EXHIBIT 99.1
AMENDED AND RESTATED
MEMORANDUM OF UNDERSTANDING
PARTIES: The Prime Group, Inc. ("PGI"), Prime Group VI, L.P. ("PLP"),
Primestone Investment Partners L.P. ("PRIMESTONE"),
PG/Primestone, LLC, Prime Group Limited Partnership ("PRIME
L.P."), 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." This Amended and Restated
Memorandum of Understanding (this "MOU") amends, restates and
supersedes the Memorandum of Understanding between the
Parties dated as of August 23, 2001.
DEFINED ENTITIES: Prime Group Realty Trust, NYSE: PGE ("PGE"), Prime Group
Realty, L.P. ("PGLP"), and Cadim inc. (or one of its
assignees) ("CADIM")
STRUCTURE: PART 1 - JOINT TENDER OFFER AND MERGER
CDP and PGI hereby agree to make a joint offer to the board
of PGE pursuant to which CDP and PGI would offer to acquire
all of the outstanding shares of beneficial interest of PGE
(including preferred shares of beneficial interest) and
limited partnership units in PGLP at a per share/unit price
of $14.50 (the "TENDER PRICE"), excluding the 9% Series B
Cumulative Redeemable Shares of Beneficial Interest and any
and all shares/units currently owned by the PGI Parties or
any of their affiliates (the "OFFER"). All discussions
pertaining to the Offer shall be held jointly with PGE (or
its special committee) by the Parties and one Party shall not
enter into discussions without the other Party. The Offer
shall be made pursuant to a public tender offer after the
satisfactory completion of due diligence by Cadim and the
satisfaction of the other conditions described below.
Following the receipt of the Minimum Shares (as defined
below) in the Offer, an entity owned and funded by CDP and
PGI ("MERGER CO.") will merge (the "MERGER") with and into
PGE with the common equity in PGE held by CDP and the PGI
Parties being unaffected and the remaining common
shareholders of PGE receiving the same cash per share as is
paid in the Offer. The final forms of the Offer documentation
will be drafted by counsel to CDP, subject to review by
counsel to PGI.
The Offer will be conditioned on the following:
a. that no fewer than 51% of the outstanding common shares
of PGE and common units in PGLP on a fully diluted
basis, less the number of common shares of PGE and
common units in PGLP held by the PGI Parties and their
affiliates (the "MINIMUM SHARES"), are tendered;
b. the execution (prior to the commencement of the Offer)
of a Merger Agreement between PGE and Merger Co.
pursuant to which Merger Co. would be merged with and
into PGE after the conclusion of the Offer (assuming
that at least the Minimum Shares are tendered but less
than 100% of the outstanding shares/units are tendered
(other than the shares/units currently owned by the PGI
Parties and their affiliates)). In the Merger
Agreement, the change of control put right of the
holders of the Series A Preferred Shares of Beneficial
Interest of PGE shall have been resolved in a manner
satisfactory to CDP. In the Merger Agreement, PGE shall
agree:
i. to publicly support the Offer;
ii. to distribute all required materials to its
shareholders and to the unitholders in PGLP;
iii. that the 9.9% ownership limit in PGE's
Declaration of Trust has been entirely
waived as to CDP and the PGI Parties and
that such waiver shall not cause PGE to fail
to qualify as a REIT;
iv. that the conversion or exchange of all units
held by the PGI Parties to common stock in
PGE has been approved and PGE's right to
acquire such units for cash has been waived;
v. that the relevant "anti-takeover" provisions
of the Maryland corporate statute have been
waived;
vi. that the resignation of all PGE board
members effective upon the closing of the
Offer and their replacement by the designees
of CDP and PGI has been approved;
vii. to exclusivity and standstill provisions
substantially identical to those contained
in paragraph 3 of the PGE SSA; and
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viii. to pay an aggregate break-up fee in the
amount of $20.0 million payable to Cadim (in
addition to the reimbursement of Cadim's
expenses) under normal and customary
circumstances;
c. the execution (prior to the commencement of the Offer)
of a Shareholders Agreement (the "PGE SHAREHOLDERS
AGREEMENT"), among the PGI Parties and CDP, reflecting
the terms of this MOU;
d. the execution (prior to the commencement of the Offer)
by PGI and CDP of (i) a definitive purchase agreement
and definitive shareholders agreement or (ii) a
definitive loan agreement (the documents under (i) or
(ii) being called the "RESIDENTIAL NEWCO AGREEMENTS")
with respect to Residential Newco (as defined below) as
described below under "Part 2 - Residential Newco";
e. the execution (prior to the commencement of the Offer)
of agreements by all Key Personnel to enter into an
Employment Agreement upon the closing of the Offer (the
form of which shall be agreed upon by the Key
Personnel, CDP and the PGI Parties prior to the
commencement of the Offer);
f. the execution (prior to the commencement of the Offer)
of an agreement by 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
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the employment agreements for the Key Personnel are sometimes
referred to herein as the "TRANSACTION DOCUMENTS."
CDP, PGI and PGE have entered into a Support and Standstill
Agreement, dated as of August 30, 2001 (the "PGE SSA"), a
copy of which is attached hereto as Appendix A.
CDP, the PGI Parties and PG/Primestone, LLC have entered into
an Amended and Restated Support and Standstill Agreement,
dated as of August 30, 2001 (the "PGI SSA"), a copy of which
is attached hereto as Appendix B.
CDP and PGI agree to acquire all tendered shares/units in the
following order:
a. up to that number of tendered shares/units equal to the
number of shares of PGE and units in PGLP held by the
PGI Parties and their affiliates on a fully diluted
basis shall be acquired by CDP; and
b. thereafter, all tendered shares/units, if any, shall be
acquired 49.5% by CDP, 49.5% by PGI, and 1.0% by other
individuals (the "OTHERS") to be designated by CDP and
PGI during the Due Diligence Period (as defined below)
(and, if applicable, the Fifteen-Day Period (as defined
below)).
All tendered units shall be converted to or exchanged for
common shares at or prior to the closing of the Merger.
If at least the number of shares of PGE and units in PGLP
held by the PGI Parties and their affiliates on a fully
diluted basis are tendered into the Offer, then Merger Co.
shall be equally funded and owned by CDP and PGI. If less
than the number of shares of PGE and units in PGLP held by
the PGI Parties and their affiliates on a fully diluted basis
are tendered into the Offer, then Merger Co. shall be funded
and owned in such proportion between CDP and PGI as will
result in CDP owning that number of shares of PGE after the
Merger equal to the number of shares of PGE and units in PGLP
owned by the PGI Parties after the Merger on a fully diluted
basis.
Upon successful completion of the Offer and the Merger, CDP
shall have acquired 13,076,074 shares at a cost of
approximately $189,603,079 and PGI shall have acquired
4,618,203 shares at a cost of approximately $66,963,944. The
resulting ownership of PGE would be as follows:
CDP 13,076,074
Others 264,164
Xxxxxxx 134,881
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PLP 304,097
Prime L.P. 74,000
PGI 4,618,203
Primestone 7,944,893
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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 C. The Parties will discuss
during the Due Diligence Period (and, if applicable, the
Fifteen-Day Period) whether Xxxxxx Xxxxx or any other holders
of units in PGLP will participate in the transactions
contemplated by this MOU.
The Partnership Agreement of PGLP shall be amended at the
closing of the Offer so that PGE shall have sole authority to
make all decisions relating to PGLP. PGE will not redeem its
existing Series B preferred shares and would remain a 1934
Act reporting company.
The parties agree to structure CDP's and PGI's investment in
PGE in a manner to minimize the U.S. and Canadian income tax
consequences to CDP and PGI.
PART 2 - RESIDENTIAL NEWCO
Cadim shall work diligently to perform due diligence with the
intent of acquiring a 50% interest in a to be formed limited
liability company, which will be a private company initially
controlled by PGI, which will own the entities that own the
development sites located at 000 Xxxxx Xxxxxxxxx, Xxxxxxx,
Xxxxxxxx, and 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx,
and all related assets, including its development personnel
("RESIDENTIAL NEWCO"). In connection with such due diligence
review, CDP shall be allowed to obtain third party appraisals
of properties owned by Residential Newco. If CDP and PGI
cannot agree on a price at which the 50% interest will be
purchased prior to the end of the Due Diligence Period (and,
if applicable, the Fifteen-Day Period), then, subject to the
conditions set forth below under "Due Diligence" and "Other
Funding Conditions," CDP will provide financing to PGI in the
amount of US $10 million (the "CADIM RESIDENTIAL NEWCO
LOAN"), which proceeds may be used by PGI solely to acquire
shares of PGE as described under Part 1
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above. Such loan shall have a term of sixty months, shall
have terms substantially identical to the terms of the Cadim
PGI Loan and shall be secured by all of the equity in
Residential Newco.
SEPARATE BOARDS: Each of PGE and Residential Newco shall have separate boards
of directors.
BUSINESS PLAN: The initial post-Offer business plan of PGE is set forth on
Appendix E.
CADIM PGI
LOAN: PGI or its designated affiliate shall undertake to invest a
minimum cash amount of US $10.0 million towards its purchase
of the additional PGE common stock that it will acquire
pursuant to the Offer and the Merger. The difference of
approximately US $56,963,944 shall be funded from the
proceeds of a loan from Cadim to PGI (the "CADIM PGI LOAN").
The Cadim PGI Loan shall have the following terms and such
other terms as set forth on Appendix F:
(a) Proceeds to acquire shares/units in PGE/PGLP as
per this MOU;
(b) Secured by (i) all shares/units owned by the PGI
Parties including shares acquired in the Offer and
the Merger (other than those secured under the
Prudential Loan and the Vornado Loan) and (ii) all
equity held by the PGI Parties in Residential Newco;
(c) Not to exceed $57,000,000 total loan amount;
(d) No acceptance fee;
(e) No loan fee;
(f) No administrative fee;
(g) 20% interest per annum, paid quarterly, with
right to capitalize 10% (which capitalized interest
shall become due and payable at the maturity of the
loan);
(h) Right to prepay at anytime in whole or in part
without any prepayment penalty;
(i) Coterminous with the Cadim Mezzanine Loan (as
defined below);
(j) Right of first offer (five-day);
(k) All distributions payable to PGI shall be used
first to pay interest of 10% on the Cadim PGI Loan,
then 10% to PGI on its
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equity, then to pay all remaining accrued and unpaid
interest on the Cadim PGI Loan to Cadim. No right of
PGI to draw back on the Cadim PGI Loan;
(l) to the extent necessary, if PGI does not receive
sufficient distributions to pay required interest on
the Cadim PGI Loan for the first two interest periods
after the Cadim PGI Loan is made, interest due and
owing for such period shall be deferred for a
12-month period, but only to the extent of the
shortfall and only until the fourth quarterly
interest payment date after the date of deferral;
(m) If Cadim funds the Cadim PGI Loan and either the
Cadim Mezzanine Loan or the Refinancing Loan (the
"CADIM LOANS"), then Cadim shall release the equity
in Residential Newco that was pledged to Cadim as
security on the Cadim PGI Loan twelve months after
the funding of the Cadim PGI Loan. If Cadim funds the
Cadim Loans and the combined principal amount
outstanding under the Cadim Loans is less than
$100,000,000, then Cadim shall release up to 896,552
shares of PGE from the security on the Cadim PGI
Loan. In such event, PGI shall be free to pledge the
released collateral to another lender; provided such
lender is a bank, insurance company, pension fund or
finance company normally in the business of making
real estate loans and reasonably acceptable to Cadim;
and
(n) If Cadim funds the Cadim Loans, Primestone shall
be allowed to refinance with a third party senior
secured lender acceptable to Cadim in Cadim's sole
discretion up to 40% of the amount outstanding under
the Cadim Loans provided that (1) the security for
such refinanced loan is limited to the proportionate
collateral serving as security for the portion of the
Cadim Loans that are being refinanced or such
additional collateral as Cadim shall reasonably agree
to permit, (2) the loan does not materially impair
Primestone's or PGI's ability to repay the Cadim
Loans, (3) none of the Cadim Loans are in default at
the time of refinancing and (4) Cadim, Primestone and
the third party lender enter into a commercially
reasonable intercreditor agreement acceptable to
Cadim.
CADIM MEZZANINE
LOAN: Primestone has pledged its interest in approximately
7,944,893 units in PGLP to Prudential Securities, Inc.
("PRUDENTIAL") and Vornado Realy Trust ("VORNADO") on a
subordinated basis in order to secure a total financing of US
$102.0 M as follows :
(a) Prudential (the "PRUDENTIAL LOAN"), US $40 M due Sept
25, 2001 at Libor + 1.50%
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(b) Vornado (the "VORNADO LOAN"), approximately US $62.0
M due Oct 25, 2001 at an all in rate of 20%
Cadim will (subject to its satisfactory completion of due
diligence and the satisfaction of the other conditions set
forth below under "Other Funding Conditions") provide a new
secured loan to Primestone (the "CADIM MEZZANINE LOAN") for
the refinancing of each of the above described loans. The
Cadim Mezzanine Loan shall have the following terms and such
other terms as set forth on Appendix G:
(a) Proceeds used (1) to refinance the Prudential
Loan and the Vornado Loan in full (including any and
all make-whole or other payments in connection
therewith) and (2) to repay the LaSalle Bank line of
credit in full;
(b) Secured by (i) the 7,944,893 units in PGLP (and
subsequent common shares upon exchange) which are
currently pledged under the Prudential Loan and the
Vornado Loan and (2) all common shares and units
released upon repayment of the LaSalle Bank line of
credit;
(c) Up to $105,000,000 total loan amount;
(d) $400,000 non-refundable fee upon Primestone's
acceptance of Cadim's commitment with respect to the
Cadim Mezzanine Loan;
(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.
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Cadim acknowledges that the Cadim Mezzanine Loan is subject
to the right of first offer granted to Vornado under the
Vornado Loan. If Vornado waives its right of first offer to
fund the Cadim Mezzanine Loan, Cadim shall agree to close the
Cadim Mezzanine Loan within thirty (30) days thereafter
subject to the successful completion of due diligence as
described below under "Due Diligence" and the satisfaction of
the conditions described below under "Other Funding
Conditions."
If Vornado waives its right of first offer to fund the Cadim
Mezzanine Loan and Cadim has not funded the Cadim Mezzanine
Loan, then, provided that Cadim has delivered the Notice (as
defined below) to PGE and PGI Parties, Cadim shall provide a
loan (the "ALTERNATIVE MEZZANINE LOAN") to Primestone on the
terms and conditions set forth on Appendix H.
DUE DILIGENCE: CDP's proposed investments in PGE and, if applicable,
Residential Newco and Cadim's proposal concerning the Cadim
PGI Loan, the Cadim Mezzanine Loan, the Alternative Mezanine
Loan and, if applicable, the Cadim Residential Newco Loan
shall all be subject to a due diligence period (the "DUE
DILIGENCE PERIOD") that shall begin on the date hereof and
end on the earlier of (i) the date that is thirty (30) days
after the date hereof and (ii) the date on which Cadim
delivers the Notice (as defined below). CDP and Cadim will
conduct all investigations, inspections, reviews and audits
and PGE, PGLP and the PGI Parties (in the case of PGE,
subject to its fiduciary responsibilities) will provide to
CDP and Cadim and their professionals, advisors and
consultants, access to all information relating to PGE, PGLP,
Residential Newco, and the PGI Parties, as CDP and Cadim may
reasonably require. If CDP and Cadim do not send the Notice
on or prior to the thirtieth day after the date hereof, the
transaction will be considered terminated without recourse by
either Party against the other Party, except as provided
under "Legal Effect" below.
OTHER FUNDING
CONDITIONS: In addition to the satisfactory completion of due diligence
by CDP and Cadim, the funding of the Cadim PGI Loan, the
Cadim Mezzanine Loan and, if applicable, the Cadim
Residential Newco Loan shall be conditioned on the following:
(a) each of the Transaction Documents shall have been
executed by each party thereto;
(b) CDP shall be reasonably satisfied that, as of the
closing of the Offer and as of the closing of the
Merger, PGE will continue to meet the REIT
qualification requirements, including, without
limitation, that PGE is not "closely held" within the
meaning of Section 856(h) of the Code; and counsel to
PGE shall have provided an opinion in form and
substance reasonably satisfactory
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to Cadim that: (i) commencing with PGE's initial
taxable year ending December 31, 1997, PGE has been
and is organized in conformity with the requirements
for qualification as a REIT, (ii) PGE's method of
operation has enabled it to meet the requirements for
qualification and taxation as a REIT and (iii) PGE's
proposed method of operation will enable it to
continue to meet the requirements for qualification
as a REIT; and
(c) Cadim shall be reasonably satisfied that the Minimum
Shares shall be tendered into the Offer.
COSTS AND EXPENSES:
Until the Offer is closed, each Party shall be responsible
for its own expenses paid to third parties with respect to
this transaction, subject to any reimbursement of costs
provided under the PGE SSA or the PGI SSA. Upon the closing
of the Offer, all approved transaction costs and fees
incurred by the Parties from inception of this transaction to
the closing of the Offer approved by Cadim and PGI, acting
reasonably, shall be paid by PGE. All costs incurred by a
Party in establishing its own structure in order to proceed
with the investment shall be borne solely by that Party.
Except for those expenses paid by PGE pursuant to the PGE
SSA, all expenses incurred by and fees payable to Cadim in
connection with the Cadim PGI Loan, the Cadim Residential
Newco Loan, the Cadim Mezzanine Loan, the Refinancing Loan
and the Alternative Mezzanine Loan shall be paid to Cadim by
PGI and Primestone, as applicable. Furthermore, the Parties
hereby agree that, if the Offer is closed, all fees payable
to MacGregor Associates shall be payable by PGE or
Residential Newco, as applicable.
PROPOSED TIME
SCHEDULE: A proposed time schedule is attached as Appendix I. The
Parties acknowledge that the schedule is subject to change
due to a variety of factors, including, among others, the
necessity of the Fifteen-Day Period (as defined below).
MANAGEMENT: The current management of PGE and Residential Newco will
remain employees of PGE and Residential Newco, respectively,
and will be responsible for day-to-day management, subject to
the Budgets, Business Plans and other Agreements which shall
be prepared by PGE or Residential Newco, as applicable, and
pre-approved by CDP and PGI in accordance with the governance
rules as described below.
KEY PERSONNEL: During the Due Diligence Period, PGI shall provide CDP with a
list of proposed Key Personnel and their proposed
responsibilities with PGE and Residential Newco. Each Key
Personnel reviewed and then accepted by CDP shall be subject
to an employment agreement. In addition, Xxxxxxx will be
appointed as chairman of PGE and Residential Newco for the
term
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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 use their
reasonable best efforts to prepare, negotiate and, if CDP and
Cadim decide to proceed, execute all necessary agreements
required to properly document this transaction, including the
Transaction Documents and definitive agreements related to
the Cadim PGI Loan and the Cadim Mezzanine Loan. If Cadim
provides written notice (the "NOTICE") to PGE and the PGI
Parties at any time on or prior to the expiration of the Due
Diligence Period that it intends to proceed with the Offer
and the Merger at the offer price of $14.50 per share
(subject to appropriate adjustment for any issuance of equity
securities of PGE or PGLP), the Parties will use their
reasonable best efforts to continue to negotiate in good
faith and execute definitive Transaction Documents and
definitive agreements related to the Cadim PGI Loan and the
Cadim Mezzanine Loan (or, if applicable, the Alternative
Mezzanine Loan) during the 15-day period following the date
on which Cadim provides the Notice to PGE and the PGI Parties
(such period being the "FIFTEEN-DAY PERIOD"). The agreements
will incorporate all of the elements of this MOU
appropriately detailed as well as the necessary
representations and warranties reasonably required by the
Parties. Notwithstanding the generality of the foregoing, the
PGI Parties (other than 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.
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
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2. two (2) seats named by CDP
3. one (1) independent (to be agreed upon mutually by the Parties
before the expiration of the Due Diligence Period (and, if
applicable, the Expiration Period))
Each Board will meet separately at least every 3 months and at least
one meeting per year for each board must be held in Xxxxxxxx, Xxxxxx,
Xxxxxx.
If, at any time after the closing of the Merger, CDP's ownership of
shares of PGE and units of PGLP is less than 35% of the then
outstanding shares and units of PGE and PGLP, then CDP shall lose its
right to appoint Board members as provided herein and the existing
directors named by CDP shall immediately resign or shall be removed.
If, at any time after the closing of the Merger, the PGI Parties'
ownership of shares of PGE and units of PGLP is less than 35% of the
then outstanding shares and units of PGE and PGLP, then PGI shall lose
its right to appoint Board members as provided herein and the existing
directors named by PGI shall immediately resign or shall be removed.
(ii) Residential Newco and PGE will each have other committees their
respective Board will create including an Audit Committee, which shall
exclude any members from management of either PGE or Residential
Newco.
Residential Newco and PGE will pay all reasonable expenses incurred by
each of their respective Board members in assuming their role and will
provide them with adequate responsibility insurance.
B) Decision process
The approval of 75% of the Board for each of Residential Newco and PGE will
be required to decide on all "Major Decisions" of the respective companies
unless the shareholders are required to decide under applicable law.
C) Major Decisions which shall separately apply for each of Residential Newco
and PGE or any of their respective subsidiaries:
1. Approval of the business plan and modifications.
2. Approval of the annual budget and changes to or deviations from it
resulting in a variance of 5% or more on the overall budget.
3. Redemption and issuance of any securities as well as any modifications
to the capital structure.
4. Acquisitions and investments that result in the necessity for the
shareholders (or unit holders) to invest additional equity into the
company or that the equity requirement exceeds US $10 million or that
does not meet the Investment Criteria or that involves a deviation to
the Environmental Policy.
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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 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.
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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.:
o 50% to 100% Mid-west
o 35% to 50% Eastern
o 15% to 30% Western
20. Election of the Independent Board Member.
TRANSFER
RESTRICTIONS: No transfer of any PGE shares or PGLP units shall be
permitted if it results in loss of domestically controlled
status. CDP and each of the PGI Parties will be prohibited
for a period of two (2) years from transferring their shares
(or units) (other than for a "PERMITTED TRANSFER") without
the consent of the other Party, in its sole discretion. A
"Permitted Transfer" is either a pledge or a transfer to an
Affiliate.
The PGI Parties and CDP will have a right of first refusal
(see the procedure below) on the shares (or units) of a
transferring entity (if the Parties are not prohibited from
transferring shares) other than for Permitted Transfers.
BUY - SELL: This clause can only be invoked after the two-year standstill
period as described above or earlier by a non-defaulting
Party if there is a default by the other Party and after a
cure period of 10 days for minor defaults (no right to cure
for major defaults). The list of defaults to be agreed prior
to
14
the end of the Due Diligence Period (and, if applicable, the
Fifteen-Day 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.
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.
15
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 J.
YEAR END: The year end for each company will be December 31; however,
in order to meet CDP's reporting deadlines, each company will
prepare audited financial statements as of November 30 each
year and an additional financial statement for tax purposes
as of December 31.
CHOICE OF LAW: This MOU shall be governed by and construed in accordance
with the laws of the State of
Illinois.
CONFIDENTIALITY: The existence of the current discussions between the Parties
concerning the transactions contemplated by this MOU or the
joint effort to conclude a transaction and all information
related to it will be kept confidential unless otherwise
agreed to in writing by the Parties or as otherwise required
by law or regulation; PROVIDED, HOWEVER, that no Party shall
make any public disclosure required by law or regulation
unless such disclosure has been provided to the other Party
at least one full business day before such public disclosure.
16
LEGAL EFFECT: This MOU shall be binding on the Parties, subject to the Due
Diligence Period (and, if applicable, the Fifteen-Day
Period) as outlined herein, the approval of the Board of
Directors of CDP and Cadim (to be obtained on or prior to the
expiration of the Due Diligence Period) and the execution of
mutually acceptable definitive documentation.
In the event that (a) the transaction is not approved by the
respective decision making entities of CDP and Cadim during
the Due Diligence Period or (b) definitive Transaction
Documents and definitive agreements related to the Cadim PGI
Loan and the Cadim Mezzanine Loan (or, if applicable, the
Alternative Mezzanine Loan) are not executed during the Due
Diligence Period (and, if applicable, the Fifteen-Day
Period), then in either such event, this MOU shall be null
and void and shall have no legal effect except for the
Representations and the Indemnification clauses set forth
below.
REPRESENTATIONS: Each of (a) CDP and (b) each of the PGI Parties and
PG/Primestone, LLC, jointly and severally, represents and
warrants to the other Party that it has full power and
authority to enter into this MOU and to carry out the
transactions to be carried out by it as contemplated herein,
and that this MOU has been duly and validly executed and
delivered by it, and constitutes the legal, valid and binding
obligation of it, enforceable in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar
laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on
the availability of specific remedies. Each of (a) CDP and
(b) each of the PGI Parties and PG/Primestone, LLC, jointly
and severally, represents and warrants to the other Party
that the execution, delivery and performance by it of this
MOU and all other transactions, instruments, agreements,
certificates and documents contemplated hereby do not (i)
violate any decree or judgment of any court or governmental
authority which may be applicable to it; (ii) violate any law
(or regulation promulgated under any law); (iii) violate any
decree or judgment of any court or governmental authority
binding on it; (iv) violate or conflict with, or result in a
breach of, or constitute a default (or an event which, with
or without notice or lapse of time or both, would constitute
a default) under, or permit cancellation of, any agreement to
which it or any of its affiliates is a party, or by which it
or any of its affiliates is bound (other than (x) the right
of first offer set forth in that certain Loan Agreement,
dated as of September 26, 2000, among Primestone, PGI,
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 000
X. Xxxxxxxxx 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,
17
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 Cadim and their officers, directors,
employees, agents and affiliates in respect of, and hold each
of them harmless from and against any and all losses,
liabilities, claims or expenses suffered, incurred or
sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to, any
breach of a representation or warranty on the part of the PGI
Parties or PG/Primestone, LLC made in the preceding section.
TRANSITION PERIOD: Until such time as (i) the closing has occurred or (ii) CDP
has withdrawn from the transaction, neither PGI nor
Residential Newco will make any distribution to its
shareholders or members, as applicable, and will disclose and
provide detailed information to CDP and Cadim on every
transaction committed or closed in order for CDP and Cadim to
evaluate the impact on the transaction.
18
The Parties have agreed to the terms and conditions contained in this
Amended and Restated Memorandum of Understanding on this 30th day of August,
2001:
THE PRIME GROUP, INC.
BY: /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.
PER: /s/ XXXXX XXXXXX
PER: /s/ XXXXXXX XXXXXXXXX
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