THE TENDER OFFER CONTEMPLATED IN THIS AGREEMENT HAS NOT YET COMMENCED, AND
THIS AGREEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN
OFFER TO SELL SECURITIES. ANY TENDER OFFER WILL BE MADE ONLY THROUGH AN
OFFER TO PURCHASE AND RELATED LETTER OF TRANSMITTAL. INVESTORS AND
SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE TENDER OFFER STATEMENT
REGARDING THE TENDER OFF IF AND WHEN SUCH DOCUMENT IS FILED AND BECOMES
AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.
ANY SUCH TENDER OFFER STATEMENT WOULD BE FILED BY CADIM INC. WITH THE SEC.
INVESTORS AND SECURITY HOLDERS MAY OBTAIN A FREE COPY OF THE TENDER OFFER
STATEMENT (IF AND WHEN FILED AND AVAILABLE) AND OTHER RELEVANT DOCUMENTS ON
THE SEC'S WEB SITE AT: ▇▇▇.▇▇▇.▇▇▇. ANY SUCH TENDER OFFER STATEMENT AND
RELATED MATERIALS MAY ALSO BE OBTAINED FOR FREE BY DIRECTING SUCH REQUESTS
TO CADIM INC. AT ▇▇▇-▇▇▇-▇▇▇▇.
Amended and Restated
Memorandum of Understanding
Parties: The Prime Group, Inc. ("PGI"), Prime Group VI,
L.P. ("PLP"), Primestone Investment Partners L.P.
("Primestone"), PG/Primestone, LLC, Prime Group
Limited Partnership ("Prime L.P."), ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and an entity to be formed by
an affiliate of Cadim inc. ("CDP"), an affiliate
of Caisse de depot et placement du Quebec. PGI,
PLP, Primestone, Prime L.P. and ▇▇▇▇▇▇▇ are
sometimes referred to collectively as the "PGI
Parties." For purposes of this MOU, CDP is
referred to as a "Party" and the PGI Parties are
collectively referred to as a "Party." This
Amended and Restated Memorandum of Understanding
(this "MOU") amends, restates and supersedes the
Memorandum of Understanding between the Parties
dated as of August 23, 2001.
Defined Entities: Prime Group Realty Trust, NYSE: PGE ("PGE"),
Prime Group Realty, L.P. ("PGLP"), and Cadim inc.
(or one of its assignees) ("Cadim")
Structure: Part 1 - Joint Tender Offer and Merger
--------------------------------------
CDP and PGI hereby agree to make a joint offer to
the board of PGE pursuant to which CDP and PGI
would offer to acquire all of the outstanding
shares of beneficial interest of PGE (including
preferred shares of beneficial interest) and
limited partnership units in PGLP at a per
share/unit price of $14.50 (the "Tender Price"),
excluding the 9% Series B Cumulative Redeemable
Shares of Beneficial Interest and any and all
shares/units currently owned by the PGI Parties
or any of their affiliates (the "Offer"). All
discussions pertaining to the Offer shall be held
jointly with PGE (or its special committee) by
the Parties and one Party shall not enter into
discussions without the other Party. The Offer
shall be made pursuant to a public tender offer
after the satisfactory completion of due
diligence by Cadim and the satisfaction of the
other conditions described below. Following the
receipt of the Minimum Shares (as defined below)
in the Offer, an entity owned and funded by CDP
and PGI ("Merger Co.") will merge (the "Merger")
with and into PGE with the common equity in PGE
held by CDP and the PGI Parties being unaffected
and the remaining common shareholders of PGE
receiving the same cash per share as is paid in
the Offer. The final forms of the Offer
documentation will be drafted by counsel to CDP,
subject to review by counsel to PGI.
The Offer will be conditioned on the following:
a. that no fewer than 51% of the
outstanding common shares of PGE and
common units in PGLP on a fully diluted
basis, less the number of common shares
of PGE and common units in PGLP held by
the PGI Parties and their affiliates
(the "Minimum Shares"), are tendered;
b. the execution (prior to the
commencement of the Offer) of a Merger
Agreement between PGE and Merger Co.
pursuant to which Merger Co. would be
merged with and into PGE after the
conclusion of the Offer (assuming that
at least the Minimum Shares are
tendered but less than 100% of the
outstanding shares/units are tendered
(other than the shares/units currently
owned by the PGI Parties and their
affiliates)). In the Merger Agreement,
the change of control put right of the
holders of the Series A Preferred
Shares of Beneficial Interest of PGE
shall have been resolved in a manner
satisfactory to CDP. In the Merger
Agreement, PGE shall agree:
i. to publicly support the Offer;
ii. to distribute all required
materials to its shareholders
and to the unitholders in PGLP;
iii. that the 9.9% ownership limit in
PGE's Declaration of Trust has
been entirely waived as to CDP
and the PGI Parties and that
such waiver shall not cause PGE
to fail to qualify as a REIT;
iv. that the conversion or exchange
of all units held by the PGI
Parties to common stock in PGE
has been approved and PGE's
right to acquire such units for
cash has been waived;
v. that the relevant "anti-takeover"
provisions of the Maryland
corporate statute have been
waived;
vi. that the resignation of all
PGE board members effective upon
the closing of the Offer and
their replacement by the
designees of CDP and PGI has been
approved;
2
vii. to exclusivity and standstill
provisions substantially
identical to those contained in
paragraph 3 of the PGE SSA; and
to pay an aggregate break-up fee
in the amount of $20.0 million
payable to Cadim (in addition to
the reimbursement of Cadim's
expenses) under normal and
customary circumstances;
c. the execution (prior to the commencement
of the Offer) of a Shareholders Agreement
(the "PGE Shareholders Agreement"), among
the PGI Parties and CDP, reflecting the
terms of this MOU;
d. the execution (prior to the
commencement of the Offer) by PGI and
CDP of (i) a definitive purchase
agreement and definitive shareholders
agreement or (ii) a definitive loan
agreement (the documents under (i) or
(ii) being called the "Residential
Newco Agreements") with respect to
Residential Newco (as defined below) as
described below under "Part 2 -
Residential Newco";
e. the execution (prior to the
commencement of the Offer) of
agreements by all Key Personnel to
enter into an Employment Agreement upon
the closing of the Offer (the form of
which shall be agreed upon by the Key
Personnel, CDP and the PGI Parties
prior to the commencement of the
Offer);
f. the execution (prior to the
commencement of the Offer) of an
agreement by ▇▇▇▇▇▇▇ to enter into the
▇▇▇▇▇▇▇ Employment Agreement (as
defined below) upon the closing of the
Offer (the form of which shall reflect
the terms described below under "Key
Personnel" and shall be agreed upon by
▇▇▇▇▇▇▇ and CDP prior to the
commencement of the Offer); and
g. CDP shall be reasonably satisfied prior to
the commencement of the Offer that, as of
the closing of the Offer and as of the
closing of the Merger, PGE will continue to
meet the REIT qualification requirements,
including, without limitation, that PGE is
not "closely held" within the meaning of
Section 856(h) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
counsel to PGE shall have provided an
opinion in form and substance reasonably
satisfactory to Cadim that: (i) commencing
with PGE's initial taxable year ending
December 31, 1997, PGE has been and is
organized in conformity with the
requirements for qualification as a REIT,
(ii) PGE's method of operation has enabled
it to meet the requirements for
qualification and taxation as a REIT and
(iii) PGE's proposed method of operation
will enable it to continue to meet the
requirements for qualification as a REIT.
3
The Merger Agreement, the PGE Shareholders
Agreement, the Residential Newco Agreements, the
agreement with respect to the ▇▇▇▇▇▇▇ Employment
Agreement and the agreements with respect to the
employment agreements for the Key Personnel are
sometimes referred to herein as the "Transaction
Documents."
CDP, PGI and PGE have entered into a Support and
Standstill Agreement, dated as of August 30,
2001 (the "PGE SSA"), a copy of which is
attached hereto as Appendix A.
CDP, the PGI Parties and PG/Primestone, LLC have
entered into an Amended and Restated Support and
Standstill Agreement, dated as of August 30,
2001 (the "PGI SSA"), a copy of which is
attached hereto as Appendix B.
CDP and PGI agree to acquire all tendered
shares/units in the following order:
a. up to that number of tendered shares/units
equal to the number of shares of PGE and
units in PGLP held by the PGI Parties and
their affiliates on a fully diluted basis
shall be acquired by CDP; and
b. thereafter, all tendered shares/units,
if any, shall be acquired 49.5% by CDP,
49.5% by PGI, and 1.0% by other
individuals (the "Others") to be
designated by CDP and PGI during the
Due Diligence Period (as defined below)
(and, if applicable, the Fifteen-Day
Period (as defined below)).
All tendered units shall be converted to or
exchanged for common shares at or prior to the
closing of the Merger.
If at least the number of shares of PGE and
units in PGLP held by the PGI Parties and their
affiliates on a fully diluted basis are tendered
into the Offer, then Merger Co. shall be equally
funded and owned by CDP and PGI. If less than
the number of shares of PGE and units in PGLP
held by the PGI Parties and their affiliates on
a fully diluted basis are tendered into the
Offer, then Merger Co. shall be funded and owned
in such proportion between CDP and PGI as will
result in CDP owning that number of shares of
PGE after the Merger equal to the number of
shares of PGE and units in PGLP owned by the PGI
Parties after the Merger on a fully diluted
basis.
Upon successful completion of the Offer and the
Merger, CDP shall have acquired 13,076,074
shares at a cost of approximately $189,603,079
and PGI shall have acquired 4,618,203 shares at
a cost of approximately $66,963,944. The
resulting ownership of PGE would be as follows:
CDP 13,076,074
Others 264,164
▇▇▇▇▇▇▇ 134,881
PLP 304,097
Prime L.P. 74,000
PGI 4,618,203
Primestone 7,944,893
----------
Total 26,416,312
==========
4
After the closing of the Merger, each option
holder of PGE shall be paid an amount equal to
the product of (a) the number of shares subject
to vested options (the parties acknowledge that
all current unvested options will vest upon the
closing of the Merger) multiplied by (b) the
excess of the Tender Price over the exercise
price of such options.
An organization chart for the proposed
transaction is attached hereto as Appendix C.
The Parties will discuss during the Due
Diligence Period (and, if applicable, the
Fifteen-Day Period) whether ▇▇▇▇▇▇ ▇▇▇▇▇ or any
other holders of units in PGLP will participate
in the transactions contemplated by this MOU.
The Partnership Agreement of PGLP shall be
amended at the closing of the Offer so that PGE
shall have sole authority to make all decisions
relating to PGLP. PGE will not redeem its
existing Series B preferred shares and would
remain a 1934 Act reporting company.
The parties agree to structure CDP's and PGI's
investment in PGE in a manner to minimize the
U.S. and Canadian income tax consequences to CDP
and PGI.
Part 2 - Residential Newco
--------------------------
Cadim shall work diligently to perform due
diligence with the intent of acquiring a 50%
interest in a to be formed limited liability
company, which will be a private company
initially controlled by PGI, which will own the
entities that own the development sites located
at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, and
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, and
all related assets, including its development
personnel ("Residential Newco"). In connection
with such due diligence review, CDP shall be
allowed to obtain third party appraisals of
properties owned by Residential Newco. If CDP
and PGI cannot agree on a price at which the 50%
interest will be purchased prior to the end of
the Due Diligence Period (and, if applicable,
the Fifteen-Day Period), then, subject to the
conditions set forth below under "Due Diligence"
and "Other Funding Conditions," CDP will provide
financing to PGI in the amount of US $10 million
(the "Cadim Residential Newco Loan"), which
proceeds may be used by PGI solely to acquire
shares of PGE as described under Part 1 above.
Such loan shall have a term of sixty months,
shall have terms substantially identical to the
terms of the Cadim PGI Loan and shall be secured
by all of the equity in Residential Newco.
Separate Boards: Each of PGE and Residential Newco shall have
separate boards of directors.
Business Plan: The initial post-Offer business plan of PGE is set
forth on Appendix E.
Cadim PGI
Loan: PGI or its designated affiliate shall undertake
to invest a minimum cash amount of US $10.0
million towards its purchase of the additional
PGE common stock that it will acquire pursuant
to the Offer and the Merger. The difference of
approximately US $56,963,944 shall be funded
from the proceeds of a loan from Cadim to PGI
(the "Cadim PGI Loan"). The Cadim PGI Loan shall
have the following terms and such other terms as
set forth on Appendix F:
5
(a) Proceeds to acquire shares/units in
PGE/PGLP as per this MOU;
(b) Secured by (i) all shares/units
owned by the PGI Parties including
shares acquired in the Offer and the
Merger (other than those secured under
the Prudential Loan and the Vornado
Loan) and (ii) all equity held by the
PGI Parties in Residential Newco;
(c) Not to exceed $57,000,000 total loan
amount;
(d) No acceptance fee;
(e) No loan fee;
(f) No administrative fee;
(g) 20% interest per annum, paid
quarterly, with right to capitalize 10%
(which capitalized interest shall
become due and payable at the maturity
of the loan);
(h) Right to prepay at anytime in whole
or in part without any prepayment penalty;
(i) Coterminous with the Cadim Mezzanine
Loan (as defined below);
(j) Right of first offer (five-day);
(k) All distributions payable to PGI
shall be used first to pay interest of
10% on the Cadim PGI Loan, then 10% to
PGI on its equity, then to pay all
remaining accrued and unpaid interest
on the Cadim PGI Loan to Cadim. No
right of PGI to draw back on the Cadim
PGI Loan;
(l) to the extent necessary, if PGI
does not receive sufficient
distributions to pay required interest
on the Cadim PGI Loan for the first two
interest periods after the Cadim PGI
Loan is made, interest due and owing
for such period shall be deferred for a
12-month period, but only to the extent
of the shortfall and only until the
fourth quarterly interest payment date
after the date of deferral;
(m) If Cadim funds the Cadim PGI Loan
and either the Cadim Mezzanine Loan or
the Refinancing Loan (the "Cadim
Loans"), then Cadim shall release the
equity in Residential Newco that was
pledged to Cadim as security on the
Cadim PGI Loan twelve months after the
funding of the Cadim PGI Loan. If Cadim
funds the Cadim Loans and the combined
principal amount outstanding under the
Cadim Loans is less than $100,000,000,
then Cadim shall release up to 896,552
shares of PGE from the security on the
Cadim PGI Loan. In such event, PGI
shall be free to pledge the released
collateral to another lender; provided
such lender is a bank, insurance
company, pension fund or finance
company normally in the business of
making real estate loans and reasonably
acceptable to Cadim; and
6
(n) If Cadim funds the Cadim Loans,
Primestone shall be allowed to
refinance with a third party senior
secured lender acceptable to Cadim in
Cadim's sole discretion up to 40% of
the amount outstanding under the Cadim
Loans provided that (1) the security
for such refinanced loan is limited to
the proportionate collateral serving as
security for the portion of the Cadim
Loans that are being refinanced or such
additional collateral as Cadim shall
reasonably agree to permit, (2) the
loan does not materially impair
Primestone's or PGI's ability to repay
the Cadim Loans, (3) none of the Cadim
Loans are in default at the time of
refinancing and (4) Cadim, Primestone
and the third party lender enter into a
commercially reasonable intercreditor
agreement acceptable to Cadim.
Cadim Mezzanine
Loan: Primestone has pledged its interest in
approximately 7,944,893 units in PGLP to
Prudential Securities, Inc. ("Prudential") and
Vornado Realy Trust ("Vornado") on a subordinated
basis in order to secure a total financing of US
$102.0 M as follows :
(a) Prudential (the "Prudential Loan"), US $40 M
due Sept 25, 2001 at Libor + 1.50%
(b) Vornado (the "Vornado Loan"), approximately
US $62.0 M due Oct 25, 2001 at an all in
rate of 20%.
Cadim will (subject to its satisfactory
completion of due diligence and the satisfaction
of the other conditions set forth below under
"Other Funding Conditions") provide a new
secured loan to Primestone (the "Cadim Mezzanine
Loan") for the refinancing of each of the above
described loans. The Cadim Mezzanine Loan shall
have the following terms and such other terms as
set forth on Appendix G:
(a) Proceeds used (1) to refinance the
Prudential Loan and the Vornado Loan in
full (including any and all make-whole
or other payments in connection
therewith) and (2) to repay the LaSalle
Bank line of credit in full;
(b) Secured by (i) the 7,944,893 units
in PGLP (and subsequent common shares
upon exchange) which are currently
pledged under the Prudential Loan and
the Vornado Loan and (2) all common
shares and units released upon
repayment of the LaSalle Bank line of
credit;
(c) Up to $105,000,000 total loan amount;
(d) 400,000 non-refundable fee upon
Primestone's acceptance of Cadim's
commitment with respect to the Cadim
Mezzanine Loan;
7
(e) No administrative fee;
(f) 20% interest per annum, paid
quarterly, with right to capitalize 10%
(which capitalized interest shall
become due and payable at the maturity
of the loan);
(g) to the extent necessary, if
Primestone does not receive sufficient
distributions to pay required interest
on the Cadim Mezzanine Loan for the
first two interest periods after the
Cadim Mezzanine Loan is made, interest
due and owing for such period shall be
deferred for a 12-month period, but
only to the extent of the shortfall and
only until the fourth quarterly
interest payment date after the date of
deferral;
(h) prepayable at any time in whole or in
part without penalty;
(i) 60 month term; and
(j) PGI Parties responsible for all due
diligence costs to the extent not covered
under the PGE SSA.
Cadim acknowledges that the Cadim Mezzanine Loan
is subject to the right of first offer granted
to Vornado under the Vornado Loan. If Vornado
waives its right of first offer to fund the
Cadim Mezzanine Loan, Cadim shall agree to close
the Cadim Mezzanine Loan within thirty (30) days
thereafter subject to the successful completion
of due diligence as described below under "Due
Diligence" and the satisfaction of the
conditions described below under "Other Funding
Conditions."
If Vornado waives its right of first offer to
fund the Cadim Mezzanine Loan and Cadim has not
funded the Cadim Mezzanine Loan, then, provided
that Cadim has delivered the Notice (as defined
below) to PGE and PGI Parties, Cadim shall
provide a loan (the "Alternative Mezzanine
Loan") to Primestone on the terms and conditions
set forth on Appendix H.
Due Diligence: CDP's proposed investments in PGE and, if
applicable, Residential Newco and Cadim's
proposal concerning the Cadim PGI Loan, the
Cadim Mezzanine Loan, the Alternative Mezanine
Loan and, if applicable, the Cadim Residential
Newco Loan shall all be subject to a due
diligence period (the "Due Diligence Period")
that shall begin on the date hereof and end on
the earlier of (i) the date that is thirty (30)
days after the date hereof and (ii) the date on
which Cadim delivers the Notice (as defined
below). CDP and Cadim will conduct all
investigations, inspections, reviews and audits
and PGE, PGLP and the PGI Parties (in the case
of PGE, subject to its fiduciary
responsibilities) will provide to CDP and Cadim
and their professionals, advisors and
consultants, access to all information relating
to PGE, PGLP, Residential Newco, and the PGI
Parties, as CDP and Cadim may reasonably
require. If CDP and Cadim do not send the Notice
on or prior to the thirtieth day after the date
hereof, the transaction will be considered
terminated without recourse by either Party
against the other Party, except as provided
under "Legal Effect" below.
8
Other Funding
Conditions: In addition to the satisfactory completion of
due diligence by CDP and Cadim, the funding of
the Cadim PGI Loan, the Cadim Mezzanine Loan
and, if applicable, the Cadim Residential Newco
Loan shall be conditioned on the following:
(a) each of the Transaction Documents shall
have been executed by each party thereto;
(b) CDP shall be reasonably satisfied
that, as of the closing of the Offer
and as of the closing of the Merger,
PGE will continue to meet the REIT
qualification requirements, including,
without limitation, that PGE is not
"closely held" within the meaning of
Section 856(h) of the Code; and counsel
to PGE shall have provided an opinion
in form and substance reasonably
satisfactory to Cadim that: (i)
commencing with PGE's initial taxable
year ending December 31, 1997, PGE has
been and is organized in conformity
with the requirements for qualification
as a REIT, (ii) PGE's method of
operation has enabled it to meet the
requirements for qualification and
taxation as a REIT and (iii) PGE's
proposed method of operation will
enable it to continue to meet the
requirements for qualification as a
REIT; and
(c) Cadim shall be reasonably satisfied that
the Minimum Shares shall be tendered into
the Offer.
Costs and Expenses: Until the Offer is closed, each Party shall be
responsible for its own expenses paid to third
parties with respect to this transaction,
subject to any reimbursement of costs provided
under the PGE SSA or the PGI SSA. Upon the
closing of the Offer, all approved transaction
costs and fees incurred by the Parties from
inception of this transaction to the closing of
the Offer approved by Cadim and PGI, acting
reasonably, shall be paid by PGE. All costs
incurred by a Party in establishing its own
structure in order to proceed with the
investment shall be borne solely by that Party.
Except for those expenses paid by PGE pursuant
to the PGE SSA, all expenses incurred by and
fees payable to Cadim in connection with the
Cadim PGI Loan, the Cadim Residential Newco
Loan, the Cadim Mezzanine Loan, the Refinancing
Loan and the Alternative Mezzanine Loan shall be
paid to Cadim by PGI and Primestone, as
applicable. Furthermore, the Parties hereby
agree that, if the Offer is closed, all fees
payable to MacGregor Associates shall be payable
by PGE or Residential Newco, as applicable.
9
Proposed Time
Schedule: A proposed time schedule is attached as Appendix I.
The Parties acknowledge that the schedule is
subject to change due to a variety of factors,
including, among others, the necessity of the
Fifteen-Day Period (as defined below).
Management: The current management of PGE and Residential
Newco will remain employees of PGE and
Residential Newco, respectively, and will be
responsible for day-to-day management, subject
to the Budgets, Business Plans and other
Agreements which shall be prepared by PGE or
Residential Newco, as applicable, and
pre-approved by CDP and PGI in accordance with
the governance rules as described below.
Key Personnel: During the Due Diligence Period, PGI shall
provide CDP with a list of proposed Key
Personnel and their proposed responsibilities
with PGE and Residential Newco. Each Key
Personnel reviewed and then accepted by CDP
shall be subject to an employment agreement. In
addition, ▇▇▇▇▇▇▇ will be appointed as chairman
of PGE and Residential Newco for the term of the
▇▇▇▇▇▇▇ Employment Contract. ▇▇▇▇▇▇▇ will commit
a minimum of 90% of his time to the business of
PGE and Residential Newco for a minimum term of
five years from the closing of the Offer. During
this period of time, ▇▇▇▇▇▇▇ will have to own a
minimum of 10% of the equity in each of PGE and
Residential Newco (in the form of shares or
units). ▇▇▇▇▇▇▇'▇ employment and role as the
chairman will be subject to certain termination
clauses that shall include bankruptcy, fraud,
failure to commit 90% of his time to the
business of Residential Newco and PGE and
failure to maintain a 10% share of the equity in
each of PGE and Residential Newco. ▇▇▇▇▇▇▇ will
sign an employment contract (the "▇▇▇▇▇▇▇
Employment Contract") to reflect the terms and
conditions described in this document.
Agreements: During the Due Diligence Period, the Parties will
use their reasonable best efforts to prepare,
negotiate and, if CDP and Cadim decide to
proceed, execute all necessary agreements
required to properly document this transaction,
including the Transaction Documents and
definitive agreements related to the Cadim PGI
Loan and the Cadim Mezzanine Loan. If Cadim
provides written notice (the "Notice") to PGE
and the PGI Parties at any time on or prior to
the expiration of the Due Diligence Period that
it intends to proceed with the Offer and the
Merger at the offer price of $14.50 per share
(subject to appropriate adjustment for any
issuance of equity securities of PGE or PGLP),
the Parties will use their reasonable best
efforts to continue to negotiate in good faith
and execute definitive Transaction Documents and
definitive agreements related to the Cadim PGI
Loan and the Cadim Mezzanine Loan (or, if
applicable, the Alternative Mezzanine Loan)
during the 15-day period following the date on
which Cadim provides the Notice to PGE and the
PGI Parties (such period being the "Fifteen-Day
Period"). The agreements will incorporate all of
the elements of this MOU appropriately detailed
as well as the necessary representations and
warranties reasonably required by the Parties.
Notwithstanding the generality of the foregoing,
the PGI Parties (other than ▇▇▇▇▇▇▇) shall give
adequate representations and warranties (the
qualifiers to which shall be determined during
the Due Diligence Period) and indemnification.
Such representations, warranties and
indemnification shall survive the closing of the
Offer and the Merger until April 1, 2003.
10
Governance:
A) Committees
(i) Residential Newco and PGE will each have a board of directors
(or board of trustees, board of managers or the equivalent)
(each, a "Board"), each comprised of 5 members as follows:
1. two (2) seats named by PGI
2. two (2) seats named by CDP
3. one (1) independent (to be agreed upon mutually by
the Parties before the expiration of the Due
Diligence Period (and, if applicable, the
Expiration Period))
Each Board will meet separately at least every 3 months
and at least one meeting per year for each board must be
held in ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇.
If, at any time after the closing of the Merger, CDP's
ownership of shares of PGE and units of PGLP is less than
35% of the then outstanding shares and units of PGE and
PGLP, then CDP shall lose its right to appoint Board
members as provided herein and the existing directors
named by CDP shall immediately resign or shall be
removed. If, at any time after the closing of the Merger,
the PGI Parties' ownership of shares of PGE and units of
PGLP is less than 35% of the then outstanding shares and
units of PGE and PGLP, then PGI shall lose its right to
appoint Board members as provided herein and the existing
directors named by PGI shall immediately resign or shall
be removed.
(ii) Residential Newco and PGE will each have other committees
their respective Board will create including an Audit
Committee, which shall exclude any members from
management of either PGE or Residential Newco.
Residential Newco and PGE will pay all reasonable
expenses incurred by each of their respective Board
members in assuming their role and will provide them with
adequate responsibility insurance.
B) Decision process
The approval of 75% of the Board for each of Residential Newco and
PGE will be required to decide on all "Major Decisions" of the
respective companies unless the shareholders are required to
decide under applicable law.
C) Major Decisions which shall separately apply for each of
Residential Newco and PGE or any of their respective subsidiaries:
1. Approval of the business plan and modifications.
2. Approval of the annual budget and changes to or deviations from
it resulting in a variance of 5% or more on the overall budget.
3. Redemption and issuance of any securities as well as any
modifications to the capital structure.
4. Acquisitions and investments that result in the necessity for
the shareholders (or unit holders) to invest additional
equity into the company or that the equity requirement
exceeds US $10 million or that does not meet the
Investment Criteria or that involves a deviation to the
Environmental Policy.
5. Any disposition of assets of more than US $10 million other than
as approved in the annual budget.
11
6. Approval and modification to the Financing Policy. The Parties
will prepare and agree to a detailed Financing Policy
prior to the commencement of the Offer. The policy will
incorporate elements of both the investment financing and
corporate financing. In preparing the policy, the
management will incorporate the following criteria:
a) Maximum leverage: 70% of any specified asset and 50% of
the total assets, measured once a year, based on the
fair market value;
b) The specific asset financing must provide recourse
only to that specific asset and the corporate
financing cannot be recourse to the shareholders
in any way, shape or form. For greater
certainty, the shareholders will never be
required to pledge any assets except their
respective ownership interest.
7. Merger, consolidation, reorganization or other business
combination.
8. Filing for bankruptcy, or liquidation or dissolution.
9. Changes to the tax or legal structure.
10. Related party transactions and major decisions with regard to
these transactions, it being agreed that the Party in
conflict of interest will refrain from voting.
11. Requiring capital contribution not deriving from an adopted
budget or from a legal obligation.
12. Litigation and settlement involving more than US $1 M.
13. Approval and modification to the Distribution Policy. The
Parties will prepare and agree to a detailed Distribution
Policy prior to the commencement of the Offer. The
Distribution Policy shall provide for quarterly distributions
to the extent of available cash and shall provide for all
distributions necessary for PGE to maintain its REIT
status. In addition, the policy must incorporate elements
aimed at maximizing the distributions to the shareholders
without jeopardizing the ability of each company to grow
as per the Business Plan.
14. Public announcements that mention Cadim, CDP, PGE, Primestone
or PGI or any affiliates or related entities.
15. Approval and modification to the Environmental Policy. The
Parties will prepare and agree to a detailed Environmental
Policy prior to the commencement of the Offer. In order to
facilitate the preparation of the policy, CDP will
provide the management with its standard requirements for
environmental matters.
16. Approval and modification to the Remuneration Policy. The
Parties will prepare and agree to a detailed Remuneration
Policy prior to the commencement of the Offer. The policy will
incorporate the total remuneration package for all
employees, including Key Personnel, present and future.
17. Approval and modification to the Banking Policy, detailing the
level of delegation and signing authority for the
executives. The Parties will prepare and agree to a
Banking Policy prior to the commencement of the Offer.
18. Modification of the Year End.
12
19. Modification of the following Investment Criteria:
Internal Rate of Return: Minimum 25% on equity invested, before
tax and transaction costs.
Size: no single or related investments, on a gross asset
basis (equity plus related debt) should represent more
than 20% of the assets of Residential Newco or PGE, as
applicable, after the transactions contemplated by this
MOU are consummated.
Geographic asset allocation (on a gross asset basis), within
the U.S.:
o 50% to 100% Mid-west
o 35% to 50% Eastern
o 15% to 30% Western
20. Election of the Independent Board Member.
Transfer
Restrictions: No transfer of any PGE shares or PGLP units
shall be permitted if it results in loss of
domestically controlled status. CDP and each of
the PGI Parties will be prohibited for a period
of two (2) years from transferring their shares
(or units) (other than for a "Permitted
Transfer") without the consent of the other
Party, in its sole discretion. A "Permitted
Transfer" is either a pledge or a transfer to an
Affiliate.
The PGI Parties and CDP will have a right of
first refusal (see the procedure below) on the
shares (or units) of a transferring entity (if
the Parties are not prohibited from transferring
shares) other than for Permitted Transfers.
Buy - Sell: This clause can only be invoked after the
two-year standstill period as described above or
earlier by a non-defaulting Party if there is a
default by the other Party and after a cure
period of 10 days for minor defaults (no right
to cure for major defaults). The list of
defaults to be agreed prior to the end of the
Due Diligence Period (and, if applicable, the
Fifteen-Day Period).
13
> The initiating Party stipulates its desire to sell its
shares or units at Fair Market Value (the most recent
appraisal price or, if the appraisal is more than 6
months old, at an updated appraisal price);
> The non-initiating Party is then obligated to either sell
all of its shares or units for cash at that price or
purchase all of the shares (or units) then owned by the
initiating Party at that price for cash;
> The non-initiating Party has 90 days to agree to buy or sell
the shares or units with an additional 90 days to close.
Right of First
Offer Procedure: The initiating Party stipulates a per-share purchase
price based on the Fair Market Value (as
described in the Buy-Sell), and sets forth
terms and conditions for the sale of its shares
(or units) (the "Sale Offer");
> The non-initiating Party has 90 days to:
a) accept the Sale Offer and purchase,
within 90 days, all of the shares (or
units) then owned by the initiating
Party at the purchase price and upon
the terms and conditions set forth in
the Sale Offer; or
b) refuse the Sale Offer. The initiating
Party then has 90 days to conclude with
a prospective buyer a term sheet ("Term
Sheet"), conditional upon, among other
things, due diligence. The Term Sheet
must, upon its conclusion, be submitted
to the non-initiating Party, who has
then 30 days to either: (i) purchase
within 90 days all of the shares (or
units) of the initiating Party at the
price and on the conditions specified
in the Term Sheet, (ii) let the
initiating Party sell its shares (or
units) to the third party, at the
price and on the conditions specified
in the Term Sheet or (iii) request that
the tag-along clause stipulated
hereunder be applied.
If, at the expiration of the buyer's due
diligence period, the specified share price is
in any way adjusted, the above-mentioned 30-day
procedure must once again be executed, unless
the new specified price is higher than the Fair
Market Value.
Drag-Along Right: A selling Party can force a non-selling
Party owning less than 25% of the outstanding
shares or units to sell its shares or units to
the third party on the same terms and conditions
as the selling Party.
Tag-Along Right: If one Party agrees to sell to a third
party, subject to the other provisions of this
MOU, then the third party must offer to purchase
the non-selling Party's shares or units on the
same terms and conditions.
14
Additional Capital
Contributions: Following the closing of the Offer and the
closing of the Merger, the Parties will not be
required to make additional capital
contributions. If additional capital is required
according to an approved Budget, or if either
Residential Newco or PGE is legally compelled to
pay an amount not anticipated in a Budget, or
required for an investment not anticipated in a
Budget and if both Parties authorize the
investment (as a Major Decision), then both
Parties must make a capital contribution.
Contributions will be made pro-rata among
contributing Parties based on ownership
interest. If a Party fails to contribute, then
the contributing Party may loan such unfunded
amount as a priority loan at a rate of 20% per
annum compounded monthly or receive additional
shares issued at a 10% discount to the Fair
Market Value (as described above) at the will of
the contributing Party.
Appraisal: An appraisal of the assets of Residential Newco and
PGE will be conducted every 3 years and updated
annually.
Financial
Statements: Residential Newco and PGE each will provide the
information necessary for CDP and Cadim to satisfy
the reporting requirements outlined on Appendix J.
Year End: The year end for each company will be
December 31; however, in order to meet CDP's
reporting deadlines, each company will prepare
audited financial statements as of November 30
each year and an additional financial statement
for tax purposes as of December 31.
Choice of law: This MOU shall be governed by and construed in
accordance with the laws of the State of Illinois.
Confidentiality: The existence of the current discussions between
the Parties concerning the transactions
contemplated by this MOU or the joint effort to
conclude a transaction and all information
related to it will be kept confidential unless
otherwise agreed to in writing by the Parties or
as otherwise required by law or regulation;
provided, however, that no Party shall make any
public disclosure required by law or regulation
unless such disclosure has been provided to the
other Party at least one full business day
before such public disclosure.
Legal Effect: This MOU shall be binding on the Parties, subject
to the Due Diligence Period (and, if applicable,
the Fifteen-Day Period) as outlined herein, the
approval of the Board of Directors of CDP and Cadim
(to be obtained on or prior to the expiration of the
Due Diligence Period) and the execution of mutually
acceptable definitive documentation.
In the event that (a) the transaction is not
approved by the respective decision making
entities of CDP and Cadim during the Due
Diligence Period or (b) definitive Transaction
Documents and definitive agreements related to
the Cadim PGI Loan and the Cadim Mezzanine Loan
(or, if applicable, the Alternative Mezzanine
Loan) are not executed during the Due Diligence
Period (and, if applicable, the Fifteen-Day
Period), then in either such event, this MOU
shall be null and void and shall have no legal
effect except for the Representations and the
Indemnification clauses set forth below.
15
Representations: Each of (a) CDP and (b) each of the PGI Parties
and PG/Primestone, LLC, jointly and severally,
represents and warrants to the other Party that
it has full power and authority to enter into
this MOU and to carry out the transactions to be
carried out by it as contemplated herein, and
that this MOU has been duly and validly executed
and delivered by it, and constitutes the legal,
valid and binding obligation of it, enforceable
in accordance with its terms, except as such
enforceability may be limited by applicable
bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time
in effect which affect creditors' rights
generally, and by legal and equitable
limitations on the availability of specific
remedies. Each of (a) CDP and (b) each of the
PGI Parties and PG/Primestone, LLC, jointly and
severally, represents and warrants to the other
Party that the execution, delivery and
performance by it of this MOU and all other
transactions, instruments, agreements,
certificates and documents contemplated hereby
do not (i) violate any decree or judgment of any
court or governmental authority which may be
applicable to it; (ii) violate any law (or
regulation promulgated under any law); (iii)
violate any decree or judgment of any court or
governmental authority binding on it; (iv)
violate or conflict with, or result in a breach
of, or constitute a default (or an event which,
with or without notice or lapse of time or both,
would constitute a default) under, or permit
cancellation of, any agreement to which it or
any of its affiliates is a party, or by which it
or any of its affiliates is bound (other than
(x) the right of first offer set forth in that
certain Loan Agreement, dated as of September
26, 2000, among Primestone, PGI, ▇▇▇▇▇▇▇ and
Vornado PS, L.L.C. as it may relate to the Cadim
Mezzanine Loan and (y) the requirement under (1)
a loan agreement between 300 ▇. ▇▇▇▇▇▇▇, L.L.C.
and Cosmopolitan Bank and Trust Company and (2)
a loan agreement between ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Venture and Lumbermens Mutual Casualty Company,
each of which will require lender consent to
certain of the transactions contemplated by this
MOU); or (v) as to PGI, PLP, Primestone, Prime
L.P., PG/Primestone, LLC and CDP, violate or
conflict with any provision of its articles of
incorporation, charter, by-laws, agreement of
limited partnership, operating agreement or
similar organizational document.
Each of the PGI Parties, jointly and severally,
represents and warrants that there are no
agreements or understandings prohibiting or in
any way limiting or restricting the sale of the
Dearborn Center, other than required consents
set forth in the loan documents and partnership
agreement relating to the Dearborn Center
project. Each of the PGI Parties, jointly and
severally, represents and warrants that the PGI
Parties are not negotiating with any other third
parties regarding the submission of an
Acquisition Proposal.
16
Each of the PGI Parties and PG/Primestone, LLC,
jointly and severally, represents and warrants
that, as of the date of this MOU, the PGI
Parties hold an aggregate of 465,453 common
shares and 7,992,418 common units in PGLP,
consisting of the following: (a) ▇▇▇▇▇▇▇ holds
134,881 common shares of beneficial interest of
PGE, (b) PLP holds 256,572 common shares of
beneficial interest of PGE and 47,525 common
units in PGLP, (c) Primestone holds 7,944,893
common units in PGLP, (d) Prime L.P. holds
74,000 common shares of beneficial interest of
PGE, (e) none of the PGI Parties or any of their
affiliates owns, directly or indirectly, any
other shares of beneficial interest of PGE or
any other partnership units in PGLP. Each of the
PGI Parties and PG/Primestone, LLC, jointly and
severally, represents that PG/Primestone, LLC is
the only general partner of Primestone and PGI
is the only limited partner of Primestone.
Indemnification: Each of the PGI Parties, jointly and severally,
agrees to indemnify CDP and Cadim and their
officers, directors, employees, agents and
affiliates in respect of, and hold each of them
harmless from and against any and all losses,
liabilities, claims or expenses suffered,
incurred or sustained by any of them or to which
any of them becomes subject, resulting from,
arising out of or relating to, any breach of a
representation or warranty on the part of the
PGI Parties or PG/Primestone, LLC made in the
preceding section.
Transition Period: Until such time as (i) the closing has
occurred or (ii) CDP has withdrawn from the
transaction, neither PGI nor Residential Newco
will make any distribution to its shareholders
or members, as applicable, and will disclose and
provide detailed information to CDP and Cadim on
every transaction committed or closed in order
for CDP and Cadim to evaluate the impact on the
transaction.
17
The Parties have agreed to the terms and conditions contained in
this Amended and Restated Memorandum of Understanding on this 30th day of
August, 2001:
The Prime Group, Inc.
By:__________________________________________________
Its:_________________________________________________
Prime Group VI, L.P.
By: PGLP, Inc., its general partner
By:_________________________________________________
Its:________________________________________________
Primestone Investment Partners L.P.
By: PG/Primestone, LLC, its Managing General Partner
By: The Prime Group, Inc., its Administrative Member
By:__________________________________________________
Its:_________________________________________________
PG/Primestone, LLC
By: The Prime Group, Inc., its Administrative Member
By:__________________________________________________
Its:_________________________________________________
Prime Group Limited Partnership
By: _________________________________________________
Its:_________________________________________________
______________________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Cadim inc.
Per:_________________________________________________
Its:_________________________________________________
Per:_________________________________________________
Its:_________________________________________________
18