MEMORANDUM OF UNDERSTANDING MOU
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."), Xxxxxxx X. Xxxxxxx ("XXXXXXX") 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 Xxxxxxx 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."
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 $14.00 (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 completion of a thirty (30) day due diligence period
(the "DUE DILIGENCE PERIOD"), which period shall commence
upon the execution by CDP, PGI and PGE of an appropriate
Standstill and Support Agreement as described below (the
"PGE SSA") and the execution by CDP, the PGI Parties and
PG/Primestone, LLC of an appropriate Standstill and Support
Agreement as described below (the "PGI SSA"). 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, in addition to those agreements described below
in connection with the PGE SSA:
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; and
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.
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;
2
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 Xxxxxxx to enter into the Xxxxxxx
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 Xxxxxxx 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.
The Merger Agreement, the PGE Shareholders Agreement, the
Residential Newco Agreements, the agreement with respect to
the Xxxxxxx 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 and PGI shall enter into the PGE SSA with PGE that
commits PGE, among other things: (a) to provide all
necessary assistance to CDP and the PGI Parties during the
Due Diligence Period; (b) to prepare and file all necessary
documentation required by any state or federal regulatory
agencies; (c) not to solicit any other parties to acquire
all or any substantial interest in PGE, PGLP, or their
respective assets or
3
subsidiaries; (d) not to make any distributions to
shareholders or unitholders other than the payment of the
regular quarterly dividend; (e) to pay a break-up fee of
$25,000,000 (which shall be divided equally between CDP and
PGI), payable to CDP and PGI in the event PGE agrees to
accept a higher unsolicited bid and the board of PGE
determines that the acceptance of such higher bid is in the
best interests of PGE and PGE elects to terminate all
Transaction Documents to which it is a party, including the
PGE SSA; and (f) in all events, and in addition to the
payment of a break-up fee described in (e) above, to
reimburse CDP, PGI and their affiliates for all
out-of-pocket expenses incurred in performing due diligence
and completing the Offer and the Merger.
CDP, the PGI Parties and PG/Primestone, LLC shall enter into
the PGI SSA that commits the PGI Parties among other things:
(a) to publicly support the Offer and to provide all
necessary assistance to CDP during the Due Diligence Period;
(b) to prepare and file all necessary documentation required
to be filed by the PGI Parties by any state or federal
regulatory agencies; (c) not to solicit and/or negotiate
with any other parties in violation of the provisions
described below under "Exclusivity"; (d) not to acquire,
directly or indirectly, any additional common shares of PGE
or units in PGLP, whether by purchase, exercise of option,
transfer or otherwise, including, without limitation, from
an affiliate; (e) concurrent with the closing of the Offer,
to convert or exchange all units in PGLP owned, directly or
indirectly, by such parties into or for common shares of
beneficial interest of PGE, (f) to vote all common shares of
PGE (including shares received upon the conversion or
exchange of units in PGLP) owned, directly or indirectly, by
such parties in favor of the Merger and (g) in all events,
and in addition to the payment of a break-up fee described
in the following sentence, to reimburse CDP and its
affiliates for all out-of-pocket expenses incurred in
performing due diligence with respect to Residential Newco
and the PGI Parties. In addition, the PGI SSA shall commit
the PGI Parties (other than Primestone) and PG/Primestone,
LLC to pay a break-up fee of $5,000,000, payable to CDP in
the event the PGI Parties violate clause (a), (c), (e)
and/or (f) of the prior sentence. In addition, in the PGI
SSA, (a) Primestone shall agree not to issue any additional
partnership interests other than to PG/Primestone, LLC or
PGI and (b) each of PGI and PG/Primestone, LLC shall agree
not to transfer any of its partnership units in Primestone,
including, without limitation, to any affiliate of such
party.
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
4
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 to be designated by CDP and PGI during the
Due Diligence Period (the "OTHERS").
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 $183,065,036 and PGI shall have acquired
4,618,203 shares at a cost of approximately $64,654,842. The
resulting ownership of PGE would be as follows:
CDP 13,076,074
Others 264,164
Xxxxxxx 134,881
PLP 304,097
Prime L.P. 74,000
PGI 4,618,203
Primestone 7,944,893
----------
TOTAL 26,416,312
==========
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 A. The Parties will discuss
during the Due Diligence Period whether Xxxxxx Xxxxx or any
other holders of units in PGLP will participate in the
transactions contemplated by this MOU.
5
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 000 Xxxxx
Xxxxxxxxx, Xxxxxxx, Xxxxxxxx, and 000 Xxxxx XxXxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx, and all related assets, including its
development personnel ("RESIDENTIAL NEWCO"). Residential
Newco will hold. 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, 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 C.
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 $54,654,842 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 D:
(a) Proceeds to acquire shares/units in PGE/PGLP as
per this MOU;
6
(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 $55,000,000 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 740,000 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
7
bank, insurance company, pension fund or finance
company normally in the business of making real estate
loans reasonably acceptable to Xxxxx; and
(n) If Cadim funds the Cadim Loans, Primestone shall
be allowed to refinance with a third party senior
secured lender acceptable to Xxxxx in Xxxxx'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 Xxxxx.
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) 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 E:
(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;
8
(d) $400,000 non-refundable fee upon Xxxxxxxxxx's
acceptance of Xxxxx's commitment with respect to the
Cadim Mezzanine Loan;
(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.
Xxxxx 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, Xxxxx 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 does not exercise its right of first offer to
fund the Cadim Mezzanine Loan, Xxxxx has not funded the
Cadim Mezzanine Loan and the Offer does not close, then
Cadim shall provide a loan (the "ALTERNATIVE MEZZANINE
LOAN") to Primestone on the terms and conditions set forth
on Appendix F.
DUE DILIGENCE: CDP's proposed investments in PGE and, if applicable,
Residential Newco and Xxxxx's proposal concerning the Cadim
PGI Loan, the Cadim Mezzanine Loan and, if applicable, the
Cadim Residential Newco Loan shall all be subject to a due
diligence period which shall end within thirty (30) days
from the later of the execution of the PGE SSA and the
execution of the PGI SSA. 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 Xxxxx
and their professionals, advisors and
9
consultants, access to all information relating to PGE,
PGLP, Residential Newco, and the PGI Parties, as CDP and
Cadim may reasonably require. At the end of the Due
Diligence Period, CDP and Cadim shall notify PGE, PGI and/or
Xxxxxxx, as necessary, in writing of their intention to
proceed with: (i) the Offer, (ii) the Residential Newco
Agreements and (iii) the Cadim PGI Loan and the Cadim
Mezzanine Loan, as applicable, as contemplated herein,
subject to the satisfaction of the conditions set forth
under "Other Funding Conditions" below. If CDP and Cadim do
not send a notice on or prior to the expiration of the Due
Diligence Period, the transaction will be considered
terminated without recourse by either Party against the
other Party, except as provided under "Legal Effect" below.
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) 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.
(b) Xxxxx 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 Xxxxx 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
10
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.
PROPOSED TIME A proposed time schedule is attached as Appendix G.
SCHEDULE:
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, Xxxxxxx will be
appointed as chairman of PGE and Residential Newco for the
term of the Xxxxxxx Employment Contract. Xxxxxxx 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, Xxxxxxx
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).
Xxxxxxx'x 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. Xxxxxxx will sign an employment contract
(the "XXXXXXX EMPLOYMENT CONTRACT") to reflect the terms and
conditions described in this document.
AGREEMENTS: During the Due Diligence Period, the Parties will prepare,
negotiate and, if CDP and Xxxxx 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. 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 Xxxxxxx) 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.
11
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)
Each Board will meet separately at least every 3 months and at least
one meeting per year for each board must be held in Montreal, Quebec,
Canada.
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.
12
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.
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
13
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.
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.:
- 50% to 100% Mid-west
- 35% to 50% Eastern
- 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.
14
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.
- 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.
15
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.
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 H.
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
16
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.
EXCLUSIVITY: Beginning on the date of this MOU and continuing, subject to
the last sentence of this paragraph, until the earliest to
occur of (A) 30 days from the date that the PGE SSA is
executed, (B) an earlier termination of this MOU by CDP or
Cadim, (C) five (5) business days after negotiations between
the Parties and PGE terminate or (D) such other date as the
Parties shall mutually agree (such period being called the
"EXCLUSIVITY PERIOD"), each of the PGI Parties agrees (a)
that it shall not, and shall use its best efforts to ensure
that its affiliates, officers, directors, representatives or
agents shall not, take any action, either directly or
indirectly, to initiate, assist, solicit or encourage, any
inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer
to its shareholders) with respect to (i) the refinancing of
the Prudential Loan or the Vornado Loan, any loans similar
to the Cadim Residential Newco Loan, the Cadim PGI Loan or
the Cadim Mezzanine Loan or any similar financing or
transaction (any such proposal or offer being hereinafter
referred to as a "REFINANCING PROPOSAL") or (ii) a
Transaction (as hereafter defined) involving PGE, PGLP, any
PGI Party or any of their affiliates, other than a
Transaction among CDP, the PGI Parties, PGLP and/or PGE and
their affiliates as contemplated by this MOU (any such
proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL") or engage in any negotiations
concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to a
Refinancing Proposal or an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or
implement a Refinancing Proposal or an Acquisition Proposal
or take any other action which may be reasonably expected to
lead to any Refinancing Proposal or Acquisition Proposal;
and (b) that it will immediately cease any existing
activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing
and will advise such parties that it is not in a position to
negotiate further with them during the Exclusivity Period;
PROVIDED, HOWEVER, that this Exclusivity Provision shall not
restrict Primestone from having discussions with Prudential
solely regarding the Prudential Loan or from having
discussions with Vornado solely related to Vornado's right
of first offer in connection with the Cadim Mezzanine Loan.
Notwithstanding the foregoing, Xxxxx and PGI agree to
discuss the circumstances under which the PGI Parties can
consider a Refinancing Proposal with a third party (but not
an Acquisition Proposal) in the event that the PGE SSA is
not executed. A "TRANSACTION" means a merger, acquisition,
tender offer, exchange offer, consolidation or similar
business combination transaction involving, or any purchase
of all or any significant portion of the assets of PGE,
PGLP, any PGI Party or any subsidiary of any of them, or any
other
17
sale, dividend, split, reorganization, recapitalization,
restructuring, spin-off or other disposition of equity
securities of PGE, PGLP, any PGI Party or any subsidiary of
any of them or any similar transaction involving, directly
or indirectly, PGE, PGLP, any PGI Party or any subsidiary of
any of them; PROVIDED, that a Transaction shall not include
a purchase, sale or other transaction involving assets owned
by a PGI Party or any subsidiary of a PGI Party which assets
are not related to shares or units of PGE or PGLP or assets
of Residential Newco. Cadim shall provide a written notice
to the PGI Parties on or prior to the 30th day after the
signing of a support and standstill agreement with PGE if it
intends to proceed with the Offer and the Merger.
Notwithstanding anything herein to the contrary, the
delivery of such notice shall extend the Exclusivity Period
until terminated pursuant to clauses (B), (C) or (D) above;
provided Xxxxx has also committed to make the Cadim
Mezzanine Loan subject to the execution of definitive
documentation consistent with this MOU.
LEGAL EFFECT: This MOU shall be binding on the Parties, subject to the Due
Diligence 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 no
later than thirty (30) days after PGE has signed the PGE
SSA, or (b) definitive documentation is not executed within
thirty (30) days from the execution of the PGE SSA, 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.
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
18
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, Xxxxxxx 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 X.
XxXxxxx, L.L.C. and Cosmopolitan Bank and Trust Company and
(2) a loan agreement between 150 N. Riverside 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.
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) Xxxxxxx 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 Xxxxx 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
19
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.
20
The Parties have agreed to the terms and conditions contained in this
Memorandum of Understanding, ("MOU"), on this 22nd day of August, 2001:
THE PRIME GROUP, INC. ("PGI")
BY: /s/ Xxxxxxx X. Xxxxxxx
ITS: President
PRIME GROUP, VI, L.P.
BY: PGLP, INC., ITS GENERAL PARTNER
BY: /s/ Xxxxxxx X. Xxxxxxx
ITS: President
PRIMESTONE INVESTMENT PARTNERS, L.P.
BY: PG/PRIMESTONE, LLC, ITS MANAGING GENERAL PARTNER
BY: THE PRIME GROUP, INC., ITS ADMINISTRATIVE MEMBER
BY: /s/ Xxxxxxx X. Xxxxxxx
ITS: President
PG/PRIMESTONE, LLC
BY: THE PRIME GROUP, INC., ITS ADMINISTRATIVE MEMBER
BY: /s/ Xxxxxxx X. Xxxxxxx
ITS: President
PRIME GROUP LIMITED PARTNERSHIP
BY: /s/ Xxxxxxx X. Xxxxxxx
ITS: Managing General Partner
/s/ Xxxxxxx X. Xxxxxxx
XXXXXXX X. XXXXXXX
CADIM INC. (OR AN AFFILIATE) ("CDP")
PER: /s/ Xxxxx Xxxxxx
PER: /s/ Xxxxxxx Xxxxxxxxx
2
