Pillarstone Capital REIT (OTCMKTS:PRLE) Files An 8-K Entry into a Material Definitive Agreement

The information under the headings Contribution Agreement, OP Unit
Purchase Agreement and Tax Protection Agreement in Item 2.01 of
this Current Report on Form 8-K is incorporated herein by
reference.

Item 2.01. Completion of Acquisition or Disposition of Assets.

Contribution Agreement

On December 8, 2016, Pillarstone Capital REIT (the Company) and
Pillarstone Capital REIT Operating Partnership LP, a subsidiary and
the operating partnership of the Company (the Operating
Partnership), entered into a Contribution Agreement (the
Contribution Agreement) with Whitestone REIT Operating Partnership,
L.P. (Whitestone OP), a subsidiary and the operating partnership of
Whitestone REIT (Whitestone), to which Whitestone OP contributed to
the Operating Partnership all of the equity interests in four of
its wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a
Delaware limited liability company (CP Woodland); Whitestone
Industrial-Office, LLC, a Texas limited liability company
(Industrial-Office); Whitestone Offices, LLC, a Texas limited
liability company (Whitestone Offices); and Whitestone Uptown
Tower, LLC, a Delaware limited liability company (Uptown Tower, and
together with CP Woodland, Industrial-Office and Whitestone
Offices, the Entities) that own fourteen (14) real estate assets
(the Real Estate Assets and, together with the Entities, the
Property) for aggregate consideration of approximately $84.0
million, consisting of (1) approximately $18.1 million of Class A
units representing limited partnership interests in the Operating
Partnership (OP Units), issued at a price of $1.331 per OP Unit;
and (2) the assumption of approximately $65.9 million of
liabilities by the Operating Partnership, consisting of (a)
approximately $15.4 million of Whitestone OPs liability under that
certain Amended and Restated Credit Agreement, dated as of November
7, 2014, as amended, among the Bank of Montreal, as Administrative
Agent (the Agent), the lenders party thereto, BMO Capital Markets,
Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner Smith
Incorporated, and U.S. Bank, National Association, Whitestone OP,
as borrower, and Whitestone and certain subsidiaries of Whitestone
OP, as guarantors (as amended, the Whitestone Credit Facility); (b)
an approximately $16.45 million promissory note (the Whitestone
Uptown Tower Promissory Note) of Uptown Tower issued under that
certain Loan Agreement, dated as of September 26, 2013, (as
amended, the Whitestone Uptown Tower Loan Agreement and, together
with the Whitestone Uptown Tower Promissory Note, the Whitestone
Uptown Tower Loan Documents) between Uptown Tower, as borrower, and
U.S. Bank National Association, as successor to Morgan Stanley
Mortgage Capital Holdings LLC, as lender, and (c) an approximately
$37.0 million promissory note (the Whitestone Industrial-Office
Promissory Note) of Industrial-Office issued under that certain
Loan Agreement, dated as of November 26, 2013 (the Whitestone
Industrial-Office Loan Agreement and, together with the Whitestone
Industrial-Office Promissory Note, the Whitestone Industrial-Office
Loan Documents), between Industrial-Office, as borrower, and
Jackson National Life Insurance Company, as lender (collectively,
the Acquisition). Following the Acquisition, it is expected that
Whitestone will consolidate the Operating Partnership on its
financial statements due to its significant equity ownership of
approximately 84% of the outstanding equity in the Operating
Partnership immediately following the Acquisition.

to the Contribution Agreement, the Company has agreed to file with
the Securities and Exchange Commission on or prior to June 8, 2018,
a shelf registration statement to register for sale under the
Securities Act of 1933, as amended (the Securities Act), the
issuance of the common shares of beneficial interest in the Company
(the Common Shares) that may be issued upon redemption of the OP
Units issued to each of the Contribution Agreement and the OP Unit
Purchase Agreement (as defined below) and the offer and resale of
such Common Shares by the holders thereof. The Contribution
Agreement contains customary closing conditions and the parties
have made certain customary representations, warranties and
indemnifications to each other in the Contribution Agreement. In
addition, to the Contribution Agreement, in the event of a Change
of Control (as defined therein) of Whitestone, the Operating
Partnership shall have the right, but not the obligation, to
repurchase the OP Units issued thereunder from Whitestone OP at
their initial issue price of $1.331 per OP Unit.

OP Unit Purchase Agreement

In connection with the Acquisition, on December 8, 2016, the
Company and the Operating Partnership entered into an OP Unit
Purchase Agreement (the OP Unit Purchase Agreement) with Whitestone
OP to which the Operating Partnership may require Whitestone OP to
purchase up to an aggregate of $3.0 million of OP Units at a price
of $1.331 per OP Unit over the two-year term of the OP Unit
Purchase Agreement on the terms set forth therein. The OP Unit
Purchase Agreement contains customary closing conditions and the
parties have made certain customary representations, warranties and
indemnifications to each other in the OP Unit Purchase Agreement.
In addition, to the OP Unit Purchase Agreement, in the event of a
Change of Control (as defined therein) of Whitestone, the Operating
Partnership shall have the right, but not the obligation, to
repurchase the OP Units issued thereunder from Whitestone OP at
their initial issue price of $1.331 per OP Unit.

Tax Protection Agreement

In connection with the Acquisition, on December 8, 2016, the
Company and the Operating Partnership entered into a Tax Protection
Agreement (the Tax Protection Agreement) with Whitestone OP to
which the Operating Partnership agreed to indemnify Whitestone OP
for certain tax liabilities resulting from its recognition of
income or gain prior to December 8, 2021 if such liabilities result
from a transaction involving a direct or indirect taxable
disposition of all or a portion of the Property or if the Operating
Partnership fails to maintain and allocate to Whitestone OP for
taxation purposes minimum levels of liabilities as specified in the
Tax Protection Agreement, the result of which causes such
recognition of income or gain and Whitestone incurs taxes that must
be paid to maintain its REIT status for federal tax purposes.

Management Agreements

In connection with the Acquisition, (1) with respect to each Real
Estate Asset (other than the Real Property Asset owned by Uptown
Tower), Whitestone TRS, Inc. (Whitestone TRS), a subsidiary of
Whitestone, entered into a Management Agreement with the Entity
that owns such Real Estate Asset and (2) with respect to Uptown
Tower, Whitestone TRS entered into a Management Agreement with the
Operating Partnership (collectively, the Management Agreements). to
the Management Agreements with respect to each Real Estate Asset
(other than Uptown Tower), Whitestone TRS agreed to provide certain
property management, leasing and day-to-day advisory and
administrative services to such Real Estate Asset in exchange for
(x) a monthly property management fee equal to 5.0% of the monthly
revenues of such Real Estate Asset and (y) a monthly asset
management fee equal to 0.125% of GAV (as defined in each
Management Agreement as, generally, the purchase price of the
respective Real Estate Asset based upon the purchase price
allocations determined to the Contribution Agreement) of such Real
Estate Asset. to the Management Agreement with respect to Uptown
Tower, Whitestone TRS agreed to provide certain property
management, leasing and day-to-day advisory and administrative
services to the Operating Partnership in exchange for (x) a monthly
property management fee equal to 3.0% of the monthly revenues of
Uptown Tower and (y) a monthly asset management fee equal to 0.125%
of GAV of Uptown Tower.

Amended and Restated Agreement of Limited Partnership

In connection with the Acquisition, on December 8, 2016, the
Company, as the general partner of the Operating Partnership,
entered into an Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (as amended and restated,
the Amended and Restated Agreement of Limited Partnership). to the
Amended and Restated Agreement of Limited Partnership, subject to
certain protective rights of the limited partners described below,
the general partner has full, exclusive and complete responsibility
and discretion in the management and control of the Operating
Partnership, including the ability to cause the Operating
Partnership to enter into certain major transactions including a
merger of the Operating Partnership or a sale of substantially all
of the assets of the Operating Partnership. The limited partners
have no power to remove the general partner without the general
partner’s consent. In addition, to the Amended and Restated
Agreement of Limited Partnership, the general partner may not
conduct any business without the consent of a majority of the
limited partners other than in connection with certain actions
described therein.

The Amended and Restated Agreement of Limited Partnership
designates two classes of units of limited partnership interest in
the Operating Partnership: the OP Units and LTIP units. In general,
LTIP units are similar to the OP Units and will receive the same
quarterly per-unit profit distributions as the OP Units. The
rights, privileges, and obligations related to each series of LTIP
units will be established at the time the LTIP units are issued. As
profits interests, LTIP units initially will not have full parity,
on a per-unit basis, with OP Units with respect to liquidating
distributions. Upon the occurrence of specified events, LTIP units
can over time achieve full parity with the OP Units and therefore
accrete to an economic value for the holder equivalent to OP Units.
If such parity is achieved, vested LTIP units may be converted on a
one-for-one basis into OP Units, which in turn are redeemable by
the holder for cash or, at the Companys election, exchangeable for
Common Shares on a one-for-one basis.

Whitestone Credit Facility

In connection with the Acquisition, on December 8, 2016, the
Operating Partnership entered into the Second Amendment to Amended
and Restated Credit Agreement, Joinder and Reaffirmation of
Guaranties (the Second Amendment) with Whitestone OP, Whitestone
and the other Guarantors party thereto, the lenders party thereto
and the Agent. to the Second Amendment, following the Acquisition,
Whitestone Offices and CP Woodland were permitted to remain
Material Subsidiaries (as defined in the Whitestone Credit
Facility) and Guarantors under the Whitestone Credit Facility and
their respective Real Estate Assets were each permitted to remain
an Eligible Property (as defined in the Whitestone Credit Facility)
and be included in the Borrowing Base (as defined in the Whitestone
Credit Facility) under the Whitestone Credit Facility. In addition,
on December 8, 2016, the Operating Partnership entered into the
Limited Guaranty (the Limited Guaranty) with the Agent, to which
the Operating Partnership agreed to be joined as a party to the
Whitestone Credit Facility to provide a limited guarantee of
approximately $15.5 million constituting the amount of availability
generated by the Real Estate Assets owned by Whitestone Offices and
CP Woodland.

The Whitestone Credit Facility is comprised of the following four
tranches:

The Whitestone Credit Facility includes an accordion feature that
will allow Whitestone OP to increase the borrowing capacity to $700
million, upon the satisfaction of certain conditions. As of
September 30, 2016, approximately $391.6 million was drawn on the
Whitestone Credit Facility, and the remaining borrowing capacity
was approximately $108.4 million.

Borrowings under the Whitestone Credit Facility accrue interest (at
Whitestone OPs option) at a Base Rate or an Adjusted LIBOR plus an
applicable margin based upon Whitestones then existing leverage.
The applicable margin for Adjusted LIBOR borrowings ranges from
1.40% to 1.95% for the Revolver and 1.35% to 2.25% for the Term
Loans. Base Rate means the higher of: (a) the Agent’s prime
commercial rate, (b) the sum of (i) the average rate quoted by the
Agent by two or more federal funds brokers selected by the Agent
for sale to the Agent at face value of federal funds in the
secondary market in an amount equal or comparable to the principal
amount for which such rate is being determined, plus (ii) 1/2 of
1.00%, and (c) the LIBOR rate for such day plus 1.00%. Adjusted
LIBOR means LIBOR divided by one minus the Eurodollar Reserve
Percentage. The Eurodollar Reserve Percentage means the maximum
reserve percentage at which reserves are imposed by the Board of
Governors of the Federal Reserve System on eurocurrency
liabilities.

In addition to the limited guarantee of Pillarstone OP to the
Limited Guaranty, Whitestone and certain subsidiaries of Whitestone
OP serve as guarantors for funds borrowed by Whitestone OP under
the Whitestone Credit Facility. The Whitestone Credit Facility
contains customary terms and conditions, including, without
limitation, affirmative and negative covenants such as information
reporting requirements, maximum secured indebtedness to total asset
value, minimum EBITDA (earnings before interest, taxes,
depreciation, amortization or extraordinary items) to fixed
charges, and maintenance of a minimum net worth. The Whitestone
Credit Facility also contains customary events of default with
customary notice and cure, including, without limitation,
nonpayment, breach of covenant, misrepresentation of
representations and warranties in a material respect, cross-default
to other major indebtedness, change of control, bankruptcy and loss
of REIT tax status. The amount available and the ability to borrow
under the Whitestone Credit Facility is subject to Whitestones
compliance with these requirements.

Whitestone Uptown Tower Loan Documents

In connection with Acquisition, on December 8, 2016, the Operating
Partnership assumed Whitestone OPs liability under the Whitestone
Uptown Tower Loan Documents which provide for a fixed interest rate
of 4.97% per annum. Payments commenced on November 1, 2013 and are
due on the first day of each calendar month thereafter through
October 1, 2023. Monthly payments consist of principal and interest
based on a 30-year amortization schedule. The loan may be prepaid,
in full but not in part, after July 1, 2023, upon written notice to
the lender. If the loan is prepaid, in full or in part,
concurrently with or after an event of default, the amount of such
prepayment shall include (1) a prepayment premium equal to the
greater of (i) three percent (3%) of the outstanding principal
balance of the loan at the time of prepayment or (ii) the greater
of (x) one percent (1%) of the outstanding principal balance of the
loan at the time of prepayment and (y) the present value of the
loan at the time of prepayment of all future principal and interest
payments determined at the discount rate set forth in the
Whitestone Uptown Tower Loan Documents.

The loan is a non-recourse loan secured by the Real Estate Asset
owned by Uptown Tower, including its related equipment, fixtures,
personal property and other assets.

The Whitestone Uptown Tower Loan Documents contain customary terms
and conditions, including, without limitation, affirmative and
negative covenants, such as information reporting and insurance
requirements. The Whitestone Uptown Tower Loan Documents also
contain customary events of default, including defaults in the
payment of principal or interest, defaults in compliance with the
covenants and bankruptcy or other insolvency events. Upon the
occurrence of an event of default, the lender is entitled to
accelerate all obligations of the borrower.

Whitestone Industrial-Office Loan Documents

In connection with Acquisition, on December 8, 2016, the Operating
Partnership assumed Whitestone OPs liability under the Whitestone
Industrial-Office Loan Documents which provide for a fixed interest
rate of 3.76% per annum. Payments commenced on January 1, 2014 and
are due on the first day of each calendar month thereafter through
December 1, 2020. Monthly payments consist of principal and
interest based on a 25-year amortization schedule. The loan may be
prepaid, in full but not in part, after November 30, 2015, upon
written notice to the lender and the payment of a prepayment
premium equal to the greater of (i) one percent (1%) of the
outstanding principal balance of the loan at the time of prepayment
or (ii) the present value of the loan at the time of prepayment of
all future principal and interest payments beginning with the next
payment due on the month following the payoff date, including any
balloon payments assuming payment in accordance with the repayment
terms set forth in the Whitestone Industrial-Office Loan Documents.
No prepayment premium is required for prepayments in full made on
or after September 1, 2020.

The loan is a non-recourse loan secured by nine of the Real Estate
Assets owned by Industrial-Office, including their related
equipment, fixtures, personal property and other assets.

The Whitestone Industrial-Office Loan Documents contain customary
terms and conditions, including, without limitation, affirmative
and negative covenants, such as information reporting and insurance
requirements. The Whitestone Industrial-Office Loan Documents also
contain customary events of default, including defaults in the
payment of principal or interest, defaults in compliance with the
covenants and bankruptcy or other insolvency events. Upon the
occurrence of an event of default, the lender is entitled to
accelerate all obligations of the borrower. The lender will also be
entitled to receive the entire unpaid principal balance at a
default rate.

Acquisition

Mr. James C. Mastandrea, the Chairman and Chief Executive Officer
of the Company, also serves as the Chairman and Chief Executive
Officer of Whitestone. Mr. John J. Dee, the Senior Vice President,
Secretary and Chief Financial Officer of the Company, also serves
as the Chief Operating Officer and Corporate Secretary of
Whitestone. In addition, Mr. Daryl J. Carter and Mr. Paul T.
Lambert, Trustees of the Company, also serve as Trustees of
Whitestone. The terms of the Contribution Agreement, the OP Unit
Purchase Agreement, the Tax Protection Agreement, the Management
Agreements, and the Acquisition were determined through arms-length
negotiations. The transactions contemplated by the Contribution
Agreement, the OP Unit Purchase Agreement, the Tax Protection
Agreement and the Management Agreements, including the Acquisition,
were recommended by a special committee of the Board of Trustees of
the Company (the Board), consisting solely of disinterested
trustees, and approved by the full Board. Duff Phelps, LLC rendered
an opinion to the special committee which concluded that, subject
to certain assumptions, qualifications, limitations and other
matters stated therein, the consideration to be paid by the
Operating Partnership to Whitestone OP in connection with the
transactions described in this Item 2.01 taking into account the
transactions as a whole and the entry into the Contribution
Agreement and OP Unit Purchase Agreement, is fair, from a financial
point of view, to the public shareholders of the Company (other
than those officers or trustees of the Company who have interests
in, or are officers and/or board members of Whitestone).

The following table provides the names and locations of the
Property:

The foregoing descriptions of the Contribution Agreement, the OP
Unit Purchase Agreement, the Tax Protection Agreement, the Form of
Management Agreements, the Amended and Restated Agreement of
Limited Partnership, the Second Amendment, the Limited Guaranty,
the Whitestone Uptown Tower Loan Agreement, the Whitestone Uptown
Tower Promissory Note, the Whitestone Industrial-Office Loan
Agreement and the Whitestone Industrial-Office Promissory Note are
not complete and are subject to and qualified in their entirety by
reference to the Contribution Agreement, the OP Unit Purchase
Agreement, the Tax Protection Agreement, the Form of Management
Agreements, the Amended and Restated Agreement of Limited
Partnership, the Second Amendment, the Limited Guaranty, the
Whitestone Uptown Tower Loan Agreement, the Whitestone Uptown Tower
Promissory Note, the Whitestone Industrial-Office Loan Agreement
and the Whitestone Industrial-Office Promissory Note, respectively,
which are attached as Exhibit 10.1, Exhibit 10.2, Exhibit 10.3,
Exhibit 10.4, Exhibit 10.5, Exhibit 10.6, Exhibit 10.7, Exhibit
10.8, Exhibit 10.9, Exhibit 10.10, and Exhibit 10.11, respectively,
to this Current Report on Form 8-K and are incorporated herein by
reference.

Item 2.03. Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of Registrant.

The information in Item 2.01 of this Current Report on Form 8-K
under the heading Contribution Agreement regarding the assumption
by the Operating Partnership of Whitestone OPs liabilities under
the Whitestone Uptown Tower Loan Documents and the Whitestone
Industrial-Office Loan Documents and the assumption of certain of
Whitestone OPs liabilities under the Whitestone Credit Facility and
under the headings Whitestone Uptown Tower Loan Documents,
Whitestone Industrial-Office Loan Documents and Whitestone Credit
Facility is incorporated herein by reference.

Item 3.02 Unregistered Sale of Equity Securities.

The information in Item 2.01 of this Current Report on Form 8-K
under the headings Contribution Agreement and OP Unit Purchase
Agreement is incorporated herein by reference. On December 8, 2016,
the Operating Partnership (1) to the Contribution Agreement, issued
approximately $18.4 million of OP Units to Whitestone OP at a price
of $1.331 per OP Unit and (2) to the OP Unit Purchase Agreement,
agreed to issue up to $3.0 million of OP Units to Whitestone OP at
a price of $1.331 per OP Unit over the two-year term of the OP Unit
Purchase Agreement on the terms set forth therein. The offer and
sale of the OP Units issued to the Contribution Agreement and to be
issued to the OP Unit Purchase Agreement, respectively, was not and
will not be, respectively, registered under the Securities Act in
reliance upon an exemption from registration under Section 4(2)
thereof.

Item 5.03 Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year.

On and effective December 8, 2016, the Board amended and restated
the Companys Second Amended and Restated Bylaws (the Bylaws and, as
amended and restated, the Amended Bylaws).

The following is a brief summary of the material changes effected
by adoption of the Amended Bylaws:

(1)The Amended Bylaws change certain requirements and procedures
for special meetings of shareholders and set forth certain
documentation and procedural requirements for a shareholder seeking
to propose a special meeting.

(2)The Amended Bylaws revise the notice period for a shareholder to
make a trustee nomination or make a shareholder proposal at the
annual meeting of shareholders and add more informational
requirements for shareholder nominees for trustee and other
shareholder proposals at annual or special meetings. For example,
the Amended Bylaws calculate the deadline for shareholder
nominations and/or proposals based on the anniversary of the date
of the prior years proxy statement (rather than the anniversary of
the prior years annual meeting). In addition, in the event the
annual meeting date changes by more than 30 days from the
anniversary of the prior years annual meeting date, the Amended
Bylaws provide that the deadline for shareholder nominations and/or
proposals is no earlier than the 120th day prior to the date of
such annual meeting and not later than 5:00 p.m., Central Time, on
the later of the 90th day prior to the date of such annual meeting
or the 10th day following the day on which public announcement of
the date of such meeting is first made (rather than no earlier than
the 90th day prior to such annual meeting and no later than the
60th day prior to the date of such annual meeting).

(3)The Amended Bylaws provide the qualifications required to
qualify for nomination or election as a trustee of the Company.

(4)The Amended Bylaws provide that, except as otherwise provided by
the Board, shareholders of the Company are not entitled to
certificates evidencing the shares of beneficial interest held by
them (rather than each shareholder being entitled to a certificate
representing such beneficial interests).

(5)The Amended Bylaws provide that dividends and other
distributions may be paid in cash, property, shares of beneficial
interest of the Company, or operating partnership units (rather
than only cash, property and shares of the Company).

In addition, the Amended Bylaws reflect (1) updates to Maryland
REIT and General Corporation Law, (2) changes to conform the Bylaws
to the Companys Amended and Restated Declaration of Trust, and (3)
clarify language and make various technical corrections and
non-substantive changes. These changes include, but are not limited
to:

The foregoing description of the Amended Bylaws is not complete
and is subject to and qualified in its entirety by reference to
the Amended Bylaws which is attached as Exhibit 3.1 to this
Current Report on Form 8-K and is incorporated herein by
reference.

Item 7.01 Regulation FD Disclosure.

On December 8, 2016, the Company issued a press release with regard
to the Acquisition. A copy of the press release is furnished as
Exhibit 99.1 hereto and shall not be deemed filed with the
Securities and Exchange Commission nor incorporated by reference
into any registration statement filed or to be filed by the Company
under the Securities Act.

Forward-Looking Statements

Certain statements contained in this Current Report on Form 8-K
constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act). The Company
intends for all such forward-looking statements to be covered by
the safe-harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act and Section 21E of the
Exchange Act, as applicable. Such information is subject to certain
risks and uncertainties, as well as known and unknown risks, which
could cause actual results to differ materially from those
projected or anticipated. Therefore, such statements are not
intended to be a guarantee of the Companys performance in future
periods. Such forward-looking statements can generally be
identified by the Companys use of forward-looking terminology, such
as may, will, plan, expect, intend, anticipate, believe, continue
or similar words or phrases that are predictions of future events
or trends and which do not relate solely to historical matters, and
include, without limitation, the Companys beliefs and intentions
regarding the performance of the impact of the acquired assets and
other factors detailed in the Company’s most recent Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q and other documents
the Company files with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
Current Report on Form 8-K. The Company cannot guarantee the
accuracy of any such forward-looking statements contained in this
Current Report on Form 8-K, and the Company does not intend to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

Certain required financial statements related to the Acquisition
will be filed by amendment to this Current Report on Form 8-K no
later than 71 days following the date on which this Current Report
on Form 8-K is required to be filed.

(b) Pro Forma Financial Information.

Certain required pro forma financial information related to the
Acquisition will be filed by amendment to this Current Report on
Form 8-K no later than 71 days following the date on which this
Current Report on Form 8-K is required to be filed.

(d) Exhibits.