EXHIBIT 10.17
FORM OF
FORMATION AGREEMENT
THIS FORMATION AGREEMENT (this "Agreement") is made and entered into as of
the___ day of ________, 1997 by and among (i) PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust (the "Company"), (ii) PRIME GROUP REALTY,
L.P., a Delaware limited partnership (the "Operating Partnership"), (iii) PRIME
GROUP REALTY SERVICES, INC., a Delaware corporation ("Services Company"), (iv)
THE PRIME GROUP, INC., an Illinois corporation ("PGI"), (v) PRIME GROUP LIMITED
PARTNERSHIP, an Illinois limited partnership ("PGLP").
RECITALS:
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A. The Company is a recently organized real estate investment trust formed
for the purpose of, among other things, acquiring substantially all of the
office and industrial real estate business and operations of PGI and its
affiliates (including, without limitation, PGI's contractual rights to acquire
additional office and industrial properties). Concurrently with the
contributions contemplated by this Agreement, the Company will issue in an
initial public offering (the "Offering") Common Shares of Beneficial Interest in
the Company (the "Common Shares").
B. The business and operations of the Company will be conducted through
the Operating Partnership and the Services Company. The Operating Partnership
will issue limited partnership interests (the "Common Units") to the Company and
to other entities, including PGLPs and/or its affiliates, in connection with
contributions contemplated hereby and the other transactions contemplated to
occur in connection with the formation of the Company and the Offering (the
"Formation Transactions").
C. PGI and PGLP [OTHERS?](collectively, the "Prime Transferors") desire to
convey to the Company and to the Operating Partnership all of their respective
right, title and interest in and to (i) the entities identified on Schedule 1
hereto (such entities being hereinafter referred to collectively as the "Prime
Entities"), together with all other interests of PGI and PGLP in and to each of
the businesses and facilities operated and owned by the Prime Entities (all of
such ownership interests in the Prime Entities and all of such other assets
being together referred to herein as the "Prime Projects") and (ii) the entities
identified on Schedule 2 hereto (such entities being hereinafter referred to
collectively as the "Prime Contribution Entities" and together with the Prime
Entities, the "Contributed Entities"), together with all other interests of PGI
and PGLP in and to each of the businesses and facilities operated and owned by
the Prime Contribution Entities (all of such ownership interests in the
Contributed Entities and all of such other assets being together referred to
herein as the "Contributed Projects").
D. PGI has entered into (i) that certain option agreement dated as of
August 4, 1997 (the "Lumbermen Agreement") with Lumbermens Mutual Casualty
Company, an Illinois insurance corporation ("Lumbermen"), pursuant to which
Lumbermen granted to PGI an option to purchase all right, title and interest of
Lumbermen in the LMCC 77 Subordinate Loan Interests (as defined in the Lumbermen
Agreement) and (ii) that certain Amended and Restated Agreement dated as of July
15,1997 (the "Xxxxxx Subordinate Agreement") by and among Xxxxxx Investors Life
Insurance Company, an Illinois insurance corporation ("KILICO"), Federal Xxxxxx
Life Assurance Company, an Illinois insurance corporation ("FKLA"), KILICO
Realty Corporation an Illinois corporation ("KRC"), FKLA Realty Corporation, an
Illinois corporation ("FRC"), KR 77 Fitness Center, Inc., a Delaware corporation
("KR Fitness"), 77 West Xxxxxx Limited Partnership, an Illinois limited
partnership ("77 L.P."), K/77 Investors Limited Partnership, an Illinois limited
partnership ("K/77 L.P."), PGLP and Prime 77 Fitness Center, Inc., an Illinois
corporation; (KILICO, FKLA, KRC, FRC and KR Fitness are hereinafter referred to
as the "Xxxxxx Parties") pursuant to which the Xxxxxx Parties have granted to
PGI an option to purchase all right, title and interest of the Xxxxxx Parties to
the Subordinate Loan Documents (as defined therein); such interests, among other
things, encumber the real estate commonly known as 00 Xxxx Xxxxxx Xxxxx,
Xxxxxxx, Xxxxxxxx, owned by 77 West Xxxxxx Limited Partnership;
E. PGI has entered into that certain (i) letter agreement dated July 18,
1997 (the Triad Agreement") with KILICO, KRC and KRC Portfolio Corp. and (ii)
Option To Purchase Partnership Interests dated as of June 17, 1994 but made
effective as of March 22, 1994, as amended by that certain First?Amendment To
Option To Purchase Partnership Interests dated as of January 21, 1997 and that
certain Second Amendment To Option To Purchase Partnership Interests dated as of
July 15, 1997) (as amended, the "Partnership Option Agreement"), pursuant to
which it has the right to acquire the partnership interests in 77 L.P. and K/77
L.P. held by one or none of the Xxxxxx Parties and PGI has agreed to convey and
assign to the Operating Partnership, the rights to receive certain partnership
interests as hereinafter described from the applicable Xxxxxx Parties, and the
Operating Partnership has agreed to assume the obligation to pay the purchase
price therefor as set forth in the Triad Agreement and the Partnership Option
Agreement (the Lumbermens Agreement, the Xxxxxx Subordinate Agreement, the Triad
Agreement and the Purchase Option Agreement and the related agreements and
documents are hereinafter referred to as the "Xxxxxx Agreements").
F. The Prime Transferors desire to convey to the Operating Partnership all
of their respective right, title and interest in substantially all the assets
and liabilities relating to their office and industrial development, leasing and
management business, which assets and liabilities are set forth on Schedules 3
and 4 attached hereto (collectively, the "Contributed Personal Property").
G. PGI has entered into that certain Contribution Agreement dated as of
July 8, 1997 with (i) LaSalle National Trust, N.A., not personally, but solely
as Trustee under Trust Agreement dated June 15, 1982 and known as Trust No. 10-
40113-09, (ii) LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated September 7, 1994 and known as Trust Xx. 00-
0000, (xxx) XxXxxxx National Trust, N.A., not personally, but
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solely as Trustee under Trust Agreement dated March 30, 1984 and known as Trust
No. 11-107825, (iv) LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated August 1, 1986 and known as Trust Xx. 00-
0000, (x) XxXxxxx National Trust, N.A., not personally, but solely as Trustee
under Trust Agreement dated August 1, 1986 and known as Trust No. 11-1357, (vi)
LaSalle National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated January 17, 1974 and known as Trust No. 286-34, (vii) LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated October 15, 1995 and known as Trust No. 11-9869, (viii) LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated December 1, 1987 and known as Trust No. 11-2868, (ix) 310 ERA
Limited Partnership, (x) MacArthur Drive Properties, (xi) CLE Limited
Partnership, (xii) 500 Xxxxxxxx Limited Partnership, (xiii) 515 Xxxxx Limited
Partnership, (xiv) 555 Xxxxx Limited Partnership, (xv) Sky Harbor Associates,
(xvi) 1001 Technology Way, LLC, (xvii) The Grandville Road Limited Partnership
and (xviii) Industrial Building and Development Company (collectively, the
"Contributors") pursuant to which the Contributors will contribute their
interests in such entities to the Operating Partnership in exchange for Common
Units.
H. [PGI] has entered those certain purchase agreements set forth on
Schedule 5 hereto (the "Facility Acquisition Agreements" and the parties
thereto other than PGI, the "Facility Transferors") pursuant to which [PGI] has
the contractual right to acquire the certain office and industrial facilities
owned by the Facility Transferors as set forth on Schedule 5 hereto.
I. PGI has agreed to convey and assign to the Operating Partnership or its
designee all of PGI's rights under the Facility Acquisition Agreements, and the
Operating Partnership has agreed to assume PGI's obligations under the Facility
Acquisition Agreements.
J. PGLP has entered into that certain Asset Purchase Agreement dated
________ (the "Management Purchase Agreement") with Continental Offices. Ltd.
and Continental Offices Realty Ltd. (collectively, "Continental") providing
forth requisition of certain assets of Continental, including without
limitation, the contractual rights of Continental set forth on Schedule 6
hereto (the "Management Agreements").
K. PGLP has agreed to convey and assign to the Operating Partnership or
its designee all of PGLP's rights under the Management Purchase Agreement, and
the Operating Partnership has agreed to assume PGLP's obligations under the
Management Purchase Agreement.
L. PGI has entered into those certain option agreements set forth on
Schedule 7 hereof (the "Land Option Agreements") pursuant to which it has been
granted the right to purchase the real estate indicated on Schedule 7 hereto.
M. PGI has agreed to convey and assign to the Operating Partnership or its
designee all of PGI's rights under the Land Option Agreements, and the Operating
Partnership has agreed to assume PGI's obligations under the Land Option
Agreements.
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N. PGI has prior to the date hereof consummated the transactions pursuant
to which it acquired the Prime Contribution Properties pursuant to that certain
agreement dated ____________________ (the "Acquisition Agreement") and it
desires to contribute to the Operating Partnership its contractual rights to
indemnification as set forth in the Acquisition Agreement, and the Operating
Partnership wishes to assume such rights.
O. The parties desire to enter into this Agreement to set forth their
understanding with respect to the manner in which the Company, Operating
Partnership or their designee will acquire interests in the Contributed
Projects, the Contributed Personal Property, the operations relating thereto and
the rights of PGI and PGLP under the Contributed Contracts (as hereinafter
defined) in exchange for Common Units, cash and the assumption of certain
liabilities.
AGREEMENT:
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. TRANSFER OF CONTRIBUTED ENTITIES, CONTRACTUAL RIGHTS AND CERTAIN OTHER
ASSETS. As part of a single plan, on the Closing Date (as hereinafter defined)
the Prime Transferors will convey to the Company, the Operating Partnership, or
their designees, (w) their interests in the Contributed Entities, (x) the
contractual rights of PGI and PGLP under the Xxxxxx Agreements, the Facility
Acquisition Agreements and the Management Purchase Agreement, (y) the
Contributed Personal Property and (z) the contractual rights of PGI under the
Land Option Agreements and the Acquisition Agreement (the Xxxxxx Agreements, the
Facility Acquisition Agreements, the Management Purchase Agreement, the Land
Option Agreements and the Acquisition Agreement are hereinafter referred to
collectively as the "Contributed Contracts") in consideration for, among other
things, the issuance by the Operating Partnership of Common Units (which are
exchangeable into Common Shares subject to the terms and conditions of that
certain exchange rights agreement dated the date hereof) to the Prime
Transferors or their designees as provided in Section 3 hereof (all of the
foregoing being hereinafter collectively referred to as, the "Contributed
Assets"), the assumption by the Company, the Operating Partnership or their
designee of the liabilities associated with the Contributed Projects, the
Contributed Contracts and the other Contributed Assets referred to herein and
the cash payments required to be made in accordance with Section 4 hereof, all
in a transaction designed to meet the requirements of section 351(a) of the
Code. The Company and the Operating Partnerships will acquire the Contributed
Projects subject to the existing debt, liabilities and contractual and other
obligations of such Contributed Entities existing on the date hereof.
In furtherance of the foregoing, on the Closing Date:
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(a) PGI shall transfer to the Operating Partnership the following:
(i) the general partnership interests, the limited partnership
interests and limited liability company interests owned by PGI and set forth on
Schedules 1 and 2 hereof.
(ii) All of its right, title and interest in the Facility
Acquisition Agreements, the Xxxxxx Agreements, the Acquisition Agreement and the
Land Option Agreements.
(iii) All of its interests in all other assets and properties of
the office and industrial real estate division of PGI and its affiliates, all as
more fully described on Schedule 3 hereto.
(b) PGLP shall transfer to the Operating Partnership the following:
(i) The general partnership interests, limited partnership
interests and limited liability company interests set forth on Schedule 1 and 2
hereof.
(ii) all of its rights under the Xxxxxx Agreements and the
Management Purchase Agreement.
(c) PGLP shall transfer to the Company a one percent (1%) limited
partnership interest in the entities listed on Schedules 1 and 2 hereof.
2. CERTAIN DISTRIBUTIONS. On or prior to the Closing Date, the Prime
Transferors shall have the right to receive distributions from the Contributed
Entities, net of all advances to PGI by the Contributed Entities.
3. ISSUANCE OF COMMON UNITS. In partial consideration of the transfer of
the assets provided for in Section 1, on the Closing Date, the Operating
Partnership shall issue an aggregate of [__________] of its Common Units to [PGI
and PGLP]. All such Common Units shall be fully paid and nonassessable.
4. ASSUMPTION OF LIABILITIES; CERTAIN PAYMENTS.
(a) As further consideration for the transfer of the assets by the
Prime Transferors to the Company, the Operating Partnership or their designees
as provided for in Section 1, on the Closing Date the Operating Partnership will
enter into an Assignment and Assumption Agreement substantially in the form of
Exhibit A hereto pursuant to which the Operating Partnership shall assume all of
the outstanding liabilities of each Prime Transferor with respect to the
Contributed Assets (including the assets and operations of the Contributed
Projects, the Contributed Contracts and the operations of the office and
industrial real estate division of PGI), whether or not reflected on the books
and records of the Prime Transferors
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or the Contributed Entity, and whether known or unknown, accrued or unaccrued,
absolute, contingent or otherwise.
(b) In addition, on the Closing Date, the Operating Partnership or its
designee will make cash payments as described in Schedule 8 to this Agreement.
5. CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall occur on the day (the "Closing Date")
immediately following the day that all of the conditions precedent of the
parties under this Agreement have been met or waived by the party entitled to
the benefit thereof, but in any event no later than the date of closing of the
Offering.
6. REPRESENTATIONS AND WARRANTIES.
(a) Each of PGI and PGLP hereby represents and warrants to the Company
and the Operating Partnership as follows (except as set forth in the Disclosure
Schedule attached hereto as Schedule 9):
(i) Organization; Authority. Each of PGI and PGLP and each of the
Contributed Entities (collectively, the "Applicable Partnerships"), are
either (A) in the case of such Persons (as hereinafter defined) which are
corporations, duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation or (B) in the case of
such Persons which are partnerships or trusts, a partnership or trust, as
the case may be, duly formed, validly existing and in good standing (to the
extent applicable) under the laws of its jurisdiction of formation. Each
of PGI and PGLP has the requisite authority to enter into and perform its
obligations under this Agreement. For the purposes hereof, "Person" means a
natural person, partnership, corporation, limited liability company,
association, joint stock company, trust, estate, joint venture,
unincorporated organization or other entity.
(ii) Due Authorization; Binding Agreement. The execution, delivery and
performance of this Agreement by each of PGI and PGLP has been duly and
validly authorized by all necessary action of each of PGI and PGLP. This
Agreement has been duly executed and delivered by each of PGI and PGLP, and
constitutes a legal, valid and binding obligation of each of PGI and PGLP,
enforceable against each of PGI and PGLP in accordance with the terms
hereof, except to the extent enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors rights generally or general principles of equity.
(iii) Consents and Approvals. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or notice
to, any governmental unit or any other Person (as hereinafter defined) is
required to be made, obtained or given by any Applicable Partnership in
connection with the execution, delivery and performance of this Agreement,
except for such consents, approvals or authorizations which have been
obtained or for which the failure to obtain would not have a Material
Adverse Effect.
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For the purposes hereof, "Material Adverse Effect" means a material adverse
effect on the business, assets or financial condition of the Company and
its affiliates, taken as a whole.
(iv) No Violation. None of the execution, delivery or performance of
this Agreement by either of PGI or PGLP does or will, with or without the
giving of notice, lapse of time or both, (A) violate, conflict with or
constitute a default (which violation, conflict or default would result in
a Material Adverse Effect) under any term or condition of (y) the
organizational documents of any Applicable Partnership or any Significant
Agreement (as defined below) to which any Applicable Partnership is a party
or by which it is bound, or (z) any term or provision of any judgment,
decree, order, statute, injunction, rule or regulation of a governmental
unit applicable to an Applicable Partnership or (B) result in the creation
of any Lien or other encumbrance upon the interest of either of PGI or PGLP
in any Contributed Entity or the assets or properties of the Contributed
Entities. For the purposes hereof, "Liens" shall mean any mortgage, deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, encumbrance for the payment of money, lien (statutory or
otherwise), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, but
not limited to, any conditional sale or other title retention agreement or
the interest of a lessor under a capital lease.
(v) Ownership of the Contributed Entities. Other than for the
interests of the Xxxxxx Parties which are to be acquired by the Operating
Partnership and the Company on the date hereof, each of PGI and PGLP is the
sole owner of the partnership interests of a Contributed Entity contributed
by either PGI or PGLP to the Company or the Operating Partnership (the
"Contributed Partnership Interests") and has good and valid title to such
interests, free and clear of all Liens (as hereinafter defined). The
Contributed Partnership Interests have been issued in compliance with the
partnership agreements (as then in effect) of the Contributed Entities and
were not issued in violation of any federal or state securities laws. There
are no rights, subscriptions, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or to otherwise acquire any
securities or obligations of any kind convertible into any partnership
interest or other equity interests or profit participation of any kind in
the Contributed Entities or the real estate owned by them (the
"Properties")(or any part thereof).
(vi) Compliance with Laws. Each of the Prime Entities has complied
with all laws (excepting, however, Environmental Laws (as hereinafter
defined), which are specifically covered by subsection (vii) below)
applicable to the conduct of the business of the Prime Properties and the
ownership, use and operation of the Property owned by a Prime Property and
has obtained all licenses and permits required for the conduct thereof,
except where the failure to so comply or obtain could not have a Material
Adverse Effect. To the best of the knowledge of each of PGI and PGLP, (A)
such licenses and permits are in full force and effect and (B) neither PGI
nor PGLP has received any notice of violation from any federal, state or
municipal entity or notice of
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an intention by any such government entity to revoke any certificate of
occupancy or other certificate, license or permit issued by it in
connection with the use of any of the Properties owned by a Prime Entity,
that in each case has not been cured or otherwise resolved to the
satisfaction of such government entity, except where such failure or such
action could not have a Material Adverse Effect. For the purposes hereof,
"Environmental Laws" means all federal, state and local laws, ordinances
and rules of common law relating to environmental safety or health matters,
including those relating to fines, orders, injunctions, penalties, damages,
contribution, cost recovery compensation, losses or injuries resulting from
the release or threatened release of hazardous substances and the
generation, use, storage, transportation or disposal of hazardous
substances.
(vii) Environmental Matters. Except as disclosed in environmental
reports, no Prime Entity has knowingly caused or permitted any Hazardous
Material (as defined under applicable Environmental Laws) to be improperly
maintained or disposed of on, under or at the Prime Property's Property or
any part thereof in violation of any Environmental Law. To the knowledge of
each of PGI and PGLP and except for such matters as disclosed in
environmental reports and except for such matters as would not have a
Material Adverse Effect: (A) the Prime Properties are in compliance, and
have heretofore complied, with all Environmental Laws, (B) none of the
Prime Properties has received any written notice from any governmental unit
or other person that it, its current or former operations or the properties
now or heretofore owned, leased or used by it or any of its predecessors,
are not or have not been in compliance with the Environmental Laws or that
it has any material liability with respect thereto, (C) there are no
administrative, regulatory or judicial proceedings pending or threatened
against the Prime Entities pursuant to, or alleging any material violation
of, or material liability under, any Environmental Laws, (D) none of the
properties now or heretofore owned, leased or used by the Prime Entities
has been used as a disposal site for any Hazardous Materials.
(viii) Ownership of Properties. With respect to each of the Prime
Entities, said Prime Entity (A) is the sole owner of the Property as
indicated on the Schedules hereto and (B) has good, valid and marketable
title to such Property, free and clear of all Liens (as hereinafter
defined) other than the Permitted Exceptions. For purposes hereof,
"Permitted Exceptions" shall mean with respect to real property or any
interest or estate therein owned by any Persons:
A. Liens or deposits made to secure the release of such Liens,
securing taxes, the payment of which is at the time not delinquent or
the payment of which is actively being contested in good faith by
appropriate proceedings diligently pursued and for which appropriate
reserves shall have been established on the Applicable Partnership's
books in accordance with generally accepted accounting principles
consistently applied ("GAAP");
B. attachments, judgments and other similar Liens arising in
connection with court or administrative proceedings, provided that the
execution or other enforcement of such Liens is effectively stayed or
secured and the claims
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secured by such Liens are actively being contested in good faith by
appropriate proceedings diligently pursued and for which appropriate
reserves shall have been established on the Applicable Partnership's
books in accordance with GAAP;
C. zoning laws and ordinances; provided that the Prime Entities'
Property is not in violation thereof and that such laws and ordinances
do not require the demolition, vacation or cessation of the present
use of such Property or require the discontinuance of the use of all
or any material portion of such Property as an office or industrial
building;
D. any laws, ordinances, deeds of trust, mortgages, Liens,
easements, rights of way, restrictions, exemptions, reservations,
conditions, limitations, covenants, adverse rights or interests and
other matters described as exceptions on the Disclosure Schedule;
provided that the applicable Property is not in violation thereof and
the same do not require the demolition, vacation or cessation of the
present use of such Property or require the discontinuance of the use
of all or any material portion of such Property as an office or
industrial building;
E. any other easements, rights of way, restrictions, exceptions,
reservations, conditions, limitations, covenants, adverse rights or
interests, licenses, minor irregularities in title and other similar
encumbrances which do not in the aggregate have a Material Adverse
Effect;
F. any law or governmental regulation or other right of any
governmental unit, which (Y) requires the person to maintain certain
facilities or perform certain acts as a condition of its occupancy or
use of its assets and properties, or (Z) condemns, appropriates or
recaptures the person's assets or property; and
G. Liens imposed by laws, such as carriers', warehouseman's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more than
60 days past due or which are being contested in good faith by
appropriate proceedings diligently pursued, and for which adequate
reserves shall have been established as of the date hereof on the
Applicable Partnership's books in accordance with GAAP.
(ix) Tenant Leases. The rent roll described in subparagraph (xviii)
below lists each of the leases to which a Prime Entity is a party which is
currently in effect with respect to the Property owned by such Prime
Entity, as the same have been amended or modified to the date hereof. The
parties hereto acknowledge that the Disclosure Schedule does not list, and
neither PGI nor PGLP makes any representation with respect to, (A)
subleases, concessions, or license agreements which may have been entered
into by tenants or subtenants or (B) license or concession agreements which
have terms not in excess of sixty (60) days; provided that, in the case of
a sublease or assignment, each of
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PGI and PGLP represents that the tenant listed in the rent roll described
in subparagraph (xvii) below remains liable for the performance of the
lease.
(x) Absence of Undisclosed Liabilities and Contractual Obligations.
Except for liabilities arising in the ordinary course of business, since
the date of the Applicable Partnerships' most recent financial statements
and for those matters specifically and adequately accrued or reserved for
in the financial statements of the Applicable Partnerships, the Prime
Entities have no liabilities of any material nature, required by GAAP to be
included in the financial statements of such Prime Property, and which
would have, individually or in the aggregate, a Material Adverse Effect. To
the knowledge of each of PGI and PGLP, there are no Significant Agreements
of the Prime Properties other than as set forth in the Disclosure Schedule
and other than debt instruments which are reflected in the most recent
financial statements of the Applicable Partnership delivered to the
Company. For purposes hereof, "Significant Agreement" of a Prime Property
means and includes any of the following to which such Person is a party or
by which such Person or any of its assets or properties may be subject or
bound, in each such case as amended and currently in effect, inclusive of
any waivers relating thereto:
A. all agreements, instruments and documents evidencing or securing
the contractual obligations of the Prime Property that involve
annual payments in excess of $[100,000];
B. all leases where the Prime Property is the lessee (including
capital leases), contracts, agreements or commitments (whether
written or oral) that are not terminable without penalty on not
more than 90 days' notice and that involve annual gross payments
in excess of $[100,000];
C. all ground leases where the Prime Property is a ground lessee; and
D. all reciprocal easement agreements affecting the Prime
Properties.
(xi) Significant Agreements; Binding Agreements. To the knowledge of
PGI and PGLP, each of the Significant Agreements is valid and binding
obligation of the applicable Prime Entity enforceable against the Prime
Entity party thereto in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors rights
generally and general equitable principles.
(xii) Litigation. There are no claims, actions, suits or proceedings
pending, and, to the knowledge of each of PGI and PGLP, there are no
investigations pending or claims, actions, suits, proceedings or
investigations threatened, before any court, governmental unit or any
arbitrator with respect to the Prime Entities in which an adverse
determination would have a Material Adverse Effect.
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(xiii) Property Improvements. To the knowledge of each of PGI and
PGLP, the improvements at each Property owned by a Prime Property is in
good condition and repair, ordinary wear and tear excepted, and has not
suffered any material casualty or other material damage which has not been
repaired in all material respects. To the knowledge of each of PGI and PGLP
except as previously disclosed, there is no material latent or patent
structural, mechanical or other significant defect or deficiency in the
improvements owned by a Prime Entity.
(xiv) Condemnation Proceedings. No proceedings have been commenced,
or, to the knowledge of each of PGI and PGLP, threatened, by an authority
having the power of eminent domain to condemn any part of any Property
owned by a Prime Entity or any improvements thereon or, to the knowledge of
each of PGI and PGLP, any property owned by a party to a reciprocal
easement agreement affecting any Prime Entity, except such as would not
have a Material Adverse Effect.
(xv) Bankruptcy and Insolvency. To the knowledge of each of PGI and
PGLP, none of the tenants now occupying any Prime Property, is the subject
of any bankruptcy, reorganization, insolvency or similar proceedings.
(xvi) Rent Roll. The rent roll for the Property owned by a Prime
Entity, dated ______________, 1997, is true, correct and complete and there
are no prospective tenant cancellation rights, prospective renewal or
extension options or future rent abatements or unpaid tenant concessions or
other unpaid landlord obligations other than those summarized on such rent
roll, except in each case to the extent any inaccuracies would not,
individually or in the aggregate, have a Material Adverse Effect.
(xvii) Neither PGI nor PGLP is a "foreign person" within the meaning
of Section 1445 (f) of the Code nor a "foreign partner" within the meaning
of Section 1446 of the Code.
(xviii) Neither PGI nor PGLP owns, directly or indirectly, (i) five
percent (5%) or more of the total combined voting power of all classes of
stock entitled to vote, or five percent (5%) or more of the total number of
shares of all classes of stock, of any corporation that is a tenant in a
Prime Entity or (ii) an interest of five percent (5%) or more in the assets
or net income of any tenant in a Prime Entity.
(xix) To the knowledge of each of PGI and PGLP, no condition exists
which, with the giving of notice or the passage of time, or both, would
permit any party to cancel its obligations under any reciprocal easement
agreement to which any Prime Property is a party or to be relieved of its
operating covenants thereunder, except as set forth in the rent roll
described in subparagraph (xvii) above.
(xx) Neither PGI nor PGLP has received or been informed in writing
of the receipt of any written notice which is still in effect that there is
any violation of a
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condition or agreement contained in any easement, restrictive covenant or
any similar instrument or agreement affecting any Property or any portion
thereof.
(b) For the purposes of the representations and warranties made
pursuant hereto, a statement that a fact is true to "the knowledge" means, that
after reasonable investigation, none of the following Persons actually knows
such statement to be untrue: _____________, ______________, and ______________.
For purposes of this Agreement, any written notice given to the on-site property
manager of a Property shall be deemed to have been given to the Contributed
Entity and PGI.
(c) Except as specifically warranted in this Section, the Prime
Transferors make no representations and warranties to the Company or the
Operating Partnership whatsoever regarding the Contributed Entities, the assets
or properties to be acquired under the Contributed Contracts, the Facility
Acquisition Agreement, or the assets of the Contributed Entities, including, but
not limited to, THE WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WHICH ARE SPECIFICALLY DISCLAIMED. The Operating Partnership
acknowledges that all of the assets to be conveyed by the Prime Transferors to
the Operating Partnership (and all of the assets of the Contributed Entities)
will be conveyed "as is, where is." The Prime Transferors make no representation
or warranty with respect to any asset which is the subject of any of the
Facility Acquisition Agreement.
(d) The Company hereby represents, warrants and covenants with and to
the Prime Transferors as follows:
(i) It is a real estate investment trust duly organized and
validly existing under the laws of the State of Maryland.
(ii) It has the full power and authority under the terms of its
trust agreement to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(iii) This Agreement constitutes its valid and legally binding
obligation, enforceable against it in accordance with its terms.
(iv) On the Closing Date, the Operating Partnership and/or the
Services Company will hire all of the employees of the Prime Transferors
associated with the Contributed Projects and will assume all liabilities and
obligations to or with respect to such employees, including any accrued but
unpaid benefits, bonuses and vacation pay.
(e) The Operating Partnership hereby represents, warrants and
covenants with and to the Prime Transferors as follows:
(i) It is a limited partnership duly organized and validly
existing under the laws of the State of Delaware.
12
(ii) It has full legal power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
(iii) This Agreement constitutes its valid and legally binding
obligation, enforceable against it in accordance with its terms.
(iv) The Common Units to be issued by the Operating Partnership
to the Prime Transferors pursuant to the terms of this Agreement will, when
issued in accordance herewith be duly authorized, fully paid and nonassessable.
(v) The Operating Partnership will not take any action which
would cause the transfers provided for in Section 1 not to qualify for tax-free
treatment under section 351 of the Code.
(f) All of the representations and warranties provided for in this
Section 6 shall survive the Closing Date and the delivery of the closing
documents on the Closing Date for a period of one year.
7. CONDITIONS PRECEDENT.
(a) The obligation of the Prime Transferors to consummate the
transactions contemplated hereby is subject to the satisfaction of the following
conditions (any of which may be waived by the Prime Transferors in writing):
(i) All the terms, covenants and conditions of this Agreement
to be complied with and performed by the Company or the Operating Partnership on
or before the Closing Date shall have been fully complied with and performed in
all respects.
(ii) All the representations and warranties made by the Company
and Operating Partnership herein shall be true and correct in all material
respects on and as of the Closing Date.
(iii) All consents required for the valid and effective transfer
of the assets to be transferred in accordance with Section 1 shall have been
obtained and the consent to the assumption by the Operating Partnership of the
obligations to be assumed by the Operating Partnership pursuant to Section 4
shall have been obtained, except for any approvals and consents described in
Schedule 10 to this Agreement.
(iv) There shall be no pending or threatened litigation against
any of the parties hereto concerning or relating to the transactions
contemplated hereby.
(v) The approval of all administrative agencies, if any, whose
approval of the transactions contemplated hereby is necessary or desirable shall
have been obtained.
13
(vi) The Company, the Operating Partnership, PGI and the other
parties signatory thereto shall have entered into a Registration Rights
Agreement substantially in the form of Exhibit B attached hereto and made a part
hereof.
(vii) The Company, the Operating Partnership, Xxxxxxx X. Xxxxxxx
and PGI shall have entered into a Non-Compete Agreement substantially in the
form of Exhibit C attached hereto and made a part hereof.
(viii) PGI shall have entered into an Indemnity Agreement
substantially in the form of Exhibit D attached hereto and made a part hereof.
(b) The obligations of the Company and the Operating Partnership to
consummate the transactions contemplated hereby are subject to the satisfaction
of the following conditions (any of which may be waived by the Company and
Operating Partnership in writing):
(i) All the terms, covenants and conditions of this Agreement
to be complied with and performed by the Prime Transferors on or before the
Closing Date shall have been fully complied with and performed in all respects.
(ii) All the representations and warranties made by the Prime
Transferors herein shall be true and correct in all material respects on and as
of the Closing Date.
(iii) All required consents necessary for the valid and
effective transfer of the assets to be transferred to the Operating Partnership
in accordance with the provisions of Section 1 shall have been obtained and the
consent to the assumption by the Operating Partnership of the obligations to be
assumed by the Operating Partnership pursuant to Section 4 shall have been
obtained, except for any approvals and consents described in Schedule 10 to this
Agreement.
(iv) The Operating Partnership shall have obtained title
insurance (or endorsed commitment) insuring that all real property owned by the
Contributed Entities, are vested in the respective entities free and clear of
all mortgages, liens and encumbrances except those reasonably acceptable to the
Operating Partnership.
(v) The conditions referred to in Sections 7(a)(iv) through
7(a)(xii) shall have been complied with or otherwise satisfied.
8. INDEMNIFICATION
(a) Each Prime Transferor hereby agrees to indemnify the Company and
the Operating Partnership for, and to hold the Company and the Operating
Partnership harmless from, the following:
14
(i) Any and all liabilities, damages, losses, costs or
deficiencies resulting from any misrepresentation, breach of any warranty or
nonfulfillment of any agreement or covenant on the part of that Prime
Transferor, whether contained in this Agreement or in any document furnished in
connection with the transactions contemplated hereby; and
(ii) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to the foregoing, including
reasonable attorney's fees.
(b) Each of the Company and the Operating Partnership hereby agrees
to indemnify each Transferor for, and to hold each Prime Transferor harmless
from, the following:
(i) Any and all indebtedness, lease, contract or other
liabilities and obligations assumed by the Company and the Operating Partnership
in accordance with the terms hereof;
(ii) Any and all liabilities, losses, costs, damages or
deficiencies resulting from any misrepresentations, breach of any warranty or
nonfulfillment of any agreement or covenant on the part of the Company or the
Operating Partnership, whether contained in this Agreement or in any document
furnished in connection with the transactions contemplated hereby;
(iii) Any and all liabilities, damages, losses, costs or
deficiencies resulting from any act or circumstance relating to any of the
assets transferred (including the assets and operations of the Contributed
Entities and operations of PGI's office and industrial real estate division)
whenever occurring;
(iv) Any loss, claim, damage, or liability, including any loss,
claim, damage, or liability under the Securities Act of 1933, as amended, or any
applicable state securities laws, arising out of, or attributable to the
Offering, except for losses, claims, damages or liabilities arising from the
inaccuracy of information supplied in writing by PGI for inclusion in the
prospectus relating to the Offering; and
(v) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing,
including reasonable attorneys' fees.
(c) Any party seeking indemnification ("Indemnitee") pursuant to this
Section 8 shall promptly (within 20 days of service to the Indemnitee if a third
party has commenced actual litigation against the Indemnitee) give written
notice to the party from which indemnification is sought ("Indemnitor") after
the Indemnitee has knowledge of any claim against the Indemnitor as to which
recovery may be sought against the Indemnitee pursuant to this Section 8, or of
the commencement of any legal proceedings against the Indemnitee as to such
claim after the Indemnitee has knowledge of such proceedings, whichever shall
first occur, and shall permit the Indemnitor to assume the defense of any such
claim or any litigation resulting
15
from such claim. Such notice shall specify in reasonable detail the facts known
to the Indemnitee giving rise to such indemnification rights and, if possible,
an estimate of the amount of liability which could result therefrom. The right
of the Indemnitee to indemnification hereunder shall be deemed agreed to unless,
within ten days after the receipt of such notice, the Indemnitee is notified in
writing by the Indemnitor that it disputes the right to indemnification as set
forth in such notice. Failure by the Indemnitor to notify the Indemnitee of the
Indemnitor's election to defend such action within ten days after notice thereof
shall have been given to the Indemnitor, or failure to deliver notification to
the Indemnitee by the Indemnitor that the Indemnitee's right to indemnification
is being disputed, shall be deemed an acknowledgment by Indemnitor that
Indemnitee is entitled to indemnification hereunder and shall be deemed to be an
election by Indemnitor to defend such action. The Indemnitor shall not, in the
defense of such claim or any litigation resulting therefrom, consent to entry of
any judgment (except with the consent of the Indemnitee) or enter into any
settlement (except with the consent of the Indemnitee) which does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnitee of a full, absolute and unconditional release from all liability in
respect of such claim or litigation.
(d) If the Indemnitor shall not assume the defense of any such claim
or litigation resulting therefrom, the Indemnitee may defend against such claim
or litigation in such manner as it may deem appropriate. The Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate and the
Indemnitor shall promptly reimburse the Indemnitee for the amount of such
settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in
connection with the defense against, or settlement of, such claim or litigation.
If no settlement of such claim or litigation is made, the Indemnitor shall
promptly reimburse the Indemnitee for the amount of any judgment rendered with
respect to such claim or in such litigation, and of all expenses, legal or
otherwise, incurred by the Indemnitee in the defense against such claim or
litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the
Indemnitee's right to indemnification in accordance with the provisions of
Section 8(c), the Indemnitor shall not be obligated to pay the Indemnitee the
amount provided for in this Section 8(d) until such dispute has been resolved
and it has been determined that the Indemnitor is required to make such
indemnification payment.
(e) The right of any party to seek indemnification hereunder shall
expire as to any claim not made on or prior to the first anniversary of the
Closing whether or not the basis for any such claim was known on such date.
9. MISCELLANEOUS.
(a) Each of the parties hereto hereby covenants and agrees that
subsequent to the Closing Date they will, at any time, and from time to time,
upon the request and at the expense of the Company, do, acknowledge and deliver,
or cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may reasonably be required to fully effectuate the transactions
contemplated by this Agreement. Each of the Prime Transferors hereby constitutes
and appoints the Company as its true and lawful attorney-in-fact, with full
power of substitution,
16
to collect for the account of the Company or the Operating Partnership, as
applicable, any receivables and other items conveyed to the Company or the
Operating Partnership, as applicable, pursuant to the provisions of Section 1,
to endorse in the name of the Prime Transferor, the Company or the Operating
Partnership, or any of them, any check received on account of any receivable,
claim or other item, to institute and prosecute in the name of a Prime
Transferor or otherwise, any and all proceedings which the Company or the
Operating Partnership may deem proper in order to collect, assert or enforce any
claim, right or title of any kind in and to any of such transferred assets.
(b) All notices, requests, demands or other communications required
or permitted under this Agreement shall be in writing and be personally
delivered against a written receipt, delivered to a reputable overnight courier,
for overnight delivery, transmitted by confirmed telephonic facsimile (fax) or
transmitted by mail, registered, express or certified, return receipt requested,
postage prepaid, addressed as follows:
If to the Company or the Operating Partnership:
Prime Group Realty Trust
00 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: President
Fax: (000) 000-0000
With a copy to:
Prime Group Realty Trust
00 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Fax: (000) 000-0000
If to PGI or PGLP:
c/o The Prime Group, Inc.
00 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
17
With a copy to:
Winston & Xxxxxx
00 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
All notices, demands and requests shall be effective upon being properly
personally delivered, upon being delivered to a reputable messenger service,
upon transmission of a confirmed fax, or upon being deposited in the United
States mail in the manner provided in this Section 9. However, the time period
in which a response to any such notice, demand or request must be given shall
commence to run from the date of personal delivery, the date of delivery by a
reputable messenger service, the date on the confirmation of a fax, or the date
on the return receipt, as applicable. If any party refuses delivery, the notice,
demand or request shall be deemed received (i) one business day after personal
delivery of the notice, demand or request was attempted or the notice, demand or
request was delivered to a reputable overnight courier or was transmitted by fax
or (ii) three business days after the notice, demand or request was deposited in
the United States mail.
(a) This Agreement may be modified or amended from time to time only
by a written instrument executed by all of the parties hereto.
(b) Captions contained in this Agreement are inserted only as a
matter of convenience and reference, and in no way define, limit, extend or
describe the scope of this Agreement, or the intent of any provision hereof. All
references to Sections herein shall refer to Sections of this Agreement unless
the context clearly requires otherwise.
(c) This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns.
(d) This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Illinois without regard to its conflicts
of laws rules.
(e) This Agreement represents the entire agreement of the parties
hereto with respect to the subject matter hereof.
(f) This Agreement may be executed in counterparts which, taken
together, shall constitute one and the same instrument.
[signature page follows]
18
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
PRIME GROUP REALTY TRUST
By:________________________________
Its___________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Group
Its General Partner
By:________________________________
Its___________________________
THE PRIME GROUP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
PRIME GROUP LIMITED PARTNERSHIP
By:________________________________
Xxxxxxx X. Xxxxxxx,
Managing General Partner
19
SCHEDULE 1
TO
FORMATION AGREEMENT
PRIME PROPERTIES
Interest Being Interest Being
Transferred Transferred Interest Being
From PGI to From PGLP to Transferred
Address of Operating Operating From PGLP to
Entity Project Partnership Partnership the Company
-------- ---------- ------------- -------------- --------------
20
SCHEDULE 2
TO
FORMATION AGREEMENT
PRIME CONTRIBUTION PROPERTIES
Interest Being Interest Being
Transferred Transferred Interest Being
From PGI to From PGLP to Transferred
Address of Operating Operating From PGLP to
Entity Project Partnership Partnership the Company
-------- ---------- ------------- -------------- --------------
21
SCHEDULE 3
TO
FORMATION AGREEMENT
CONTRIBUTED ASSETS RELATING TO
PGI'S OFFICE AND INDUSTRIAL DIVISION
22
SCHEDULE 4
TO
FORMATION AGREEMENT
CONTRIBUTED LIABILITIES RELATING TO
PGI OFFICE AND INDUSTRIAL DIVISION
23
SCHEDULE 5
TO
FORMATION AGREEMENT
ACQUISITION PROPERTIES
Entity Address of Project
[Salt Creek Properties]
[Continental Properties]
[Mishawauka Indiana Property]
[Wisconsin Properties]
[Xxxxx Properties]
24
SCHEDULE 6
TO
FORMATION AGREEMENT
CONTINENTAL MANAGEMENT CONTRACTS
Entity Address of Project
25
SCHEDULE 7
TO
FORMATION AGREEMENT
LAND OPTION AGREEMENTS
Entity Address of Project
26
SCHEDULE 8
TO
FORMATION AGREEMENT
CERTAIN PAYMENTS
Amounts Payable to PGI or PGLP pursuant to Section [2]:
Purchase Price for the interests in
_______________ and__________ described
in Section [1(c)]: $_________
$_________
ACQUISITION COSTS
XXXXXXX MONEY DEPOSITS:
Facility Acquisitions
Amounts Payable to PGI or PGLP or otherwise
pursuant to Section 4(b):
CREDIT ENHANCEMENT
COMMITMENT FEE:
[_____]
REAL ESTATE
TRANSFER TAXES $_________
$_________
OFFERING COSTS AND EXPENSES:
Costs and Expenses through _/_/97 =========
TOTAL $
=========
27
SCHEDULE 9
TO
FORMATION AGREEMENT
DISCLOSURE SCHEDULE
Entity Address of Project
28
SCHEDULE 10
TO
FORMATION AGREEMENT
POST-CLOSING CONSENTS
29
