other documents or matters requested by Lender; (v)
Borrower complying with any requests made pursuant to Section 9.1 hereof
(subject to the limitations contained in such section); (vi) the filing and
recording fees and expenses, title insurance and reasonable fees and expenses of
counsel for providing to Lender all required legal opinions, and other similar
expenses incurred in creating and perfecting the Liens in favor of Lender
pursuant to this Agreement and the other Loan Documents; (vii) enforcing or
preserving any rights, in response to third party claims or the prosecuting or
defending of any action or proceeding or other litigation, in each case against,
under or affecting Borrower, this Agreement, the other Loan Documents, the
Property, or any other security given for the Loan; and (viii) enforcing any
obligations of or collecting any payments due from Borrower under this
Agreement, the other Loan Documents or with respect to the Property or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a "work-out" or of any insolvency
or bankruptcy proceedings; provided, however, that Borrower shall not be liable
for the payment of any such costs and expenses to the extent the same arise by
reason of the gross negligence, illegal acts, fraud or willful misconduct of
Lender. Any costs and expenses due and payable to Lender hereunder which are not
paid by Borrower within ten (10) days after demand may be paid from any amounts
in the Cash Collateral Account, with notice thereof to Borrower.
(b) Borrower shall indemnify and hold harmless Lender from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel
for Lender in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not Lender shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against Lender
in any manner relating to or arising out of (i) any breach by Borrower of its
obligations under, or any material misrepresentation by Borrower contained in
this Agreement or the other Loan Documents, (ii) the use or intended use of the
proceeds of the Loan or (iii) any information provided by Borrower, or contained
in any documentation approved by Borrower and in any way relating to the
issuance, offering and sale of the Securities (collectively, the "Indemnified
Liabilities"); provided, however, that Borrower shall not have any obligation to
Lender hereunder to the extent that such Indemnified Liabilities arise from the
gross negligence, illegal acts, fraud or willful misconduct of Lender. To the
extent that the undertaking to indemnify and hold harmless set forth in the
preceding sentence may be unenforceable because it violates any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by Lender.
Section 10.14 EXHIBITS INCORPORATED. The Exhibits annexed hereto are hereby
incorporated herein as a part of this Agreement with the same effect as if set
forth in the body hereof.
Section 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's
interest in and to this Agreement, the Note and the other Loan Documents shall
take the same free and clear of all offsets, counterclaims or defenses which are
unrelated to such documents which Borrower may otherwise have against any
assignor of such documents, and no such unrelated counterclaim or defense shall
be interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon such documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.
Section 10.16 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lender intend
that the relationships created hereunder and under the other Loan Documents be
solely that of borrower and lender. Nothing herein or therein is intended to
create a joint venture, partnership, tenancy-in-common, or joint tenancy
relationship between Borrower and Lender nor to grant Lender any interest in the
Property other than that of mortgagee or lender.
Section 10.17 PUBLICITY. All news releases, publicity or advertising by
Borrower or their Affiliates through any media intended to reach the general
public which refers to the Loan Documents or the financing evidenced by the Loan
Documents, to Lender, CCA, the Loan purchaser, the Servicer or the trustee in a
Securitization shall be subject to the prior written approval of Lender.
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<PAGE>
Section 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest extent
Borrower may legally do so, Borrower waives all rights to a marshalling of the
assets of Borrower, Borrower's partners, if any, and others with interests in
Borrower, and of Borrower's properties, or to a sale in inverse order of
alienation in the event of foreclosure of the interests hereby created, and
agrees not to assert any right under any laws pertaining to the marshalling of
assets, the sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever to
defeat, reduce or affect the right of Lender under the Loan Documents to a sale
of the Property for the collection of the related indebtedness without any prior
or different resort for collection, of the right of Lender or any deed of trust
trustee to the payment of the related indebtedness out of the net proceeds of
the Property in preference to every other claimant whatsoever.
Section 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to
assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents, including Servicer.
Section 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of any
conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower and Lender hereby
each represents to the other that it has dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement. Borrower and Lender hereby
agree to indemnify and hold the other harmless from and against any and all
claims, liabilities, costs and expenses of any kind in any way relating to or
arising from a claim by any Person that such Person acted on behalf of the
indemnifying party in connection with the transactions contemplated herein. The
provisions of this Section 10.21 shall survive the expiration and termination of
this Agreement and the repayment of the Debt.
Section 10.22 NO THIRD PARTY BENEFICIARIES. This Agreement and the other
Loan Documents are solely for the benefit of Lender and Borrower and nothing
contained in this Agreement or the other Loan Documents shall be deemed to
confer upon anyone other than Lender and Borrower any right to insist upon or to
enforce the performance or observance of any of the obligations contained herein
or therein. All conditions to the obligations of Lender to make the Loan
hereunder are imposed solely and exclusively for the benefit of Lender and no
other Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that Lender will refuse to
make the Loan in the absence of strict compliance with any or all thereof and no
other Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lender if, in Lender's sole discretion, Lender deems it advisable or desirable
to do so.
Section 10.23 PRIOR AGREEMENTS. This Agreement and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between such parties, whether oral or written, are superseded by the terms of
this Agreement and the other Loan Documents.
Section 10.24 INTERPRETATION. Notwithstanding anything to the contrary in
this Agreement or the other Loan Documents, all references in this Loan
Agreement and the other Loan Documents to "the continuance of an Event of
Default until cured" or analogous language shall specifically require the
acceptance by Lender, in its sole discretion, of such cure for such Event of
Default to be deemed cured.
[signatures contained on following page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
BORROWER: 180 N. LASALLE, L.L.C.
--------
By: Prime Group Realty, L.P., a Delaware limited
partnership, as Administrative Member
By: Prime Group Realty Trust, a Maryland real
estate investment trust, as managing
general partner
By: /s/ Louis Conforti
- - ---------------------- Name: Louis Conforti
Title: Senior Vice President
LENDER: THE CAPITAL COMPANY OF AMERICA LLC, a
------- Delaware limited liability company,
By:/s/ John Burke
------------------------
Name: John Burke
Title: Director
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SCHEDULE 1
----------
Matters Regarding Representations
---------------------------------
None.
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<PAGE>
SCHEDULE 2
----------
Rent Roll
---------
[Exhibit Omitted]
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SCHEDULE 3
----------
Required Repairs
----------------
Borrower shall complete the repairs described on the pages attached to this
Schedule 3 within one (1) year after the date of execution of this Agreement.
Borrower shall not be required to deposit or cause to be deposited with Lender
any sums in connection with said repairs.
EXHIBIT A
---------
Form of Guaranty
----------------
EXHIBIT B
---------
Form of Note
------------
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EXHIBIT C
---------
List of Property Loan Documents
-------------------------------
[Exhibit Omitted]
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<PAGE>
EXHIBIT D
---------
Form of Rate Lock Agreement
---------------------------
Date
Name Title
BorSponsor
Address1 Address2
City, State PostalCode
Re: Interest Rate Lock Agreement
----------------------------
Gentlemen:
BorSponsor ("Borrower's Sponsor") and The Capital Company of America LLC
("Lender") have entered into a Commitment Letter dated as of CmtLtrDate (the
"Commitment Letter") whereby Lender intends, subject to the conditions set forth
therein, to make a fixed rate permanent mortgage loan (the "Loan") to a special
purpose entity (the "Borrower") in the anticipated principal amount of up to
$PermLoanAmt (the "Anticipated Loan Amount") secured by the real property and
other assets (the "Property") set forth in the Commitment Letter with an
effective maturity of EffTerm years. Prior to the closing of the Loan,
Borrower's Sponsor has requested Lender to rate lock (the "Rate Lock") an amount
equal to the Anticipated Loan Amount and to lock an interest rate (the "Locked
Loan Rate") for the Loan prior to Lender's completion of due diligence on the
Property and prior to the satisfaction of other conditions to closing set forth
in the Commitment Letter. In order to grant Borrower's Sponsor's request,
Borrower's Sponsor and Lender agree as follows:
1. Terms not otherwise defined herein or on Annex A attached hereto shall have
the meaning set forth in the Commitment Letter.
2. Borrower's Sponsor shall deposit with Lender an amount equal to two percent
(2%) of the Anticipated Loan Amount (the "Initial Rate Lock Deposit").
Hereinafter, the term "Rate Lock Deposit" shall mean the Initial Rate Lock
Deposit and any Additional Rate Lock Deposit as hereinafter defined.
Subject to the conditions set forth below, the Locked Loan Rate on the
Anticipated Loan Amount shall be set at (i) LoanSpread% the (" Loan Spread
") plus (ii) the "Benchmark Treasury Rate". The "Benchmark Treasury Rate"
shall be equal to the Benchmark Swap Rate minus the Benchmark Swap Spread.
The "Benchmark Swap Spread" shall be the then prevailing bid side forward
swap spread for EffTerm year interest rate swaps MonthsFwd months forward.
The "Benchmark Swap Rate" shall be the then prevailing offer rate on a
forward interest rate swap beginning onExpClosDate and maturing on
EffMaturDate versus 3 month LIBOR assuming semi-annual payments calculated
on a 30/360 basis. The Rate Lock shall be executed upon (i) Borrower's
Sponsor's deposit of the Initial Rate Lock Deposit and (ii) a request via
telephone by Borrower's Sponsor to Lender requesting Lender to lock the
interest rate in accordance with the terms of this Agreement. Lender shall
within three business days confirm in writing to Borrower's Sponsor the
Locked Loan Rate, the Benchmark Treasury Rate, the Benchmark Swap Rate and
the Benchmark Swap Spread. The Locked Loan Rate shall be applicable with
respect to the Anticipated Loan Amount only if the Loan is funded at any
time from the date hereof through the earlier of (i) 12:00 p.m. (New York
Time) ExpClosDate or (ii) the termination of the Commitment Letter (the
"Rate Lock Period"). In addition, during the term of this Agreement,
Borrower's Sponsor shall pay Lender in advance, a fee each month equal to 8
basis points multiplied by the Anticipated Loan Amount.
3. (a) If, in the good faith opinion of Lender, at any time during the Rate
Lock Period, Lender determines that there are Losses hereunder equal to or
greater than 50% of the Rate Lock Deposit, Borrower's Sponsor will be
required, no later than 1:00 p.m. (New York Time) on the business day
following notice of any such Losses (the "Losses Payment Date") to deposit
with Lender (by wire transfer of immediately available funds) the amount of
such Losses which amount shall be known as an "Additional Rate Lock
Deposit". Borrower's Sponsor's failure to pay Lender the Additional Rate
Lock Deposit by 1:00 p.m. (New York Time) on the Losses Payment Date will
result in a default hereunder and under the Commitment Letter and Lender
may, at its sole discretion, at any time thereafter fully or partially
terminate the Rate Lock.
(b) If, in the good faith opinion of Lender, at any time, it
appears that the actual principal amount of the Loan will be less than the
Anticipated Loan Amount (such reduced amount, the "Revised Loan Amount"), Lender
may break the Rate Lock with respect to the difference between the Anticipated
Loan Amount and the Revised Loan Amount. In such event, the Locked Loan Rate
will not be applicable to such amount, and, in the event that there are Losses
on account of such breakage, Borrower's Sponsor shall pay to Lender Lender's
Expenses, if any, via wire transfer within two business days following delivery
of notice by Lender of such Losses. Failure of Borrower's Sponsor to pay such
Lender's Expenses will result in a default hereunder and under the Commitment
Letter and/or the Loan Documents.
4. In the event that the Loan is funded in an amount at least equal to the
Anticipated Loan Amount on or prior to the expiration of the Rate Lock
Period, neither Borrower, Borrower's Sponsor nor Lender will have any
obligation to the other with respect to the Rate Lock, other than Lender's
obligation to either return the Rate Lock Deposit to Borrower's Sponsor or
apply it to pay fees and expenses associated with the closing of the Loan.
In the event that the Loan is funded in an amount which is less than the
Anticipated Loan Amount, Lender may break the Rate Lock with respect to
such Breakage Principal and shall apply the Rate Lock Deposit to Losses, if
any, which may result therefrom and then to fees and expenses associated
with closing the Loan. In the event that (i) the Rate Lock Period has
expired and Lender has not yet funded the Loan or (ii) there shall exist a
default hereunder, under the Commitment Letter and/or under the Loan
Documents, Lender may break the entire Rate Lock and Lender's only
obligation to Borrower's Sponsor and/or Borrower shall be to return the
Rate Lock Deposit after setting off Lender's Expenses. If the Rate Lock
Deposit is not sufficient to pay Lender's Expenses hereunder, Borrower's
Sponsor shall pay Lender the difference within two business days following
termination of the Rate Lock. Lender's right to fully or partially
terminate the Rate Lock pursuant to the terms of the Agreement is absolute
and is not conditioned upon the giving of any notice to Borrower or
Borrower's Sponsor.
In the event that the Loan is funded in an amount which is greater than the
Anticipated Loan Amount, the Locked Loan Rate will not be applicable to such
excess amount and the final interest rate on the Loan will be determined as set
forth in the Commitment Letter and/or Loan Documents.
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<PAGE>
5. Borrower's Sponsor acknowledges that Losses, if any, sustained due to
breaking the Rate Lock will be related, to a large extent, to movements in
the Breakage Benchmark Treasury Rate, as well as general movements in the
U.S. Treasury and related swap markets and any related changes to the yield
curve. Changes in the Breakage Benchmark Treasury Rate will be subject to
the then prevailing conditions of the U.S. Treasury market and related swap
markets which is subject to potentially rapid and extreme price
fluctuations and varying levels of liquidity. Therefore, any action taken
by Lender with respect to breaking the Rate Lock shall be taken by Lender
as promptly as practicable after taking into consideration the
circumstances surrounding the break of the Rate Lock, including, but not
limited to, the then prevailing conditions in the U.S. Treasury market and
the related swap markets. Because of the potentially volatile nature of the
U.S. Treasury market and the related swap markets, Lender has been granted
rights to act (or not act) in its sole discretion. Borrower's Sponsor and
Borrower acknowledge and accept Lender's right to act (or not act) in its
sole discretion as provided herein and waives any potential claim or cause
of action Borrower and/or Borrower's Sponsor may have against Lender with
respect to any action taken (or not taken) by Lender pursuant to the
provisions set forth herein. Borrower's Sponsor and Borrower further
acknowledge that based upon market conditions, there can be no degree of
certainty as to the rate of the Breakage Benchmark Treasury Rate used to
calculate Losses until the Rate Lock is actually terminated by Lender. In
addition, Borrower's Sponsor and Borrower acknowledge that the Anticipated
Loan Amount is not a commitment by Lender regarding the final size of the
Loan. Such amount will be determined according to the terms of the
Commitment Letter and/or Loan Documents.
6. The obligations of Borrower's Sponsor and Lender pursuant to this Agreement
are independent of their obligations pursuant to the Commitment Letter,
even in the event of a termination of the Rate Lock. This Agreement shall
in no way be construed to be a commitment by Lender or any affiliate to
fund the Loan or purchase or sell any securities on behalf of Borrower,
Borrower's Sponsor and/or any third party. In addition, this Agreement
shall in no way be construed to reduce Borrower's Sponsor and/or Borrower's
obligations pursuant to the Commitment Letter.
7. This Agreement shall terminate upon the earlier of (i) the expiration or
termination of the Rate Lock Period, (ii) any event which causes Lender's
commitment to fund the Loan to terminate, as set forth in the Commitment
Letter, (iii) any event which causes Lender to terminate the Rate Lock or
(iv) upon notice to Borrower and/or Borrower's Sponsor by Lender that it
does not intend to proceed with the Loan; provided, however, that this
Agreement shall survive until all obligations of the parties hereto have
been fully satisfied.
8. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York applicable to agreements made and to be
performed therein, notwithstanding any choice-of-law rules to the contrary.
The parties hereto hereby waive any and all right to a trial by jury in
connection with any and all matters relating hereto.
9. This Agreement may be executed in any number or counterparts, each of which
when so executed shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. Borrower's Sponsor and Borrower may not, without the prior written consent
of Lender, assign, transfer or set over to another, in whole or in part,
all or any part of their benefits, rights, duties and obligations
hereunder.
11. This Agreement may be amended, changed or modified by Borrower's Sponsor,
Borrower and Lender only by an instrument in writing setting forth the
terms of such change, modification or amendment, and signed by each party.
12. All notices, demands, consents or requests that are either required or
desired to be given or furnished hereunder shall be in writing and shall be
sent to the appropriate party at the following address: (i) if to Borrower
and/or Borrower's Sponsor, at the address set forth on the first page
hereof, Attention: Name and (ii) if to Lender, at the address set forth
on the first page hereof, Attention: Banker with a copy of such notice
to the same address, Attention: Barry M. Funt, Esq., General Counsel. Any
such notice sent by means of telecopy shall be deemed to be received on the
day such telecopy is sent once orally confirmed by sender by telephone.
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<PAGE>
13. This Agreement constitutes the entire and final agreement between
Borrower's Sponsor and/or Borrower and Lender with respect to the subject
matter hereof, and there are no other agreements, understandings,
undertakings, representations or warranties among the parties hereto with
respect to the subject matter hereof except as set forth herein.
14. Each of Borrower's Sponsor and Borrower agrees to indemnify and hold Lender
and each of its affiliates (including its officers, directors, partners,
employees and agents) harmless against any and all losses, claims damages,
costs, expenses or liabilities in connection with, arising out of or as a
result of the transactions and matters referred to or contemplated by this
Agreement, except to the extent that it is finally judicially determined
that any such loss, claim, damage, cost, expense or liability results
primarily from the gross negligence or bad faith of such indemnified party
or any of its agents or representatives.
If the foregoing is in accordance with your understanding of our Agreement,
please sign and return to the undersigned a counterpart hereof, whereupon this
Agreement and your acceptance shall represent a binding agreement by and among
Borrower's Sponsor, Borrower and Lender.
Very truly yours,
THE CAPITAL COMPANY OF AMERICA LLC
By:___________________________
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above.
BorSponsor
on behalf if itself and Borrower
By:______________________
Name:
Title:
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<PAGE>
Annex A
-------
"BENCHMARK SWAP SPREAD" shall mean, at the time of the Rate Lock, the then
prevailing bid side forward swap spread for EffTerm year interest rate swaps
MonthsFwd months forward.
"BENCHMARK SWAP RATE" shall mean, at the time of the Rate
Lock, the then prevailing offer rate on a forward interest rate swap beginning
on ExpClosDate and maturing on EffMaturDate versus 3 month LIBOR
assuming semi-annual payments calculated on a 30/360 basis.
"BENCHMARK TREASURY RATE" shall mean the Benchmark Swap Rate minus the
Benchmark Swap Spread.
"BREAKAGE AMOUNT" means an amount equal to the product of (i) the Breakage
Principal and (ii) the Price Difference.
"BREAKAGE BENCHMARK TREASURY RATE" shall mean the Spot Swap Rate minus the
Spot Swap Spread.
"BREAKAGE PRINCIPAL" means at the time of calculation, (A) in connection
with breakage associated with reductions to the Anticipated Loan Amount pursuant
to Section 3(b), the amount of such reductions or (B) in connection with
breakage associated with the closing of the Permanent Loan or the termination of
the Rate Lock, the difference of (i) the Anticipated Loan Amount minus (ii) any
reductions to the Anticipated Loan Amount pursuant to Section 3(b) minus (iii)
the Permanent Loan Amount.
"INTENDED PAYMENTS" means, for the purpose of the calculation of the Price
Difference, each and every payment of principal and/or interest that would have
been made with respect to the Loan had the Loan closed with a principal amount
equal to the Anticipated Loan Amount on the date breakage is calculated with an
interest rate equal to the Locked Loan Rate assuming that the principal is
repaid in full in EffTerm years and assuming that the Loan is otherwise
consistent with the terms of the Commitment Letter.
"LENDER'S EXPENSES" means the sum of (a) Losses, plus (b) all fees,
commissions and other expenses (including reasonable attorneys' fees) incurred
by Lender in connection with the closing out of all or any portion of the Rate
Lock or otherwise in connection with this Agreement.
"LOCKED LOAN RATE" means the Benchmark Treasury Rate plus the Loan Spread.
"LOSSES" means the Breakage Amount if the Breakage Amount is a positive
number.
"PRICE DIFFERENCE" means, as of the time of calculation, the difference
obtained by subtracting (i) 1 from (ii) the quotient obtained by dividing (1)
the present value (as determined below) of the Intended Payments, determined as
if the Loan were funded on the day of calculation, by (2) the Anticipated Loan
Amount. The present value of the Intended Payments shall be calculated by
discounting the Intended Payments by the Breakage Benchmark Treasury Rate plus
the Loan Spread. The Price Difference can be either positive or negative.
"PERMANENT LOAN AMOUNT" means the actual funded amount of the Loan.
"SPOT SWAP SPREAD" means, at the time of calculation, the then prevailing
offer side swap spread for EffTerm year interest rate swaps.
"SPOT SWAP RATE" means, at the time of calculation, the then prevailing bid
rate on a EffTerm year interest rate swap versus 3 month LIBOR.
-50-
<TABLE>
EXHIBIT 12.1
PRIME GROUP REALTY TRUST AND THE PREDECESSOR
STATEMENTS REGARDING COMPUTATION OF RATIOS OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED SHARE DISTRIBUTIONS
(Dollars in Thousands)
<CAPTION>
PRIME GROUP REALTY
TRUST - HISTORICAL PREDECESSOR - HISTORICAL
---------------------------- -------------------------------------------------------------
PERIOD FROM
PERIOD FROM JANUARY 1,
NOVEMBER 17, 1997
YEAR ENDED 1997 THROUGH THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, NOVEMBER 16, ---------------------------------------------
1998 1997 1997 1996 1995 1994
------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Income (loss) before preferred share
distributions and minority interest
per the consolidated/combined
financial statements............... $ 30,866 $ 1,427 $ (29,050) $ (31,417) $ (29,576) $ (22,062)
Interest expense..................... 30,901 1,680 34,417 37,217 36,234 33,387
Amortization of debt issuance costs 1,230 140 630 594 1,148 714
========================= =============================================================
Earnings............................. $ 62,997 $ 3,247 $ 5,997 $ 6,394 $ 7,806 $ 12,039
========================= =============================================================
Fixed Charges
Interest expense..................... $ 30,901 $ 1,680 $ 34,417 $ 37,217 $ 36,234 $ 33,387
Capitalization of interest expense... 2,498 -- -- -- -- --
Amortization of debt issuance costs.. 1,230 140 630 594 1,148 714
Preferred share distributions........ 7,971 345 -- -- -- --
========================= =============================================================
Total fixed charges.................. $ 42,600 $ 2,165 $ 35,047 $ 37,811 $ 37,382 $ 34,101
========================= =============================================================
Ratio of earnings to combined fixed
charges and preferred share
distributions...................... 1.48 1.50 -- -- -- --
========================= =============================================================
Excess (deficit) of earnings to
combined fixed charges and
preferred share distributions....... $ 20,397 $ 1,082 $ (29,050) $ (31,417) $ (29,576) $ (22,062)
========================= =============================================================
Funds from Operations
Funds from operations................ $ 46,762 $ 3,619 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Interest expense..................... 30,901 1,680 34,417 37,217 36,234 33,387
Amortization of debt issuance costs.. 1,230 140 630 594 1,148 714
Preferred share distributions........ 7,971 345 -- -- -- --
========================= =============================================================
Adjusted funds from operations....... $ 86,864 $ 5,784 $ 20,586 $ 20,444 $ 24,649 $ 21,171
========================= =============================================================
Fixed Charges
Interest expense..................... $ 30,901 $ 1,680 $ 34,417 $ 37,217 $ 36,234 $ 33,387
Capitalization of interest expense... 2,498 -- -- -- -- --
Amortization of debt issuance costs.. 1,230 140 630 594 1,148 714
Preferred share distributions........ 7,971 345 -- -- -- --
========================= =============================================================
Total fixed charges.................. $ 42,600 $ 2,165 $ 35,047 $ 37,811 $ 37,382 $ 34,101
========================= =============================================================
Ratio of funds from operations to
combined fixed charges and
preferred share distributions....... 2.04 2.67 -- -- -- --
========================= =============================================================
Excess (deficit) of funds from
operations to combined fixed
charges and preferred share
distributions....................... $ 44,264 $ 3,619 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
========================= =============================================================
</TABLE>
F-32
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The Company has direct or indirect interests in the following entities which
hold title or interest in the Company's properties.
DOMESTIC
NAME JURISDICTION
- - ------------------------------------------------------ ------------
Prime Group Realty, L.P. Delaware
Prime Group Realty Services, Inc. Maryland
77 West Wacker Limited Partnership Illinois
Nashville Office Building I, Ltd. Tennessee
Professional Plaza, Ltd. Tennessee
Old Kingston Properties, Ltd. Tennessee
Centre Square II, Ltd. Tennessee
Triad Parking Company, Ltd. Tennessee
Hammond Enterprise Center Limited Partnership Illinois
East Chicago Enterprise Center Limited Partnership Illinois
Enterprise Center I, L.P. Illinois
Enterprise Center II, L.P. Illinois
Enterprise Center III, L.P. Illinois
Enterprise Center IV, L.P. Illinois
Enterprise Center V, L.P. Illinois
Enterprise Center VI, L.P. Illinois
Enterprise Center VII, L.P. Illinois
Enterprise Center VIII, L.P. Illinois
Enterprise Center IX, L.P. Illinois
Enterprise Center X, L.P. Illinois
Arlington Heights I, L.P. Illinois
Arlington Heights II, L.P. Illinois
Arlington Heights III, L.P. Illinois
Kemper/Prime Industrial Partners Illinois
77 Fitness Center, L.P. Illinois
1990 Algonquin Road, L.L.C. Delaware
2010 Algonquin Road, L.L.C. Delaware
555 Huehl Road, L.L.C. Delaware
1699 E. Woodfield Road, L.L.C. Delaware
475 Superior Avenue, L.L.C. Delaware
Enterprise Drive, L.L.C. Delaware
280 Shuman Blvd., L.L.C. Delaware
2675 N. Mayfair Road, L.L.C. Delaware
Prime Columbus Industrial, L.L.C. Delaware
Libertyville Tech Way, L.L.C. Delaware
801 Technology Way, L.L.C. Delaware
3818 Grandville, L.L.C. Delaware
306 Era Drive, L.L.C. Delaware
1301 Ridgeview Drive, L.L.C. Delaware
515 Huehl Road, L.L.C. Delaware
455 Academy Drive, L.L.C. Delaware
1051 N. Kirk Road, L.L.C. Delaware
4211 Madison Street, L.L.C. Delaware
200 E. Fullerton, L.L.C. Delaware
350 Randy Road, L.L.C. Delaware
4300 Madison Street, L.L.C. Delaware
370 Carol Lane, L.L.C. Delaware
388 Carol Lane, L.L.C. Delaware
941 Weigel Drive, L.L.C. Delaware
342 Carol Lane, L.L.C. Delaware
343 Carol Lane, L.L.C. Delaware
371 N. Gary Avenue, L.L.C. Delaware
1600 167th Street, L.L.C. Delaware
1301 E. Tower Road, L.L.C. Delaware
4343 Commerce Court, L.L.C. Delaware
11039 Gage Avenue, L.L.C. Delaware
11045 Gage Avenue, L.L.C. Delaware
1401 S. Jefferson, L.L.C. Delaware
4100 Madison Street, L.L.C. Delaware
4160 Madison Street, L.L.C. Delaware
550 Kehoe Blvd., L.L.C. Delaware
Prime/Beilter Development Company, L.L.C. Delaware
Michigan - Adams, L.L.C. Delaware
-1-
<PAGE>
DOMESTIC
NAME JURISDICTION
- - ------------------------------------------------------ ------------
Phoenix Office, L.L.C. Delaware
2100 Swift Drive, L.L.C. Delaware
LaSalle - Adams, L.L.C. Delaware
Wilke - Ventura, L.L.C. Delaware
33 N. Dearborn, L.L.C. Delaware
33 N. Dearborn SPC, Inc. Delaware
6400 Shafer Court, L.L.C. Delaware
2000 York Road, L.L.C. Delaware
Two Century Centre, L.L.C. Delaware
180 N. LaSalle, L.L.C. Delaware
33 W. Monroe, L.L.C. Delaware
Libertyville Corporate Office Park, L.L.C. Delaware
Oak Brook Business Center, L.L.C. Delaware
330 N. Wabash Avenue, L.L.C. Delaware
BRE/City Center, L.L.C. Delaware
300 Craig Place, L.L.C. Delaware
DeKalb Business Park, L.L.C. Delaware
Prime Aurora, L.L.C. Delaware
Prime Rolling Meadows, L.L.C. Delaware
Monroe-Wacker, L.L.C. Delaware
Kimberly-East, L.L.C. Delaware
901 Technology Way, L.L.C. Delaware
2000 USG Drive, L.L.C. Delaware
180 Kehoe Blvd., L.L.C. Delaware
PGR Finance I, Inc. Delaware
PGR Finance II, Inc. Delaware
PGR Finance III, Inc. Delaware
PGR Finance IV, Inc. Delaware
PGR Finance V, Inc. Delaware
PGR Finance VI, Inc. Delaware
PGR Finance VII, Inc. Delaware
PGR Finance VIII, Inc. Delaware
PGR Finance IX, Inc. Delaware
PGR Finance X, Inc. Delaware
PGR Finance XI, Inc. Delaware
PGR Finance XII, Inc. Delaware
PGR Finance XIII, Inc. Delaware
-2-
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
Form S-3 (No. 333-70369) of Prime Group Realty Trust and in the Registration
Statement Form S-8 (No.333-65147) pertaining to the Prime Group Realty Trust
Share Incentive Plan of our report dated March 24, 1999, with respect to the
consolidated financial statements of Prime Group Realty Trust included in the
Annual Report (Form 10-K) for the year ended December 31, 1998.
Our audits also included the financial statement schedule of Prime Group
Realty Trust listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion, based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<CASH> 46,500
<SECURITIES> 0
<RECEIVABLES> 116,675
<ALLOWANCES> 0
<INVENTORY> 131,688 <F1>
<CURRENT-ASSETS> 0
<PP&E> 894,407
<DEPRECIATION> (24,756)
<TOTAL-ASSETS> 1,164,514
<CURRENT-LIABILITIES> 221,341 <F2>
<BONDS> 593,168
0
60
<COMMON> 151
<OTHER-SE> 349,794
<TOTAL-LIABILITY-AND-EQUITY> 1,164,514
<SALES> 0
<TOTAL-REVENUES> 147,601
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 95,202 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,901
<INCOME-PRETAX> 21,498
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,253
<CHANGES> 0
<NET-INCOME> 20,245
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83
<FN>
<F1> Restricted cash escrows ($53,820), net deferred costs ($32,891), other
assets ($44,977)
<F2> Accrued Interest Payable ($2,440), accrued real estate taxes ($29,657),
accounts payable and accrued expenses ($26,068), liabilities for leases
assumed ($4,792), dividends declared ($8,080), other liabilities ($4,523)
and minority interest ($145,781)
<F3> Property operations ($29,598), real estate taxes ($25,077), depreciation
and amortization ($25,447), general and administrative ($5,712) and
minority interest allocation ($9,368)
</FN>
</TABLE>
