Exhibit 10.1

 

Execution Version

 

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AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

PRIME OFFICE COMPANY, LLC,

 

PRIME OFFICE MERGER SUB, LLC,

 

PRIME OFFICE MERGER SUB I, LLC,

 

PRIME GROUP REALTY TRUST

 

and

 

PRIME GROUP REALTY, L.P.

 

 

Dated as of February 17, 2005

 

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TABLE OF CONTENTS

 

ARTICLE I

   THE MERGERS    2

    Section 1.1.

   The Mergers.    2

    Section 1.2.

   Closing    2

    Section 1.3.

   Effective Times of the Mergers.    2

    Section 1.4.

   Effects of the Mergers    3

    Section 1.5.

   Surviving Partnership Agreement    3

    Section 1.6.

   Surviving Charter    3

    Section 1.7.

   Surviving Bylaws    3

    Section 1.8.

   Trustees    3

    Section 1.9.

   Officers    4

ARTICLE II

   EFFECT OF THE MERGERS ON CAPITAL STOCK, COMMON SHARES, WARRANTS, COMPANY
OPTIONS AND PARTNERSHIP UNITS    4

    Section 2.1.

   Effect of REIT Merger on Capital Stock, Common Shares and Warrants    4

    Section 2.2.

   Surrender of Certificates.    5

    Section 2.3.

   Company Options.    8

    Section 2.4.

   Restricted Shares    9

    Section 2.5.

   Adjustments to Merger Consideration    9

    Section 2.6.

   Effect of OP Merger on the Partnership Units    9

    Section 2.7.

   Procedures for Exchange of Eligible LP Units in the OP Merger    11

ARTICLE III

   REPRESENTATIONS AND WARRANTIES    11

    Section 3.1.

   Representations and Warranties of the Company    11

    Section 3.2.

   Representations and Warranties of the Purchaser Parties    36

ARTICLE IV

   COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGERS    39

    Section 4.1.

   Conduct of Business.    39

ARTICLE V

   ADDITIONAL COVENANTS    44

    Section 5.1.

   Access to Information; Confidentiality    44

    Section 5.2.

   Reasonable Efforts; Notification.    45

    Section 5.3.

   Tax Treatment.    46

    Section 5.4.

   No Solicitation of Transactions.    47

    Section 5.5.

   Public Announcements    48

    Section 5.6.

   Transfer and Gains Taxes; Shareholder Demand Letters    49

    Section 5.7.

   Employee Arrangements; Accrued Bonuses; Employee Brokerage Arrangements.   
49

    Section 5.8.

   Indemnification; Trustees’ and Officers’ Insurance.    52

    Section 5.9.

   Deposit Escrow Agreement    54

    Section 5.10.

   Series B Share Distribution    54

    Section 5.11.

   CTA Partner LLC    54

    Section 5.12.

   Company Proxy Statement    55

 

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    Section 5.13.

   Company Shareholders Meeting; Partnership Unitholder Approval.    55

    Section 5.14.

   Director Resignations    55

    Section 5.15.

   Undertakings of Parent    55

    Section 5.16.

   Intentionally Omitted.    56

    Section 5.17.

   Company Board Recommendation.    56

    Section 5.18.

   Certain Post-Closing Covenants.    57

    Section 5.19.

   Environmental Matters    57

    Section 5.20.

   Intentionally Omitted.    58

    Section 5.21.

   Continental Towers    58

    Section 5.22.

   Prime Mansur Litigation    58

ARTICLE VI

   CONDITIONS TO CLOSING    59

    Section 6.1.

   Conditions to Each Party’s Obligation to Effect the Mergers    59

    Section 6.2.

   Conditions to the Obligation of the Purchaser Parties to Effect the Mergers
   59

    Section 6.3.

   Conditions to the Obligation of the Company to Effect the Mergers    60

    Section 6.4.

   Frustration of Closing Conditions    61

ARTICLE VII

   TERMINATION, AMENDMENT AND WAIVER    61

    Section 7.1.

   Termination    61

    Section 7.2.

   Expenses; Break-Up Fee; Earnest Money.    64

    Section 7.3.

   Notice of Termination    66

    Section 7.4.

   Effect of Termination    66

    Section 7.5.

   Return of Earnest Money    66

    Section 7.6.

   Amendment    66

    Section 7.7.

   Extension; Waiver    66

ARTICLE VIII

   GENERAL PROVISIONS    67

    Section 8.1.

   Nonsurvival of Representations, Warranties, Covenants and Agreements    67

    Section 8.2.

   Notices    67

    Section 8.3.

   Interpretation    68

    Section 8.4.

   Counterparts    68

    Section 8.5.

   Entire Agreement; No Third-Party Beneficiaries    68

    Section 8.6.

   Governing Law    68

    Section 8.7.

   Assignment    69

    Section 8.8.

   Enforcement    69

    Section 8.9.

   Exhibits; Disclosure Letter    69

ARTICLE IX

   CERTAIN DEFINITIONS    70

    Section 9.1.

   Certain Definitions    70

 

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EXHIBITS AND SCHEDULES

 

Exhibit A    Deposit Escrow Agreement* Exhibit B    Form of Winston & Strawn LLP
Opinion* Exhibit C    Form of Miles & Stockbridge P.C. Opinion* Exhibit D   
Form of Winston & Strawn LLP Opinion*

 

Schedule 9.1(a) – Company Knowledge Persons*

Schedule 9.1(b) – Parent Knowledge Persons*

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* Omitted from this filing. The Company will furnish supplementary a copy of any
such omitted item to the Commission upon request.

 

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AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of February 17, 2005,
by and among PRIME OFFICE COMPANY, LLC, a Delaware limited liability company
(“Parent”), PRIME OFFICE MERGER SUB, LLC, a Maryland limited liability company
(“Merger Sub”), PRIME OFFICE MERGER SUB I, LLC, a Delaware limited liability
company (“OP Merger Sub”), PRIME GROUP REALTY TRUST, a Maryland real estate
investment trust (the “Company”), and PRIME GROUP REALTY, L.P., a Delaware
limited partnership (the “Operating Partnership”).

 

RECITALS

 

WHEREAS, the respective Boards of Directors, Trustees and Managers or members,
as applicable, of each of the Purchaser Parties (as defined in Section 9.1) and
the Company have each determined that this Agreement and the transactions
contemplated hereby, including the REIT Merger (as defined in Section 1.1), are
advisable, fair to, and in the best interests of, their respective stockholders,
shareholders, members and equity holders, as applicable;

 

WHEREAS, the Board of Trustees of the Company (the “Company Board”) has adopted
resolutions approving this Agreement, the OP Merger, the REIT Merger and the
other transactions contemplated by this Agreement, and has agreed to recommend
that the holders of the Common Shares approve this Agreement, the REIT Merger
and the other transactions contemplated by this Agreement;

 

WHEREAS, the Company, as general partner of the Operating Partnership, has
approved and determined that this Agreement and the transactions contemplated
hereby, including the OP Merger, are advisable and in the best interests of the
Operating Partnership;

 

WHEREAS, capitalized terms used but not otherwise defined herein shall have the
meanings given to such terms in Section 9.1; and

 

WHEREAS, the Company, the Operating Partnership and the Purchaser Parties desire
to make certain representations, warranties, covenants and agreements in
connection with the REIT Merger, the OP Merger and the other transactions
contemplated hereby and also to specify certain conditions to the REIT Merger,
the OP Merger and the other transactions contemplated hereby.

 

NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements contained in this
Agreement, each of the Company and the Operating Partnership and each of the
Purchaser Parties agree as follows:

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ARTICLE I

 

THE MERGERS

 

Section 1.1. The Mergers.

 

(a) OP Merger; Surviving Partnership. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
Revised Uniform Limited Partnership Act (the “DRULPA”), at the OP Effective Time
(as defined in Section 1.3(b)), (i) OP Merger Sub shall be merged with and into
the Operating Partnership (the “OP Merger”), (ii) the separate existence of OP
Merger Sub shall thereupon cease and (iii) the Operating Partnership shall
continue its existence under Delaware law as the surviving entity in the OP
Merger (the “Surviving Partnership”), and the separate limited partnership
existence of the Operating Partnership with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the OP Merger.

 

(b) REIT Merger; Surviving Entity. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Title 8 of the Corporations
and Associations Article of the Annotated Code of Maryland (the “Maryland REIT
Law”) and the Maryland Limited Liability Company Act (the “MLLCA”), immediately
following the OP Merger and at the REIT Effective Time (as defined in Section
1.3(b)), (i) Merger Sub shall be merged with and into the Company (the “REIT
Merger” and, together with the OP Merger, the “Mergers”), (ii) the separate
existence of Merger Sub shall thereupon cease and (iii) the Company shall
continue its existence under Maryland law as the surviving entity in the REIT
Merger (the “Surviving Entity”), and the separate real estate investment trust
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the REIT Merger.

 

Section 1.2. Closing. Unless this Agreement shall have terminated and the
Mergers shall have been abandoned pursuant to Section 7.1, and subject to the
satisfaction or waiver (as permitted by applicable Law) of all of the conditions
set forth in Article VI hereof, the closing of the OP Merger and the closing of
the REIT Merger (such closings are referred to together as the “Closing”) shall
take place (a) at the offices of Winston & Strawn, LLP, 35 West Wacker Drive,
Chicago, Illinois as expeditiously as possible but no later than two (2)
Business Days after the day on which the last of such conditions (other than any
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions) is satisfied or waived (as
permitted by applicable Law) in accordance with this Agreement or (b) at such
other place and time or on such other date as the Purchaser Parties and the
Company may agree in writing. The date on which the Closing occurs is referred
to herein as the “Closing Date.”

 

Section 1.3. Effective Times of the Mergers.

 

(a) On the Closing Date and prior to the REIT Effective Time, OP Merger Sub and
the Operating Partnership shall execute and file the OP Merger Certificate, in
accordance with, and shall make all other filings or recordings and take all
such other action required with respect to the OP Merger under, the DRULPA. The
OP Merger shall become effective when the OP Merger Certificate has been
accepted for filing by the office of the

 

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Secretary of State of the State of Delaware or at such other subsequent date or
time as Parent and the Company may agree in writing and specify in the OP Merger
Certificate in accordance with the DRULPA. The time at which the OP Merger
becomes effective is referred to as the “OP Effective Time.”

 

(b) On the Closing Date and immediately after the OP Effective Time or as soon
thereafter as practicable, Merger Sub and the Company shall execute and file the
Articles of Merger, in accordance with, and shall make all other filings or
recordings and take all such other action required with respect to the REIT
Merger under, the Maryland REIT Law and the MLLCA. The REIT Merger shall become
effective when the Articles of Merger have been accepted for filing by the
Maryland Department or at such other subsequent date or time as Parent and the
Company may agree in writing and specify in the Articles of Merger in accordance
with the Maryland REIT Law and the MLLCA. The time at which the REIT Merger
becomes effective is referred to as the “REIT Effective Time” and, together with
the OP Effective Time, the “Effective Time.”

 

Section 1.4. Effects of the Mergers. The OP Merger shall have the effects set
forth herein and in the applicable provisions of the DRULPA. Without limiting
the generality of the foregoing sentence, and subject thereto, at the OP
Effective Time, all properties, rights, privileges, powers and franchises of the
Operating Partnership and OP Merger Sub shall vest in the Surviving Partnership,
and all debts, liabilities and duties of the Operating Partnership and OP Merger
Sub shall become the debts, liabilities and duties of the Surviving Partnership.
The REIT Merger shall have the effects set forth herein and in the applicable
provisions of the Maryland REIT Law and the MLLCA. Without limiting the
generality of the foregoing sentence, and subject thereto, at the REIT Effective
Time, all the assets and powers of the Company and Merger Sub shall vest in the
Surviving Entity, and all debts and obligations of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Entity.

 

Section 1.5. Surviving Partnership Agreement. The Partnership Agreement shall be
amended and restated as of the OP Effective Time in accordance with the
instructions of Parent (and subject to the prior consent of the Operating
Partnership, which consent shall not be unreasonably withheld) and, as so
amended and restated, shall be the agreement of limited partnership of the
Surviving Partnership (the “Surviving Partnership Agreement”) until thereafter
modified or amended as provided therein or in accordance with applicable Law.

 

Section 1.6. Surviving Charter. The declaration of trust of the Company in
effect immediately prior to the REIT Effective Time shall be, from and after the
REIT Effective Time, the declaration of trust of the Surviving Entity (the
“Surviving Charter”), until duly changed or amended as provided therein or in
accordance with applicable Law.

 

Section 1.7. Surviving Bylaws. The bylaws of the Company in effect immediately
prior to the REIT Effective Time shall be, from and after the REIT Effective
Time, the bylaws of the Surviving Entity (the “Surviving Bylaws”) until duly
changed or amended as provided therein or in accordance with applicable Law.

 

Section 1.8. Trustees. The parties shall take all requisite action so that the
managers of Merger Sub immediately prior to the REIT Effective Time shall be,
from and after the REIT

 

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Effective Time, the trustees of the Surviving Entity until their successors are
duly elected and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Charter, the Surviving Bylaws and the Maryland
REIT Law.

 

Section 1.9. Officers. The parties shall take all requisite action so that the
officers of Merger Sub immediately prior to the REIT Effective Time shall be,
from and after the REIT Effective Time, the officers of the Surviving Entity
until their successors are duly elected and qualified or until their earlier
death, resignation or removal in accordance with the Surviving Charter, the
Surviving Bylaws and the Maryland REIT Law.

 

ARTICLE II

 

EFFECT OF THE MERGERS ON CAPITAL STOCK, COMMON

SHARES, WARRANTS, COMPANY OPTIONS AND PARTNERSHIP UNITS

 

Section 2.1. Effect of REIT Merger on Capital Stock, Common Shares and Warrants.
At the REIT Effective Time, by virtue of the REIT Merger and without any action
on the part of any of the Purchaser Parties, the Company or the holder of any
Equity Interests (as defined in Section 9.1) of Merger Sub or common shares of
beneficial interest, par value $0.01 per share, of the Company (the “Common
Shares”):

 

(a) Conversion of Common Shares. Each Common Share (other than Excluded Shares
(as defined in Section 2.1(b)) issued and outstanding immediately prior to the
REIT Effective Time (including all Common Shares issued after the date of this
Agreement and prior to the REIT Effective Time in exchange for LP Units in
accordance with the terms of such LP Units) (such Common Shares are each
hereinafter referred to as a “Share” and collectively as the “Shares”), shall be
converted automatically into the right to receive $7.25 in cash, without
interest (the “REIT Merger Consideration”). At the REIT Effective Time, all
Shares shall be cancelled automatically and shall cease to exist, and the
holders of Certificates (as defined in Section 2.2(c)(i)) which formerly
represented Shares shall cease to have any rights with respect to the Shares,
other than the right to receive the REIT Merger Consideration per share (without
any interest being payable thereon) upon surrender of the Certificates in
accordance with Section 2.2.

 

(b) Cancellation of Certain Common Shares and Purchaser Party-Owned Common
Shares. Each Common Share issued and outstanding and owned by the Company, the
Operating Partnership, or any of their respective wholly-owned Subsidiaries, or
by the Purchaser Parties, or any of their wholly-owned Subsidiaries, immediately
prior to the REIT Effective Time (collectively, the “Excluded Shares”) shall be
cancelled automatically and shall cease to exist, without payment of any
consideration being made in respect thereof.

 

(c) Conversion of Merger Sub Equity Interests. The Equity Interests of Merger
Sub issued and outstanding immediately prior to the REIT Effective Time shall be
converted automatically into and become fully paid and non-assessable common
shares of beneficial interest, par value $0.01 per share, of the Surviving
Entity (the “Surviving Entity Shares”). The number of Surviving Entity Shares
shall be equal to 1.0% of the number of Common Shares outstanding at and
immediately before the REIT Effective Time and shall constitute 100% of the
total common equity of the Surviving Entity at and immediately after the REIT
Effective Time.

 

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(d) Series B Shares. The REIT Merger shall have no effect on the Company’s
outstanding Series B Cumulative Redeemable Preferred Shares of Beneficial
Interest, par value $0.01 per share (the “Series B Shares”), and, at and after
the REIT Effective Time, the Series B Shares shall be the outstanding Series B
Shares of the Surviving Entity.

 

(e) Warrants. The Company shall take such actions as are necessary to assure
that, as of the REIT Effective Time, each Warrant, by virtue of the REIT Merger
and without any further action on the part of the Purchaser Parties, the Company
or the holder of such Warrant, shall be (i) converted automatically into the
right upon exercise to acquire and receive, in lieu of the Common Shares
otherwise acquirable and receivable upon the exercise of such Warrant
immediately prior to the REIT Effective Time, an aggregate amount in cash,
without interest, equal to the product of (x) the per share REIT Merger
Consideration and (y) the maximum number of Common Shares subject to such
Warrant (after giving effect to the adjustment set forth in clause (ii) of this
sentence) (with respect to such Warrant, this product is referred to as the
“Warrant REIT Merger Consideration”) and (ii) modified automatically to provide
that (x) the Exercise Price (as defined in such Warrant) is adjusted to $7.25
per Common Share (the “Adjusted Exercise Price”) subject to such Warrant and (y)
the maximum number of Common Shares subject to such Warrant is adjusted to
517,241 Common Shares in the case of the Series A-2 Share Purchase Warrant,
344,878 Common Shares in the case of the Series B Share Purchase Warrant and
431,034 Common Shares in the case of the Series C Share Purchase Warrant. From
and after the REIT Effective Time, the Warrants, as so converted and modified in
accordance with this Section 2.1(e), shall be exercisable solely for the per
share Warrant REIT Merger Consideration (in exchange for the payment by the
holder(s) of the Warrants to the Company of the Adjusted Exercise Price), and
shall not be exercisable for the purchase of Common Shares.

 

(f) Series A Shares. Prior to the Closing Date, the Company shall take such
actions as are necessary to cause the Operating Partnership to distribute the
Series A Shares to the Company in exchange for the Series A Preferred Units.
Upon any such distribution of the Series A Shares to the Company, the Series A
Shares shall be automatically cancelled and reclassified as authorized but
unissued preferred shares of the Company in accordance with Maryland law and the
Company Declaration of Trust. In the alternative, the Company may take such
actions as are necessary and which are reasonably acceptable to the Purchaser
Parties to effectuate the intent of the foregoing.

 

(g) Dissenters’ Rights. No dissenters’, appraisal or similar rights shall be
available with respect to the REIT Merger.

 

Section 2.2. Surrender of Certificates.

 

(a) Paying Agent. Prior to the OP Effective Time, the Purchaser Parties shall
(i) select a bank or trust company to act as the paying agent in the OP Merger
and the REIT Merger (the “Paying Agent”), and (ii) enter into an agreement with
the Paying Agent containing customary terms and conditions. The selection of the
Paying Agent shall be subject to the prior approval of the Company, which
approval shall not be unreasonably withheld.

 

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(b) Payment Fund. On the Closing Date and prior to the OP Effective Time,
Parent, Merger Sub and OP Merger Sub (or any of them) shall deposit with the
Paying Agent such amount of immediately available funds as is necessary for the
payment of, in each case for the benefit of the holders of Eligible LP Units and
Shares for exchange in accordance with this Article II and for the benefit of
the holders of Company Options for payment in accordance with Section 2.3(a),
the aggregate OP Merger Consideration, REIT Merger Consideration and Option
Merger Consideration. Such funds provided to the Paying Agent are referred to
herein as the “Payment Fund.” The Paying Agent shall make payments of the OP
Merger Consideration, REIT Merger Consideration and Option Merger Consideration
in accordance with this Agreement, the OP Merger Certificate and the Articles of
Merger. The Payment Fund shall not be used for any other purpose. Any and all
interest earned on the Payment Fund shall be paid to the Surviving Entity.

 

(c) Payment Procedures.

 

(i) Letter of Transmittal. Promptly after the REIT Effective Time, but in no
event more than five (5) Business Days thereafter, the Surviving Entity shall
cause the Paying Agent to mail to each holder of record of a certificate or
certificates which, immediately prior to the REIT Effective Time, represented
outstanding Shares (each, a “Certificate”), at the REIT Effective Time (A) a
letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent and which letter shall be in such form and have
such other provisions (including provisions for the delivery of certificates of
non-foreign status) as the Purchaser Parties shall reasonably specify and to
which the Company shall reasonably approve prior to the Effective Time and (B)
instructions for surrendering the Certificates.

 

(ii) Surrender of Certificates. Upon surrender of a Certificate for cancellation
to the Paying Agent or such agent or agents as the Purchaser Parties may
designate, together with a duly executed letter of transmittal and any other
documents reasonably required by the Paying Agent and reasonably approved by the
Company prior to the Effective Time (including, if applicable, duly executed
certificates of non-foreign status), the holder of such Certificate shall be
entitled to receive in exchange therefor the REIT Merger Consideration, payable
in respect of such Certificate less any required withholding of Taxes in
accordance with Section 2.2(e). Any Certificates so surrendered shall be
cancelled immediately. No interest shall accrue or be paid on any amount payable
upon surrender of the Certificates.

 

(iii) Unregistered Transferees. If any REIT Merger Consideration is to be paid
to a Person other than the Person in whose name the surrendered Certificate is
registered, then the REIT Merger Consideration may be paid to such a transferee
so long as (A) the surrendered Certificate is accompanied by all documents
reasonably required to evidence and effect such transfer and (B) the Person
requesting such payment (1) pays any applicable transfer taxes or (2)
establishes to the reasonable satisfaction of the Purchaser Parties and the
Paying Agent that such taxes have already been paid or are not applicable.

 

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(iv) No Other Rights. Until surrendered in accordance with this Section 2.2(c),
each Certificate shall be deemed, except as provided in this Agreement or by
applicable Law, from and after the REIT Effective Time, to represent for all
purposes solely the right to receive the REIT Merger Consideration in accordance
with the terms hereof. Payment of the REIT Merger Consideration upon the
surrender of any Certificate shall be deemed to have been paid in full
satisfaction of all rights pertaining to that Certificate and the Shares
formerly represented by it. The Option Merger Consideration paid with respect to
Company Options in accordance with this Article II and Section 2.3(a) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
cancelled Company Options and on and after the REIT Effective Time the holder of
a Company Option shall have no further rights to exercise any Company Option.

 

(d) No Further Transfers. Upon and after the REIT Effective Time, the share
transfer books of the Company shall be closed and there shall be no further
registration of transfers of the Common Shares that were outstanding immediately
prior to the REIT Effective Time. If, after the REIT Effective Time,
Certificates are presented to the Surviving Entity for any reason, they shall be
cancelled and exchanged for cash as provided in this Article II.

 

(e) Required Withholding. The Purchaser Parties and the Paying Agent shall be
entitled to deduct and withhold from any REIT Merger Consideration or Option
Merger Consideration, as the case may be, payable under this Agreement such
amounts as may be required to be deducted or withheld therefrom under (i) the
Code or (ii) any applicable state, local or foreign Tax Laws. To the extent that
amounts are so deducted and withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person in respect of
which such deduction and withholding was made.

 

(f) No Liability. Neither the Purchaser Parties nor the Paying Agent shall be
liable to any holder of Certificates or Company Options for any amount properly
paid from the Payment Fund or delivered to a public official under any
applicable abandoned property, escheat or similar Law.

 

(g) Investment of Payment Fund. The Paying Agent shall invest the Payment Fund
as directed by the Purchaser Parties. Any interest and other income resulting
from such investment shall be deemed property of, and shall be paid promptly to,
the Surviving Entity. Any losses resulting from such investment shall not in any
way diminish the obligations of Parent, Merger Sub and OP Merger Sub hereunder
to pay the full amount of the aggregate OP Merger Consideration, REIT Merger
Consideration and Option Merger Consideration.

 

(h) Termination of Payment Fund. Any portion of the Payment Fund that remains
unclaimed by the holders of Certificates or Company Options nine (9) months
after the REIT Effective Time shall be delivered by the Paying Agent to the
Surviving Entity upon demand, which shall hold such amounts for the holders of
Certificates or Company Options (to the extent the Option Merger Consideration
is payable in respect of such Company Options). Any holder of Certificates or
Company Options who has not complied with this Article II shall

 

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look thereafter only to the Surviving Entity for payment of the applicable REIT
Merger Consideration or Option Merger Consideration, as the case may be, without
interest on such REIT Merger Consideration or Option Merger Consideration and
only as general creditors thereof. If any Certificates or Company Options shall
not have been surrendered immediately prior to the date on which any REIT Merger
Consideration or Option Merger Consideration, as the case may be, would
otherwise become subject to any abandoned property, escheat or similar Law, the
REIT Merger Consideration or Option Merger Consideration payable in respect of
such Certificates or Company Options shall, to the extent permitted by
applicable Law and at the option of the Surviving Entity, on the Business Day
immediately prior to such date become the property of Surviving Entity, free and
clear of any claim or interest of any Person previously entitled thereto.

 

(i) Lost, Stolen or Destroyed Certificates. If any Certificate is lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Entity, the posting by such Person of a bond in such reasonable
and customary form and amount as the Surviving Entity may direct as indemnity
against any claim that may be made against the Surviving Entity with respect to
the alleged loss, theft or destruction of such Certificate, the Paying Agent
shall pay the REIT Merger Consideration to such Person in exchange for such
lost, stolen or destroyed Certificate.

 

Section 2.3. Company Options.

 

(a) The Company shall take such actions as are necessary to assure that, as of
the REIT Effective Time, each option to acquire Common Shares (each, a “Company
Option”) issued under the Company Share Incentive Plan and outstanding
immediately prior to the REIT Effective Time, whether or not then exercisable or
vested, by virtue of the REIT Merger and without any further action on the part
of the Purchaser Parties, the Company or the holder of that Company Option,
shall be cancelled and converted into the right to receive an amount in cash,
without interest, equal to the product of (x) the excess of the REIT Merger
Consideration per share over the exercise or purchase price per share of such
Company Option, and (y) the number of Common Shares subject thereto (the
aggregate of such amounts hereinafter referred to as the “Option Merger
Consideration”). The payment of the Option Merger Consideration to the holder of
a Company Option shall be reduced by any income or employment Tax withholding
required under (i) the Code or (ii) any applicable state, local or foreign Tax
Laws. To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes under this Agreement as having been paid to the holder
of that Company Option. At the REIT Effective Time, all Company Options shall be
cancelled and the Company Share Incentive Plan shall terminate. The Company
shall take such actions as are necessary to ensure that the Company Share
Incentive Plan shall terminate as of the REIT Effective Time. All administrative
and other rights and authorities granted under the Company Share Incentive Plan
to the Company, the Company Board or any committee or designee thereof, shall,
following the REIT Effective Time, reside with the Surviving Entity.
Notwithstanding the foregoing, if the exercise price per share or unit provided
for in any Company Option exceeds the REIT Merger Consideration per share, no
cash shall be paid with regard to such Company Option to the holder of such
Company Option. Prior to the REIT Effective Time, the Company and the Purchaser
Parties shall establish a procedure to effect the surrender of Company Options
contemplated by this Section 2.3(a) and payment of the Option Merger
Consideration by the Paying Agent out of the Payment Fund.

 

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(b) The Company shall take such actions as are necessary to cause dispositions
of Company equity securities (including derivative securities) pursuant to the
transactions contemplated by this Agreement by each individual that is an
officer or trustee of the Company to be exempt from Section 16(b) of the
Exchange Act under Rule 16b-3 under the Exchange Act in accordance with the Rule
16b-3 No-Action Letter.

 

Section 2.4. Restricted Shares. The Company shall take such actions as are
necessary so that as of the REIT Effective Time, each restricted Common Share
granted by the Company Board which as of the Closing Date is issued and
outstanding but not vested, shall fully vest. At the REIT Effective Time, each
issued and outstanding restricted Common Share shall be converted into the right
to receive the REIT Merger Consideration as provided in Section 2.1(a).

 

Section 2.5. Adjustments to Merger Consideration. If during the period between
the date of this Agreement and the Effective Time, any change in the outstanding
Shares shall occur, including, but not limited to, by reason of any
reclassification, recapitalization, share dividend, share split, reverse split
or combination, exchange or readjustment of Shares, or any share dividend
thereon with a record date during such period (but not as a result of (x) the
exercise of (i) outstanding Company Options or (ii) all or any portion of the
Warrants, (y) the exchange of any outstanding LP Units for Common Shares or (z)
the conversion of Series A Shares to Common Shares pursuant to Section 2.1(f)),
the amount per share to be paid to holders of Shares in the REIT Merger
Consideration and the holders of Company Options in the Option Merger
Consideration, as applicable, shall be appropriately adjusted.

 

Section 2.6. Effect of OP Merger on the Partnership Units. At the OP Effective
Time, by virtue of the OP Merger and without any action on the part of any of
the Purchaser Parties, the Operating Partnership or the holders of any of the
outstanding Equity Interests of OP Merger Sub or the Partnership Units:

 

(a) Conversion of LP Units. Each LP Unit (other than Excluded LP Units (as
defined in Section 2.6(b) issued and outstanding immediately prior to the OP
Effective Time (such LP Units are each hereinafter referred to as an “Eligible
LP Unit” and collectively, as the “Eligible LP Units”), shall be converted
automatically into the right to receive $7.25 in cash, without interest (the “OP
Merger Consideration”). At the OP Effective Time, all Eligible LP Units shall be
cancelled automatically and shall cease to exist, and the holders of
certificates which immediately prior to the OP Effective Time represented
Eligible LP Units (the “LP Unit Certificates”) shall cease to have any rights
with respect to the Eligible LP Units, other than the right to receive the OP
Merger Consideration per Eligible LP Unit (without any interest being payable
thereon) upon surrender of the LP Unit Certificates in accordance with Section
2.7.

 

(b) Cancellation of Certain LP Units and Purchaser Party-Owned Partnership
Units. Each LP Unit issued and outstanding and owned by the Company, the
Operating Partnership, or any of their respective wholly-owned Subsidiaries, or
by the Purchaser Parties, or any of their wholly-owned Subsidiaries, immediately
prior to the OP Effective Time (collectively, the “Excluded LP Units”) shall be
cancelled automatically and shall cease to exist, without payment of any
consideration being made in respect thereof.

 

9

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(c) Cancellation of GP Units. Each GP Unit issued and outstanding immediately
prior to the OP Effective Time shall be converted automatically into the right
of the Company, as the sole holder of GP Units, to receive, in the aggregate,
cash and common units of general partnership interest in the Surviving
Partnership having a combined aggregate value equal to the product of $7.25
multiplied by the number of GP Units cancelled pursuant to this Section 2.6(c)
(such common units of general partnership interest received upon surrender of GP
Units cancelled pursuant to this Section 2.6(c), the “Surviving Partnership GP
Units”). The number of Surviving Partnership GP Units shall be equal to 1.0% of
the number of GP Units outstanding at and immediately before the OP Effective
Time. After the OP Effective Time and pursuant to the Surviving Partnership
Agreement, the Surviving Partnership GP Units shall not be convertible into
Company Shares of the Company or the Surviving Entity.

 

(d) Conversion of Equity Interests of OP Merger Sub. The Equity Interests of OP
Merger Sub issued and outstanding immediately prior to the OP Effective Time
shall be converted automatically into units of limited partner interest in the
Surviving Partnership (the “Surviving Partnership LP Units”). The number of
Surviving Partnership LP Units shall be equal to 99.0% of the number of GP Units
outstanding at and immediately before the OP Effective Time and 100% of the
number of LP Units outstanding at and immediately before the OP Effective Time.
After the OP Effective Time and pursuant to the Surviving Partnership Agreement,
the Surviving Partnership LP Units shall not be convertible into Company Shares
of the Company or the Surviving Entity.

 

(e) Series B Preferred Units. The OP Merger shall have no effect on the
Operating Partnership’s outstanding Series B Preferred Units, and at and after
the OP Effective Time, the Series B Preferred Units shall be the outstanding
Series B Preferred Units of the Surviving Partnership.

 

(f) Series A Preferred Units. Upon the Operating Partnership’s distribution of
the Series A Shares to the Company in exchange for the Series A Preferred Units
in accordance with Section 2.1(d), the Operating Partnership shall take such
actions as are necessary to cancel the Series A Preferred Units. In the event
the Company takes such other actions as are permitted pursuant to the last
sentence of Section 2.1(f), the Operating Partnership shall take such actions as
are necessary to effectuate the intent of the foregoing.

 

(g) Dissenters’ Rights. No dissenters’, appraisal or similar rights shall be
available with respect to the OP Merger.

 

(h) Adjustments to OP Merger Consideration. If during the period between the
date of this Agreement and the OP Effective Time, any change in the outstanding
LP Units shall occur, including, but not limited to, by reason of any
reclassification, recapitalization, equity distribution, equity split, reverse
split or combination, exchange or readjustment of LP Units, or any equity
dividend thereon with a record date during such period (but not as a result of
(x) the exchange of any outstanding LP Units for Common Shares or (y) the
conversion of Series A Preferred Units to LP Units pursuant to Section 2.6(f)),
the amount per LP Unit to be paid to holders of Eligible LP Units in the OP
Merger Consideration shall be appropriately adjusted.

 

10

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(i) Required Withholding. The Purchaser Parties, the Operating Partnership and
the Paying Agent, as applicable, shall be entitled to deduct and withhold from
any OP Merger Consideration payable under this Agreement such amounts as may be
required to be deducted or withheld therefrom under (i) the Code or (ii) any
applicable state, local or foreign Tax Laws. To the extent amounts are so
deducted and withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person in respect of which such deduction
and withholding was made.

 

Section 2.7. Procedures for Exchange of Eligible LP Units in the OP Merger. The
provisions of Section 2.2, including the Payment Fund and payment procedures and
the right of the Purchaser Parties to request certificates of non-foreign status
pursuant to Section 2.2(c), shall apply to the Eligible LP Units with respect to
the OP Merger, except where such provisions are clearly applicable only to the
Certificates and except as otherwise provided in Section 2.6.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.1. Representations and Warranties of the Company. Except as set forth
in the disclosure letter delivered by the Company to the Purchaser Parties in
connection with the execution of this Agreement (the “Company Disclosure
Letter”), which identifies exceptions by specific Section references, the
Company represents and warrants to each of the Purchaser Parties as follows as
of the date of this Agreement:

 

(a) Organization, Standing and Trust Power of the Company. The Company is duly
organized, validly existing as a real estate investment trust and in good
standing under the Laws of the State of Maryland and has the requisite real
estate investment trust power and authority to own, lease and operate its
properties and other assets and to carry on its business as now being conducted.
The Company is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of the business it is conducting, or
the ownership, operation or leasing of its properties and other assets or the
management of properties for others makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not constitute a Company
Material Adverse Effect. The Company has heretofore made available to Parent
complete and correct copies of the Company’s Articles of Amendment and
Restatement of Declaration of Trust, including such articles supplementary
thereto (the “Company Charter”) and amended and restated by-laws (the “Company
By-laws”). The Company Charter and the Company By-laws are each in full force
and effect as of the date hereof. Each jurisdiction in which the Company is
qualified or licensed to do business and each assumed name under which it
conducts business in any jurisdiction are identified in Section 3.1(a) of the
Company Disclosure Letter.

 

(b) Company Subsidiaries; Interests in Other Persons.

 

(i) Each Company Subsidiary that is a corporation is duly incorporated, validly
existing and in good standing under the Laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own, lease
and

 

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operate its properties and other assets and to carry on its business as now
being conducted. Each Company Subsidiary that is a partnership, limited
liability company or trust is duly organized, validly existing and in good
standing under the Laws of its jurisdiction of organization and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each Company Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, operation or
leasing of its properties and other assets or the management of properties for
others makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not constitute a Company Material Adverse Effect. All
outstanding shares of stock of each Company Subsidiary that is a corporation
have been duly authorized, are validly issued, fully paid and nonassessable, and
are not subject to any preemptive rights purchase option, call option, right of
first refusal, subscription agreement, or any other similar right (“Preemptive
Rights”) and are owned by the Company and/or another Company Subsidiary, except
as disclosed in Section 3.1(b)(i) of the Company Disclosure Letter, and are so
owned free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, “Liens”) and
are not subject to any option or right to purchase any such shares of stock
except as disclosed in Section 3.1(b)(i) of the Company Disclosure Letter and
Liens securing mezzanine debt as disclosed in Section 3.1(b)(i) of the Company
Disclosure Letter. All Equity Interests in each Company Subsidiary that is a
partnership, limited liability company, trust or other entity have been duly
authorized and are validly issued and are owned by the Company and/or another
Company Subsidiary, except as disclosed in Section 3.1(b)(i) of the Company
Disclosure Letter, and are so owned free and clear of all Liens and are not
subject to any option or right to purchase any such Equity Interest except as
disclosed in Section 3.1(b)(i) of the Company Disclosure Letter and Liens
securing mezzanine debt as disclosed in Section 3.1(b)(i) of the Company
Disclosure Letter. The Company has heretofore made available to each of the
Purchaser Parties complete and correct copies of the charter, by-laws or other
organizational documents of each of the Company Subsidiaries, each as amended to
date and each as in full force and effect as of the date hereof. Section
3.1(b)(i) of the Company Disclosure Letter sets forth (A) all Company
Subsidiaries and their respective jurisdictions of incorporation or
organization, (B) each owner and the respective amount of such owner’s Equity
Interests in each Company Subsidiary and (C) a list of each jurisdiction in
which each Company Subsidiary is qualified or licensed to do business and each
assumed name under which each such Company Subsidiary conducts business in any
jurisdiction.

 

(ii) Except as disclosed in Section 3.1(b)(ii) of the Company Disclosure Letter
(the “Company Other Interests”), neither the Company nor any of the Company
Subsidiaries owns any stock or other ownership interest in any Person.

 

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(c) Capital Structure.

 

(i) Shares of Beneficial Interest.

 

(A) As of the date of this Agreement, the authorized shares of beneficial
interest of the Company consist of (1) 100,000,000 Common Shares, (2) 65,000,000
excess shares, par value $0.01 per share, and (3) 30,000,000 preferred shares,
par value $0.01 per share. The Company’s preferred shares have been designated
as set forth in Section 3.1(c)(i)(A) of the Company Disclosure Letter.

 

(B) As of the date of this Agreement, (1) assuming none of the Common Shares
have been converted to excess shares, 23,681,371 Common Shares are issued and
outstanding, (2) except as set forth in Section 3.1(c)(i)(B) of the Company
Disclosure Schedule, to the Knowledge of the Company, zero (0) excess shares are
issued and outstanding, (3) 2,000,000 Series A Shares are issued and outstanding
and (4) assuming none of the Series B Shares have been converted to excess
shares, 4,000,000 Series B Shares are issued and outstanding. As of the date of
this Agreement, one hundred percent (100%) of the issued and outstanding Series
A Shares are owned by the Operating Partnership.

 

(C) As of the date of this Agreement, (1) 938,883 Common Shares are reserved for
issuance upon exercise of outstanding Company Options and 1,772,127 additional
Common Shares are reserved for issuance under the Prime Group Realty Trust Share
Incentive Plan (the “Company Share Incentive Plan”), (2) 3,076,586 Common Shares
are reserved for issuance upon exchange of LP Units for Common Shares pursuant
to the Partnership Agreement and (3) 1,000,000 Common Shares are reserved for
issuance upon exercise of the Warrants.

 

(D) Except as set forth in this Section 3.1(c) or in Section 3.1(c)(i)(D) of the
Company Disclosure Letter, there are issued and outstanding or reserved for
issuance: (1) no shares of beneficial interest or other voting securities of the
Company; (2) no restricted Company Shares, performance share awards or dividend
equivalent rights relating to the Equity Interests of the Company or the
Operating Partnership; (3) no securities of the Company or any Company
Subsidiary or securities or assets of any other entity convertible into or
exchangeable for shares of beneficial interest or other voting securities of the
Company or any Company Subsidiary; and (4) no subscriptions, options, warrants,
conversion rights, stock appreciation rights, calls, claims, rights of first
refusal, rights (including preemptive rights), commitments, arrangements or
agreements to which the Company or any Company Subsidiary is a party or by which
it is bound in any case obligating the Company or any Company Subsidiary to
issue, deliver, sell, purchase, redeem or acquire, or cause to be issued,
delivered, sold, purchased, redeemed or acquired, additional shares of
beneficial interest or other voting securities of the Company or of any Company
Subsidiary, or obligating the Company or any Company Subsidiary to grant, extend
or enter

 

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into any such subscription, option, warrant, conversion right, stock
appreciation right, call, right, commitment, arrangement or agreement. All
outstanding Company Shares are, and all Company Shares reserved for issuance
will be, upon issuance, in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of, any Preemptive Right.

 

(E) Except as set forth in Section 3.1(c)(i)(E) of the Company Disclosure
Letter, all dividends or distributions on securities of the Company or any
Company Subsidiary that have been declared or authorized prior to the date of
this Agreement have been paid in full.

 

(F) As of the date of this Agreement, the aggregate unpaid quarterly
distributions on the Series B Shares for quarters ended prior to the date of
this Agreement are $11,250,000.

 

(ii) Partnership Units.

 

(A) As of the date of this Agreement, 23,681,371 units of general partner
interest in the Operating Partnership (the “GP Units”), 3,076,586 LP Units,
2,000,000 Series A preferred units in the Operating Partnership (the “Series A
Preferred Units”), and 4,000,000 Series B preferred units in the Operating
Partnership (the “Series B Preferred Units”), are validly issued and
outstanding, are not subject to Preemptive Rights and any capital contribution
required to be made by the holders thereof has been made.

 

(B) The Company is the sole general partner of the Operating Partnership as of
the date of this Agreement and holds (1) 23,681,371 GP Units, representing 100%
of the outstanding GP Units in the Operating Partnership, (2) 2,000,000 Series A
Preferred Units, representing 100% of the outstanding Series A Preferred Units,
and (3) 4,000,000 Series B Preferred Units, representing 100% of the outstanding
Series B Preferred Units. Section 3.1(c)(ii)(B) of the Company Disclosure Letter
sets forth the name, number and class of LP Units held by each partner in the
Operating Partnership.

 

(C) Each LP Unit may, under certain circumstances and subject to certain
conditions set forth in the Partnership Agreement, be converted to Common Shares
on a one-for-one basis. As of the date of this Agreement, no notice has been
received by the Company or the Operating Partnership of the exercise of any of
the rights described in this paragraph (C), which are not reflected in this
Section 3.1(c).

 

(iii) Miscellaneous. Except as set forth in Section 3.1(c)(iii) of the Company
Disclosure Letter, no holder of securities in the Company or any Company
Subsidiary has any right to have such securities registered by the Company or
any Company Subsidiary, as the case may be.

 

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(d) Authority; No Violations; Consents and Approval; LP Units.

 

(i) The Company has all requisite power and authority to enter into and deliver
the Transaction Documents, to perform its obligations thereunder and to
consummate the Transactions, subject, solely with respect to the consummation of
the Mergers, to receipt of the Company Shareholder Approval and the Partnership
Unitholder Approval and the acceptance for record of the Articles of Merger by
the Maryland Department and the OP Merger Certificate by the Secretary of State
of Delaware. Each Company Subsidiary that is a party to any Transaction Document
has all requisite power and authority to enter into such Transaction Document
and to consummate the Transactions. The execution, delivery and performance of
the Company’s, the Company Subsidiaries and the Operating Partnership’s
obligations under the Transaction Documents and the consummation of the
Transactions have been duly authorized by all necessary action on the part of
the Company and each applicable Company Subsidiary, subject, solely with respect
to the consummation of the Mergers, to receipt of the Company Shareholder
Approval and the Partnership Unitholder Approval. No other proceedings on the
part of the Company and each applicable Company Subsidiary are necessary to
authorize any of the Transaction Documents or to consummate the Transactions.
The Transaction Documents have been duly executed and delivered by the Company
and each applicable Company Subsidiary and, subject, solely with respect to the
consummation of the Mergers, to receipt of the Common Shareholder Approval and
the Partnership Unitholder Approval, constitute valid and binding obligations of
the Company and each applicable Company Subsidiary, enforceable against the
Company and each applicable Company Subsidiary in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar Laws of general
applicability relating to or affecting creditors’ rights and by the exercise of
judicial discretion in accordance with general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
Law). True and complete copies of all resolutions of the Company Board and the
board of directors of each applicable Company Subsidiary necessary to authorize
the Transactions have been provided to the Purchaser Parties.

 

(ii) Except as set forth in Section 3.1(d)(ii) of the Company Disclosure Letter
and except, solely with respect to the consummation of the Mergers, for the
Company Shareholder Approval and the Partnership Unitholder Approval, the
execution, delivery and performance of the Transaction Documents by the Company
and each applicable Company Subsidiary do not, and the consummation of the
Transactions, and compliance with the provisions hereof or thereof, will not
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or the loss of a benefit under,
or give rise to a right of purchase under, result in the creation of any Lien
upon any of the properties or assets of the Company or any of the Company
Subsidiaries under, or require the consent or approval of any third party or
otherwise result in a detriment or default to the Company or any of the Company
Subsidiaries pursuant to any provision of (A) the Company Charter or the Company
By-laws or any provision of the comparable charter or organizational documents
of any of the Company Subsidiaries,

 

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(B) except for Triggered Agreements (as defined below), any lease or other
agreement, instrument, permit, concession, franchise, license applicable to the
Company or any of the Company Subsidiaries, or their respective properties or
assets or any guarantee by the Company or any of the Company Subsidiaries of any
of the foregoing, other than any loan or credit agreement, note, bond, mortgage,
indenture or other loan document, (it being understood that no representation is
being given as to whether the Surviving Entity and the Company Subsidiaries will
be in compliance with any covenants contained therein following the REIT Merger
or the OP Merger), (C) any joint venture or other ownership arrangement, except
for Triggered Agreements, or (D) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in Section
3.1(d)(iii) are duly and timely obtained or made and the Company Shareholder
Approval and the Partnership Unitholder Approval are obtained, any judgment,
order, decree, statute, Law, ordinance, rule or regulation applicable to the
Company or any of the Company Subsidiaries, or any of their respective
properties or assets, other than, in the case of clauses (B) (except with
respect to the Triggered Agreements), (C) (except with respect to the Triggered
Agreements) and (D), any such conflicts, violations, defaults, rights, Liens,
detriments, or failure to obtain any such consents that, individually or in the
aggregate, would not constitute a Company Material Adverse Effect. For the
purposes of this Agreement, the term “Triggered Agreements” means the agreements
identified as “Triggered Agreements” in Section 3.1(d)(ii) of the Company
Disclosure Letter. Notwithstanding the foregoing and anything else in this
Agreement to the contrary, (x) the Company is making no representation or
warranty regarding the necessity to obtain the consent, waiver or approval of
any lender pursuant to any loan or credit agreement, note, bond, mortgage,
indenture or other loan document in connection with the transactions
contemplated by this Agreement, (y) the Company shall not be responsible for
obtaining any such consent, waiver or approval, if required, and (z) in no event
shall the receipt by any party of any consent, waiver or approval, compliance
with any notice provision pursuant to, or amendment or modification of, any loan
or credit agreement, note, bond, mortgage, indenture, other loan document or the
Triggered Agreements be in any manner whatsoever a condition to the parties’
obligations to close the transaction contemplated by this Agreement.

 

(iii) Except as set forth in Section 3.1(d)(iii) of the Company Disclosure
Letter, no consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from, any Governmental Entity, is required
by or on behalf of the Company or any of the Company Subsidiaries in connection
with the execution, delivery and performance of the Transaction Documents by the
Company and each of the applicable Company Subsidiaries or the consummation by
the Company or the applicable Company Subsidiaries of the Transactions, except
for: (A) the filing of the Articles of Merger with the Maryland Department and
the OP Merger Certificate with the Secretary of State of Delaware; (B) the
filing with the SEC of (1) a proxy statement (together with any amendment
thereof or supplement thereto, the “Company Proxy Statement”) relating to the
special meeting of the shareholders of the Company to be held to consider the
approval of this Agreement and the Transactions (the “Company Shareholders
Meeting”); (2) any other documents otherwise required to be filed in connection
with this Agreement and the transactions contemplated hereby; and (3) such
reports under Section 13(a) of the Securities Exchange Act of 1934, as amended
(the

 

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“Exchange Act”), and such other compliance with the Exchange Act and the rules
and regulations thereunder, as may be required in connection with the
Transaction Documents and the Transactions; (C) such filings and approvals as
may be required by any applicable state securities or “blue sky” Laws, Takeover
Statute or Environmental Law (as defined in Section 3.1(o)) as more specifically
described in Section 3.1(d)(iii) of the Company Disclosure Letter; (D) the
filing, if applicable, of a pre-merger notification and report by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), and the expiration or termination of the applicable waiting period
thereunder; and (E) any such consent, approval, order, authorization,
registration, declaration, filing or permit that the failure to obtain or make
individually or in the aggregate, would not constitute a Company Material
Adverse Effect.

 

(iv) The holders of the Series B Shares will not have any right to (A) cause the
redemption of the Series B Shares, (B) exchange the Series B Shares for any
other securities or (C) convert, redeem or receive a distribution with respect
to the Series B Shares (other than (1) a distribution in an amount necessary to
pay the full cumulative distributions for all past distribution periods to the
extent not previously paid and (2) a distribution representing the full
quarterly distribution for the calendar quarter in which the Closing occurs) as
a result of the Mergers or the other transactions contemplated by the
Transaction Documents.

 

(e) SEC Documents.

 

(i) The Company has made available (including via filings with EDGAR) to each of
the Purchaser Parties a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC since January 1, 2002 and prior to or on the date hereof (the “Company
SEC Documents”). Except as set forth in Section 3.1(e) of the Company Disclosure
Letter, the Company has timely filed each of the Company SEC Documents. As of
their respective filing dates, (A) the Company SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the “Securities Act”), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Documents and (B) none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
such statements have been modified or superseded by later Company SEC Documents
filed and publicly available prior to the date of this Agreement. Other than in
connection with the Company’s Post-Effective Amendment No. 1 to Form S-11
(Registration No. 333 115640), the Company has no outstanding and unresolved
comments from the SEC with respect to any of the Company SEC Documents;
provided, however, that no representation or warranty is made as to outstanding
and unresolved comments from the SEC regarding any post-effective amendment to
the Company’s effective registration statement on Form S-11 (Registration No.
333 115640) filed after the date hereof. None of the Company SEC Documents is
the subject of any confidential treatment request by the Company. The
consolidated financial statements of the Company (including the notes thereto)
included in the Company SEC Documents

 

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complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto, or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly presented in all material
respects, in accordance with applicable requirements of GAAP (subject, in the
case of the unaudited statements, to normal, recurring adjustments, none of
which are material), the consolidated financial position of the Company and the
Company Subsidiaries, taken as a whole, as of their respective dates and the
consolidated statements of operations and the consolidated statements of cash
flows of the Company and the Company Subsidiaries for the periods presented
therein. No Company Subsidiary is required to make any filings with the SEC.

 

(ii) The GP Units and LP Units are not registered under Section 12 of the
Exchange Act.

 

(f) Absence of Certain Changes or Events. Except as disclosed or reflected in
the Company SEC Documents or as disclosed in Section 3.1(f) of the Company
Disclosure Letter, since December 31, 2003, the Company and the Company
Subsidiaries have conducted their business only in the ordinary course and there
has not been: (i) (A) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to the
Company Shares other than any declaration, setting aside or payment of
distributions with respect to the Series B Shares expressly permitted by the
terms hereof or in exchange for LP Units pursuant to the terms thereof; (B) any
amendment of any term of any outstanding equity security of the Company or any
Company Subsidiary; (C) any repurchase, redemption or other acquisition by
Company or any Company Subsidiary of any outstanding shares of beneficial
interest or stock or other Equity Interest of, or other ownership interests in,
the Company or any Company Subsidiary; (D) any material change in any method of
accounting or accounting practice or any material change in any tax method or
election by the Company or any Company Subsidiary; (E) any amendment of any
employment, consulting, severance, retention or any other agreement between the
Company and any officer or director of the Company; (F) any change, event,
effect, damage, destruction or loss relating to the business or operations of
the Company or any Company Subsidiary that has had, or could reasonably be
expected to have, a Company Material Adverse Effect, or (G) any other event or
development with respect to the Company or any Company Subsidiary that has had,
or could reasonably be expected to have, a Company Material Adverse Effect and
(ii) any split, combination or reclassification of any of the Company Shares or
the LP Units, or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, or giving the right
to acquire by exchange or exercise, Company Shares or LP Units or any issuance
of an ownership interest in any Company Subsidiary.

 

(g) No Undisclosed Material Liabilities. Except as disclosed in the Company SEC
Documents or Section 3.1(g) of the Company Disclosure Letter or as otherwise
could not reasonably be expected to have a Company Material Adverse Effect,
there are no liabilities of the Company or any of the Company Subsidiaries,
whether accrued, contingent, absolute or determined, other than: (i) liabilities
adequately provided for or disclosed on the balance sheet of the Company dated
as of December 31, 2003 contained in the Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 of the Company or (ii) liabilities incurred
in the ordinary course of business subsequent to December 31, 2003.

 

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(h) No Default. Neither the Company nor any of the Company Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (A) the Company Charter or the Company By-laws or the comparable
charter or organizational documents of any of the Company Subsidiaries, (B) any
loan or credit agreement or note, including, but not limited to, the Triggered
Agreements or any bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license to which the Company or any
of the Company Subsidiaries is now a party or by which Company or any of the
Company Subsidiaries or any of their respective properties or assets is bound,
or (C) any order, writ, injunction or decree applicable to the Company or any of
the Company Subsidiaries, except, in the case of clauses (B) and (C) for
defaults or violations which, individually or in the aggregate, would not
constitute a Company Material Adverse Effect.

 

(i) Compliance with Applicable Laws. The Company and the Company Subsidiaries
hold all permits, licenses, certificates, registrations, variances, exemptions,
orders, franchises and approvals of, from and with all Governmental Entities
necessary for the lawful conduct of their respective businesses (the “Company
Permits”), except where the failure so to hold, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect. The Company and the Company Subsidiaries are in compliance with the
terms of each of the Company Permits, except where the failure to so comply,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect. Except as disclosed in the Company SEC
Documents or as would not constitute a Company Material Adverse Effect, the
businesses of the Company and the Company Subsidiaries are not being conducted
in violation of any Law of any Governmental Entity. No investigation or review
by any Governmental Entity with respect to the Company or any of the Company
Subsidiaries is pending or, to the Knowledge of the Company, is threatened,
other than those the outcome of which, individually or in the aggregate, would
not constitute a Company Material Adverse Effect.

 

(j) Litigation. Except as disclosed in the Company SEC Documents or as disclosed
in Section 3.1(j) of the Company Disclosure Letter and except for routine
litigation arising from the ordinary course of business of the Company and the
Company Subsidiaries which is adequately covered by insurance (subject to
applicable deductibles), there is no litigation, arbitration, claim,
controversy, grievance, investigation, suit, action or proceeding pending in
which service of process or written notice, as applicable, has been received by
an officer of the Company or, to the Knowledge of the Company, threatened in
writing to an officer of the Company against or affecting the Company or any
Company Subsidiary that could reasonably be expected to constitute a Company
Material Adverse Effect, nor is there any judgment, award, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company or any Company Subsidiary which (A) could, individually or in the
aggregate, reasonably be expected to constitute a Company Material Adverse
Effect, (B) would cause any of the transactions contemplated by the Transaction
Documents to be rescinded following their consummation, including, without
limitation, the REIT Merger and OP Merger or (C) would materially adversely
affect the rights of any Purchaser Party to own the Company’s or

 

19

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any Company Subsidiary’s assets and to operate the Company’s or any Company
Subsidiary’s business. Except as set forth on Schedule 3.1(j) to the Company
Disclosure Letter, no claim has been made under any directors’ and officers’
liability insurance policy maintained at any time by or on behalf of the Company
or any Company Subsidiary.

 

(k) Taxes.

 

(i) (A) Each of the Company and the Company Subsidiaries has timely filed all
material Tax Returns required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so or otherwise permitted by Law), (B) each such Tax Return was, at the time
filed, true, correct and complete in all material respects and (C) each of the
Company and the Company Subsidiaries has paid (or the Company has paid on behalf
of such Company Subsidiary), within the time and in the manner prescribed by
Law, all Taxes that are shown to be due and payable as reflected on such Tax
Returns. The most recent financial statements contained in the Company SEC
documents filed with the SEC prior to the date of this Agreement reflect
adequate accrued liabilities for all material Taxes due and payable by the
Company and the Company Subsidiaries as a group for all taxable periods and
portions thereof through the date of such financial statements. To the Knowledge
of the Company, the Company and the Company Subsidiaries (as a group) have
established on their books and records reserves or accrued liabilities or
expenses that are adequate for the payment of all material Taxes for which the
Company or any Company Subsidiary is liable but are not yet due and payable.
Since the date of the most recent audited financial statements included in the
Company SEC Documents, (A) the Company has incurred no liability for any
material Taxes under Sections 857(b), 860(c) or 4981 of the Code or IRS Notice
88-19 or Treasury Regulation Section 1.337(d)-5T, including, without limitation,
any material Tax arising from a prohibited transaction described in Section
857(b)(6) of the Code and (B) neither the Company nor any Company Subsidiary has
incurred any material liability for Taxes other than in the ordinary course of
business. Except as set forth in Section 3.1(k) of the Company Disclosure
Letter, no deficiencies for material Taxes have been asserted or assessed in
writing by a Governmental Entity against the Company or any of the Company
Subsidiaries which have not been paid or remain pending, including claims by any
Governmental Entity in a jurisdiction where the Company or any Company
Subsidiary does not file Tax Returns, and no requests for waivers of the time to
assess any such material Taxes have been granted and remain in effect or are
pending.

 

(ii) The Company (A) for each taxable year of the Company’s existence through
its taxable year ended December 31, 2003, has been subject to taxation as a real
estate investment trust (a “REIT”) within the meaning of the Code and has
satisfied the requirements to qualify as a REIT for such years, (B) has operated
consistent with the requirements for qualification and taxation as a REIT for
the period from December 31, 2003 through the date hereof, and (C) has not taken
any action or omitted to take any action which would reasonably be expected to
result in a successful challenge by the IRS to its status as a REIT, and no such
challenge is pending, or to the Company’s Knowledge, threatened. Except as set
forth in Section 3.1(k)(ii) of the Company Disclosure Letter, the assets owned
by the Company and the Company Subsidiaries on

 

20

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the date hereof are comprised of assets described in Section 856(c)(4) of the
Code. Each Company Subsidiary which files Tax Returns as a partnership for
federal income tax purposes has since its inception or acquisition by the
Company been classified for federal income tax purposes as a partnership and not
as an association taxable as a corporation, or a “publicly traded partnership”
within the meaning of Section 7704(b) of the Code that is treated as a
corporation for federal income tax purposes under Section 7704(a) of the Code.
Each Company Subsidiary which is a corporation has been since its formation
classified as a qualified REIT subsidiary under Section 856(i) of the Code.
Neither the Company nor any Company Subsidiary holds any asset (x) the
disposition of which would be subject to rules similar to Section 1374 of the
Code as announced in IRS Notice 88-19 or Treasury Regulation Section 1.337(d)-5t
or (y) that is subject to a consent filed pursuant to Section 341(f) of the
Code.

 

(iii) As of the date of this Agreement, the Company does not have any earnings
and profits attributable to the Company or any other corporation in any non-REIT
year within the meaning of Section 857 of the Code.

 

(iv) All material Taxes which the Company or the Company Subsidiaries are
required by Law to withhold in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party and
sales, gross receipts and use taxes, have been duly withheld or collected and,
to the extent required, have been paid over to the proper Governmental Entities
or are held in separate bank accounts for such purpose. There are no Liens for
material Taxes upon the assets of the Company or the Company Subsidiaries except
for statutory Liens for Taxes not yet due.

 

(v) For periods beginning after December 31, 1997, except as set forth in
Section 3.1(k)(v) of the Company Disclosure Letter, (a) the Tax Returns of the
Company or any current Company Subsidiary have not been audited by any federal
or state income taxing authority and (b) there are no audits by and contests
with any taxing authority currently being conducted about which the Company has
been notified with regard to material Taxes or Tax Returns of the Company or any
Company Subsidiary and there are no audits pending with or proposed by any
taxing authority about which the Company has been notified with respect to any
material Taxes or Tax Returns of the Company or any Company Subsidiary.

 

(vi) Except as set forth in Section 3.1(k)(vi) of the Company Disclosure Letter,
neither the Company nor any of the Company Subsidiaries is a party to any Tax
allocation or sharing agreement.

 

(vii) Except as set forth in Section 3.1(k)(vii) of the Company Disclosure
Letter, the Company does not have any material liability for the Taxes of any
Person other than the Company and the Company Subsidiaries, and none of the
Company Subsidiaries have any material liability for the Taxes of any Person
other than the Company and the Company Subsidiaries (A) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
Law), (B) as a transferee or successor or (C) by contract.

 

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(viii) Except as set forth in Section 3.1(k)(viii) of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries made any
payments, is obligated to make any payments, or is a party to an agreement that
could obligate it to make any payments that will not be deductible under Section
280G of the Code. The Company and the Company Subsidiaries have disclosed to the
IRS all positions taken on their federal income Tax Returns which could give
rise to a substantial understatement of Tax under Section 6662 of the Code.

 

(ix) Except as set forth in Section 3.1(k)(ix) of the Company Disclosure Letter,
neither the Company nor any of the Company Subsidiaries has applied for,
received or has pending a Tax Ruling or commenced negotiations or entered into a
Closing Agreement with any taxing authority. As defined herein, “Tax Ruling”
means a written ruling of a taxing authority relating to Taxes, and “Closing
Agreement” means a written and legally binding agreement with a taxing authority
relating to Taxes.

 

(x) As of the Closing Date, the Company’s cumulative adjusted tax basis in its
GP Units and Series B Preferred Units shall exceed $270,500,000.

 

(l) Pension and Benefit Plans; ERISA.

 

(i) Each “employee pension benefit plan,” as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
maintained or contributed to by the Company or any trade or business (whether or
not incorporated) which is under common control, or which is treated as a single
employer, with the Company under Section 414(b), (c), (m) or (o) of the Code (a
“Company ERISA Affiliate”) or to which the Company or any Company ERISA
Affiliate contributed or is obligated to contribute thereunder within six years
prior to the Closing Date (the “Company Pension Plans”) intended to qualify
under Section 401 of the Code has received a favorable determination letter from
the IRS or is maintained under a prototype plan approved by the IRS with respect
to which the Company or the Company ERISA Affiliates may rely on the opinion
letter issued to the prototype sponsor as to such Company Pension Plan’s
qualified status and, to the Knowledge of the Company, nothing has occurred with
respect to the operation of such Company Pension Plan that could reasonably be
expected to cause the loss of such qualification or the imposition of any
material liability, penalty or Tax under ERISA or the Code;

 

(ii) Except as set forth in Section 3.1(l)(ii) of the Company Disclosure Letter,
neither the Company nor any Company ERISA Affiliate (A) currently sponsors,
contributes to, maintains or has liability (whether contingent or otherwise)
under (1) a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) or
(2) an employee benefit plan that is subject to Part 3 of Subtitle B of Title I
of ERISA, or Section 412 of the Code, or Title IV of ERISA or (B) currently is,
or at any time during the six-year period prior to the date hereof has been,
subject to any withdrawal liability under any such multi-employer plan or
employee benefit plan. To the Knowledge of the Company, none of the Transaction
Documents or the Transactions will trigger any partial or complete withdrawal
under any multiemployer plan.

 

22

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(iii) There is no material violation of ERISA or the Code with respect to (A)
the filing of applicable reports, documents and notices with the Secretary of
Labor and the Secretary of the Treasury regarding all “employee benefit plans,”
as defined in Section 3(3) of ERISA, and all other employee compensation and
benefit arrangements or payroll practices, including, without limitation,
severance pay, sick leave, vacation pay, salary continuation for disability,
consulting or other compensation agreements, retirement, deferred compensation,
bonus (including, without limitation, any retention bonus plan), long-term
incentive, stock option, stock purchase, hospitalization, medical insurance,
life insurance and scholarship programs maintained by the Company or any of the
Company Subsidiaries or with respect to which the Company or any of the Company
Subsidiaries has any liability or the Company Pension Plans (all such plans,
including Company Pension Plans, being hereinafter referred to as the “Company
Employee Benefit Plans”) or (B) the furnishing of such documents to the
participants or beneficiaries of one or more of the Company Employee Benefit
Plans;

 

(iv) Each Company Employee Benefit Plan is listed in Section 3.1(l)(iv) of the
Company Disclosure Letter, and true and complete copies of which have been made
available to the Purchaser Parties, as have the related trust (or other funding
or financing arrangement) and all amendments thereto, the most recent summary
plan descriptions, administrative service agreements, Form 5500s and, with
respect to any Company Employee Benefit Plan intended to be qualified pursuant
to Section 401(a) of the Code, a current IRS determination letter or opinion
letter;

 

(v) Except as set forth in Section 3.1(l)(v) of the Company Disclosure Letter,
each of the Company Employee Benefit Plans is, and its administration is and has
been, in material compliance with, and, none of the Company nor any of the
Company ERISA Affiliates has received any written claim, notice or information
that any such Company Employee Benefit Plan is not in compliance with, its terms
and all applicable Laws regulations and rulings, including, without limitation,
the requirements of ERISA. Except as described in Section 3.1(l)(v) of the
Company Disclosure Letter, there is no material liability for breaches of
fiduciary duty in connection with any of the Company Employee Benefit Plans, and
neither Company nor any of the Company Subsidiaries or any “party in interest”
or “disqualified person” with respect to any of the Company Employee Benefit
Plans has engaged in a non-exempt “prohibited transaction” within the meaning of
Section 4975 of the Code or Section 406 of ERISA;

 

(vi) There are no actions, disputes, suits, claims, arbitrations or legal,
administrative or other proceedings or governmental investigations pending
(other than routine claims for benefits) or, to the Knowledge of the Company,
threatened in writing alleging any breach of the terms of any Company Employee
Benefit Plan or of any fiduciary duties thereunder or violation of any
applicable Law with respect to any such Company Employee Benefit Plan that could
reasonably be expected to constitute a Company Material Adverse Effect;

 

(vii) Except for the payments contemplated by Section 2.3 and except as
described in Section 3.1(k)(vii), Section 3.1(k)(viii) or Section 3.1(l)(xiv) of
the Company Disclosure Letter, neither the execution and delivery of this
Agreement nor the

 

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consummation of the transactions contemplated hereby will (A) result in any
payment (including, but not limited to, any retention bonuses, parachute
payments or noncompetition payments) becoming due to any employee or former
employee or group of employees or former employees of the Company or any of the
Company Subsidiaries; (B) increase any benefits otherwise payable under any
Company Employee Benefit Plan; (C) result in the acceleration of the time of
payment or vesting of any such rights or benefits; or (D) otherwise result in
the payment of any “excess parachute payment” within the meaning of Section 280G
of the Code with respect to a current or former employee of the Company or any
of the Company Subsidiaries;

 

(viii) Except as set forth in Section 3.1(l)(viii) of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries has any
consulting agreement or arrangement, whether oral or written, with any Person
not an employee of the Company or any Company Subsidiary involving annual
compensation in excess of $100,000 other than legal, insurance, audit,
accounting and tax services performed in the ordinary course of business;

 

(ix) All contributions, premiums and other payments required by Law or any
Company Employee Benefit Plan or applicable collective bargaining agreement have
been made under any such plan to any fund, trust or account established
thereunder or in connection therewith by the due date thereof, and no amounts
are or will be due to the Pension Benefit Guaranty Corporation as of the Closing
Date (except for premiums in the ordinary course of business); and any and all
contributions, premiums and other payments with respect to compensation or
service before and through the Closing Date, or otherwise with respect to
periods before and through the Closing Date, due from any of the Company or
Company ERISA Affiliates to, under or on account of each Company Employee
Benefit Plan shall have been paid prior to the Closing Date or shall have been
fully reserved and provided for or accrued on the Company financial statements;

 

(x) Except as set forth in Section 3.1(l)(x) of the Company Disclosure Letter,
no Company Employee Benefit Plan that is a “welfare benefit plan” as defined in
Section 3(1) of ERISA provides for continuing benefits or coverage for any
participant or beneficiary or covered dependent of a participant after such
participant’s termination of employment, except to the extent required by Law.
The Company and the Company ERISA Affiliates have complied in all material
respects with the requirements of Section 4980B of the Code and Parts 6 and 7 of
Subtitle B of Title I of ERISA regarding health care coverage under Company
Employee Benefit Plans;

 

(xi) Except as set forth in Section 3.1(l)(xi) of the Company Disclosure Letter,
no amount has been paid by the Company or any of the Company ERISA Affiliates,
and no amount is expected to be paid by the Company or any of the Company ERISA
Affiliates, which would be subject to the provisions of Section 162(m) of the
Code such that all or a part of such payments would not be deductible by the
payor;

 

(xii) Except as set forth in Section 3.1(l)(xii) of the Company Disclosure
Letter and without limiting any other provision of this Section 3.1(l), no event
has occurred and no condition exists, with respect to any Company Employee
Benefit

 

24

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Plan, that has subjected or could subject the Company or any Company ERISA
Affiliate, or any Company Employee Benefit Plan or any successor thereto, to any
Tax, fine, penalty or other liability (other than, in the case of the Company, a
Company ERISA Affiliate and the Company Employee Benefit Plans, a liability
arising in the normal course to make contributions or payments, as applicable,
when ordinarily due under a Company Employee Benefit Plan with respect to
employees of the Company and the Company Subsidiaries), other than such event or
condition that would not constitute a Company Material Adverse Effect. No plan
other than a Company Employee Benefit Plan is or will be directly or indirectly
binding on the Purchaser Parties by virtue of the transactions contemplated
hereby. Except as set forth in Section 3.1(l)(xii) of the Company Disclosure
Letter, the Purchaser Parties and their Affiliates, including on and after the
Closing Date, the Company and any Company ERISA Affiliate, to the Knowledge of
the Company, shall have no liability for, under, with respect to or otherwise in
connection with any plan, which liability arises under ERISA or the Code, by
virtue of the Company or any Company Subsidiary being aggregated in a controlled
group or affiliated service group with any Company ERISA Affiliate for purposes
of ERISA or the Code at any relevant time prior to the Closing Date (other than
a liability from providing benefits arising in the ordinary course of business);

 

(xiii) Each Company Employee Benefit Plan may be unilaterally amended or
terminated in its entirety by the Company or the Surviving Entity without
liability except as to benefits accrued thereunder prior to amendment or
termination, subject to the applicable requirements of ERISA and the Code; and

 

(xiv) All individual employment, termination, severance, change in control,
retention bonus, post-employment, non-competition and other compensation
agreements, arrangements and plans existing prior to the execution of this
Agreement, which are between the Company or a Company Subsidiary and any current
or former director, officer or employee thereof and which are in effect as of
the date hereof which will exist prior to the Closing, including the name and
title of such current or former director, officer or employee, the type of
agreement and the amount of any estimated severance payment (including estimated
gross up if applicable) owed thereunder due solely to the transactions
contemplated by this Agreement, are listed in Section 3.1(l)(xiv) of the Company
Disclosure Letter (collectively, the “Company Severance Agreements”) and have
been made available to the Purchaser Parties.

 

(m) Labor Matters. Except as disclosed in the Company SEC Documents or Section
3.1(m) of the Company Disclosure Letter or as would not constitute a Company
Material Adverse Effect:

 

(i) Neither the Company nor any of the Company Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any labor
union or organization, and neither the Company nor any of the Company
Subsidiaries have any Knowledge of any activity or proceeding of any labor
organization (or representative thereof) or employee group (or representative
thereof) to organize any such employees.

 

25

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(ii) There is no unfair labor practice charge or grievance arising out of a
collective bargaining agreement or other grievance procedure pending, or, to the
Knowledge of the Company, threatened against the Company or any of the Company
Subsidiaries.

 

(iii) Except as otherwise provided above, there is no complaint, lawsuit or
proceeding before any Governmental Entity of competent jurisdiction by or on
behalf of any present or former employee, any applicant for employment or any
classes of the foregoing, alleging breach of any express or implied contract of
employment, any Law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortuous conduct in connection with
the employment relationship pending, or, to the Knowledge of the Company,
threatened in writing against the Company or any of the Company Subsidiaries.

 

(iv) There is no strike, slowdown, work stoppage or lockout with respect to the
employees of the Company or the Company Subsidiaries pending, or, to the
Knowledge of the Company, threatened in writing, against or involving the
Company or any of the Company Subsidiaries.

 

(v) To the Knowledge of the Company, the employees of the Company and the
Company Subsidiaries are lawfully authorized to work in the United States
according to federal immigration Laws.

 

(vi) To the Knowledge of the Company, the Company and each of the Company
Subsidiaries are in compliance with all applicable Laws in respect of employment
and employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health.

 

(vii) As of the date of this Agreement, there is no proceeding, claim, suit,
action or governmental investigation pending or, to the Knowledge of the
Company, threatened in writing, with respect to which any current or former
director, officer, employee or agent of the Company or any of the Company
Subsidiaries is claiming indemnification from the Company or any of the Company
Subsidiaries.

 

(n) Intangible Property. The Company and the Company Subsidiaries own, possess
or have adequate and defensible rights to use all trademarks, trademark
registrations, trade names, patents, patent applications, service marks, brand
marks, brand names, material computer programs, databases, domain names, service
marks, service mark registration and applications, trade secrets, know how,
trade dress, industrial designs, copyrights and copyright marks (“Intangible
Property”) currently used in the operation of the businesses of each of the
Company and the Company Subsidiaries (collectively, the “Company Intangible
Property”), except where the failure to so own, possess, or have such adequate
and defensible rights to use, individually or in the aggregate, would not
constitute a Company Material Adverse Effect. All of the Company Intangible
Property is owned or licensed by the Company or the Company Subsidiaries free
and clear of any and all Liens, except as would not, individually or in the
aggregate, constitute a Company Material Adverse Effect, and neither the Company
nor any such Company Subsidiary has forfeited or otherwise relinquished any
Company Intangible Property

 

26

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except where the failure to own, possess, or have such adequate rights,
individually or in the aggregate, would not constitute a Company Material
Adverse Effect. Except as set forth in Section 3.1(n) of the Company Disclosure
Letter, to the Knowledge of the Company, the use of Company Intangible Property
by the Company or the Company Subsidiaries does not in any respect, conflict
with, infringe upon, violate or interfere with or constitute an appropriation of
any right, title, interest or goodwill in any Intangible Property of any other
Person, except as would not individually or in the aggregate, constitute a
Company Material Adverse Effect. Except as set forth in Section 3.1(n) of the
Company Disclosure Letter, to the Knowledge of the Company, there have been no
claims made, and neither the Company nor any of the Company Subsidiaries has
received any notice of any claim nor does the Company otherwise have Knowledge
that any of the Company Intangible Property is invalid or conflicts with the
asserted rights of any other Person or has not been used or enforced or has
failed to have been used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of any of the Company Intangible
Property, except as would not, individually or in the aggregate, constitute a
Company Material Adverse Effect. Except as set forth in Section 3.1(n) of the
Company Disclosure Letter, (A) there exists no prior act or current conduct or
use by the Company, any Company Subsidiary or, to the Knowledge of the Company,
any third party that would void or invalidate any Company Intangible Property,
and (B) the execution, delivery and performance of the Transaction Documents by
the Company and the Company Subsidiaries, as applicable, and the consummation of
the Transactions, will not breach, violate or conflict with any instrument or
agreement concerning any Company Intangible Property, will not cause the
forfeiture or termination or give rise to the right of the Surviving Entity to
make, use, sell, license or dispose of, or to bring any action for the
infringement of any Company Intangible Property except where such matters,
individually or in the aggregate, would not constitute a Company Material
Adverse Effect. The matters set forth in Section 3.1(n) of the Company
Disclosure Letter, would not, individually or in the aggregate, constitute a
Company Material Adverse Effect.

 

(o) Environmental Matters. For purposes of this Agreement, (x) “Environmental
Law” means any applicable Law of any Governmental Entity relating to the
protection of human health, safety and the environment as it relates to exposure
to Hazardous Material and the management, presence, use, generation, processing
extraction, treatment, recycling, refining, reclamation, labeling, transport,
storage, collection, distributions, disposal or threat of release of Hazardous
Material, (y) “Hazardous Material” means (A) any petroleum or petroleum products
(including crude oil and natural or synthetic gas), radioactive materials,
radon, mold, asbestos-containing materials, urea formaldehyde foam insulation
and polychlorinated biphenyls (“PCBs”), (B) any chemicals, materials, substances
or wastes which are defined as or included in the definition of “hazardous
substances,” “industrial waste,” “residual waste,” “solid waste,” “municipal
waste,” “mixed waste,” “infectious waste,” “chemotherapeutic waste,” “medical
waste,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,”
“restricted hazardous wastes,” “toxic substances,” “toxic pollutants,”
“pollutant,” “contaminant” or words of similar import, or regulated as such,
under the Comprehensive Environmental Response Compensation and Liability Act
(CERCLA), the Resource Conservation and Recovery Act (RCRA), the Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Clean Water Act, the Clean Air
Act or any other environmental law, and (z) “Release” means any releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,

 

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leaching, dispersing, migrating, dumping or disposing into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Material through or into the air, soil,
surface water, or groundwater. All representations and warranties regarding
environmental matters are contained exclusively in this Section 3.1(o). Except
as disclosed in Section 3.1(o) of the Company Disclosure Letter and except as
would not constitute a Company Material Adverse Effect:

 

(i) There is no pending administrative or compliance order, complaint, penalty
that has not been paid and, to the Knowledge of the Company, no investigation or
review is pending or threatened by any Governmental Entity with respect to any
alleged failure by the Company or any Company Subsidiary (x) to have any Company
Permit required under any Environmental Law or (y) with respect to any
treatment, storage, recycling, transportation, disposal, Release or threatened
Release by the Company or any Company Subsidiary, on any property currently or
formerly owned, operated or leased by the Company or any Company Subsidiary, of
any Hazardous Material.

 

(ii) Neither the Company nor any Company Subsidiary nor, to the Knowledge of the
Company, any owner or lessee of any property currently or formerly owned,
operated or leased by the Company or any Company Subsidiary, has used,
generated, stored, treated or handled any Hazardous Material on such property,
except in compliance with Environmental Laws. To the Knowledge of the Company,
(A) there are no asbestos-containing materials present on, in or under any
property owned, leased or operated by the Company or any Company Subsidiary, (B)
there are no PCBs present on, in or under any property owned, leased or operated
by the Company or any Company Subsidiary, and (C) there are no underground
storage tanks, active or abandoned, used for the storage of Hazardous Materials
currently present on, in or under any property owned, leased or operated by the
Company or any Company Subsidiary, except in each case where in compliance with
Environmental Laws.

 

(iii) Neither the Company nor any of the Company Subsidiaries has received
notice of a pending claim, investigation, litigation, proceeding, notice of
violation, complaint, or request for information, to the effect that it is
liable to a third party, including a Governmental Entity, as a result of a
Release or threatened Release of a Hazardous Material into the environment at
any property currently or formerly owned, leased or operated by the Company or a
Company Subsidiary, and, to the Knowledge of the Company, there is no reasonable
basis for such claim, investigation, litigation, proceeding, notice of
violation, complaint, or request for information.

 

(iv) Neither the Company nor any Company Subsidiary has transported or arranged
for the transportation of any Hazardous Material to any location which is the
subject of any action, suit or proceeding that has resulted in actual, or to the
Knowledge of the Company, threatened in writing claims against the Company or
any Company Subsidiary related to such Hazardous Material for clean-up costs,
remedial work, damages to natural resources or personal injury claims,
including, but not limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder

 

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(“CERCLA”) and, to the Knowledge of the Company, there is no reasonable basis
for such claim. All Hazardous Material which has been removed from any property
currently or formerly owned, leased, or operated by the Company or any Company
Subsidiary has been handled, transported and disposed of in compliance with
Environmental Laws.

 

(v) The Company has made notification of any and all Releases and threatened
Releases of a Hazardous Material where required by applicable Environmental Law,
and neither the Company nor any Company Subsidiary has received any written
notice that its property now or previously owned, leased or operated by the
Company or any Company Subsidiary, is listed or proposed for listing on the
National Priorities List promulgated pursuant to CERCLA or on any similar state
list of sites where such listing requires investigation or clean-up.

 

(vi) There are no Liens threatened or attached to any Company Property (as
defined in Section 3.1(p)(i)(A)) arising under or pursuant to any applicable
Environmental Law, and no action of any Governmental Entity has been taken or,
to the Knowledge of the Company, is in process which could subject any of such
properties to such Liens. Neither the Company nor any Company Subsidiary
currently has a duty under any applicable Environmental Law to place any
restriction on use relating to the presence of Hazardous Material at any such
Company Property.

 

(vii) Neither the Company nor any Company Subsidiary has entered into any
agreement which is still in effect to provide indemnification to any third party
purchaser pursuant to Environmental Laws in relation to any property or facility
previously owned, leased or operated by the Company or a Company Subsidiary.

 

(viii) The Company and all Company Subsidiaries are in compliance with all
Environmental Laws at, in, on or under any of their owned or leased properties.

 

(ix) To the Knowledge of the Company, there has been no Release or threatened
Release of Hazardous Material in violation of any Environmental Law on any
property currently or formerly owned, leased or operated by the Company or any
Company Subsidiary or on adjacent parcels of real estate.

 

(p) Properties.

 

(i) (A) Except as listed in Section 3.1(p)(i)(A) of the Company Disclosure
Letter, the Company or a Company Subsidiary owns fee simple title to, or has a
valid leasehold interest in, each of the real properties reflected on the most
recent balance sheet of the Company included in the Company SEC Documents and as
identified in Section 3.1(p)(i)(A) of the Company Disclosure Letter (each, a
“Company Property” and collectively, the “Company Properties”), which are all of
the real estate properties owned by them, free and clear of Liens except for (1)
debt and other matters identified in Section 3.1(p)(i)(A)(1) of the Company
Disclosure Letter; (2) inchoate Liens imposed for construction work in progress
or otherwise incurred in the ordinary course of business; (3) mechanics’,
workmen’s and repairmen’s Liens (other than inchoate Liens

 

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for work in progress) identified in Section 3.1(p)(i)(A)(3) of the Company
Disclosure Letter; (4) leases, reciprocal easement agreements and all matters
disclosed on existing title policies or as would be disclosed on current title
reports or surveys (excluding outstanding indebtedness listed in Section
3.1(p)(i)(A)(1) of the Company Disclosure Letter) and (5) real estate Taxes and
special assessments; (B) except as listed in Section 3.1(p)(i)(B) of the Company
Disclosure Letter or as would not constitute a Company Material Adverse Effect,
none of the Company Properties is subject to any rights of way, written
agreements or reservations of an interest in title (collectively, “Company
Property Restrictions”), except for (1) Company Property Restrictions imposed or
promulgated by Law with respect to real property, including zoning regulations,
(2) leases on the Rent Roll, reciprocal easement agreements and all matters
disclosed on existing title policies or as would be disclosed on current title
reports or surveys (excluding outstanding indebtedness listed in Section
3.1(p)(i)(A)(1) of the Company Disclosure Letter) and (3) real estate Taxes and
special assessments; (C) except as listed in Section 3.1(p)(i)(C) of the Company
Disclosure Letter, valid policies of title insurance have been issued insuring
the Company’s or a Company Subsidiary’s or a predecessor in interest’s fee
simple title or leasehold estate to the Company Properties except as noted
therein, and such policies are, at the date of this Agreement, in full force and
effect and no claim has been made against any such policy; (D) except as listed
in Section 3.1(p)(i)(D) of the Company Disclosure Letter or as would not
constitute a Company Material Adverse Effect, there is no certificate, permit or
license from any Governmental Entity having jurisdiction over any of the Company
Properties or any agreement, easement or any other right which is necessary to
permit the lawful use and operation of the buildings and improvements on any of
the Company Properties or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to and
from any of the Company Properties (collectively, the “Property Agreements”)
that has not been obtained and is not in full force and effect; (E) except as
listed in Section 3.1(p)(i)(E) of the Company Disclosure Letter or as would not
constitute a Company Material Adverse Effect, neither the Company nor any
Company Subsidiary has received written notice of, or has any Knowledge of, any
violation of any federal, state or municipal Law, ordinance, order, regulation
or requirement affecting any portion of any of the Company Properties issued by
any Governmental Entity that has not otherwise been resolved; (F) except as
listed in Section 3.1(p)(i)(F) of the Company Disclosure Letter or as would not
constitute a Company Material Adverse Effect, neither the Company nor any
Company Subsidiary has received written notice to the effect, or has any
Knowledge, that there are any, and there are no, (1) condemnation or rezoning or
proceedings that are pending or, to the Knowledge of the Company, threatened
with respect to any portion of any of the Company Properties or (2) zoning,
building or similar Laws or orders that are presently being violated or will be
violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Company Properties or by the continued
maintenance, operation or use of the parking areas; (G) except as listed in
Section 3.1(p)(i)(G) of the Company Disclosure Letter or as would not constitute
a Company Material Adverse Effect, neither the Company nor any Company
Subsidiary has received written notice that it is currently in default or
violation of any Company Property Restrictions; and (H) except as listed in
Section 3.1(p)(i)(H) of the Company Disclosure Letter or as would not constitute
a Company Material Adverse Effect, neither the Company nor any Company
Subsidiary has received written notice, and has no Knowledge, that it is
currently in default of any Property Agreements.

 

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(ii) Except for discrepancies that would not, individually or in the aggregate,
constitute a Company Material Adverse Effect, all properties currently under
development or construction (other than in connection with tenant improvements)
by the Company or any of the Company Subsidiaries and all properties currently
proposed for acquisition, development or commencement of construction prior to
the Effective Time by the Company or any of the Company Subsidiaries are listed
as such in Section 3.1(p)(ii) of the Company Disclosure Letter. Except for
discrepancies that would not, individually or in the aggregate, constitute a
Company Material Adverse Effect, all executory agreements entered into by the
Company or any of the Company Subsidiaries which would require payments by the
Company or any Company Subsidiary in excess of $150,000, individually, relating
to the development or construction of real estate properties (other than
agreements for tenant improvements, leases, accounting, legal or other
professional services or agreements for material or labor) are listed in Section
3.1(v)(i) of the Company Disclosure Letter.

 

(iii) The rent roll for each of the Company Properties (the “Rent Roll”) as of a
date not more than 30 days prior to the date of this Agreement has been provided
or made available to the Purchaser Parties. Except as disclosed in Section
3.1(p)(iii) of the Company Disclosure Letter and for discrepancies that, either
individually or in the aggregate, would not constitute a Company Material
Adverse Effect, the information set forth in the Rent Roll is true, correct and
complete as of the date thereof. Except as disclosed in Section 3.1(p)(iii) of
the Company Disclosure Letter, neither the Company nor any Company Subsidiary,
on the one hand, nor any other party, on the other hand, is in monetary default
under any lease which, individually or in the aggregate, would reasonably be
expected to result in a Company Material Adverse Effect.

 

(iv) Section 3.1(p)(iv) of the Company Disclosure Letter sets forth a complete
and correct list, as of the date of this Agreement, of all material leases which
have been executed, but are either not yet included on the Rent Roll or relate
to property not yet open for business.

 

(v) Except as disclosed in Section 3.1(p)(v) of the Company Disclosure Letter,
no tenants have been granted options to purchase, rights of first refusal or
rights to terminate their leases under their applicable leases which would
require consent or be triggered by the REIT Merger or the OP Merger. Section
3.1(p)(v) of the Company Disclosure Letter sets forth a complete list of Company
leases in excess of 20,000 square feet per lease that grant tenants the right to
terminate their leases prior to expiration without lessor default under their
applicable leases.

 

(vi) Section 3.1(p)(vi) of the Company Disclosure Letter contains a list of any
unfunded tenant improvements due from the Company or any Company Subsidiary in
excess of $200,000 with respect to any one tenant.

 

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(vii) Except as set forth in Section 3.1(p)(vii) of the Company Disclosure
Letter, there are no written agreements which restrict the Company or any
Company Subsidiary from transferring any of the Company Properties.

 

(viii) Except as set forth in Section 3.1(p)(i)(A)(1) of the Company Disclosure
Letter, the Company and each of the Company Subsidiaries have good and
sufficient title to, or are permitted to use under valid and existing leases,
all their personal and non-real properties and assets reflected in their books
and records as being owned by them (including those reflected in the
consolidated balance sheet of the Company as of December 31, 2003, except as
since sold or otherwise disposed of in the ordinary course of business) or used
by them in the ordinary course of business, free and clear of all Liens and
encumbrances, except such as are reflected on the consolidated balance sheet of
the Company as of December 31, 2003, and the notes thereto, and except for Liens
for current taxes not yet due and payable, and Liens or encumbrances which are
normal to the business of the Company and the Company Subsidiaries and are not,
in the aggregate, material in relation to the assets of the Company on a
consolidated basis and except also for such imperfections of title or leasehold
interest, easement and encumbrances, if any, as do not materially interfere with
the present use of the properties subject thereto or affected thereby, or as
would not otherwise constitute a Company Material Adverse Effect.

 

(q) Insurance. Section 3.1(q) of the Company Disclosure Letter sets forth an
insurance schedule of the Company. The Company and each of the Company
Subsidiaries maintains insurance with financially responsible insurers in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the Company and
each of the Company Subsidiaries (taking into account the cost and availability
of such insurance). Except as set forth in Section 3.1(q) of the Company
Disclosure Letter, neither the Company nor any of the Company Subsidiaries has
received any written notice of cancellation or termination with respect to any
material insurance policy of the Company or any of the Company Subsidiaries.

 

(r) Opinion of Financial Advisor. The Company Board has received the written
opinion (the “Fairness Opinion”) of Wachovia Capital Markets, LLC (the “Company
Financial Advisor”) to the effect that, based on, and subject to the various
assumptions and qualifications set forth in such opinion, as of the date of such
opinion, the REIT Merger Consideration to be received by holders of Common
Shares pursuant to this Agreement is fair from a financial point of view to such
holders.

 

(s) Beneficial Ownership of Company Shares. Except as set forth in Section
3.1(s) of the Company Disclosure Letter and with the exception of the Series A
Shares, one hundred percent (100%) of which are owned by the Operating
Partnership, neither the Company nor the Company Subsidiaries “beneficially own”
(as defined in Rule 13d-3 promulgated under the Exchange Act) any of the
outstanding Company Shares.

 

(t) Brokers. Except for the fees and expenses payable to the Company Financial
Advisor (which fees and the engagement letter have been disclosed to each of the
Purchaser Parties) and except as set forth in Section 3.1(t) of the Company
Disclosure Letter, no

 

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broker, finder, investment banker or other Person is entitled to any broker’s,
finder’s or other similar fee or commission in connection with the transactions
contemplated by the Transaction Documents based upon arrangements made by or on
behalf of the Company.

 

(u) Investment Company Act of 1940. Neither the Company nor any of the Company
Subsidiaries is, or at the Closing Date will be, required to be registered as an
investment company under the Investment Company Act of 1940, as amended.

 

(v) Material Contracts.

 

(i) Section 3.1(v)(i) of the Company Disclosure Letter lists all Material
Contracts (as defined below) of the Company and each Company Subsidiary. Except
as set forth in Section 3.1(v)(i) of the Company Disclosure Letter, each
Material Contract is valid, binding and enforceable and in full force and
effect, except where such failure to be so valid, binding and enforceable and in
full force and effect would not, individually or in the aggregate, constitute a
Company Material Adverse Effect, and there are no defaults or violations
thereunder, nor does there exist any condition which upon the passage of time or
the giving of notice or both would cause such a violation of or a default
thereunder, except those defaults or violations that would not, individually or
in the aggregate, constitute a Company Material Adverse Effect. For purposes of
this Agreement, “Material Contracts” shall mean (i) any loan agreement,
indenture, note, bond, debenture, mortgage or any other document, agreement or
instrument evidencing a capitalized lease obligation or other indebtedness to
any Person, other than indebtedness in a principal amount of less than $200,000,
(ii) each material commitment, contractual obligation, capital expenditure or
transaction entered into by the Company or any Company Subsidiary which may
result in total payments by or liability of the Company or any Company
Subsidiary in excess of $200,000, other than pursuant to leases reflected in
Section 3.1(p)(v) of the Company Disclosure Letter or leases reflected on the
Rent Roll, (iii) any other agreements filed or required to be filed as exhibits
to the Company SEC Documents pursuant to Item 601(b)(10) of Regulation S-K of
Title 17, Part 229 of the Code of Federal Regulations, (iv) any agreement
relating to the management of any Company Properties by any Person other than
the Company or any Company Subsidiary, (v) any agreement pursuant to which the
Company or any Company Subsidiary manages or provides services with respect to
any real properties other than Company Properties, (vi) any agreement relating
to the development or construction of, or additions or expansions to, any
Company Property (or any properties with respect to which the Company has
executed as of the date hereof a purchase agreement or other similar agreement)
which is currently in effect and under which the Company or any of the Company
Subsidiaries currently has, or expects to incur, an obligation in excess of
$200,000 (true, correct and complete copies of such agreements have previously
been delivered or made available to the Purchaser Parties), (vii) any agreement,
currently in effect, providing for the sale of, or option to sell, any Company
Property, and (viii) any agreement, currently in effect, providing for the
purchase of, or option to purchase, by the Company or any Company Subsidiary,
any real estate, provided, however, any contract, agreement or other arrangement
under clause (ii) or (iii) above that, by its terms, is terminable within 31
days (without penalty) of the date of this Agreement and that does not require
any payments in excess of $50,000 thereunder in connection with such termination
shall not be deemed a Material Contract.

 

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(ii) All mortgages on any of the assets of the Company or the Operating
Partnership are listed in Section 3.1(v)(ii) of the Company Disclosure Letter.

 

(iii) Except as set forth in Section 3.1(v)(iii) of the Company Disclosure
Letter, there is no confidentiality agreement, non-competition agreement or
other contract or agreement that contains covenants that restrict the Company’s
ability to conduct its business in any location.

 

(iv) Except as set forth in Section 3.1(v)(iv) of the Company Disclosure Letter,
there are no indemnification agreements entered into by and between the Company
and any director or officer of the Company or any of the Company Subsidiaries.

 

(w) Inapplicability of Takeover Statutes and Certain Charter and Bylaw
Provisions. Assuming none of the Purchaser Parties is an “interested
stockholder” or an “affiliate” of an “interested stockholder” (as each such term
is defined in Subtitle 6 of Title 3 of the Maryland General Corporation Law (the
“MGCL”)) nor has been an “interested stockholder” or an “affiliate” of an
“interested stockholder” within five (5) years of the date of this Agreement,
the Company has taken appropriate and necessary actions to exempt the REIT
Merger and the other Transactions from the restrictions of Subtitles 6 and 7 of
Title 3 of the MGCL (the “Takeover Statute”). The Company does not have a
shareholder rights plan in effect.

 

(x) Related Party Transactions. Except as disclosed in the Company SEC Documents
or as disclosed in Section 3.1(x) of the Company Disclosure Letter, there are no
material arrangements, agreements or contracts entered into by the Company or
any of the Company Subsidiaries, on the one hand, and any Person who is a
current or former officer, trustee, director or affiliate of the Company or any
Company Subsidiary, any relative of the foregoing or an entity of which any of
the foregoing is an affiliate, on the other hand and which are in effect as of
the date of this Agreement. Copies of all such documents have been made
available to each of the Purchaser Parties.

 

(y) Disclosure Documents.

 

(i) Each document required to be filed by the Company with the SEC in connection
with the REIT Merger, the OP Merger and the other transactions contemplated by
the Transaction Documents (the “Company Disclosure Documents”), including,
without limitation, the Company Proxy Statement and any amendments or
supplements thereto, will comply in all material respects with the provisions of
applicable federal securities laws.

 

(ii) (A) At the time the Company Proxy Statement, including any amendment or
supplement thereto filed with the SEC, is first mailed, published or given to
the holders of Common Shares, and (B) at the time of the Company Shareholders
Meeting, the Company Proxy Statement as supplemented or amended, if applicable,
will

 

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not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. At the
time of the filing of any Company Disclosure Document filed after the date of
this Agreement, such Company Disclosure Document will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. The representations and warranties
contained in Section 3.1(y)(i) and this Section 3.1(y)(ii) will not apply to
information furnished in writing to the Company by any Purchaser Party
specifically for inclusion in a Company Disclosure Document.

 

(iii) The Company shall promptly correct the Company Proxy Statement if and to
the extent that it shall have become false or misleading in any material respect
and the Company shall take all steps necessary to cause such document as so
corrected to be filed with the SEC and disseminated to holders of Company Shares
to the extent required by applicable federal securities laws.

 

(z) Vote Required.

 

(i) The affirmative vote of the holders of Common Shares casting at least a
majority of the votes entitled to be cast (the “Company Shareholder Approval”)
is the only vote of the holders of any class or series of the Company Stock
required to approve this Agreement, the REIT Merger and the other Transactions.

 

(ii) The affirmative vote of the holders of a majority of the GP Units and the
LP Units, voting as a single class with the Company voting the GP Units in the
same proportion as the holders of the Common Shares voted the Common Shares in
the Company Shareholder Approval (the “Partnership Unitholder Approval”) are the
only votes of any unitholders of the Operating Partnership (including, without
limitation, any holders of the Series A Preferred Units and the Series B
Preferred Units) required to approve this Agreement, the REIT Merger, the OP
Merger and the other Transactions.

 

(aa) Accounting Controls. The Company and the Company Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with management’s
general or specific authorizations; (B) transactions are recorded as necessary
to permit preparation of the Company’s consolidated financial statements in
conformity with GAAP and to maintain accountability for assets; (C) access to
assets is permitted only in accordance with management’s general or specific
authorizations; and (D) the recorded accountability for the assets of the
Company and the Company Subsidiaries is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 

(bb) Compliance with Sarbanes-Oxley Act. At the time each Company SEC Document
filed after July 30, 2002 containing financial statements was filed with the
SEC, such Company SEC Document complied in all material respects with the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as and to the extent
applicable thereto, and the rules and regulations of the SEC promulgated
thereunder and applicable to such Company SEC Document. Each of

 

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the principal executive officer of the Company and the principal financial
officer of the Company (or each former principal executive officer of the
Company and each former principal financial officer of the Company, as
applicable) has made the certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act and the rules and regulations of the SEC promulgated
thereunder with respect to the Company SEC Documents pursuant to the Exchange
Act, when applicable. For purposes of the preceding sentence, “principal
executive officer” and “principal financial officer” shall have the meaning
given to such terms in the Sarbanes-Oxley Act.

 

(cc) Foreign Corrupt Practices Act. None of the Company, any Company Subsidiary
or, to the Knowledge of the Company or any Company Subsidiary, any current or
former officer, director, trustee, employee or agent of the Company or any
Company Subsidiary acting on behalf of the Company has violated the United
States Foreign Corrupt Practices Act of 1977, as amended, applied to such entity
or person.

 

Section 3.2. Representations and Warranties of the Purchaser Parties. Each of
the Purchaser Parties represents and warrants to the Company as follows:

 

(a) Organization, Standing and Entity Power of each of the Purchaser Parties.
Parent is a limited liability company duly formed and validly existing under the
Laws of the State of Delaware, is in good standing in such jurisdiction and has
the requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is now
being conducted. Merger Sub is a limited liability company duly formed and
validly existing under the Laws of the State of Maryland, is in good standing in
such jurisdiction and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. OP Merger Sub is a limited liability
company duly formed and validly existing under the Laws of the State of
Delaware, is in good standing in such jurisdiction and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted. Each
of the Purchaser Parties has made or will make available to the Company complete
and correct copies of its respective organizational documents, each of which is
in full force and effect as of the date hereof.

 

(b) Authority; No Violations; Consents and Approvals.

 

(i) Each of the Purchaser Parties has all requisite power and authority to enter
into the Transaction Documents to which it is a party and to consummate the
transactions contemplated hereby or thereby. The execution and delivery of the
Transaction Documents to which it is a party and the consummation of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of each Purchaser Party. Except as have been
obtained, no consent or approval of any Purchaser Party’s shareholders or
members is required in order for such Purchaser Party to execute and deliver the
Transaction Documents to which such Purchaser Party is a party or to consummate
the transactions contemplated hereby and thereby.

 

(ii) The Transaction Documents to which any of the Purchaser Parties are a party
have been duly executed and delivered by such Purchaser Party, as the case

 

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may be, and constitute valid and binding obligations of such Purchaser Party, as
the case may be, enforceable in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar Laws of general applicability
relating to or affecting creditors’ rights and by the exercise of judicial
discretion in accordance with general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at Law).

 

(iii) The execution and delivery of the Transaction Documents to which it is a
party by each of the Purchaser Parties, as the case may be, does not, and the
consummation of the transactions contemplated hereby or thereby, and compliance
with the provisions hereof or thereof, will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or the loss of a material benefit under, or give rise to
a right of purchase under, result in the creation of any Lien upon any of the
properties or assets of such Purchaser Party under, require the consent or
approval of any third party or otherwise result in a material detriment to such
Purchaser Party under, require the consent or approval of any third party or
otherwise result in a material detriment to such Purchaser Party under, any
provision of (A) the respective charter, by-laws or other organizational
documents of such Purchaser Party, (B) any contract, lease, license, indenture,
note, bond, agreement, permit, concession, franchise or other instrument
applicable to such Purchaser Party, its respective properties or assets or any
guarantee by such Purchaser Party, (C) any joint venture or other ownership
arrangement or (D) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 3.2(b)(iv) are duly and
timely obtained or made, any judgment, order, decree, statute, Law, ordinance,
rule or regulation applicable to such Purchaser Party or any of its respective
properties or assets, other than, in the case of clauses (B), (C) and (D), any
such conflicts, violations, defaults, rights, Liens, detriments or failure to
obtain any such consent that, individually or in the aggregate, would not
reasonably be expected to materially impair or delay the ability of such
Purchaser Party to perform its obligations hereunder or under any of the other
Transaction Documents or prevent the consummation of any of the transactions
contemplated hereby or thereby.

 

(iv) No consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any Governmental Entity is required
by or with respect to any Purchaser Party in connection with the execution and
delivery by such Purchaser Party of the Transaction Documents to which such
Purchaser Party is a party or the consummation by such Purchaser Party of the
transactions contemplated hereby or thereby, except for: (A) the filing of the
Articles of Merger with the Maryland Department and the OP Merger Certificate
with the Secretary of State of Delaware; (B) the filing with the SEC of such
reports under Section 13(a) of the Exchange Act and such other compliance with
the Securities Act and the Exchange Act and the rules and regulations thereunder
as may be required in connection with this Agreement and the transactions
contemplated hereby; (C) such filings and approvals as may be required by any
applicable state securities or “blue sky” Laws, Takeover Statute or
Environmental Laws; (D) filings under the HSR Act, if applicable; and (E) any
such consent, approval, order, authorization, registration, declaration, filing
or permit that the failure to obtain or

 

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make would not reasonably be expected to materially impair or delay the ability
of such Purchaser Party to perform its obligations hereunder or under any of the
other Transaction Documents or prevent the consummation of any of the
transactions contemplated hereby or thereby.

 

(c) Adequate Funds; Parent Acquisition Financing. Parent, Merger Sub and OP
Merger Sub, collectively, will have available on the Closing Date immediately
prior to the OP Effective Time all funds necessary to pay (i) the aggregate OP
Merger Consideration, REIT Merger Consideration and Option Merger Consideration
that Parent, Merger Sub and OP Merger Sub become obligated to pay pursuant to
Sections 2.2(b) and 2.7 of this Agreement and (ii) all transaction expenses
reasonably expected to be incurred in connection with the transactions
contemplated by this Agreement. Parent has obtained a debt financing commitment
(the “Commitment Letter”) from a financial institution (the “Acquisition
Lender”) that, when funded and together with funds provided by Parent from its
available cash and proceeds from borrowings of committed and undrawn funds under
Parent’s current credit facilities (“Parent’s Funds”), will be sufficient to
enable Parent to fund the foregoing obligations of Parent, Merger Sub and OP
Merger Sub under this Agreement; provided, however, that Parent shall have no
obligation to cause the Commitment Letter to fund if the required funds for the
consummation of the Transactions are available from Parent’s Funds or from
alternative third party financing sources. A true and correct copy of Commitment
Letter has been provided to the Company. The Commitment Letter is not subject to
any conditions other than as set forth therein, has been duly executed by all
parties thereto, and is in full force and effect on the date hereof. Parent is
not aware of and does not anticipate any basis upon which the conditions set
forth in the Commitment Letter will not be fully satisfied on the Closing Date.
Notwithstanding the foregoing, the Parent shall not be required to draw upon the
funds of the Commitment Letter if Parent has obtained financing from alternative
third party financing sources.

 

(d) Documents Relating to REIT Merger and OP Merger. At the time of the filing
of any Company Disclosure Document, none of the information that may be supplied
in writing by any Purchaser Party or any of their respective Affiliates
specifically for use in such document will contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

 

(e) No Other Business. Each of Merger Sub and OP Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated hereby, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby. All of the outstanding Equity Interests in Merger Sub have
been validly issued, are fully paid and nonassessable and are owned by Parent
free and clear of any Lien. All of the outstanding Equity Interests in OP Merger
Sub have been validly issued, are fully paid and non-assessable and are owned by
Parent free and clear of any Lien.

 

(f) Brokers. No broker, investment banker or other person is entitled to any
broker’s, finder’s or other similar fee or commission in connection with the
transactions contemplated by the Transaction Documents based upon arrangements
made by or on behalf of any Purchaser Party, for which fee or commission the
Company or any Company Subsidiary may be liable.

 

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(g) Litigation. There is no litigation, arbitration, claim, investigation, suit,
action or proceeding pending in which service of process or written notice, as
applicable, has been received by an officer of a Purchaser Party or, to the
Knowledge of any Purchaser Party, threatened in writing to an officer of a
Purchaser Party and against or affecting such Purchaser Party, nor is there any
judgment, award, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against any Purchaser Party which would reasonably be
expected to, individually or in the aggregate, (A) cause any of the transactions
contemplated by the Transaction Documents to be rescinded following their
consummation, including, without limitation, the REIT Merger or the OP Merger or
(B) materially impair or delay the ability of such Purchaser Party to perform
its obligations hereunder or under any of the other Transaction Documents or
prevent the consummation of any of the transactions contemplated hereby or
thereby.

 

(h) REIT Status. The ownership of any one or more shares of beneficial interest,
options or warrants of the Company or the Surviving Entity, or units or other
equity interests, options or warrants of the Operating Partnership, by any
Purchaser Party will not at any time, in and of itself, adversely affect the
Company’s or the Surviving Entity’s status as a REIT under the Code or cause the
Company or the Surviving Entity to be treated as a “pension held REIT” under
Section 856(h) of the Code; provided, however, that, following the Effective
Time, and subject to the provisions of Section 5.18(b), the Purchaser Parties
may in their sole discretion, elect to effectuate a share exchange,
consolidation, merger or other transaction that would adversely affect the
Company’s or the Surviving Entity’s status as a REIT so long as in connection
with any such actions (x) the holders of the Series B Shares are not materially
or adversely affected, (y) the Series B Shares shall be converted into or
exchanged for securities having preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and term or
conditions of redemption thereof identical to that of the Series B Shares
(except for any changes that do not materially or adversely affect the holders
of the holders of Series B Shares), or (z) the Series B Shares shall have been
redeemed in connection with any such action.

 

ARTICLE IV

 

COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGERS

 

Section 4.1. Conduct of Business.

 

(a) During the period from the date of this Agreement to the earlier of the
termination of this Agreement or the Effective Time, each of the Company and the
Operating Partnership shall, and shall cause each of the Company Subsidiaries
to, (i) carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith; (ii) use its commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses; (iii)
preserve the Company’s status as a REIT within the meaning of the Code; (iv)
comply in all respects with all applicable Laws; provided, that a failure to so
comply shall not be deemed to constitute a breach of this clause (iv) so long as
such failure to so comply, individually or in the aggregate, would not
constitute a Company Material Adverse Effect; and (v) maintain insurance in such
amounts and covering such risks as are substantially in accordance with normal
industry practice for

 

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companies engaged in businesses similar to that of the Company and the Company
Subsidiaries. The Company shall confer on a regular and frequent basis with
Parent, report on operational matters and promptly advise Parent orally and in
writing of any Company Material Adverse Effect or any matter which could
reasonably be expected to have a Company Material Adverse Effect (including,
without limitation, (1) any new pending or, to the knowledge of the Company,
threatened litigation having potential liability to the Company or any of the
Company Subsidiaries in excess of $200,000 not covered by insurance subject to
applicable deductibles or (2) any material complaint, investigation or hearing
by a Governmental Entity involving the Company or any of the Company
Subsidiaries). The Company shall promptly make available (including via EDGAR
filings) to Parent (and its counsel) all filings made by the Company with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.

 

(b) Without limiting the generality of the foregoing and as an extension
thereof, during the period from the date of this Agreement until the earlier of
the termination of this Agreement or the Closing, except as set forth in Section
5.3(b) and as otherwise contemplated by this Agreement or to the extent
consented to by Parent, the Company and Operating Partnership shall not and
shall not authorize or commit or agree to, and shall cause the Company
Subsidiaries not to (and not to authorize or commit or agree to); provided,
however, that any consent of Parent the Company is required to obtain pursuant
to the terms hereof will not be unreasonably withheld by Parent and will be
deemed given by Parent if not denied in writing within five (5) Business Days
after the receipt by Parent of a written request for such consent:

 

(i) (A) declare, set aside or pay any distributions on, or make any other
distributions in respect of, any Company Shares or the partnership interests,
stock or other equity interests in any Company Subsidiary that is not directly
or indirectly wholly-owned by the Company, except for the declaration and
payment of distributions on the Series B Shares and Series B Preferred Units, to
the extent and only to the extent of the declaration and payment of
distributions of $0.5625 per Series B Share and Series B Preferred Unit for each
calendar quarter ending after December 31, 2004 and for each previous calendar
quarter for which such distributions have accrued but not been paid, and
provided, that the Company may make distribution payments it is required to make
by the Code in order to maintain REIT status and those that are sufficient to
eliminate any federal tax liability; (B) reclassify, recapitalize, split,
reverse split or combine, exchange or readjust any shares of beneficial
interest, stock, partnership interests or other Equity Interests or issue
(except for the issuance of Common Shares in exchange for LP Units or upon any
exercises of Company Options or the Warrants, the conversion of Series A Shares
to Common Shares pursuant to Section 2.1(f) and the conversion of Series A
Preferred Units to LP Units pursuant to Section 2.6(e)) or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for such shares of beneficial interest, stock, partnership interests or other
Equity Interests; or (C) purchase, redeem (except for the exchange of any LP
Units for Common Shares in accordance with their terms) or otherwise acquire any
Company Shares or the partnership interests, stock or other Equity Interests in
any Company Subsidiary or any options, warrants or rights to acquire, or
security convertible into, Company Shares or the partnership interests, stock or
other Equity Interests in any Company Subsidiary, except with respect to any of
the

 

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foregoing in connection with the use of Company Shares to pay the exercise price
or Tax withholding obligation upon the exercise of a Company Option as presently
permitted under the Company’s Share Incentive Plan;

 

(ii) issue, deliver, sell, pledge, dispose of, grant, transfer, encumber or
authorize the issuance, delivery, sale, pledge, disposition, grant, transfer or
encumbrance of shares of beneficial interest, capital stock or other Equity
Interests in the Company or a Company Subsidiary or any securities convertible
into, or any rights, warrants or options to acquire, any such shares of
beneficial interests, shares of capital stock or other Equity Interest, except
(A) to the Company or a Company Subsidiary; (B) as required under the
Partnership Agreement as presently in effect; (C) in connection with the
exercise of outstanding Company Options under the Company’s Share Incentive Plan
or the exchange of LP Units for Common Shares, pursuant to the terms of such
units or (D) granting a waiver of the limitations on ownership of Company Shares
as set forth in the Company Charter only with respect to Company Shares
identified in Section 4.1(b)(ii) of the Company Disclosure Letter;

 

(iii) amend the Company Charter or the Company By-laws or the Partnership
Agreement or equivalent organizational documents of any Company Subsidiary;

 

(iv) restructure, recapitalize or reorganize, merge, consolidate or enter into
any other business combination transaction with any Person;

 

(v) (A) enter into any new commitments obligating the Company or any Company
Subsidiary to make capital expenditures or acquire assets in excess of $250,000
in the aggregate for each successive period of 45 days following the date
hereof, not including tenant allowances under existing leases and the
commitments set forth in Section 4.1(b)(v) of the Company Disclosure Letter;
provided however, that the Company shall be permitted to enter into commitments
to make repairs and/or prevent damage to any Company Properties as is necessary
in the event of an emergency situation as long as the Company provides the
Purchaser Parties with a copy of such commitment promptly after such commitment
is entered into; (B) acquire, enter into any option to acquire, or exercise an
option or other right or election or enter into any commitment or contractual
obligation (each, a “Commitment”) for the acquisition of any real property
(other than any Commitment referred to in Section 4.1(b)(v) of the Company
Disclosure Letter); (C) incur additional indebtedness (secured or unsecured) in
excess of $500,000, except (I) Commitments for indebtedness described in Section
4.1(b)(v) of the Company Disclosure Letter or (II) refinancings or extensions of
existing indebtedness upon maturity in an amount not to exceed the amount
refinanced or extended (except for the CT Refinancing which shall be governed by
Section 5.21), or amend any existing indebtedness in a manner not favorable to
the Company, the Operating Partnership or any Company Subsidiary; provided that
the Company provides the Parent with prompt notice of any refinancings,
amendments or extensions of existing indebtedness permitted hereunder; or (D)
enter into, renew, extend, amend or modify in any material way or terminate any
lease in excess of 50,000 square feet; provided, however, that the Company shall
provide Parent with prompt written notice in the event the Company or any
Company Subsidiary enters into, amends or modifies in any material way or
terminates any lease in excess of 25,000 square feet but not greater than 50,000
square feet;

 

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(vi) sell, mortgage, subject to Lien or otherwise dispose of or agree to do any
of the foregoing with respect to any of the Company Properties, except in
connection with refinancings permitted under Section 4.1(b)(v) above or as
disclosed in Section 4.1(b)(vi) of the Company Disclosure Letter;

 

(vii) sell, lease, mortgage, subject to Lien or otherwise dispose of or agree to
do any of the foregoing with respect to any of its personal or intangible
property in excess of $250,000, except in connection with refinancings permitted
under Section 4.1(b)(v) above;

 

(viii) except as set forth in Section 4.1(b)(viii) of the Company Disclosure
Letter, guarantee the indebtedness of another Person, enter into any “keep well”
or other agreement to maintain any financial statement condition of another
Person or enter into any arrangement having the economic effect of any of the
foregoing or make any investments in any other Person, in each case in excess of
$100,000, and other than a Company Subsidiary;

 

(ix) make or rescind any material election relating to Taxes, unless the Company
reasonably determines, after prior consultation with Parent, that such action is
(A) required by Law; (B) necessary or appropriate to preserve the Company’s
status as a REIT or the partnership status of the Operating Partnership or any
other Company Subsidiary which files Tax Returns as a partnership for federal
tax purposes; or (C) commercially reasonable in the context of the Company’s
business and relates to a change in Law in 2004 or thereafter;

 

(x) (A) change any of its methods, principles or practices of accounting in
effect other than as required by GAAP or the SEC, provided that Parent receives
notice of any required changes that are material; or (B) settle or compromise
any claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to Taxes;

 

(xi) other than as set forth in Section 5.7 and except as set forth in Section
4.1(b)(xi) of the Company Disclosure Letter, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, share option or similar plan,
grant new share appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
or grant or become obligated to grant any increase in the compensation of
officers or employees, except such changes as are required by Law; provided,
however, that the Company may take any actions and enter into any agreement
(other than severance agreements) in connection with (A) filling the positions
set forth in Section 4.1(b)(xi)(A) of the Company Disclosure Letter and (B)
replacing employees whose employment with the Company or any Company Subsidiary
has been terminated (voluntarily by such employee or otherwise) after the date
of this Agreement; provided, further, that in no event shall the Company fill
positions or replace employees pursuant to clauses (A) or (B) hereof where the
annual base salary for such new employee exceeds $50,000; provided, however,
that in no event shall the salaries of all such employees exceed $250,000 in the
aggregate;

 

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(xii) settle or compromise any material litigation, including, without
limitation, any material stockholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated by this
Agreement or waive, release or assign any material rights or claims;

 

(xiii) except as set forth in Section 4.1(b)(xiii) of the Company Disclosure
Letter and excluding the matters covered by Section 4.1(b)(xi) above, enter into
or amend or otherwise modify any agreement or arrangement with persons that are
Affiliates of the Company (other than agreements with Company Subsidiaries or,
to the extent such actions may be taken by the applicable joint venture partner
or partners without the consent of the Company or the applicable Company
Subsidiary or are required to be taken by the Company or the applicable Company
Subsidiary, joint ventures in which the Company or any Company Subsidiary is a
partner or member) or, as of the date of this Agreement, are employees,
officers, trustees, partners or directors of the Company or any Company
Subsidiary without the prior written consent of Parent and the approval of a
majority of the “independent” members of the Company Board;

 

(xiv) authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of the Company or any of the
Company Subsidiaries;

 

(xv) fail to use its commercially reasonable efforts to maintain with
financially responsible insurance companies insurance in such amounts and
against such risks and losses as are customary for companies engaged in their
respective businesses;

 

(xvi) materially amend or terminate, or waive compliance with the terms of or
breaches under, or fail to use commercially reasonable efforts to comply with or
remain in compliance with any Material Contract or enter into a new contract,
agreement or arrangement that, if entered into prior to the date of this
Agreement, would have been required to be listed in Section 3.1(v)(i) of the
Company Disclosure Letter provided, however, that the Company may enter into
leasing commission agreements with tenants’ or prospective tenants’ brokers in
the ordinary course of business at market rates;

 

(xvii) fail to use its commercially reasonable efforts to comply or remain in
compliance with all material terms and provisions of any agreement relating to
any outstanding indebtedness of the Company or any Company Subsidiary;

 

(xviii) take any action that would, or that would reasonably be expected to,
result in (A) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (B) any of the conditions specified in
Article VI not being satisfied;

 

(xix) (A) pre-pay any long-term debt, or pay, discharge or satisfy any
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except in the ordinary course of business consistent with past
practice and in accordance with their

 

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terms, (B) accelerate or delay collection of notes or accounts receivable in
advance of or beyond their regular due dates or the dates when the same would
have been collected in the ordinary course of business consistent with past
practice or (C) delay or accelerate payment of any account payable in advance of
its due date or the date such liability would have been paid in the ordinary
course of business consistent with past practice;

 

(xx) write up, write down or write off the book value of any assets to the
extent such write up, write down or write off is material, individually or in
the aggregate, for the Company and the Company Subsidiaries taken as a whole,
except as required by and in accordance with GAAP consistently applied;

 

(xxi) enter into any agreement or arrangement that limits or otherwise restricts
the Company or any of the Company Subsidiaries or any successor thereto or that
could, after the Effective Time, limit or restrict the Purchaser Parties or any
successor thereto, from engaging or competing in any line of business or in any
geographic area; and

 

(xxii) agree in writing or otherwise to take any action inconsistent with any of
the foregoing.

 

ARTICLE V

 

ADDITIONAL COVENANTS

 

Section 5.1. Access to Information; Confidentiality. The Company shall, and
shall cause each of the Company Subsidiaries and each of their respective
directors, officers, employees, accountants, consultants, counsel, advisors and
agents and other representatives to, afford to Parent and its officers,
employees, accountants, counsel, financial advisors, agents, other
representatives, investors and lenders (including, without limitation, the
Acquisition Lender) and their representatives, reasonable access during normal
business hours and upon reasonable advance notice during the period prior to the
Effective Time to all its properties (provided, that, that Parent shall promptly
repair any damage resulting from such access to properties), books, contracts,
commitments and records, and to each of the individuals listed in Section 5.1 of
the Company Disclosure Letter and such other personnel as requested by Parent
and to which the Company consents and to which the Company is notified as to
time and place to permit the Company the opportunity to be present during any
communications with such personnel, and, during such period, the Company shall,
and shall cause each of the Company Subsidiaries to, furnish reasonably promptly
to Parent (a) a copy (including via EDGAR filings) of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities Laws and (b) all
other information concerning its business, properties and personnel as Parent
may reasonably request. In addition the Company shall reasonably cooperate to
provide and obtain such information and documentation as may be reasonably
requested by the Acquisition Lender or other financing source or lender,
including, without limitation, providing access to the Company Properties for
environmental and appraisal purposes and providing to the Acquisition Lender
copies of financial reports and other financial information, tenant estoppel
certificates, updated rent-rolls and copies of leases and other material
contracts. Notwithstanding the foregoing and anything

 

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else in this Agreement to the contrary, in no manner whatsoever shall the
successful or unsuccessful results of such cooperation by the Company in
connection with any of the foregoing, including obtaining any tenant estoppel
certificates (or the receipt thereof in specific forms or any matters raised or
disclosed in connection with any of the foregoing), be in any manner whatsoever
(i) a condition to the Purchaser Parties’ obligations to close the transactions
contemplated by this Agreement, (ii) result in a breach or default by the
Company, the Operating Partnership or any Company Subsidiary under this
Agreement or (iii) constitute a Company Material Adverse Effect. Each Purchaser
Party will hold, and will cause its respective officers, employees, accountants,
counsel, financial advisors, and other representatives and Affiliates, investors
and lenders and their representatives to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, and will comply
with all the provisions of the confidentiality and standstill agreement between
the Company and The Lightstone Group, LLC dated January 6, 2005 (the
“Confidentiality Agreement”).

 

Section 5.2. Reasonable Efforts; Notification.

 

(a) Upon the terms and subject to the conditions set forth in this Agreement,
each of the Purchaser Parties, the Company and the Operating Partnership agrees
to use its commercially reasonable efforts to take, or cause to be taken, such
actions and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, such things necessary, proper or advisable to fulfill
all conditions applicable to such party pursuant to this Agreement and to
consummate and make effective, in the most expeditious manner practicable, the
REIT Merger, the OP Merger and the other transactions contemplated by the
Transaction Documents, including (i) the obtaining of the necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of the necessary registrations and filings and the taking of the
reasonable steps as may be necessary to obtain all necessary approvals, waivers
or exemptions from any Governmental Entity; (ii) the obtaining of the necessary
consents, approvals, waivers or exemptions from non-governmental third parties;
and (iii) the execution and delivery of any additional documents or instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement and the Transaction Documents. In addition, each
of the Purchaser Parties and the Company agree to use its commercially
reasonable efforts to defend any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement, the Transaction
Documents or the transactions contemplated by either thereof, including seeking
to have any stay, temporary restraining order, injunction, or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated by the Transaction Documents entered by any court or
other Governmental Entity vacated or reversed; provided, that each of the
Purchaser Parties, the Company and the Operating Partnership shall pay its own
legal expenses with respect thereto. If, at any time after the Closing, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers, trustees, directors or partners, of the
Purchaser Parties, the Company and the Operating Partnership, as applicable,
shall take such necessary action. From the date of this Agreement through the
Effective Time, the Company shall timely file, or cause to be filed, with the
SEC all Company SEC Documents required to be so filed by applicable Law.

 

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(b) If required by the HSR Act, the Purchaser Parties, the Company and the
Operating Partnership shall promptly compile and file (or will cause their
“ultimate parent entities” (as determined for purposes of the HSR Act) to file)
a pre-merger notification and report pursuant to the HSR Act containing such
information respecting such party as the HSR Act requires. Each of the Purchaser
Parties, the Company and the Operating Partnership shall be responsible for its
own expenses incurred in connection with the preparation of any of the reports
and other information required by the HSR Act. Any filing fees under the HSR Act
shall be split equally between the Company and Parent.

 

(c) The Company or the Operating Partnership shall give prompt notice to the
Purchaser Parties and the Purchaser Parties shall give prompt notice to the
Company, if (i) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becomes untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becomes untrue or inaccurate in any material respect or (ii) it fails to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement; provided further, however, that such
notification required pursuant to clause (i) above shall be required only as
soon as practicable after the Company or the Purchaser Parties, as the case may
be, becomes aware of such untruth or inaccuracy.

 

(d) The Company agrees to take any further actions necessary to render any and
all limitations on transfer or ownership of (i) Company Shares as set forth in
the Company Charter, including, but not limited to, those set forth in Section 4
thereof, and (ii) LP Units in the Operating Partnership inapplicable to the REIT
Merger, the OP Merger and the other Transactions.

 

Section 5.3. Tax Treatment.

 

(a) Unless required by Law (as evidenced by the legal opinion of a nationally
recognized U.S. law firm reasonably acceptable to the Purchaser Parties and the
Company), neither the Purchaser Parties, on the one hand, nor the Company and
the Operating Partnership, on the other hand, will take or omit to take any
action, or permit any status to exist, prior to the Effective Time, that would
or may jeopardize, or that is inconsistent with, the Company’s status as a REIT
under the Code or the status of the Operating Partnership or any applicable
Company Subsidiary as a partnership for purposes of Taxes for any period.

 

(b) Notwithstanding anything to the contrary contained in this Agreement, prior
to the Effective Time, the Company, each Company Subsidiary and any Affiliate of
any of them, shall be permitted to take or omit to take any action, or permit
any status to exist, in order to maintain the Company’s status as a REIT under
the Code or the status of the Operating Partnership or any Company Subsidiary as
a partnership for purposes of Taxes for any period.

 

(c) The Purchaser Parties shall prepare and file, on a timely basis (or cause to
be prepared and filed on a timely basis), all federal and state income Tax
Returns and shall use their commercially reasonable efforts to so prepare and
file (or cause to be prepared and filed) all

 

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other Tax Returns and reports required to be filed from and after the Effective
Time (whether such return or report related to a time period prior to, at or
after the Effective Time) for the Company and the Company Subsidiaries (i) in
good faith and (ii) except as contemplated in Section 3.2(h) hereof, with
respect to any federal income Tax Return of the Company for the first taxable
year ending on or after the Effective Time, on a basis and in a manner that
preserves the qualification of the Company as a REIT within the meaning of
Section 856 of the Code.

 

(d) The Company shall not, nor shall the Company permit any Company Subsidiary
to, change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ended December
31, 2003, except as may be required by applicable Law or except for such changes
that would reduce consolidated federal taxable income or alternative minimum
taxable income.

 

Section 5.4. No Solicitation of Transactions.

 

(a) After the date hereof, the Company shall not, nor shall it permit any
Company Subsidiary to, nor shall it authorize or permit any officer, director,
trustee or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any Company Subsidiary to (i) solicit or
initiate, encourage, or facilitate, directly or indirectly, any inquiries
relating to, or the submission of, any proposal or offer, whether in writing or
otherwise, from any person other than the Purchaser Parties or any Affiliates
thereof (a “Third Party”) to acquire beneficial ownership (as defined under Rule
13(d) of the Exchange Act) of all or more than 15% of the assets of the Company
and the Company Subsidiaries, taken as a whole, or 15% or more of any class of
equity securities of the Company or the Operating Partnership pursuant to a
merger, consolidation or other business combination, sale of shares of
beneficial interests, sale of assets, tender offer, exchange offer or similar
transaction or series of related transactions, which is structured to permit
such Third Party to acquire beneficial ownership of more than 15% of the assets
of the Company and the Company Subsidiaries, taken as a whole, or 15% or more of
any class of equity securities of the Company or the Operating Partnership (a
“Competing Transaction”); (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information or data with respect to or
access to the properties of the Company or any Company Subsidiary (other than
such access which is granted to all Persons) with respect to, or take any other
action to knowingly facilitate the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Competing Transaction; or (iii) enter
into any agreement (written or oral) with respect to any Competing Transaction,
approve or recommend or resolve to approve or recommend any Competing
Transaction or enter into any agreement (written or oral) requiring it to
abandon, terminate or fail to consummate the REIT Merger, the OP Merger and the
other transactions contemplated by this Agreement; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, the
Company may participate in ordinary course investor relations discussions
relating to ordinary course transactions in the Company’s equity securities.
Notwithstanding the foregoing sentence, prior to the Effective Time, if the
Company receives an unsolicited bona fide, written proposal or offer for a
Competing Transaction by a Third Party, which the Company Board determines in
good faith (after consulting the Company Board’s independent financial advisor
and independent legal counsel) (A) is on terms which are more favorable from a
financial point of view to the holders of Common Shares than the REIT Merger and
the other transactions contemplated by this

 

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Agreement, (B) is not subject to any material contingency, including any
contingency relating to financing, to which neither (1) the Company Board
determines may likely be overcome or addressed nor (2) the other party thereto
has reasonably demonstrated in its written offer its ability to overcome or
address, including the receipt of government consents or approvals (including
any such approval required under the HSR Act), and (C) is reasonably capable of
being consummated (provided, that the Company, including the Company Board, and
any of its advisors shall be permitted to contact such Third Party and its
advisors and financing sources solely for the purpose of clarifying the proposal
and any material contingencies and the capability of consummation) (a “Superior
Competing Transaction”), then the Company may, in response to an unsolicited
request therefor and subject to compliance with Section 5.4(b) and Section
5.4(c), furnish information with respect to the Company and the Company
Subsidiaries to, and participate in discussions and negotiations directly or
through its representatives with, such Third Party, subject to a confidentiality
agreement not less favorable to the Company than the confidentiality and
standstill agreement referred to in Section 5.1. Nothing contained in this
Agreement shall prevent the Company Board from complying with Rule 14d-9 and
Rule 14e-2 promulgated under the Exchange Act or from making any other
disclosure required by applicable Law.

 

(b) The Company and each of the Company Subsidiaries will cease and cause to be
terminated any existing discussions or negotiations with any Persons conducted
or commenced heretofore with respect to, or that could be expected to lead to, a
Superior Competing Transaction and will cause each of their respective trustees,
directors, officers, employees, advisors, consultants and agents to comply with
such obligations.

 

(c) The Company shall advise the Purchaser Parties orally and in writing of (i)
any Competing Transaction or any inquiry with respect to or which could
reasonably be expected to lead to any Competing Transaction received by any
officer or trustee of the Company or, to the Knowledge of the Company, any
employee, financial advisor, attorney or other advisor or representative of the
Company or any Company Subsidiary, (ii) the material terms of such Competing
Transaction (including a copy of any written proposal) and (iii) the identity of
the person making the proposal or offer for any such Competing Transaction or
inquiry promptly following receipt by the Company or any officer or trustee of
the Company or, to the Knowledge of the Company, any employee, financial
advisor, attorney or other advisor or representative of the Company or any
Company Subsidiary of such Competing Transaction proposal or inquiry. The
Company will keep the Purchaser Parties informed of the status and details of
any such Competing Transaction proposal or inquiry in a timely manner. None of
the Purchaser Parties or their respective affiliates or advisors shall contact
any Person regarding such Competing Transaction or otherwise interfere with such
Competing Transaction.

 

Section 5.5. Public Announcements. The Company and the Purchaser Parties shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any of the transactions
contemplated by the Transaction Documents and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which consent shall not be unreasonably withheld or delayed; provided,
however, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may be required by Law or
the applicable rules of any stock exchange if it has used its commercially
reasonable efforts to

 

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consult with the other party and to obtain such party’s consent but has been
unable to do so in a timely manner. In this regard, the parties shall make a
joint public announcement of the transactions contemplated by the Transaction
Documents no later than (i) promptly after the close of trading on the New York
Stock Exchange on the day this Agreement is signed, if such signing occurs
during regular business hours on a Business Day or (ii) prior to the opening of
trading on the New York Stock Exchange on the Business Day following the date on
which this Agreement is signed, if such signing does not occur during a Business
Day.

 

Section 5.6. Transfer and Gains Taxes; Shareholder Demand Letters. The Purchaser
Parties shall, with the Company’s good faith cooperation and assistance,
prepare, execute and file, or cause to be prepared, executed and filed, all
returns, questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer, value added stock transfer and
stamp taxes, any transfer, recording, registration and other fees and any
similar taxes which become payable in connection with the transactions
contemplated by this Agreement (together, with any related interests, penalties
or additions to tax, “Transfer and Gains Taxes”). From and after the Effective
Time, the Purchaser Parties shall cause the Operating Partnership to pay or
cause to be paid all Transfer and Gains Taxes.

 

Section 5.7. Employee Arrangements; Accrued Bonuses; Employee Brokerage
Arrangements.

 

(a) Company Severance Agreements. On the Closing Date, the Operating Partnership
shall pay or cause to be paid (and the Purchaser Parties agree and acknowledge
that Company shall pay or cause to be paid) the amounts due to certain of the
Company’s or the Operating Partnership’s executive officers and other employees
(designated as “key employees” in Section 5.7(a) of the Company Disclosure
Letter) under such executive officers’ and other employees’ Company Severance
Agreements for such “key employee”, as set forth in Section 5.7(a) of the
Company Disclosure Letter and in accordance with such Company Severance
Agreements (the “Designated Severance”); provided, that the aggregate amount to
be paid pursuant to this sentence shall not exceed Three Million Seven Hundred
Thousand Dollars ($3,700,000), plus any other amounts permitted below (the
“Severance Cap”); provided, further, that if the Company or the Operating
Partnership incurs any obligations under any Company Severance Agreement between
the date hereof and the Effective Time for such “key employees” (other than as
set forth in the last proviso of this sentence), the Severance Cap shall be
reduced by a corresponding amount; provided, further, to the extent that persons
employed by the Company or any Company Subsidiary other than the “key employees”
identified in Section 5.7(a) of the Company Disclosure Letter are terminated at
the request of the Purchaser Parties after the date hereof, the Company or the
Operating Partnership shall pay all amounts due under any Company Severance
Agreement applicable to such persons and such amounts shall be in addition to
the Severance Cap provided, further, that to the extent the Severance Cap (as
reduced pursuant to the preceding provisos) exceeds the amount of the Designated
Severance payable pursuant to the terms hereof, the Company may, in its sole
discretion, pay such excess to employees of the Company or the Company
Subsidiaries. Notwithstanding anything in this Agreement to the contrary, the
Company and/or the Operating Partnership shall have the right in their sole
discretion at any time after the date of this Agreement and prior to the
Effective Time, to enter into letter agreements with, or provide letters to (the
“Severance Letter Supplements”), those persons identified in Section 3.1(1)(xiv)
of the Company Disclosure Letter under Item 2(a)

 

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(Six Month Severance Letters) and Item 2(b) (Four Month Severance Letters),
extending on the same terms and conditions the term of the Company Severance
Agreements applicable to those persons through to a date no later than December
31, 2005. The Purchaser Parties shall have the right, prior to the Closing Date,
to contact and meet with any or all of the employees of the Company, the
Operating Partnership or the Company Subsidiaries regarding employment in the
Purchaser Parties’ sole discretion with the Surviving Entity, the Surviving
Partnership or any of the Company Subsidiaries subsequent to the Closing Date;
provided, that such contact and meetings shall be coordinated through the
Company’s chief executive officer or general counsel. The Company shall, and
shall cause the Operating Partnership and the Company Subsidiaries to, assist
and cooperate with the Purchaser Parties in such efforts, including without
limitation, by providing the Purchaser Parties and their representatives with
access to all such employees during normal business hours upon reasonable
notice.

 

(b) Benefit Plans.

 

(i) Upon and after the Effective Time, the Parent shall cause the Surviving
Entity (or its successors or assigns) to continue in effect the Company Employee
Benefit Plans and provide benefits to the employees of the Company that are
substantially similar in all material respects, on an aggregate basis, to the
Company Employee Benefit Plans in which such employees participated prior to the
Effective Time for a period of not less than one year. As of the Effective Time,
a trustee and an administrator of Company Employee Benefit Plans will be
designated by the Purchaser Parties. With respect to any Company Employee
Benefit Plan which is an “employee benefit plan” as defined in Section 3(3) of
ERISA and any other service based benefits (including vacations) in which the
employees of the Company may participate at any time after the Effective Time,
solely for purposes of determining eligibility to participate, vesting and
entitlement to benefits but not for purposes of accrual of benefits (except in
the case of accrued vacation, sick or personal time), service with the Company
or any Company Subsidiary shall be treated as service with each of the Purchaser
Parties; provided, however, that such service shall not be recognized to the
extent that such recognition would result in a duplication of benefits under
both a Company Employee Benefit Plan and a benefit plan of any Purchaser Party
(or is not otherwise recognized for such purposes under the benefit plans of
Purchaser Party). Without limiting the foregoing, the Purchaser Parties shall
not treat any Company employee as a “new” employee for purposes of any
pre-existing condition exclusions, waiting periods, evidence of insurability
requirements or similar provision under any health or other welfare plan, and
shall make appropriate arrangements with their insurance carrier(s), to the
extent applicable, to ensure such result.

 

(ii) Effective as of the Closing Date, the Company or the Purchaser Parties
shall, or shall cause the Company or the Surviving Entity, to take all necessary
actions to fully vest the account balances and benefits of all individuals who
are employed by the Company or any Company Subsidiary on the Closing Date under
any Company Pension Plan (excluding any such plan that is a “multiemployer plan”
as defined in Section 4001(a)(3) of ERISA) in which such employees participate.
With respect to any employees of the Company or a Company Subsidiary whose
employment is terminated on or after the Closing Date and not employed by the
Surviving Entity (the

 

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“Terminated Employees”), Parent shall, or shall cause the Surviving Entity to,
(i) distribute or cause to be distributed to such Terminated Employees such
notices and forms that are provided to participants who incur a severance from
employment so that such Terminated Employees may elect to receive a distribution
of their benefits under any Company Pension Plan in which such Terminated
Employees participate or rollover such benefits to an “eligible retirement
plan,” as defined in Section 402(c)(8)(B) of the Code and shall promptly
cooperate with such Terminated Employees in effecting the foregoing and (ii) be
responsible for all liabilities and obligations in connection with the
continuation coverage requirements, including notice requirements, of Section
4980B of the Code and Part 6 of Subtitle B of Title I of Employee Retirement
Income Security Act of 1974, as amended (“COBRA”) with respect to such
Terminated Employees (and their dependents) who participate in any Company
Employee Benefit Plan that is subject to COBRA, including, but not limited to,
any “qualified beneficiary” (within the meaning of COBRA) who is receiving COBRA
coverage as of the Closing Date. With respect to any Terminated Employee who
elects COBRA coverage, Parent shall pay, or shall cause the Surviving Entity to
pay, for the period set forth for each such Terminated Employee in Section
5.7(b)(ii) of the Company Disclosure Letter, the full cost of any premium or
other costs associated with such COBRA coverage.

 

(c) Employee Loans. Except as set forth in Section 5.7(c) of the Company
Disclosure Letter, prior to the Effective Time, the Company shall use its
commercially reasonable efforts to cause each officer, trustee, director or
employee who has any outstanding loan (other than a 401(k) loan) from, or other
debt obligations to, the Company or any Company Subsidiary, for any purpose, to
repay such loan in accordance with the terms thereof.

 

(d) Company Options. The Company and each Company Subsidiary shall take such
actions as are necessary under the Company Share Incentive Plan to effect the
Company Option cancellations described in Section 2.3 and shall comply with all
requirements regarding tax withholding in connection therewith. In addition to
the foregoing and subject to the terms of the Company Share Incentive Plan and
applicable Law, the Company and the Operating Partnership shall take such
actions as are necessary to cause the Company Share Incentive Plan to be
terminated at or prior to the REIT Effective Time, and to reasonably satisfy
Parent that no holder of Company Options or other awards under such plan or
participant in the Company Share Incentive Plan, will have any right to acquire
any interest in the Purchaser Parties or any Affiliate or Subsidiary of Parent
as a result of the exercise of Company Options or other awards or rights
pursuant to the Company Share Incentive Plan at or after the Effective Time.

 

(e) Employee Brokerage Arrangements. The Company and the Purchaser Parties agree
that after the Effective Time if any of the tenants listed in Section 5.7(e) of
the Company Disclosure Letter as of the date of this Agreement or in an updated
Section 5.7(e) of the Company Disclosure Letter delivered to the Purchaser
Parties from time to time or on the Closing Date shall execute a lease with the
Surviving Entity, either of the entities owning the Bank One Center or 77 West
Wacker properties or any subsidiary or Affiliate thereof within 150 days of the
Effective Time, the Surviving Entity shall pay, and Parent shall cause the
Surviving Entity to pay, the individual whose name is opposite such tenant in
Section 5.7(e) of the Company Disclosure Letter, regardless if such individual
remains an employee of the Surviving

 

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Entity or any subsidiary thereof, a brokerage commission in accordance with the
terms of the agreements set forth in Section 5.7(a) of the Company Disclosure
Letter. In the event that any Company Property is sold to any other Person or
entity after the Effective Time and before the expiration of such 150-day
period, the Company and the Purchaser Parties shall make proper provision so
that such Person or entity assumes the obligations set forth in this Section
5.7(e).

 

(f) Employees. The Purchaser Parties shall be responsible for compliance with
the Worker Adjustment and Retraining Notification Act of 1988 (the “Federal WARN
Act”) and the Illinois Worker Adjustment and Retraining Notification Act
(together with the Federal WARN Act, the “WARN Acts”) with respect to
terminations occurring at or after the Effective Time at the request or
direction of the Purchaser Parties. The Company shall refrain from causing an
“employment loss” (as defined in the WARN Acts) in the 90 days prior to the
Effective Time; provided, that any such “employment loss” resulting from actions
taken by the Company with the consent or at the request of the Purchaser Parties
shall not constitute a breach of this covenant; provided, further, that such
consent shall be deemed to be given if the Purchaser Parties do not object in
writing within five (5) Business Days of receipt of the written notice from the
Company of its intention to take such action. The Company shall cooperate with
and provide reasonable assistance to the Purchaser Parties in delivering any
notices required or potentially required pursuant to any Company Severance
Agreement or the WARN Acts to effectuate the termination of Company employees as
of the Effective Time; provided, however, that all such notices shall indicate
that the terminations shall be contingent upon the consummation of the REIT
Merger.

 

(g) In the event the Surviving Entity or any of its successors or assigns (i)
consolidates with or merges into any other person or entity within one (1) year
after the Effective Time and shall not be the continuing or surviving entity of
such consolidation or merger or (ii) transfers or conveys a majority of its
properties and assets to any person or entity after the Effective Time, then,
and in each such case, the Surviving Entity shall use commercially reasonable
efforts so that the successors, assigns and transferees of the Surviving Entity,
as the case may be, assume the obligations set forth in this Section 5.7.

 

Section 5.8. Indemnification; Trustees’ and Officers’ Insurance.

 

(a) In the event of any threatened or actual claim, action, suit, demand,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, demand, proceeding
or investigation in which any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Closing, a trustee, director,
officer, employee, fiduciary or agent of the Company or any Company Subsidiary
(the “Indemnified Parties”) is, or is threatened to be, made a party based in
whole or in part on, or arising in whole or in part out of, or pertaining to (i)
the fact that he is or was a trustee, director, officer, employee, fiduciary or
agent of the Company or any Company Subsidiary, or is or was serving at the
request of the Company or any Company Subsidiary as a trustee, director,
officer, employee, fiduciary or agent of another corporation, partnership, joint
venture, trust or other enterprise or (ii) the negotiation, execution or
performance of this Agreement or any of the transactions contemplated hereby,
whether in any case asserted or arising before or after the Closing, the parties
hereto agree to cooperate and use their commercially reasonable efforts to
defend against and respond thereto. It is understood and

 

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agreed that the Company shall indemnify and hold harmless, and after the
Effective Time, Parent shall cause the Surviving Entity to, and the Surviving
Entity shall, indemnify and hold harmless, as and to the full extent permitted
by applicable Law, each Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys’ fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, demand, proceeding or
investigation, and in the event of any such threatened or actual claim, action,
suit, demand, proceeding or investigation (whether asserted or arising before or
after the Effective Time), (A) the Company, and after the Effective Time, Parent
shall cause the Surviving Entity to, and the Surviving Entity shall, promptly
pay expenses in advance of the final disposition of any claim, suit, proceeding
or investigation to each Indemnified Party to the full extent permitted by law,
subject to the provision by such Indemnified Party of an undertaking to
reimburse the amounts so advanced in the event of a final non-appealable
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled to such amounts, (B) the Indemnified Parties may retain one
counsel reasonably satisfactory to them and the Company (except in the case of a
potential conflict of interest among two or more Indemnified Parties, in which
case more than one counsel may be retained), and after the Effective Time,
Parent shall cause the Surviving Entity to, and the Surviving Entity shall, pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
within 30 days after statements therefor are received and (C) the Company and
the Surviving Entity will, and Parent will cause the Surviving Entity to, use
their commercially reasonable efforts to assist in the defense of any such
matter; provided, that neither the Company nor the Surviving Entity shall be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld or delayed); and provided further,
that neither the Surviving Entity nor Company shall have any obligation
hereunder to any Indemnified Party when and if, but only to the extent that, a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable Law. Any Indemnified Party wishing to claim indemnification under
this Section 5.8, upon learning of any such claim, action, suit, demand,
proceeding or investigation, shall promptly notify the Company and, after the
Effective Time, the Surviving Entity thereof; provided, that the failure to so
notify shall not affect the obligations of the Company and the Surviving Entity
except and only to the extent such failure to notify materially prejudices such
party. The obligations pursuant to this Section 5.8(a) are in addition to, and
shall in no way affect or limit, the rights to indemnification granted pursuant
to the Company Charter and the Company By-laws.

 

(b) The Purchaser Parties agree that all rights to indemnification existing in
favor of, and all exculpations and limitations of the personal liability of, the
trustees, directors, officers, employees and agents of the Company and the
Company Subsidiaries provided for in the Company Charter or the Company By-laws
as in effect as of the date hereof with respect to matters occurring at or prior
to the Effective Time, including the OP Merger and the REIT Merger, shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any claims (each, a “Claim”) asserted or made within such period
shall continue until the final disposition of such Claim. At or prior to the
Effective Time, the Company shall obtain and pay for, at the Company’s expense,
a fully paid policy or policies of directors’ and officers’ liability insurance
(including side A coverage) providing ‘tail’ coverage for the Persons currently
covered by the Company’s existing policies for a period of six (6) years from
and after the Effective Time with

 

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respect to claims arising from facts or events that occurred at or prior to the
Effective Time, and providing at least the same coverage and amounts as, and
containing terms and conditions which are not less advantageous to the covered
Persons in any material respect than, the Company’s current policies.

 

(c) This Section 5.8 is intended for the irrevocable benefit of, and to grant
third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of the Purchaser Parties. Each of the Indemnified Parties
shall be entitled to enforce the covenants contained in this Section 5.8, each
of which such covenants shall survive the Closing Date.

 

(d) In the event that the Surviving Entity or any of its successors or assigns
(i) consolidates with or merges into any other person or entity after the REIT
Effective Time and shall not be the continuing or surviving entity of such
consolidation or merger or (ii) transfers or conveys a majority of its
properties and assets to any person or entity after the REIT Effective Time,
then, and in each such case, proper provision shall be made so that the
successors, assigns and transferees of the Surviving Entity, as the case may be,
assume the obligations set forth in this Section 5.8.

 

(e) To the extent permitted by law, all rights of indemnification for the
benefit of any Indemnified Party shall be mandatory rather than permissive.

 

Section 5.9. Deposit Escrow Agreement. On the date of this Agreement, Parent
shall deposit Ten Million Dollars ($10,000,000) (the “Earnest Money”) in
immediately available funds with Chicago Title and Trust Company, as escrow
agent (the “Deposit Escrow Agent”) pursuant to an escrow agreement substantially
in the form attached hereto as Exhibit A (the “Deposit Escrow Agreement”). The
terms of the Escrow shall be governed by the Deposit Escrow Agreement and
Section 7.2(d).

 

Section 5.10. Series B Share Distribution. The Company shall (and the Purchaser
Parties agree and acknowledge that Company shall), prior to the Closing Date,
conditionally declare and, on the Closing Date, pay distributions on the Series
B Shares for (i) each of the quarters set forth in Section 5.10 of the Company
Disclosure Letter which have not been declared and paid prior (as permitted by
Section 4.1(b)(i)) to the Closing Date and (ii) the quarter in which the Closing
Date occurs if such quarter is not set forth in Section 5.10 of the Company
Disclosure Letter.

 

Section 5.11. CTA Partner LLC. Subject to the terms of that certain Tax
Indemnity Agreement dated November 17, 1997 by and among the Operating
Partnership, Roland Casati and Richard A. Heise and that certain Agreement of
Limited Partnership of Continental Towers Associates-I dated as of July 26,
1977, as amended, among CTA Partner, L.L.C., as general partner, and
Casati-Heise Partnership, Casati Alaska Community Property Trust, and Richard A.
Heise as limited partners, the Company and the Operating Partnership shall
direct, and shall use commercially reasonable efforts to cause, Richard S.
Curto, as administrative member of CTA Partner, L.L.C. or its successor or
assigns, to assign to an entity designated by Parent its interest as a general
partner in Continental Towers Associates-I, L.P.

 

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Section 5.12. Company Proxy Statement. As promptly as practicable following the
date of this Agreement, the Company shall prepare and file the preliminary
Company Proxy Statement relating to the Company Shareholders Meeting with the
SEC. The Company shall use its commercially reasonable efforts to (i) respond to
any comments from the SEC staff on the preliminary Company Proxy Statement or
requests for additional information from the SEC staff promptly after receipt of
any such comments or requests and (ii) cause the definitive Company Proxy
Statement to be mailed to the holders of Common Shares as promptly as
practicable following the date of this Agreement. The Company shall promptly (A)
notify the Purchaser Parties upon the receipt of any such comments or requests
and (B) provide the Purchaser Parties with copies of all correspondence between
the Company and its representatives, on the one hand, and the SEC staff, on the
other hand relating to the preliminary Company Proxy Statement and the
definitive Company Proxy Statement. Prior to responding to any such comments or
requests or the filing or mailing of the Company Proxy Statement, the Company
(x) shall provide the Purchaser Parties with a reasonable opportunity to review
and comment on any drafts of the Company Proxy Statement and related
correspondence and filings and (y) to the extent practicable, the Company and
its outside counsel shall permit the Purchaser Parties and its outside counsel
to participate in all communications with the SEC and its staff (including all
meetings and telephone conferences) relating to the Company Proxy Statement,
this Agreement or any of the transactions contemplated thereby. The Company
Proxy Statement shall include the Company Board Recommendation and a copy of the
written opinion of the Company Financial Advisor referred to in Section 3.1(r).
If at any time prior to the Effective Time any event shall occur that should, in
the reasonable judgment of the Company, be set forth in an amendment of or a
supplement to the Company Proxy Statement, the Company shall, in accordance with
the procedures set forth in this Section 5.12, prepare and file with the SEC
such amendment or supplement as soon thereafter as is reasonably practicable.

 

Section 5.13. Company Shareholders Meeting; Partnership Unitholder Approval.

 

(a) The Company shall call and hold the Company Shareholders Meeting as promptly
as practicable following the date hereof for the purpose of voting on approval
of this Agreement. Subject to Section 5.17, the Company shall use commercially
reasonable efforts to obtain the Company Shareholder Approval and otherwise
comply in all material respects with the legal requirements applicable to the
Company Shareholders Meeting.

 

(b) The Company shall use its reasonable efforts to obtain the Partnership
Unitholder Approval.

 

Section 5.14. Director Resignations. The Company shall cause to be delivered to
Parent resignations of all of the non-independent directors of the Company’s
Subsidiaries to be effective upon the consummation of the REIT Merger.

 

Section 5.15. Undertakings of Parent. Parent shall perform or comply with or
cause to be performed or complied with, when due all agreements, covenants and
obligations of Parent, Merger Sub and OP Merger Sub under this Agreement to be
performed or complied with prior to the REIT Merger and the OP Merger.

 

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Section 5.16. Intentionally Omitted.

 

Section 5.17. Company Board Recommendation.

 

(a) In connection with the REIT Merger and the Company Shareholders’ Meeting,
the Company Board shall (i) subject to Section 5.17(c), recommend to the holders
of Common Shares to vote in favor of the REIT Merger (the “Company Board
Recommendation”) and use commercially reasonable efforts to obtain the Company
Shareholder Approval and (ii) otherwise comply in all material respects with the
legal requirements applicable to the Company Shareholders Meeting.

 

(b) The Company Board shall not, except as expressly permitted by Section
5.17(c):

 

(i) withdraw, qualify, or in a manner adverse to any of the Purchaser Parties,
modify, or propose publicly to withdraw, qualify or in a manner adverse to the
Purchaser Parties, modify, the approval or recommendation of the Company Board
of the REIT Merger or this Agreement; or

 

(ii) approve or recommend, or propose to approve or recommend, a Competing
Transaction.

 

(c) Notwithstanding Sections 5.17(a) and 5.17(b), prior to the Company
Shareholder Approval, the Company Board may (subject to this Section 5.17(c))
inform the holders of Common Shares that it no longer believes that the REIT
Merger (a “Subsequent Determination”) is advisable and no longer recommends
approval of the REIT Merger, but only if (A) the Company Board receives a
Superior Competing Transaction which is not subsequently withdrawn or (B) the
Company Board determines in good faith and on a reasonable basis, after
consultation with outside counsel, that failure to take such action would be
inconsistent with the fiduciary duties of the trustees of the Company under
applicable Law.

 

(d) Nothing contained in this Section 5.17 shall prohibit the Company from
taking and disclosing to holders of Company Shares a position contemplated by
Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act and the rules and
regulations thereunder or from making any disclosure to the holders of Company
Shares if, in the good faith judgment of the Company Board, after consultation
with outside counsel, such disclosure is advisable under applicable Law.

 

(e) Notwithstanding the foregoing, in the event the Company Board or any
committee thereof, after having declared the REIT Merger advisable, withdraws or
modifies such declaration or its recommendation of approval of the REIT Merger
or recommends that the shareholders reject the REIT Merger, unless this
Agreement has been terminated pursuant to the provisions of Article VII hereof,
the Company shall nevertheless call and hold the Company Shareholders Meeting
and submit the REIT Merger and the Transaction Documents to the shareholders of
the Company for their approval as provided under applicable law.

 

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Section 5.18. Certain Post-Closing Covenants.

 

(a) The Purchaser Parties covenant and agree that, for the lesser of (i) a
period of five (5) years following the Effective Time and (ii) the period from
the Effective Time until no Series B Shares remain issued and outstanding,
whether or not required by the Securities and Exchange Commission (the “SEC”),
the Purchaser Parties will cause the Surviving Entity to file with the SEC for
public availability within the time periods specified in the SEC’s rules and
regulations (unless the SEC will not accept such a filing) (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Surviving Entity were required to
file such Forms, including a “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and, with respect to the annual information
only, a report on the annual financial statements by the Surviving Entity’s
certified independent accountants, and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Surviving Entity were
required to file such reports. In addition, after the Effective Time and for so
long as any Series B Shares remain outstanding, the Purchaser Parties agree to
cause the Surviving Entity to furnish to the holders of the Series B Shares and
to securities analysts and prospective investors, upon their request, the
information required to be available pursuant to Rule 144(c) under the
Securities Act to the extent such information is not electronically filed with
the SEC and electronically available to the public free of cost.

 

(b) The Purchaser Parties covenant and agree that, after the Effective Time and
so long as the Series B Shares are issued and outstanding, the Purchaser Parties
will not propose, and the Purchaser Parties and their respective Affiliates will
not vote or cause to be voted any Common Shares with respect to which they are
entitled to vote against, any action which would impair the Surviving Entity’s
status as a REIT for purposes of the Code, unless a majority of the then
Independent Trustees of the Surviving Entity has determined that it would be in
the best interests of the Surviving Entity and its shareholders that the
Surviving Entity no longer maintain its status as a REIT under the Code.

 

(c) The Purchaser Parties covenant and agree that for a period of six (6) months
from the Effective Time, the Purchaser Parties shall not, other than as set
forth in Section 5.18(c) of the Company Disclosure Schedule, sell, transfer or
convey any Company Property, any Company Subsidiary which owns a Company
Property, any ownership interest in the entities which own the Bank One Center
or 77 West Wacker properties, any interest in the mortgage note encumbering the
Continental Towers property or any interest in the Company Subsidiary which
holds such note.

 

Section 5.19. Environmental Matters. The Company and the Company Subsidiaries
shall make available to the Purchaser Parties such environmental investigations,
studies, tests, reviews, or other written analysis within the possession,
custody or control of the Company or any Company Subsidiary in relation to any
property or facility now or previously owned, leased or operated by the Company
or any Company Subsidiary and which have previously not been provided to Parent.

 

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Section 5.20. Intentionally Omitted.

 

Section 5.21. Continental Towers. The Company shall not refinance the mortgage
loan encumbering the Company’s Continental Towers project located in Rolling
Meadows, Illinois (the “CT Refinancing”) prior to the Closing Date except as
provided herein. The Company may complete the CT Refinancing in accordance with
the terms attached to Section 5.21 of the Company Disclosure Letter (the “CT
Refinancing Proposal”) or another proposal having economic terms at least as
favorable as those contained in the CT Refinancing Proposal, which terms must in
any event permit prepayment at any time with a penalty of no more than 2%;
provided, however, that in the event that the Company is not able to complete
the CT Refinancing on economic terms in accordance with the CT Refinancing
Proposal or another proposal having economic terms at least as favorable to the
Company as those terms contained in the CT Refinancing Proposal, then the
Company may complete the CT Refinancing prior to the Closing Date only with the
consent of Parent, such consent by Parent not to be unreasonably withheld or
delayed.

 

Section 5.22. Prime Mansur Litigation. The Purchaser Parties hereby agree and
acknowledge they are acquiring the Company and the Operating Partnership subject
to the Prime Mansur Litigations and that they shall assume the liability for all
judgments, damages, losses, deficiencies, liabilities, costs and expenses
arising out of the Prime Mansur Litigations and shall use commercially
reasonable efforts to prevail in the Prime Mansur Litigations or enter into a
full and complete compromise or settlement, with prejudice, with respect to the
Prime Mansur Litigations. Prior to the Closing, the Company shall retain control
over the prosecution, defense and settlement of the Prime Mansur Litigations and
shall provide the Purchaser Parties with prompt notice of any and all material
developments with respect to the Prime Mansur Litigations, with the Purchaser
Parties having the right upon their request from time to time to participate
with the Company in strategy discussions relating to, but not control, any such
prosecution, defense or settlement; provided, however, that the Company shall
not consent to the entry of any judgment or enter into any settlement or
compromise without the prior consent of the Purchaser Parties, which consent
shall not be unreasonably withheld or delayed. From and after the Closing, the
Purchaser Parties shall control the prosecution, defense and compromise or
settlement of the Prime Mansur Litigations, and the Company shall cooperate, and
shall use its commercially reasonable efforts to cause its officers and
trustees, and any officers and trustees of the Company immediately prior to the
Effective Time, to cooperate fully with the Purchaser Parties to facilitate the
prosecution, defense and/or compromise or settlement of the Prime Mansur
Litigations, including meeting with counsel to discuss facts relevant to the
litigation, providing truthful and accurate testimony during discovery
proceedings and trial, if necessary, and providing full and complete access to
all materials required during discovery or otherwise relevant to the Prime
Mansur Litigations. None of the Company, the Operating Partnership, any other
Company Subsidiary or any of their respective principals, partners, members,
employees, officers, directors, trustees or managers shall be liable to any of
Parent, Merger Sub or OP Merger Sub (or any of their respective principals,
shareholders, officers, directors, managers, employees, advisors or other
affiliates (collectively, the “Parent Parties”) for any damages, losses,
deficiencies, liabilities, costs and expenses incurred by the Parent Parties and
arising out of or relating to the Prime Mansur Litigations (other than an action
by Parent, Merger Sub or OP Merger Sub to enforce the terms of the Agreement).
The parties hereto agree that in no event shall any remedy granted by any court
with respect to the Prime Mansur Litigations be a breach

 

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of any representation, warranty or covenant contained herein. In addition, in
the event any party to the Prime Mansur Litigations succeeds prior to the
Closing Date in getting a final non-appealable order enforcing specific
performance and compelling the sale of the Company and the Operating Partnership
to such party (a “Final Order”), the Purchaser Parties shall not be permitted to
attempt to enforce this Agreement against such party, the Company or the
Operating Partnership. The Company hereby agrees and covenants not to provide
any form of cooperation prior to the Closing Date with the other parties (the
“Adverse Parties”) to the Prime Mansur Litigations in connection with their
attempts to obtain any such Final Order, including but not limited to, failing
to assert and maintain meritorious defenses or claims which would enable the
Adverse Parties to obtain a Final Order. Notwithstanding anything contained in
this Section 5.22, the Purchaser Parties, on their own behalf, shall have the
right to contest (through litigation or otherwise) any such Final Order, but
excluding any actions, lawsuits or other proceedings against the Company or any
Company Subsidiary.

 

ARTICLE VI

 

CONDITIONS TO CLOSING

 

Section 6.1. Conditions to Each Party’s Obligation to Effect the Mergers. The
respective obligations of each party to effect the Mergers are subject to the
satisfaction or waiver (as permitted by applicable Law) at or prior to the OP
Effective Time or REIT Effective Time, as the case may be, of the following
conditions:

 

(a) The Company Shareholder Approval shall have been obtained at the Company
Shareholders Meeting (or an adjournment or postponement thereof).

 

(b) The Partnership Unitholder Approval shall have been obtained pursuant to the
applicable procedures set forth in the Partnership Agreement.

 

(c) Any applicable waiting period (and any extension thereof) under the HSR Act
shall have expired or been terminated, and all consents, approvals and actions
of, filings with, and notices to, all Governmental Entities required of the
Purchasing Parties or the Company or any of their respective Subsidiaries in
connection with the transactions contemplated hereby shall have been made,
obtained or effected, as the case may be.

 

(d) No Law or temporary restraining order, preliminary or permanent injunction
or other binding order restraining, prohibiting or preventing consummation of
either Merger issued by any Governmental Entity of competent jurisdiction shall
be in effect; provided, however, that the parties invoking this condition shall
use all commercially reasonable efforts to have any such legal prohibition
removed or such order or injunction vacated.

 

Section 6.2. Conditions to the Obligation of the Purchaser Parties to Effect the
Mergers. The obligations of the Purchaser Parties to effect the Mergers are
further subject to satisfaction or waiver (as permitted by applicable Law) at or
prior to the OP Effective Time or REIT Effective Time, as the case may be, of
the following conditions:

 

(a) The representations and warranties of the Company contained herein (without
giving effect to any materiality or Company Material Adverse Effect
qualification) shall be true and correct, as of the Effective Time, as if such
representations and warranties were made at the Effective Time (except to the
extent that any such representation or warranty, by its terms, is expressly
limited to a specific date, in which case such representation or warranty shall
be true and correct as of such date), except where the failure to be so true and
correct would not constitute a Company Material Adverse Effect.

 

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(b) The Company and the Operating Partnership shall have performed or complied
with in all material respects each of its agreements and covenants contained in
this Agreement required to be performed or complied with by it at or prior to
the Effective Time.

 

(c) Since the date of this Agreement there shall not have occurred any event,
occurrence or condition that would constitute a Company Material Adverse Effect.

 

(d) The Purchaser Parties shall have received a certificate, signed by a senior
executive officer of the Company, certifying as to the matters set forth in
Sections 6.2(a), 6.2(b) and 6.2(c).

 

(e) The Purchaser Parties shall have received the opinion of Winston & Strawn,
LLP (or the opinion of another nationally recognized law firm experienced with
REITs and reasonably acceptable to the Company and the Purchaser Parties) in the
form attached hereto as Exhibit B or such other form which is reasonably
satisfactory to the Company and the Purchaser Parties stating that the Company
qualifies as a REIT under the Code for all periods through the date of Closing
and the treatment of the Operating Partnership and all Company Subsidiaries
(which are organized as partnerships or limited liability companies or which
file tax returns as partnerships) as partnerships and not as associations
taxable as corporations or publicly-traded partnerships for federal income tax
purposes since the acquisition or formation of Company Subsidiaries by the
Company and the parties to the Financing shall be entitled to rely on such
opinion. This opinion shall be based on reasonable representations, warranties
and covenants provided to Winston & Strawn LLP by the Company (and, if
requested, Parent and/or Parent’s member(s)).

 

(f) The Company shall have received the opinion of Miles & Stockbridge P.C. in
the form attached hereto as Exhibit C or such other form which is reasonably
satisfactory to the Company and the Purchaser Parties.

 

(g) The Company shall have received the opinion of Winston & Strawn LLP (or the
opinion of another nationally recognized law firm experienced with REITs and
reasonably acceptable to the Company and the Purchaser Parties) in the form
attached hereto as Exhibit D or such other form which is reasonably satisfactory
to the Company and the Purchaser Parties. This opinion shall be based on
reasonable representations, warranties and covenants provided to Winston &
Strawn LLP by the Company (and, if requested, Parent and/or Parent’s member(s)).

 

Section 6.3. Conditions to the Obligation of the Company to Effect the Mergers.
The obligation of the Company to effect the Mergers is further subject to
satisfaction or waiver (as

 

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permitted by applicable Law) at or prior to the OP Effective Time or REIT
Effective Time, as the case may be, of the following conditions:

 

(a) The representations and warranties of the Purchaser Parties contained herein
that are qualified as to materiality shall be true and correct and any such
representations and warranties that are not so qualified shall be true and
correct in all material respects, as of the Effective Time, as if such
representations and warranties were made at the Effective Time (except to the
extent that any such representation or warranty, by its terms, is expressly
limited to a specific date, in which case such representation or warranty shall
be true and correct as of such date).

 

(b) Each of the Purchaser Parties shall have performed or complied with in all
material respects each of its respective agreements and covenants contained in
this Agreement required to be performed or complied with by it at or prior to
the Effective Time.

 

(c) The Company shall have received a certificate, signed by a senior executive
officer of each of the Purchaser Parties, certifying as to the matters set forth
in Sections 6.3(a) and 6.3(b).

 

(d) the Company shall have received each of the opinions described in Sections
6.2(f) and (g).

 

Section 6.4. Frustration of Closing Conditions. Neither the Purchasing Parties
nor the Company or the Operating Partnership may rely on the failure of any
condition set forth in this Article VI to be satisfied if such failure was
caused by such party’s failure to use its commercially reasonable efforts to
consummate the OP Merger, REIT Merger and the other transactions contemplated by
this Agreement in a timely manner, as required by and subject to Section 5.2.

 

ARTICLE VII

 

TERMINATION, AMENDMENT AND WAIVER

 

Section 7.1. Termination. This Agreement may be terminated and the Mergers may
be abandoned at any time prior to the Effective Time, whether before or after
the Company Shareholder Approval (with any termination by Parent also being an
effective termination by OP Merger Sub and Merger Sub):

 

(a) by mutual written consent of the Company and Parent;

 

(b) by written notice by the Company or Parent if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of either
Merger, which is final and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause (b) shall have used all
commercially reasonable efforts to remove such order, decree, ruling or judgment
or to reverse such action;

 

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(c) by written notice by the Company, at any time prior to obtaining the Company
Shareholder Approval, upon the Company Board resolving to enter into, subject to
the terms of this Agreement, including Section 7.2(b), a definitive agreement
for a Competing Transaction by a third party; provided, that (i) the Company
Board shall not so resolve unless the Company Board shall have determined in
good faith (after consultation with its independent financial advisor and
outside counsel) that such Competing Transaction constitutes a Superior
Competing Transaction; (ii) immediately following the Company so resolving, the
Company shall have so notified Parent and provided to Parent in writing the
terms and conditions of such Competing Transaction; (iii) such termination
pursuant to this Section 7.1(c) shall not be effective until the end of the
third Business Day after Parent’s receipt of notice of the final terms and
conditions of such Competing Transaction; and (iv) the Company shall have the
right to enter into a definitive agreement for a Competing Transaction during
the period commencing upon the Company Board so resolving in accordance with
this Section 7.1(c) and ending upon the termination of this Agreement pursuant
to this Section 7.1(c) so long as (A) the effectiveness of such agreement is
conditioned upon the Company complying with its obligations under Section 7.1(c)
and Section 7.2(b) and (B) the effectiveness of such agreement is conditioned
upon the termination of this Agreement pursuant to this Section 7.1(c);

 

(d) by written notice by Parent, if prior to the Company Shareholder Approval
being obtained, (i) the Company Board shall have withdrawn or adversely modified
its recommendation of this Agreement and the REIT Merger (it being understood,
however, that for all purposes of this Agreement, the fact that the Company has
supplied any person with information regarding the Company or has entered into
discussions or negotiations with such person as permitted by this Agreement, or
the disclosure of such facts, shall not be deemed in and of itself a withdrawal
or modification of the Company Board’s recommendation of the REIT Merger or this
Agreement so long as such actions are in compliance with Section 5.4); or (ii)
the Company Board shall have (A) recommended to the Company shareholders that
they approve a Competing Transaction rather than the Transactions or (B)
determined to accept a proposal or offer for a Superior Competing Transaction;

 

(e) by written notice by the Company or Parent, if, by August 31, 2005 (the
“Outside Date”), the REIT Merger has not been consummated (provided, that the
right to terminate this Agreement pursuant to this subparagraph (e) shall not be
available to any party whose (or whose Subsidiary’s) failure to fulfill any
obligation under this Agreement has been the proximate cause of the failure of
the REIT Merger to be consummated on or prior to such date); provided, however,
that, the Outside Date may be extended by up to sixty (60) days by written
notice of Parent or the Company if the condition set forth in Section 6.2(d)
cannot be satisfied due to a temporary restraining order, preliminary or
permanent injunction or other binding order by any Governmental Entity of
competent jurisdiction prohibiting or preventing consummation of either Merger
shall be in effect.

 

(f) by written notice by Parent or the Company, if the Company Shareholder
Approval shall not have been obtained by reason of failure to obtain the
required vote at the Company Shareholders Meeting or at any adjournment or
postponement thereof or if the Partnership Unitholder Approval shall not have
been obtained in accordance with this Agreement and the applicable procedures
set forth in the Partnership Agreement;

 

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(g) by written notice by Parent, upon (i) the occurrence of a Company Material
Adverse Effect after the date of this Agreement which is not due to the fault of
the Company (which occurrence shall not be a breach or default by the Company
under this Agreement), or (ii) a breach of any representation, warranty,
agreement or covenant of the Company contained in this Agreement (in any case,
other than as a result of a breach by the Purchaser Parties of any of their
respective representations, warranties, agreements or covenants contained in
this Agreement) such that the conditions set forth in Section 6.2(a), (b) or
(c), as the case may be, cannot be satisfied and any Company Material Adverse
Effect other than those referred to in Section 7.1(g)(i) (any such event, a
“Terminating Company Breach”); provided, however, that if such Company Material
Adverse Effect or Terminating Company Breach is capable of being cured by the
Company within twenty (20) days after Parent notifies the Company of the
occurrence of the Company Material Adverse Effect or Terminating Company Breach
through the exercise of its commercially reasonable efforts and is so cured
within such period, so long as the Company continues to exercise such
commercially reasonable efforts, Parent may not terminate this Agreement under
this Section 7.1(g); provided, further, that if any such Company Material
Adverse Effect or Terminating Company Breach arising from any delay of
performance or other satisfaction by the Company or the Operating Partnership of
any covenant, agreement or condition to be performed or satisfied on their part
hereunder is the result of the existence of any temporary restraining order,
preliminary or permanent injunction or other binding order of any Governmental
Entity of competent jurisdiction, Parent may not terminate this Agreement under
this Section 7.1(g) unless such Company Material Adverse Effect or Terminating
Company Breach is not cured during the period which is sixty (60) days after
Parent notifies the Company of the Terminating Company Breach; or

 

(h) by written notice by the Company, upon a breach of any representation,
warranty, agreement or covenant of the Purchaser Parties contained in this
Agreement such that the conditions set forth in Sections 6.3(a) or (b), as the
case may be, cannot be satisfied (any such event or condition, a “Terminating
Purchaser Party Breach”); provided, however, that (i) if such Terminating
Purchaser Party Breach is capable of being cured by the Purchaser Parties within
twenty (20) days after the Company notifies Parent of the Terminating Purchaser
Party Breach through the exercise of its commercially reasonable efforts and is
so cured within such period, so long as the Purchaser Parties continue to
exercise such commercially reasonable efforts, the Company may not terminate
this Agreement under this Section 7.1(h); provided, further, that if any
Terminating Purchaser Party Breach arising from any delay of performance or
other satisfaction by the Purchaser Parties of any covenant, agreement or
condition to be performed or satisfied on their part hereunder is the result of
the existence of any temporary restraining order, preliminary or permanent
injunction or other binding order of any Governmental Entity of competent
jurisdiction, the Company may not terminate this Agreement under this Section
7.1(h) unless such Terminating Purchaser Party Breach is not cured during the
period which is sixty (60) days after the Company notifies the Parent of the
Terminating Purchaser Party Breach.

 

The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling or controlled by any such party or any of their respective officers,
directors, trustees, employees, agents or representatives, whether prior to or
after the execution of this Agreement.

 

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Section 7.2. Expenses; Break-Up Fee; Earnest Money.

 

(a) Except as otherwise specified in this Section 7.2 or agreed in writing by
the parties, all out-of-pocket costs and expenses incurred in connection with
this Agreement, the OP Merger, the REIT Merger and the other transactions
contemplated hereby shall be paid by the party incurring such cost or expense
(with respect to such party, its “Expenses”); provided, however, that, if
applicable, any filing fees under the HSR Act shall be split equally between the
Company and Parent. The Company agrees that if this Agreement is terminated
pursuant to Section 7.1(b) (but only as a result of a final non-appealable
order, decree or ruling enforcing specific performance and compelling the sale
of the Company and the Operating Partnership to any party to the Prime Mansur
Litigations), Section 7.1(f) or Section 7.1(g)(i), then, the Company shall pay
to Parent an amount equal to the actual out-of-pocket expenses of Parent or its
affiliates incurred in connection with this Agreement and the transactions
contemplated hereby (including all attorneys’, accountants’ and financing
sources’ fees and expenses) but in no event in an amount greater than (i) in the
case of a termination pursuant to Section 7.1(b), Three Million Dollars
($3,000,000) and (ii) in the case of a termination pursuant to Section 7.1(f) or
Section 7.1(g)(i), One Million Dollars ($1,000,000) (in each case, the “Parent
Expenses”). Any payment of the Parent Expenses pursuant to this Section 7.2(a)
shall be made, as directed by Parent, by prompt wire transfer of immediately
available funds, but in no event later than five (5) Business Days after the
amount is due as provided herein; provided, that in any such event of the
required payment of the Parent Expenses, Parent shall provide the Company with
customary documentation or other reasonable support evidencing the incurrence of
the Parent Expenses.

 

(b) The Company agrees that if this Agreement is terminated pursuant to Section
7.1(c), (d) or (g)(ii), then, the Company shall pay to Parent an amount equal to
Ten Million Dollars ($10,000,000) (the “Break-Up Fee”). Any payment of such
amount shall be made, as directed by Parent, by prompt wire transfer of
immediately available funds, but in no event later than two (2) Business Days
after the amount is due as provided herein.

 

(c) Notwithstanding anything to the contrary in this Agreement, the Purchaser
Parties expressly acknowledge and agree that, with respect to any termination of
this Agreement pursuant to Section 7.1 (b) (only as the result of a final
non-appealable order, decree or ruling enforcing specific performance and
compelling the sale of the Company and the Operating Partnership to any party to
the Prime Mansur Litigations), (c), (d), (f) or (g), the payment of the Parent
Expenses or the Break-Up Fee, as applicable, shall constitute liquidated damages
with respect to any claim for damages or any other claim which the Purchaser
Parties would otherwise be entitled to assert against the Company, the Operating
Partnership or any other Company Subsidiary or any of their respective assets,
or against any of their respective trustees, directors, officers, employees,
partners, shareholders or stockholders, with respect to this Agreement and the
transactions contemplated by the Transaction Documents and shall constitute the
sole and exclusive remedy, both at law and in equity, available to the Purchaser
Parties. The parties hereto expressly acknowledge and agree that, in light of
the difficulty of accurately determining actual damages with respect to the
foregoing upon any termination of this Agreement pursuant to Section 7.1 (b)
(only as the result of a final non-appealable order, decree or ruling enforcing
specific performance and compelling the sale of the Company and the Operating
Partnership to any party to the Prime Mansur Litigations), (c), (d), (f) or
(g)(ii), the amount of the Parent Expenses or the Break-Up Fee, as applicable:
(i) constitutes a reasonable estimate of the

 

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damages that will be suffered by reason of any such proposed or actual
termination of this Agreement pursuant to said section, and (ii) shall be in
full and complete satisfaction of any and all damages arising as a result of the
foregoing. The Purchaser Parties hereby agree that, except for nonpayment of the
amounts set forth in Section 7.2(a) or Section 7.2(b) and failure to return the
Escrow Deposit, upon any termination of this Agreement pursuant to Section
7.1(b) (only as the result of a final non-appealable order, decree or ruling
enforcing specific performance and compelling the sale of the Company and the
Operating Partnership to any party to the Prime Mansur Litigations), (c), (d),
(f) or (g) in no event shall any of the Purchaser Parties (A) seek to obtain any
recovery or judgment against the Company, the Operating Partnership or any other
Company Subsidiary or any of their respective assets, or against any of their
respective trustees, directors, officers, employees, partners, shareholders or
stockholders with respect to this Agreement and the transactions contemplated by
the Transaction Documents, or (B) be entitled to seek or obtain any other
damages of any kind, including, without limitation, consequential, indirect or
punitive damages with respect to this Agreement and the transactions
contemplated by the Transaction Documents.

 

(d) Each of the Purchaser Parties agrees that if this Agreement shall be
terminated pursuant to Section 7.1(h), then the Company shall be entitled to
retain the Earnest Money. Notwithstanding anything to the contrary in this
Agreement, the Company expressly acknowledges and agrees that, with respect to
any termination of this Agreement in circumstances where the Company is entitled
to retain the Earnest Money in accordance with this Section 7.2(d), the Earnest
Money shall constitute liquidated damages with respect to any claim for damages
or any other claim which the Company would otherwise be entitled to assert
against any of the Purchaser Parties or any of their respective assets, or
against any of their respective trustees, directors, managers, officers,
employees, partners, shareholders, stockholders or members, with respect to this
Agreement and the transactions contemplated by the Transaction Documents and
shall constitute the sole and exclusive remedy available to the Company. The
parties hereto expressly acknowledge and agree that, in light of the difficulty
of accurately determining actual damages with respect to the foregoing upon any
termination of this Agreement in circumstances where the Company is entitled to
retain the Earnest Money in accordance with this Section 7.2(d), the amount of
the Earnest Money: (i) constitutes a reasonable estimate of the damages that
will be suffered by reason of any such proposed or actual termination of this
Agreement or failure to consummate either or both of the Mergers, and (ii) shall
be in full and complete satisfaction of any and all damages arising as a result
of the foregoing. Except for actions to obtain the Earnest Money from the
Deposit Escrow Agent (or alternatively an amount in immediately available funds
equal thereto from the Purchaser Parties) in circumstances where the Company is
entitled to retain the Earnest Money, the Company hereby agrees that, upon any
termination of this Agreement in circumstances where the Company is entitled to
retain the Earnest Money in accordance with this Section 7.2(d), in no event
shall the Company (A) seek to obtain any recovery or judgment against any of the
Purchaser Parties or any of their respective assets, or against any of their
respective trustees, directors, managers, officers, employees, partners,
shareholders or stockholders with respect to this Agreement and the transactions
contemplated by the Transaction Documents, or (B) be entitled to seek or obtain
any other damages of any kind, including, without limitation, consequential,
indirect or punitive damages with respect to this Agreement and the transactions
contemplated by the Transaction Documents. If this Agreement is terminated for
any reason other than a termination pursuant to Section 7.1(h), then the Earnest
Money shall be refunded to the Purchaser Parties.

 

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Section 7.3. Notice of Termination. The party desiring to terminate this
Agreement pursuant to Section 7.1 shall give written notice of such termination
to the other party in accordance with Section 8.2, specifying the provision or
provisions of Section 7.1 (describing in reasonable detail the basis therefor)
pursuant to which such termination is effected.

 

Section 7.4. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of any party hereto or their respective affiliates,
trustees, directors, managers, officers, shareholders, stockholders or members,
except that the Confidentiality Agreement, the last sentence of Section 5.1,
Section 7.1, Section 7.2, this Section 7.4 and Article VIII shall survive such
termination and except to the extent that such termination results from a
willful breach by a party of any of its covenants or agreements set forth in
this Agreement.

 

Section 7.5. Return of Earnest Money. The parties agree that if this Agreement
is terminated pursuant to Section 7.1, the parties shall instruct the Deposit
Escrow Agent to return the Earnest Money to Parent with interest within two (2)
Business Days of termination by wire transfer of immediately available funds to
an account designated in writing by Parent; provided, however, that
notwithstanding the foregoing, if the Agreement is terminated pursuant to
Section 7.1(h), the parties shall instruct the Deposit Escrow Agent to transfer
the Deposit to the Company with interest within two (2) Business Days of
termination by wire transfer of immediately available funds to an account
designated in writing by the Company.

 

Section 7.6. Amendment. To the extent permitted by applicable Law, this
Agreement may be amended by the parties in writing by action of their respective
boards of trustees, managers or directors or members, as applicable, at any time
before or after the Company Shareholder Approval and the Partnership Unitholder
Approval are obtained but, after the Company Shareholder Approval or the
Partnership Unitholder Approval is obtained, no amendment shall be made which
decreases the REIT Merger Consideration or the OP Merger Consideration, as
applicable, or which adversely affects the rights of the holders of the Common
Shares or the LP Units without the approval of such holders.

 

Section 7.7. Extension; Waiver. At any time prior to the Effective Time, each of
the Company and the Purchaser Parties may (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the provisions of Section 7.6, waive (as permitted
by applicable Law) compliance with any of the agreements or conditions of the
other party contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.

 

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ARTICLE VIII

 

GENERAL PROVISIONS

 

Section 8.1. Nonsurvival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants and agreements
contained in this Agreement or in any certificate or other instrument delivered
pursuant to this Agreement shall survive the Effective Time except for covenants
and agreements that contemplate performance after the Effective Time (which
covenants and agreements shall survive the Effective Time in accordance with
their respective terms).

 

Section 8.2. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (provided proof of
delivery is received) to the parties or sent by telecopy (provided a
confirmation of transmission is received) at the following addresses or telecopy
numbers (or at such other address or telecopy number for a party as shall be
specified by like notice):

 

  (a) if to the Purchaser Parties, to

 

Prime Office Company LLC

c/o The Lightstone Group LLC

326 Third Street

Lakewood, New Jersey 08701

Attention: David Lichtenstein

Facsimile Number: (732) 363-7183

 

       with copies to:

 

Herrick, Feinstein LLP

2 Park Avenue

New York, New York 10016

Attention: Sheldon Chanales, Esq.

                 Irwin A. Kishner, Esq.

Facsimile Number: (212) 592-1500

 

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  (b) if to the Company or the Operating Partnership, to

 

Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey A. Patterson

Facsimile Number: (312) 917-1597

 

and

 

Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: James F. Hoffman

Facsimile Number: (312) 917-1684

 

with a copy to:

 

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois 60601

Attention: Wayne D. Boberg, Esq.

Facsimile Number: (312) 558-5700

 

Section 8.3. Interpretation. When a reference is made in this Agreement to an
Article or a Section, such reference shall be to an Article or a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
“include,” “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.”

 

Section 8.4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.

 

Section 8.5. Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Deposit Escrow Agreement, the Company Disclosure Letter and the Confidentiality
Agreement constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement. Except for the provisions of Section 5.8, this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies.

 

Section 8.6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND (WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PRINCIPLES THEREOF).

 

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Section 8.7. Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of Law or otherwise by any of the parties without the
prior written consent of the other parties. Any such purported assignment or
delegation in violation of the foregoing sentence shall be null and void.
Subject to the preceding sentences, this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.

 

Section 8.8. Enforcement. The parties agree that irreparable damage would occur
and the parties would not have any adequate remedy at Law in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State of Maryland or
in any Maryland State court, this being in addition to any other remedy to which
they are entitled at Law or in equity. Notwithstanding anything to the contrary
contained in this Agreement (including but not limited to the provisions of this
Section 8.8), the Purchaser Parties agree that their sole and exclusive remedy
under this Agreement and at law and in equity (i) in connection with a
Terminating Company Breach, shall be to terminate this Agreement pursuant to the
terms of Section 7.1(g)(ii), receive payment of the Break Up Fee as provided in
Section 7.2(b) and receive the return of the Escrow Deposit, with interest, and
(ii) in connection with the occurrence of a Company Material Adverse Effect
described in Section 7.1(g)(i), shall be to terminate this Agreement pursuant to
the terms of Section 7.1(g)(i), receive payment of the Parent Expenses as
provided in Section 7.2(a) and receive the return of the Escrow Deposit, with
interest. In addition, each of the parties hereto (i) consents to submit itself
(without making such submission exclusive) to the personal jurisdiction of any
federal court located in the State of Maryland or any Maryland state court in
the event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement and (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party’s respective
address set forth herein shall be effective service of process for any action,
suit or proceeding in Maryland with respect to any matters to which it has
submitted to jurisdiction as set forth in this section.

 

Section 8.9. Exhibits; Disclosure Letter. All Exhibits referred to herein and in
the Company Disclosure Letter are intended to be and hereby are specifically
made a part of this Agreement.

 

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ARTICLE IX

 

CERTAIN DEFINITIONS

 

Section 9.1. Certain Definitions. For purposes of this Agreement:

 

“Acquisition Lender” has the meaning set forth in Section 3.2(c).

 

“Adjusted Exercise Price” has the meaning set forth in Section 2.1(e).

 

“Adverse Parties” has the meaning set forth in Section 5.22.

 

“Affiliate” of any Person means another Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first Person.

 

“Agreement” has the meaning set forth in the introductory paragraph.

 

“Articles of Merger” means the articles of merger with respect to the REIT
Merger, containing the provisions required by, and executed in accordance with,
the Maryland REIT Law and the MLLCA.

 

“Break-Up Fee” has the meaning set forth in Section 7.2(b).

 

“Business Day” means any day other than a Saturday, Sunday or a day on which
banking institutions in Chicago, Illinois or New York, New York are authorized
or obligated by law or executive order to be closed.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act.

 

“Certificates” has the meaning set forth in Section 2.2(c)(i).

 

“Claim” has the meaning set forth in Section 5.8(b).

 

“Closing” has the meaning set forth in Section 1.2.

 

“Closing Date” has the meaning set forth in Section 1.2.

 

“COBRA” has the meaning set forth in Section 5.7(b)(ii).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commitment” has the meaning set forth in Section 4.1(b)(v)(B).

 

“Commitment Letter” has the meaning set forth in Section 3.2(c).

 

“Common Shares” has the meaning set forth in Section 2.1.

 

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“Company” has the meaning set forth in the introductory paragraph.

 

“Company Board” has the meaning set forth in the Recitals.

 

“Company Board Recommendation” has the meaning set forth in Section 5.17(a).

 

“Company By-laws” has the meaning set forth in Section 3.1(a).

 

“Company Charter” has the meaning set forth in Section 3.1(a).

 

“Company Disclosure Documents” has the meaning set forth in Section 3.1(y)(i).

 

“Company Disclosure Letter” has the meaning set forth in the introductory
paragraph to Section 3.1.

 

“Company Employee Benefit Plans” has the meaning set forth in Section
3.1(l)(iii).

 

“Company ERISA Affiliate” has the meaning set forth in Section 3.1(l)(i).

 

“Company Financial Advisor” has the meaning set forth in Section 3.1(r).

 

“Company Intangible Property” has the meaning set forth in Section 3.1(n).

 

“Company Material Adverse Effect” means, with respect to the Company, an event,
occurrence or condition that, either individually or in the aggregate with all
other events, occurrences or conditions, had or would have a material adverse
effect on the business, operating results, liabilities, assets or condition,
financial or otherwise, of the Company, the Operating Partnership and the
Company Subsidiaries, taken as a whole, or prevent or materially delay the
consummation of the OP Merger or the REIT Merger, not including the effect of
(i) general economic changes, (ii) changes in the United States financial
markets generally, (iii) changes that affect REITs generally, (iv) changes that
affect office real estate properties generally, (v) changes in national or
international political or social conditions including the engagement by the
United States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist attack
upon or within the United States, or any of its territories, possessions or
diplomatic or consular offices or upon any military installation, equipment or
personnel of the United States (except to the extent that any such change
affects the Company in a disproportionate manner), (vi) any change in the price
or trading volume of the Common Shares or the Series B Shares, (vii) the failure
by the Company to lease space, including but not limited to the renewal or
non-renewal of any leases for real property owned, leased or operated by the
Company or any Company Subsidiary or the announcement or decision by a
prospective tenant of its intention not to lease space or by an existing tenant
of its intention to renew or not renew its current lease, (viii) changes arising
as a result of the public announcement of this Agreement or the transactions
contemplated hereby or (ix) other than as may cause the condition set forth in
Section 6.1(d) not to be satisfied, the Prime Mansur Litigations.

 

“Company Option” has the meaning set forth in Section 2.3(a).

 

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“Company Other Interests” has the meaning set forth in Section 3.1(b)(ii).

 

“Company Pension Plans” has the meaning set forth in Section 3.1(l)(i).

 

“Company Permits” has the meaning set forth in Section 3.1(i).

 

“Company Properties” has the meaning set forth in Section 3.1(p)(i)(A).

 

“Company Property Restrictions” has the meaning set forth in Section
3.1(p)(i)(B).

 

“Company Proxy Statement” has the meaning set forth in Section 3.1(d)(iii).

 

“Company SEC Documents” has the meaning set forth in Section 3.1(e)(i).

 

“Company Severance Agreements” has the meaning set forth in Section 3.1(l)(xiv).

 

“Company Share Incentive Plan” has the meaning set forth in Section
3.1(c)(i)(C).

 

“Company Shareholders Meeting” has the meaning set forth in Section 3.1(d)(iii).

 

“Company Shareholder Approval” has the meaning set forth in Section 3.1(z)(i).

 

“Company Shares” means the Common Shares, the Series A Shares and the Series B
Shares.

 

“Company Subsidiary” means the Operating Partnership and each other Subsidiary
of the Company or the Operating Partnership.

 

“Competing Transaction” has the meaning set forth in Section 5.4(a).

 

“Confidentiality Agreement” has the meaning set forth in Section 5.1.

 

“CT Refinancing” has the meaning set forth in Section 5.21.

 

“CT Refinancing Proposal” has the meaning set forth in Section 5.21.

 

“Deposit Escrow Agent” has the meaning set forth in Section 5.9.

 

“Deposit Escrow Agreement” has the meaning set forth in Section 5.9.

 

“Designated Severance” has the meaning set forth in Section 5.7(a).

 

“DRULPA” has the meaning set forth in Section 1.1(a).

 

“Earnest Money” has the meaning set forth in Section 5.9.

 

“EDGAR” means the Electronic Data Gathering Analysis and Retrieval system.

 

“Effective Time” has the meaning set forth in Section 1.3(b).

 

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“Eligible LP Unit” has the meaning set forth in Section 2.6(a).

 

“Environmental Law” has the meaning set forth in Section 3.1(o).

 

“Equity Interest” means any share, capital stock, partnership, member, trust or
other similar interest in any entity, and any option, warrant, right or security
(including debt securities) convertible, exchangeable or exercisable therefore,
and any equity equivalents, interests in the ownership or earnings in any entity
or other similar rights (including stock appreciation rights).

 

“ERISA” has the meaning set forth in Section 3.1(l)(i).

 

“Exchange Act” has the meaning set forth in Section 3.1(d)(iii).

 

“Excluded LP Units” has the meaning set forth in Section 2.6(b).

 

“Excluded Shares” has the meaning set forth in Section 2.1(b).

 

“Expenses” has the meaning set forth in Section 7.2(a).

 

“Fairness Opinion” has the meaning set forth in Section 3.1(r).

 

“Federal WARN Act” has the meaning set forth in Section 5.7(f).

 

“Final Order” has the meaning set forth in Section 5.22.

 

“GAAP” has the meaning set forth in Section 3.1(e)(i).

 

“Governmental Entities” means any federal, state, local, municipal, or other
government or governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal); or any body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.

 

“GP Units” has the meaning set forth in Section 3.1(c)(ii)(A).

 

“Hazardous Material” has the meaning set forth in Section 3.1(o).

 

“HSR Act” has the meaning set forth in Section 3.1(d)(iii).

 

“Indemnified Parties” has the meaning set forth in Section 5.8(a).

 

“Independent Trustees” shall mean the members of the board of trustees of the
applicable board of trustees who are “independent,” are defined in Section
303A.02 of the New York Stock Exchange’s Listed Company Manual, as presently in
effect.

 

“Intangible Property” has the meaning set forth in Section 3.1(n).

 

“IRS” means the Internal Revenue Service.

 

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“Knowledge,” or any similar expression, shall mean (a) with respect to the
Company (or any Company Subsidiary), the actual knowledge of the persons set
forth on Schedule 9.1(a), after due inquiry, and (b) with respect to the
Purchaser Parties (or any of their respective Subsidiaries), the actual
knowledge of the persons set forth on Schedule 9.1(b), after due inquiry. The
Company, the Parent and Merger Sub acknowledge and agree that the individuals
named in Schedules 9.1(a) and 9.1(b) are named solely for the purpose of
defining and narrowing the scope of the Company, any Company Subsidiary, the
Parent, Merger Sub’s and OP Merger Sub’s knowledge, and not for the purpose of
imposing any liability on or creating any duties running from such individuals
to the parties hereto or any affiliate, related party, employee, agent, lender,
investor, shareholder or representative of the parties hereto.

 

“Law” means any statute, law, regulation, order, interpretation, permit,
license, approval, authorization, rule or ordinance of any Governmental Entity
applicable to the Purchaser Parties or the Company or any of their respective
Subsidiaries as the case may be.

 

“Liens” has the meaning set forth in Section 3.1(b)(i).

 

“LP Unit Certificates” has the meaning set forth in Section 2.6(a).

 

“LP Units” means the common units of limited partner interest of the Operating
Partnership.

 

“Maryland Department” means the State Department of Assessments and Taxation of
Maryland.

 

“Maryland REIT Law” has the meaning set forth in Section 1.1(b).

 

“Material Contracts” has the meaning set forth in Section 3.1(v)(i).

 

“Mergers” has the meaning set forth in Section 1.1(b).

 

“Merger Sub” has the meaning set forth in the introductory paragraph.

 

“MGCL” has the meaning set forth in Section 3.1(w).

 

“MLLCA” has the meaning set forth in Section 1.1(b).

 

“OP Effective Time” has the meaning set forth in Section 1.3(a).

 

“OP Merger” has the meaning set forth in Section 1.1(a).

 

“OP Merger Certificate” means the certificate of merger with respect to the OP
Merger, containing the provisions required by, and executed in accordance with,
DRULPA.

 

“OP Merger Consideration” has the meaning set forth in Section 2.6(a).

 

“OP Merger Sub” has the meaning set forth in the introductory paragraph.

 

“Operating Partnership” has the meaning set forth in the introductory paragraph.

 

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“Option Merger Consideration” has the meaning set forth in Section 2.3(a).

 

“Outside Date” has the meaning set forth in Section 7.1(e).

 

“Parent” has the meaning set forth in the introductory paragraph.

 

“Parent Expenses” has the meaning set forth in Section 7.2(a).

 

“Parent Parties” has the meaning set forth in Section 5.22.

 

“Partnership Agreement” means the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, as amended through the date hereof.

 

“Partnership Unitholder Approval” has the meaning set forth in Section
3.1(z)(ii).

 

“Partnership Units” mean the GP Units, the Series A Preferred Units, the Series
B Preferred Units and LP Units, collectively, or any of them.

 

“Paying Agent” has the meaning set forth in Section 2.2(a).

 

“Payment Fund” has the meaning set forth in Section 2.2(b).

 

“PCBs” has the meaning set forth in Section 3.1(o).

 

“Person” means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.

 

“Preemptive Rights” has the meaning set forth in Section 3.1(b)(1).

 

“Prime Mansur Litigations” means (1) the litigation captioned as Prime/Mansur
Investment Partners, LLC, et al. v. Prime Group Realty Trust, et al., pending in
the Circuit Court for Montgomery County, Maryland, Case No. 257776; (2) the
litigation captioned as Prime Group Realty Trust v. Prime Mansur Investment
Partners, LLC, et al., pending in the Circuit Court for Montgomery County,
Maryland, Case No. 257111-V; and (3) any other litigation, suit or legal
proceeding brought, filed or otherwise instituted (a) arising directly from that
certain Agreement and Plan of Merger, dated as of October 27, 2004, by and among
Prime Mansur Investment Partners, LLC, Cumberland Blues Merger Sub, LLC,
Cumberland Blues, LLC, the Company and the Operating Partnership; or (b) based
upon the same facts, events or transactions and involving the similar parties or
affiliates of the parties, including the Purchaser Parties under this Agreement
and/or their Affiliates, as the matters in clauses (1) and (2) above.

 

“Property Agreements” has the meaning set forth in Section 3.1(p)(i).

 

“Purchaser Parties” means Parent and, prior to the Effective Time, Merger Sub
and OP Merger Sub and, at and after the OP Effective Time, the Surviving
Partnership and, at and after the REIT Effective Time, the Surviving Entity.

 

“REIT” has the meaning set forth in Section 3.1(k)(ii).

 

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“REIT Effective Time” has the meaning set forth in Section 1.3(b).

 

“REIT Merger” has the meaning set forth in Section 1.1(b).

 

“REIT Merger Consideration” has the meaning set forth in Section 2.1(a).

 

“Release” has the meaning set forth in Section 3.1(o).

 

“Rent Roll” has the meaning set forth in Section 3.1(p)(iii).

 

“Rule 16b-3 No-Action Letter” means a certain no-action letter of the SEC Staff
publicly available as of January 12, 1999.

 

“Sarbanes-Oxley Act” has the meaning set forth in Section 3.1(bb).

 

“SEC” has the meaning set forth in Section 5.18(a).

 

“Securities Act” has the meaning set forth in Section 3.1(e)(i).

 

“Series A Preferred Units” has the meaning set forth in Section 3.1(c)(ii)(A).

 

“Series A Shares” means the Company’s Series A Cumulative Convertible Redeemable
Preferred Shares of Beneficial Interest, par value $0.01 per share.

 

“Series A-2 Share Purchase Warrant” has the meaning set forth in the definition
of “Warrants”.

 

“Series B Preferred Units” has the meaning set forth in Section 3.1(c)(ii)(A).

 

“Series B Share Purchase Warrant” has the meaning set forth in the definition of
“Warrants”.

 

“Series B Shares” has the meaning set forth in Section 2.1(d).

 

“Series C Share Purchase Warrant” has the meaning set forth in the definition of
“Warrants”.

 

“Severance Cap” has the meaning set forth in Section 5.7(a).

 

“Severance Letter Supplement” has the meaning set forth in Section 5.7(a).

 

“Shares” has the meaning set forth in Section 2.1(a).

 

“Subsequent Determination” has the meaning set forth in Section 5.17(c).

 

“Subsidiary” of any Person means any corporation, partnership, limited liability
company, joint venture or other legal entity of which such Person (either
directly or through or together with another Subsidiary of such Person) owns
more than 50% of the voting stock or value of such corporation, partnership,
limited liability company, joint venture or other legal entity.

 

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“Superior Competing Transaction” has the meaning set forth in Section 5.4(a).

 

“Surviving Bylaws” has the meaning set forth in Section 1.7.

 

“Surviving Charter” has the meaning set forth in Section 1.6.

 

“Surviving Entity” has the meaning set forth in Section 1.1(b).

 

“Surviving Entity Shares” has the meaning set forth in Section 2.1(c).

 

“Surviving Partnership” has the meaning set forth in Section 1.1(a).

 

“Surviving Partnership Agreement” has the meaning set forth in Section 1.5.

 

“Surviving Partnership GP Units” has the meaning set forth in Section 2.6(c).

 

“Surviving Partnership LP Units” has the meaning set forth in Section 2.6(d).

 

“Takeover Statute” has the meaning set forth in Section 3.1(w).

 

“Tax” or “Taxes” means any federal, state or local income, sales, use,
employment, payroll, excise taxes, tariffs or governmental charges, together
with penalties, interest or additions thereto but not including any taxes,
tariffs or governmental charges relating to real property.

 

“Tax Return” means any return relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

 

“Terminated Employees” has the meaning set forth in Section 5.7(b)(ii).

 

“Terminating Company Breach” has the meaning set forth in Section 7.1(g).

 

“Terminating Purchaser Party Breach” has the meaning set forth in Section
7.1(h).

 

“Third Party” has the meaning set forth in Section 5.4(a).

 

“Transaction Documents” means this Agreement, the Articles of Merger, the OP
Merger Certificate and the Deposit Escrow Agreement.

 

“Transactions” means the transactions contemplated by the Transaction Documents.

 

“Transfer and Gains Taxes” has the meaning set forth in Section 5.6.

 

“Triggered Agreements” has the meaning set forth in Section 3.1(d)(ii).

 

“WARN Acts” has the meaning set forth in Section 5.7(f).

 

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“Warrant REIT Merger Consideration” has the meaning set forth in Section 2.1(e).

 

“Warrants” means collectively, (1) the Series A-2 Share Purchase Warrant to
purchase 500,000 Common Shares (the “Series A-2 Share Purchase Warrant”), (2)
the Series B Share Purchase Warrant to purchase 250,000 Common Shares (the
“Series B Share Purchase Warrant”) and (3) the Series C Share Purchase Warrant
to purchase 250,000 Common Shares (the “Series C Share Purchase Warrant”), in
each case, dated July 16, 2002.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of
Merger to be signed by their respective officers thereunto duly authorized, all
as of the date first written above.

 

PRIME OFFICE COMPANY, LLC

By:

 

/s/    Adnana M. Peters

--------------------------------------------------------------------------------

Name:

 

Adnana M. Peters

Title:

 

Authorized Signatory

PRIME OFFICE MERGER SUB, LLC

By:

 

/s/    Adnana M. Peters

--------------------------------------------------------------------------------

Name:

 

Adnana M. Peters

Title:

 

Authorized Signatory

PRIME OFFICE MERGER SUB I, LLC

By:

 

/s/    Adnana M. Peters

--------------------------------------------------------------------------------

Name:

 

Adnana M. Peters

Title:

 

Authorized Signatory

PRIME GROUP REALTY TRUST

By:

 

/s/    Jeffrey A. Patterson

--------------------------------------------------------------------------------

Name:

 

Jeffrey A. Patterson

Title:

 

President and CEO

PRIME GROUP REALTY, L.P.

By:

 

PRIME GROUP REALTY TRUST

   

Its General Partner

By:

 

/s/    Jeffrey A. Patterson

--------------------------------------------------------------------------------

Name:

 

Jeffrey A. Patterson

Title:

 

President and CEO