<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Equity Office Properties Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Equity Office Properties Trust
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
EQUITY OFFICE LOGO
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, MAY 15, 1998
------------------------
Dear Shareholder:
The trustees and officers of EQUITY OFFICE PROPERTIES TRUST (the "Trust")
invite you to attend our 1998 Annual Meeting of Shareholders (the "Meeting")
which will be held on Friday, May 15, 1998, at 10:00 a.m. Central Daylight Time,
at One North Franklin Street, Third Floor, Chicago, Illinois, for the following
purposes:
(1) To elect five (5) members of the Board of Trustees to terms
expiring in 2001;
(2) To approve an amendment to the Trust's Amended and Restated 1997
Share Option and Share Award Plan (the "Employee Plan") which would
increase the maximum number of shares for which Share Awards, Options,
Share Appreciation Rights and Dividend Equivalents may be granted under the
Employee Plan to an amount equal to 6.8% of the outstanding Common Shares
from time to time, calculated on a fully diluted basis, determined annually
on the first day of each calendar year rather than at the time of the
Trust's initial public offering of its Common Shares; and
(3) To transact any other business as may properly come before the
meeting or any adjournment thereof.
Your Board of Trustees recommends a vote for each of the proposals.
Shareholders of record at the close of business on March 16, 1998 are entitled
to vote at the Meeting. Your vote is important. We encourage you to read this
proxy statement and sign and return your proxy card in the enclosed envelope as
soon as possible, so that your shares will be represented at the Meeting. If
necessary, an additional proxy card may be obtained by calling Diane M.
Morefield, Senior Vice President--Finance/Capital Markets of the Trust at
1-800-692-5304.
By Order of the Board of Trustees
/s/ Stanley M. Stevens
Stanley M. Stevens,
Executive Vice President,
Chief Legal Counsel and Secretary
Two North Riverside Plaza
Chicago, Illinois
March 31, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
EXPECT TO ATTEND, PLEASE DATE, SIGN AND COMPLETE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE> 3
EQUITY OFFICE PROPERTIES TRUST
TWO NORTH RIVERSIDE PLAZA
CHICAGO, IL 60606
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Trustees (the "Board") of Equity Office Properties Trust, a
Maryland real estate investment trust (the "Trust"), of proxies to be voted at
the Trust's 1998 Annual Meeting of Shareholders (the "Meeting") to be held on
Friday, May 15, 1998, at 10:00 a.m., Central Daylight Time, and any adjournment
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders. Brokers and other nominees who held common shares of beneficial
interest, $.01 par value per share, of the Trust ("Common Shares") at the close
of business on March 16, 1998, will be asked to contact the beneficial owners of
the Common Shares which they hold.
VOTING PROCEDURES AND COSTS OF PROXY SOLICITATION
This Proxy Statement and accompanying proxy are being mailed to the Trust's
shareholders ("Shareholders") commencing on or about March 31, 1998. The proxy,
if properly executed and returned, will be voted according to your instructions,
unless previously revoked by written notice of revocation delivered to the
Secretary of the Trust, by delivery as aforesaid of a later dated proxy or by
voting in person at the Meeting. The mere presence at the Meeting of a
Shareholder who appointed a proxy does not itself revoke the appointment of such
proxy.
The cost of the solicitation is anticipated to be nominal and will be borne
by the Trust. In addition to solicitation by mail, employees or agents of the
Trust may solicit proxies by telegraph, telephone, telecopy and personal
interviews.
Only Shareholders of record at the close of business on March 16, 1998 (the
"Record Date"), will be entitled to vote at the Meeting. On such date,
250,319,249 Common Shares were outstanding. Each Common Share outstanding on the
Record Date entitles its holder to one vote upon each matter submitted for vote
at the Meeting. The presence in person or by proxy of Shareholders entitled to
cast a majority of all votes entitled to be cast at the Meeting shall constitute
a quorum. Abstentions and broker non-votes are counted for purposes of
determining the presence of a quorum for the transaction of business. If,
however, there is not a quorum at the Meeting, the Shareholders entitled to vote
at the Meeting, whether present in person or represented by proxy, shall only
have the power to adjourn the Meeting until such time as there is a quorum. At
such time as there is a quorum present or represented by proxy, the Meeting will
reconvene without notice to Shareholders, other than an announcement at the
Meeting prior to adjournment, unless the adjournment is for more than 120 days
after the Record Date or a new record date has been set.
If a proxy in the form enclosed is duly executed and returned, the Common
Shares represented thereby will be voted in accordance with the Shareholder's
instructions. If no such specifications are made, the proxy will be voted: (i)
for election of the five nominees for trustee to terms expiring in 2001; (ii)
for an amendment to the Trust's Amended and Restated 1997 Share Option and Share
Award Plan; and (iii) at the discretion of Samuel Zell and Timothy H. Callahan,
the Board's designated representatives for the Meeting, with respect to such
other business as may properly come before the Meeting or any adjournment
thereof.
<PAGE> 4
1997 ANNUAL REPORT
Shareholders are concurrently being furnished with a copy of the Trust's
1997 Annual Report, which contains its audited financial statements at December
31, 1997. Copies of the Trust's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission ("SEC"),
may be obtained without charge by contacting Diane M. Morefield, Senior Vice
President--Finance/Capital Markets of the Trust, at Two North Riverside Plaza,
Chicago, Illinois 60606, 1-800-692-5304.
PROPOSAL 1
ELECTION OF TRUSTEES
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction of
the Board of Trustees, currently consisting of eleven trustees. The Board has
responsibility for establishing broad corporate policies and for the overall
performance of the Trust rather than day-to-day operating details. Members of
the Board are kept informed of the Trust's business by various reports and
documents sent to them each month, as well as by presentations from officers and
employees of the Trust at meetings of the Board and its committees.
The Trust's Articles of Amendment and Restatement of Declaration of Trust
(the "Declaration") provides that the trustees of the Trust shall be divided
into three classes as nearly equal in number as possible, with each class having
a term of three years. The terms of five trustees expire in 1998. The Board has
nominated Samuel Zell, Thomas E. Dobrowski, Jerry M. Reinsdorf, H. Jon Runstad
and Edwin N. Sidman for election to serve as trustees of the Trust until the
2001 annual meeting of Shareholders and until their successors are duly elected
and qualified. Biographical information for each of the nominees is set forth
under the caption "Management." The affirmative vote of Common Shares held of
record by owners of a plurality of the Common Shares present in person or
represented by proxy at the Meeting is required for election of the nominees. An
abstention will have no effect on the outcome of the election of trustees. If
any nominee is unable to serve (which is not anticipated), the persons
designated as representatives will cast votes for the remaining nominees and for
such other person or persons as the Board may recommend. All of the nominees are
presently trustees.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES. PROXIES SOLICITED
BY THE BOARD WILL BE VOTED "FOR" THE NOMINEES UNLESS INSTRUCTIONS TO WITHHOLD OR
TO THE CONTRARY ARE GIVEN.
2
<PAGE> 5
MANAGEMENT
TRUSTEES, EXECUTIVE OFFICERS AND SENIOR OFFICERS
The following table sets forth certain information with respect to the
trustees, executive officers and senior officers of the Trust as of March 31,
1998.
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
---- --- -----------
<S> <C> <C>
Samuel Zell.......................... 56 Chairman of the Board, Trustee (term expires in 1998)
Timothy H. Callahan.................. 47 President, Chief Executive Officer, Trustee
(term expires in 1999)
Michael A. Steele.................... 51 Chief Operating Officer and Executive Vice President
--
Real Estate Operations
Richard D. Kincaid................... 36 Executive Vice President, Chief Financial Officer
Stanley M. Stevens................... 49 Executive Vice President, Chief Legal Counsel and
Secretary
Gary A. Beller....................... 51 Executive Vice President -- Parking Facilities
Jeffrey L. Johnson................... 38 Chief Investment Officer and Senior Vice President --
Investments
David H. Crawford.................... 41 Senior Vice President -- Administration and General
Counsel for Property Operations
Sybil J. Ellis....................... 44 Senior Vice President -- Acquisitions
Frank Frankini....................... 43 Senior Vice President -- Design & Construction
Frances P. Lewis..................... 44 Senior Vice President -- Corporate Communications
Diane M. Morefield................... 39 Senior Vice President -- Finance/Capital Markets
David H. Naus........................ 43 Senior Vice President -- Acquisitions
Michael E. Sheinkop.................. 35 Senior Vice President -- Portfolio Management
Peter D. Johnston.................... 40 Senior Vice President -- Southwest Region
Peter H. Adams....................... 51 Senior Vice President -- Pacific Region
Kim J. Koehn......................... 42 Senior Vice President -- West Region
Christopher P. Mundy................. 36 Senior Vice President -- Northwest Region
Arvid J. Povilaitis.................. 37 Senior Vice President -- Central Region
Mark E. Scully....................... 39 Senior Vice President -- Southeast Region
Sheli Z. Rosenberg................... 56 Trustee (term expires in 2000)
Thomas E. Dobrowski.................. 54 Trustee (term expires in 1998)
James D. Harper, Jr.................. 64 Trustee (term expires in 1999)
Peter Linneman....................... 47 Trustee (term expires in 2000)
Jerry M. Reinsdorf................... 62 Trustee (term expires in 1998)
William M. Goodyear.................. 49 Trustee (term expires in 1999)
David K. McKown...................... 60 Trustee (term expires in 2000)
H. Jon Runstad....................... 56 Trustee (term expires in 1998)
Edwin N. Sidman...................... 55 Trustee (term expires in 1998)
</TABLE>
The following is a biographical summary of the experience of the trustees,
executive officers and senior officers of the Trust. Officers serve at the
pleasure of the Board.
Samuel Zell has been a trustee and Chairman of the Board of the Trust since
October 1996. For more than five years, Mr. Zell has served as Chairman of the
Board of Directors of Equity Group Investments, Inc., an owner, manager and
financier of real estate and corporations ("EGI"). For more than five years, Mr.
Zell has served as Chairman of the Boards of Directors of Anixter International
Inc., a provider of integrated network and cabling solutions ("Anixter"),
American Classic Voyages Co., an owner and operator of cruise lines ("ACV"), and
Manufactured Home Communities, Inc., a real estate investment trust ("REIT")
specializing in the ownership and management of manufactured home communities
("MHC"). Since March 1993, Mr. Zell has served as Chairman of the Board of
Trustees of Equity Residential Properties Trust,
3
<PAGE> 6
a REIT that owns and operates multifamily residential properties ("EQR"). Since
January 1995, Mr. Zell has served as a director of TeleTech Holdings, Inc., a
provider of telephone and computer based customer care solutions. Since April
1996, Mr. Zell has served as a director of Ramco Energy plc, an independent oil
company based in the United Kingdom. Since March 1997, Mr. Zell has served as a
director of Chart House Enterprises, Inc., an owner and operator of restaurants.
Since April 1997, Mr. Zell has served as the Chairman of the Board of Directors
of Jacor Communications, Inc., an owner of radio stations ("Jacor"). Since March
1998, Mr. Zell has served as a director of Fred Meyer, Inc., a large domestic
food retailer and operator of multi-department stores.
Timothy H. Callahan has been a trustee and Chief Executive Officer and
President of the Trust since October 1996. Mr. Callahan served on the Board of
Managers and was the Chief Executive Officer of Equity Office Holdings, L.L.C
("EOH"), and Equity Office Properties, L.L.C., a property manager of office
buildings ("EOP LLC"), from August 1996 until October 1997. Mr. Callahan was
Executive Vice President and Chief Financial Officer of EGI from January 1995
until August 1996, was Executive Vice President of EGI from November 1994
through January 1995 and was Senior Vice President of EGI from July 1992 until
November 1994. Mr. Callahan was a Director of MHC from May 1996 until October
1997. Mr. Callahan was Vice President -- Finance of the Edward J. DeBartolo
Corporation, a developer, owner and operator of shopping centers, in Youngstown,
Ohio, from July 1988 until July 1992. Mr. Callahan was employed by Chemical
Bank, a commercial bank located in New York, New York, from July 1973 until
March 1987.
Michael A. Steele has been Chief Operating Officer and Executive Vice
President -- Real Estate Operations for the Trust since February 1998 and was
Executive Vice President -- Real Estate Operations of the Trust from October
1996 until February 1998. Mr. Steele was President and Chief Operating Officer
of EOP LLC from July 1995 until October 1997. Mr. Steele was Executive Vice
President of EOH from July 1995 until October 1997. Mr. Steele was President and
Chief Operating Officer of Equity Office Properties, Inc., a subsidiary of EGI
which provided real estate property management services ("EOP, Inc."), from
November 1993 through October 1995. Mr. Steele was President and Chief Executive
Officer of First Office Management, a former division of Equity Property
Management, Inc., that provided real estate property management services
("FOM"), from June 1992 until October 1993. Mr. Steele was Senior Vice President
and regional director for Rubloff, Inc., a full service real estate company in
Chicago, Illinois, from April 1987 until June 1992.
Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of the Trust since March 1997 and was Senior Vice President and Chief
Financial Officer of the Trust from October 1996 until March 1997. Mr. Kincaid
was Senior Vice President and Chief Financial Officer of EOH from July 1995
until October 1997. Mr. Kincaid was Senior Vice President of EGI from February
1995 until July 1995. Mr. Kincaid was Senior Vice President of the Yarmouth
Group, a real estate investment company in New York, New York, from August 1994
until February 1995. Mr. Kincaid was Senior Vice President --Finance for EGI
from December 1993 until July 1994. Mr. Kincaid was Vice President --Finance for
EGI from August 1990 until December 1993. Mr. Kincaid was Vice President for
Barclays Bank PLC, a commercial bank located in Chicago, Illinois, from August
1987 until August 1990.
Stanley M. Stevens has been Executive Vice President, Chief Legal Counsel
and Secretary of the Trust since October 1996. Mr. Stevens was Executive Vice
President and General Counsel of EOH from September 1996 until October 1997. Mr.
Stevens was a vice president of Rosenberg & Liebentritt, P.C., a law firm in
Chicago, Illinois, from December 1993 until September 1996. Mr. Stevens was a
partner at Rudnick & Wolfe, a national law firm based in Chicago, Illinois, from
October 1987 until December 1993.
Gary A. Beller has been Executive Vice President of the Trust since March
1997. Mr. Beller has been President of Equity Capital Holdings L.L.C., the
general partner of Equity Capital Holdings, L.P., an asset manager of parking
facilities, since August 1997. Mr. Beller has been President of Equity Hotel
Properties, Inc., a subsidiary of EGI which manages hotels, since November 1993.
Mr. Beller was Senior Vice President --Redevelopment of Equity Assets
Management, Inc., a former subsidiary of EGI which provided real estate asset
management services ("EAM") from October 1987 until March 1997.
4
<PAGE> 7
Jeffrey L. Johnson has been Chief Investment Officer and Senior Vice
President --Investments for the Trust since February 1998 and was Senior Vice
President --Investments for the Trust from October 1996 until February 1998. Mr.
Johnson was Senior Vice President --Asset Management for EOH from July 1996
until October 1997. Mr. Johnson was Senior Vice President --Acquisitions for EOH
from July 1995 until July 1996. Mr. Johnson was Senior Vice
President --Acquisitions of EOP, Inc. from December 1994 until July 1995 and was
Vice President --Acquisitions of EOP, Inc. from November 1993 until December
1994. Mr. Johnson was Vice President --Acquisitions of EAM from September 1990
until October 1993. Mr. Johnson was an Investor and Asset Manager for Aldrich
Eastman Waltch, Inc., a real estate advisor in Boston, Massachusetts, from
August 1987 until August 1990. Mr. Johnson was Senior Project Manager in the
real estate investment group for First Wachovia, Inc., a commercial bank in
Winston-Salem, North Carolina, from July 1983 until August 1987.
David H. Crawford has been Senior Vice President --Administration and
General Counsel for Property Operations of the Trust since March 1997. Mr.
Crawford was Senior Vice President and Associate General Counsel of EOH from
September 1996 until October 1997. Mr. Crawford was Senior Vice President and
General Counsel of EOH from July 1995 until September 1996 and of EOP LLC from
September 1996 until July 1997. Mr. Crawford was Of Counsel to Rosenberg &
Liebentritt, P.C. from February 1991 until December 1996. Mr. Crawford was
Senior Vice President and General Counsel of EOP, Inc. from November 1993 until
July 1995. Mr. Crawford was Vice President and General Counsel of FOM from
February 1991 until November 1993. Mr. Crawford was an associate at Kirkland &
Ellis, a national law firm based in Chicago, Illinois, from June 1988 until
February 1991.
Sybil J. Ellis has been Senior Vice President --Acquisitions of the Trust
since March 1997. Ms. Ellis was Senior Vice President --Acquisitions of EOH from
July 1995 until October 1997. Ms. Ellis was Senior Vice President --Acquisitions
of EOP, Inc. from July 1994 through July 1995 and was Vice President --
Acquisitions of EOP, Inc. from November 1993 until July 1994. Ms. Ellis was Vice
President --Acquisitions of EAM from March 1990 until October 1993.
Frank Frankini has been Senior Vice President -- Design and Construction of
the Trust since March 1997. Mr. Frankini was Senior Vice President -- Design and
Construction of EOP LLC from July 1995 until October 1997. Mr. Frankini was
Senior Vice President -- Engineering and Operations of EOP, Inc. from November
1993 until July 1995. Mr. Frankini was Senior Vice President -- Engineering and
Operations of FOM from October 1990 until October 1993. Mr. Frankini was
National Director of Engineering and Operations for Rubloff, Inc., a full
service real estate company in Chicago, Illinois, from October 1984 until
October 1990.
Frances P. Lewis has been Senior Vice President -- Corporate Communications
of the Trust since April 1997. Ms. Lewis was Vice President -- Corporate
Communications of EGI from November 1994 until April 1997. Ms. Lewis was Vice
President -- Publications of EGI from September 1988 until October 1994.
Diane M. Morefield has been Senior Vice President -- Finance/Capital
Markets of the Trust since July 1997. Ms. Morefield was Senior Manager in the
Corporate Finance practice of Deloitte & Touche, a public accounting and
consulting firm, from November 1994 until July 1997. Ms. Morefield was Executive
Vice President of the Fordham Company, a real estate development company located
in Chicago, Illinois, from November 1993 until November 1994. Ms. Morefield was
Team Leader for the Real Estate Group division, in the Midwest, of Barclays Bank
PLC, from August 1983 until November 1993.
David H. Naus has been Senior Vice President -- Acquisitions of the Trust
since March 1997. Mr. Naus was Senior Vice President -- Acquisitions for EOH
from December 1995 until October 1997. Mr. Naus was Vice
President -- Acquisitions of EOH from July 1995 until December 1995. Mr. Naus
was Vice President -- Acquisitions of EOP, Inc. from November 1993 until July
1995. Mr. Naus was Vice President -- Acquisitions of EAM from November 1992
until November 1993. Mr. Naus was Vice President of EAM from October 1988 until
November 1992.
5
<PAGE> 8
Michael E. Sheinkop has been Senior Vice President -- Portfolio Management
of the Trust since November 1997. Mr. Sheinkop was Senior Vice
President -- Divisional Manager of EOH from March 1997 until October 1997 and
for the Trust from March 1997 through December 1997. Mr. Sheinkop was Senior
Vice President -- Asset Management of EOH from December 1995 until February
1997. Mr. Sheinkop was Vice President -- Asset Management of EOH from July 1995
until December 1995. Mr. Sheinkop was Vice President -- Asset Management of EOP,
Inc. from November 1993 until July 1995. Mr. Sheinkop was Vice President of EAM
from March 1990 until November 1993.
Peter H. Adams has been Senior Vice President -- Pacific Region of the
Trust since March 1998 and was Regional Vice President -- Pacific Region of the
Trust from March 1997 until February 1998. Mr. Adams was Vice President -- Group
Manager of EOH from July 1994 until March 1997. Mr. Adams was President of Adams
Equities, a private real estate consulting firm, from 1990 to 1994.
Peter D. Johnston has been Senior Vice President -- Southwest Region of the
Trust since March 1998 and was Regional Vice President -- Southwest Region from
January 1998 until February 1998. Mr. Johnston was Senior Vice
President -- National Accounts from April 1993 until February 1998.
Kim J. Koehn has been Senior Vice President -- West Region of the Trust
since March 1998 and was Regional Vice President -- West Region from March 1997
until February 1998 and was also Regional Vice President -- Southwest Region
from March 1997 until December 1997. Mr. Koehn was Senior Vice President
-- Asset Management of EOH from December 1995 to February 1997. Mr. Koehn was a
Vice President of EOH from June 1993 until December 1995.
Christopher P. Mundy has been Senior Vice President -- Northeast Region of
the Trust since March 1998, and was Regional Vice President -- Northeast Region
from July 1997 until February 1998. Mr. Mundy was Regional Director -- Leasing
of EOH from November 1991 until July 1997.
Arvid A. Povilaitis has been Senior Vice President -- Central Region of the
Trust since March 1998 and was Regional Vice President -- Central Region from
March 1997 until February 1998. Mr. Povilaitis was Vice President -- Asset
Management of EOH from August 1994 until February 1997. Mr. Povilaitis was Vice
President -- Investment Properties of Strategic Realty Advisors, Inc., a real
estate and advisory company, from January 1994 until August 1994. Mr. Povilaitis
was employed at VMS Realty Partners, a sponsor of public and private real estate
limited partnerships, from January 1983 until January 1994, most recently
serving as Second Vice President.
Mark E. Scully has been Senior Vice President -- Southeast Region of the
Trust since March 1998 and was Regional Vice President for the Southeast Region
from March 1997 until February 1998. Mr. Scully was Vice President -- Regional
Leasing Director of EOH from January 1995 until February 1997. Mr. Scully was
Regional Leasing Director or EOH from September 1991 until December 1994.
Sheli Z. Rosenberg has been a trustee of the Trust since March 1997. Since
November 1994, Ms. Rosenberg has been Chief Executive Officer and President of
EGI. From 1980 until September 1997, Ms. Rosenberg was a principal of the law
firm of Rosenberg & Liebentritt, P.C. For more than five years, Ms. Rosenberg
has served on the Board of Directors of each of the following companies: EGI,
AVC, and Anixter. Since March 1993, Ms. Rosenberg has been a trustee of EQR.
Since 1994, Ms. Rosenberg has been a director of Jacor and since April 1997, has
served as the Vice Chairman of the Board of Directors of Jacor. Ms. Rosenberg
was a vice president of First Capital Benefit Administrators, Inc., a wholly
owned indirect subsidiary of Great American Management and Investment, Inc.,
("FCBA") which filed a Chapter 7 Bankruptcy petition on January 3, 1995,
resulting in FCBA's liquidation. On November 15, 1995, an order closing the FCBA
bankruptcy case was entered by the Bankruptcy Court for the Central District of
California. Since August 1986, Ms. Rosenberg has been a director of MHC. Since
April 1997, Ms. Rosenberg has been a director of Illinois Power Co., a supplier
of electricity and natural gas in Illinois, the holding company of which is
Illinova Corp., of which Ms. Rosenberg is also a director. Since May 1997, Ms.
Rosenberg has been a director of CVS Corporation, a drugstore chain.
Thomas E. Dobrowski has been a trustee of the Trust since July 1997. Since
December 1994, Mr. Dobrowski has been the managing director of real estate and
alternative investments of General Motors
6
<PAGE> 9
Investment Management Corporation ("GMIMCO"), an investment advisor to several
pension funds of General Motors Corporation ("GM") and its subsidiaries and to
several other clients also controlled by GM. Since March 1993, Mr. Dobrowski has
been a director of MHC. Since April 1994, Mr. Dobrowski has been a director of
Red Roof Inns, Inc., an owner and operator of hotels. Since May 1997, Mr.
Dobrowski has been a director of Taubman Centers Inc., an equity REIT focused on
regional shopping centers.
James D. Harper, Jr. has been a trustee of the Trust since July 1997. Since
1982, Mr. Harper has been president of JDH Realty Co., a real estate development
and investment company. Since 1988, he has been a co-managing partner in AH
Development, S.E. and AH HA Investments, S.E., special limited partnerships
formed to develop over 400 acres of land in Puerto Rico. Since May 1993, Mr.
Harper has been a trustee of EQR. Since 1993, Mr. Harper has been a trustee of
Urban Land Institute. Since 1997, Mr. Harper has been a director of Burnham
Pacific Properties Inc., a REIT that owns, develops and manages commercial real
estate properties in California. Since June 1997, Mr. Harper has been a director
of American Health Properties, Inc., a REIT specializing in health care
facilities.
Peter Linneman has been a trustee of the Trust since July 1997. Dr.
Linneman has been a Professor of Finance and Public Policy at the Wharton School
of the University of Pennsylvania since 1979, the Albert Sussman Professor of
Real Estate at the Wharton School since 1989 and a director of the Wharton Real
Estate Center since 1986. In addition, he is an Urban Land Institute Research
Fellow and a member of the National Association of Real Estate Investment
Trusts. Since 1986, Dr. Linneman has been a trustee of Universal Health Realty
Trust, a REIT that invests in health care and human service related facilities.
Since 1992, Dr. Linneman has been a trustee of Kranzco Realty Trust, a REIT that
owns, develops, operates, leases, manages, and invests in neighborhood and
community shopping centers and free-standing properties. From 1993 until 1997,
Dr. Linneman was a trustee of Gables Residential Properties Trust, a
self-administered, self-managed residential property REIT. Since 1996, Dr.
Linneman has served as a director of Nevada Investment Holdings, a full service
real estate company which focuses on community shopping centers. From 1993 until
1996, Dr. Linneman was Chairman of the Board of Directors of Rockefeller Center
Properties, Inc., a REIT which previously held the first mortgage loan relating
to Rockefeller Center in New York City.
Jerry M. Reinsdorf has been a trustee of the Trust since July 1997. For
more than five years, Mr. Reinsdorf has been the Chairman of the Chicago White
Sox baseball team, the Chairman of the Chicago Bulls basketball team, and a
partner of Bojer Financial Ltd., a real estate investment company located in
Northbrook, Illinois. Since 1996, Mr. Reinsdorf has served as a director of
LaSalle National Bank, N.A., a commercial bank in Chicago, Illinois, the holding
company of which is LaSalle National Corporation, of which Mr. Reinsdorf is also
a director. Since 1993, Mr. Reinsdorf has been a trustee of Northwestern
University in Evanston, Illinois. Mr. Reinsdorf is a stockholder, officer and
director of Jerbo Holdings I, Inc. ("Jerbo") which is the corporate general
partner of a limited partnership which is the general partner of Bojer Realty
Limited Partnership-I ("Bojer Realty"). Bojer Realty was a limited partner of
Smith Dairy Partnership, Ltd. ("Smith Dairy") and a stockholder of the corporate
general partner of Smith Dairy which filed a voluntary petition for relief under
Chapter 11 Bankruptcy on January 24, 1994. On February 14, 1995, an order
dismissing the Smith Dairy bankruptcy case was entered by the Bankruptcy Court
for the Southern District of Florida.
William M. Goodyear has been a trustee of the Trust since July 1997. Since
July 1997, Mr. Goodyear has been Chairman of Bank of America, Illinois, the
Midwest business development unit of BankAmerica Corporation, a commercial bank.
Mr. Goodyear was Chairman and Chief Executive Officer of Bank of America
Illinois, a subsidiary of BankAmerica Corporation, from September 1994 until
June 1997, at which time it merged with Bank of America NT & SA, a subsidiary of
BankAmerica Corporation. For more than two years prior to September 1994, Mr.
Goodyear was a Vice Chairman and a member of the Board of Directors of
Continental Bank Corporation, the parent company of Continental Bank, N.A., a
commercial bank which merged into Bank of America Illinois in September 1994.
Since June 1992, Mr. Goodyear has been a member of the Board of Trustees of the
Museum of Science and Industry in Chicago, Illinois. Mr. Goodyear has been a
member of the Board of Trustees of the University of Notre Dame since May 1996
and of Rush-Presbyterian St. Lukes Medical Center in Chicago, Illinois, since
June 1996. Mr. Goodyear has
7
<PAGE> 10
been a member of the Advisory Council for the University of Chicago Graduate
School of Business since September 1995.
David K. McKown has been a trustee of the Trust since July 1997. Since
1993, Mr. McKown has been Group Executive of the Diversified Finance and Real
Estate Lending Unit of BankBoston, N.A., a commercial bank. Mr. McKown was
director of Loan Review for BankBoston, N.A. from 1990 until 1993. Mr. McKown
serves as a Director of Electrolux Corporation.
H. Jon Runstad was appointed a trustee of the Trust effective January 1,
1998, pursuant to a Right to Purchase Agreement dated as of December 16, 1997,
executed in connection with the Wright Runstad Acquisition (as defined below).
Since 1971, Mr. Runstad has been President and Chief Executive Officer of Wright
Runstad & Company, a Seattle, Washington based owner, manager and developer of
office buildings in the western United States, primarily in the Pacific
Northwest. Since 1987, Mr. Runstad has served as a member of the Board of
Regents for the University of Washington. Since July 1975, Mr. Runstad has
served as a trustee for the Downtown Seattle Association.
Edwin N. Sidman was appointed a trustee of the Trust effective March 1,
1998, pursuant to the Agreement and Plan of Merger dated September 15, 1997, as
amended, pursuant to which Beacon Properties Corporation ("Beacon") merged with
and into the Trust (the "Beacon Merger"). Mr. Sidman served as Chairman of the
Board and a director of Beacon from 1994 until the consummation of the Beacon
Merger in December 1997. He is currently the managing partner of The Beacon
Companies, a private company involved in real estate investment, development and
management. Prior to joining Beacon in 1971, Mr. Sidman practiced law with the
predecessor to the firm of Rubin and Rudman in Boston. Mr. Sidman's professional
affiliations include service as Senior Vice Chairman of the National Realty
Committee. Mr. Sidman is a member of the Board of Trustees of Duke University
and a member of the Board of Directors and Executive Committee for the United
Way of Massachusetts Bay.
MEETINGS AND COMMITTEES OF THE EOP BOARD OF TRUSTEES
MEETINGS. During the year ended December 31, 1997, the Board of Trustees
held nine meetings. Each of the trustees who were trustees during 1997 attended
over 75% of the total number of meetings of the Board and of its committees
which they were eligible to attend, except for Mr. Reinsdorf who attended
approximately 66% of the meetings of the Board. There are three standing
committees of the Board: the Executive Committee, the Compensation Committee and
the Audit Committee, which are described below.
EXECUTIVE COMMITTEE. The members of the Executive Committee are Messrs.
Zell, Callahan and Linneman. The Executive Committee has the authority within
certain parameters to acquire, dispose of and finance investments for the Trust
(including the issuance by EOP Operating Limited Partnership (the "Operating
Partnership") of additional interests of partnership interest in the Operating
Partnership ("Units") or other equity interests up to $50 million in any one
transaction, or up to $75 million in a series of transactions) and approve the
execution of contracts and agreements, including those related to the borrowing
of money by the Trust, and generally to exercise all other powers of the Board
of Trustees except as prohibited by law. The Executive Committee did not hold
any meetings in 1997.
COMPENSATION COMMITTEE. The members of the Compensation Committee, none of
whom is either an officer or employee of the Trust, are Ms. Rosenberg and
Messrs. Harper and McKown. Mr. Harper is the Chairman of the Compensation
Committee. The Compensation Committee determines compensation for the Trust's
executive officers. The Compensation Committee reviews and makes recommendations
concerning proposals by management with respect to compensation, bonuses,
employment agreements and other benefits and policies respecting such matters
for the executive officers of the Trust. The Compensation Committee held four
meetings in 1997.
AUDIT COMMITTEE. The members of the Audit Committee, none of whom is
either an officer or employee of the Trust, are Messrs. Dobrowski, Goodyear and
Reinsdorf. Mr. Goodyear is the Chairman of the Audit Committee. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit
8
<PAGE> 11
engagement, approves professional services provided by the independent public
accountants, reviews the independence of the independent public accountants,
considers the range of audit and nonaudit fees and reviews the adequacy of the
Trust's (and the Operating Partnership's) internal accounting controls. The
Audit Committee held two meetings in 1997.
The Trust does not have a nominating committee.
COMPENSATION OF THE BOARD OF TRUSTEES; PAYMENT IN COMMON SHARES
The Trust paid each of its non-employee trustees a pro rated fee in 1997 of
$20,000. For the full year of 1998, the Trust expects to pay each of its
non-employee trustees an annual fee of $40,000. In addition, non-employee
trustees who serve on the Executive Committee, Compensation Committee or Audit
Committee receive an additional $1,000 per annum for each committee on which
they serve. Committee chairs receive an additional $500 per annum. These fees
have been and generally are expected to be paid in Common Shares. Trustees who
are employees of the Trust are not paid any trustees' or committee fees. The
Trust reimburses its trustees for travel expenses incurred in connection with
their activities on behalf of the Trust.
Upon the effective date of the Trust's initial public offering in July 1997
(the "IPO"), Mr. Zell and Ms. Rosenberg received grants of options to purchase
200,000 and 50,000 Common Shares, respectively, at $21.00 per share, which
options will vest in three equal annual installments (rounded to the nearest
whole Common Share) over three years. After the IPO, each trustee (other than
Messrs. Zell and Callahan and Ms. Rosenberg) received a grant of options to
purchase 10,000 Common Shares at the IPO price. Under the Trust's 1997 Employee
Share Option and Share Award Plan (the "Employee Plan"), each trustee then in
office (including Messrs. Zell and Callahan and Ms. Rosenberg for the years
after 1997) will receive an annual grant of options to purchase 10,000 Common
Shares at the then current market price on the date of the meeting of the Board
of Trustees held immediately after the annual meeting of the Trust's
Shareholders. These grants of options to purchase 10,000 Common Shares will vest
as follows: options for 3,333 Common Shares will vest six months after the grant
date, options for an additional 3,333 Common Shares will vest on the first
anniversary of the grant date, and options for the remaining 3,334 Common Shares
will vest on the second anniversary of the grant date. Trustees who perform
other functions for the Trust may receive additional options under the Employee
Plan.
On February 17, 1998, the Compensation Committee granted fully vested
options to purchase 500,000 Common Shares to Mr. Zell, 94,500 Common Shares to
each of Ms. Rosenberg and Mr. Harper and 47,250 Common Shares to each of Messrs.
Dobrowski, Linneman, Reinsdorf, Goodyear and McKown, at an exercise price of
$29.50 per share.
9
<PAGE> 12
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 1998, information regarding
the beneficial ownership of the Trust's Common Shares by each trustee of the
Trust, the Trust's five most highly compensated executive officers at year end,
and by the trustees and named executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF COMMON PERCENTAGE OF ALL COMMON
SHARES AND UNITS ALL COMMON SHARES AND
NAME BENEFICIALLY OWNED(1) SHARES(1)(2) UNITS(1)
- ---- --------------------- ------------- -------------
<S> <C> <C> <C>
Samuel Zell(3)................................... 8,388,014 3.27% 3.00%
Timothy H. Callahan(4)........................... 514,109 * *
Michael A. Steele................................ 51,886 * *
Richard D. Kincaid............................... 49,702 * *
Stanley M. Stevens(5)............................ 350,255 * *
Jeffrey L. Johnson............................... 12,995 * *
Sheli Z. Rosenberg(6)............................ 8,050,059 3.14 2.88
Thomas E. Dobrowski.............................. 50,583 * *
James D. Harper, Jr.............................. 98,466 * *
Peter Linneman................................... 53,933 * *
Jerry M. Reinsdorf............................... 54,209 * *
William M. Goodyear.............................. 54,224 * *
David K. McKown.................................. 54,221 * *
H. Jon Runstad(7)................................ 4,348,945 1.71 1.56
Edwin N. Sidman(8)............................... 1,199,899 * *
All trustees and named executive officers as a
group (15 persons)............................. 14,795,193 5.66% 5.30%
</TABLE>
- ---------------
* Less than 1%.
(1) The number of Common Shares beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial ownership
of securities. The percentage of Common Shares beneficially owned by a
person assumes that all Units and/or warrants to purchase Common Shares
("Warrants") held by the person are exchanged for Common Shares, that none
of the Units and/or Warrants held by other persons are so exchanged, that
all options or Warrants exercisable within sixty days of March 1, 1998 to
acquire Common Shares held by the person are exercised and that no options
or Warrants to acquire Common Shares held by other persons are exercised.
(2) Assumes a total of 279,321,945 Common Shares and Units outstanding as of
March 1, 1998 (250,317,249 Common Shares and 29,004,696 Units). Assumes that
all outstanding Units are redeemed for Common Shares.
(3) Includes 7,886,675 Common Shares (assuming exchange of 6,048,130 Units) held
by ZML Partners Limited Partnership II, ZML Partners Limited Partnership III
and/or ZML Partners Limited Partnership IV (collectively the "ZML Partners
II, III and IV"), ZFT Partnership, EGI Holdings, Inc., EGIL Investments,
Inc., Samstock/ZFT, L.L.C., Samstock/SZRT, L.L.C., and Samstock/Alpha,
L.L.C., which may be deemed to be beneficially owned by Mr. Zell; however,
Mr. Zell disclaims beneficial ownership of 3,983,493 Common Shares,
including Units exchangeable for Common Shares.
(4) Includes 324,816 Common Shares held by the ZML Partners II, III and IV,
which may be deemed to be beneficially owned by Mr. Callahan as he is a
director and/or executive officer of the ultimate general partners of such
entities; however, Mr. Callahan disclaims beneficial ownership of 309,433 of
such Common Shares.
(5) Includes 324,816 Common Shares held by the ZML Partners II, III and IV,
which may be deemed to be beneficially owned by Mr. Stevens as he is a
director, and/or executive officer of the ultimate general
10
<PAGE> 13
partners of such entities; however, Mr. Stevens disclaims beneficial
ownership of 322,968 of such Common Shares, including Units exchangeable
for Common Shares.
(6) Includes 7,886,675 Common Shares (assuming exchange of 6,048,130 Units) held
by the ZML Partners II, III and IV, ZFT Partnership, EGI Holdings, Inc.,
EGIL Investments, Inc., Samstock/ZFT, L.L.C., Samstock/SZRT, L.L.C., and
Samstock/Alpha, L.L.C., which may be deemed to be beneficially owned by Ms.
Rosenberg as she is a director, and/or executive officer of the ultimate
general partners of such entities, or a director, and/or executive officer
of such entities; however, Ms. Rosenberg disclaims beneficial ownership of
7,886,675 of such Common Shares, including Units exchangeable for Common
Shares.
(7) Includes 4,265,700 Common Shares (assuming exchange of 2,615,700 Units and
exercise of 1,650,000 Warrants to purchase Common Shares) held by Wright
Runstad Asset Management L.P. and Wright Runstad Holdings L.P., which may be
deemed to be beneficially owned by Mr. Runstad.
(8) Includes 898,697 Common Shares (assuming exchange of 652,718 Units) held by
The Leventhal Family Limited Partnership (the "Partnership"). Paula Sidman,
Mr. Sidman's spouse, is a general partner of the Partnership. Mrs. Sidman
disclaims beneficial ownership of the Common Shares and Units beneficially
owned by the Partnership except for the Common Shares and the Units in which
she has a pecuniary interest.
11
<PAGE> 14
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to persons who are
known by the Trust to be the beneficial owner of more than 5% of the Trust's
outstanding Common Shares as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF ALL
COMMON SHARES COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) SHARES(1)
- ------------------------------------ --------------------- -----------------
<S> <C> <C>
FMR Corp.(2)............................................... 14,091,933 5.64%
82 Devonshire Street
Boston, MA 02109
State Street Bank & Trust Co., as trustee(3)............... 14,480,472 5.79%
Master Trust Dept.
Solomon Willard Bldg., W5C
One Enterprise Drive
North Quincy, MA 02171
</TABLE>
- ---------------
(1) The number of Common Shares beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial ownership
of securities.
(2) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1997, FMR
Corp. ("FMR"), may have direct or indirect voting and/or investment
discretion over these Common Shares which are held for the benefit of its
clients by its separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates. FMR is reporting
the combined holdings of the entities for the purpose of administrative
convenience.
(3) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1997,
State Street Bank & Trust Co. ("State Street"), may have direct or indirect
voting and/or investment discretion over these Common Shares which are held
for the benefit of its clients by its separate accounts, externally managed
accounts, registered investment companies, subsidiaries and/or other
affiliates. State Street is reporting the combined holdings of the entities
for the purpose of administrative convenience.
12
<PAGE> 15
EXECUTIVE COMPENSATION
The following tables show information with respect to the annual
compensation (including option grants) for services rendered to the Trust for
the fiscal year ended December 31, 1997, by the chief executive officer and
those persons who were, at December 31, 1997, the other four most highly
compensated executive officers of the Trust.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------- -----------------------------------
AWARDS PAYOUTS
----------------------- ---------
SECURITIES
RESTRICTED UNDERLYING LONG-TERM
SHARE OPTIONS INCENTIVE ALL OTHER
SALARY BONUS AWARD(S) GRANTED PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($) ($)(5)
--------------------------- ---- -------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy H. Callahan,.............. 1997 $600,000 $1,050,000 4,976,875 450,000 0 $9,600
President and Chief Executive
Officer
Michael A. Steele,................ 1997 265,000 525,000 1,523,375 250,000 0 9,600
Chief Operating Officer and
Executive Vice President - Real
Estate Operations
Richard D. Kincaid,............... 1997 235,000 465,000 1,523,375 250,000 0 9,600
Executive Vice President and Chief
Financial Officer
Stanley M. Stevens,............... 1997 325,000 375,000 627,000 225,000 0 9,600
Executive Vice President and Chief
Legal Counsel
Jeffrey L. Johnson,............... 1997 225,000 275,000 330,000 183,500 0 9,600
Senior Vice President and Chief
Investment Officer
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of these
officers.
(2) Cash bonuses are reported in the year earned, even if paid in a subsequent
year.
(3) On September 22, 1997 and December 16, 1997, the Compensation Committee of
the Board of Trustees granted restricted shares to certain of the Trust's
executive officers pursuant to the Employee Plan. Mr. Callahan was granted
awards of 85,000 and 70,000 Common Shares, respectively, and Mr. Steele and
Mr. Kincaid were each granted awards of 17,000 and 30,000 Common Shares,
respectively. In addition, on December 16, 1997, the Compensation Committee
of the Board of Trustees granted Mr. Stevens an award of 19,000 Common
Shares and Mr. Johnson an award of 10,000 Common Shares. These awards will
vest over a five-year period after being granted (50% after year three, 25%
after year four, and 25% after year five). The dollar value shown in the
table for the restricted Common Shares is based on the closing prices of the
Common Shares on September 22, 1997 and December 16, 1997, the dates of
grant. This valuation does not take into account the diminution in value
attributable to the restrictions applicable to the Common Shares. The total
number of restricted Common Shares held by each named executive officer and
the value of such restricted shares at December 31, 1997, the last trading
day of the year, was as follows:
13
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF VALUE AT
RESTRICTED DECEMBER 31,
NAME COMMON SHARES 1997 ($)
---- ------------- ------------
<S> <C> <C>
Timothy H. Callahan.................................... 155,000 $4,892,188
Michael A. Steele...................................... 47,000 1,483,438
Richard D. Kincaid..................................... 47,000 1,483,438
Stanley M. Stevens..................................... 19,000 599,688
Jeffrey L. Johnson..................................... 10,000 315,625
</TABLE>
Distributions are paid on all restricted Common Shares at the same rate as
on unrestricted Common Shares.
(4) Securities underlying options are reported in the year granted.
(5) Includes employer matching and profit-sharing contributions to the Trust's
401(k) Retirement Savings Plan.
14
<PAGE> 17
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL RATES OF
NUMBER OF GRANTED TO COMMON SHARE PRICE
SECURITIES EMPLOYEES EXERCISE APPRECIATION FOR OPTION
UNDERLYING AND TRUSTEES PRICE PER TERM(1)
OPTIONS IN FISCAL COMMON -------------------------
NAME GRANTED(2) YEAR SHARE(3) EXPIRATION DATE 5%(4) 10%(5)
- ---- ---------- ------------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Timothy H. Callahan....... 200,000 9.6% $21.00 July 7, 2007 $2,642,000 $ 6,694,000
250,000 33.00 December 16, 2007 5,187,500 13,147,500
Michael A. Steele......... 150,000 5.3 21.00 July 7, 2007 1,981,500 5,020,500
100,000 33.00 December 16, 2007 2,075,000 5,259,000
Richard D. Kincaid........ 150,000 5.3 21.00 July 7, 2007 1,981,500 5,020,500
100,000 33.00 December 16, 2007 2,075,000 5,259,000
Stanley M. Stevens........ 150,000 4.8 21.00 July 7, 2007 1,981,500 5,020,500
75,000 33.00 December 16, 2007 1,556,250 3,944,250
Jeffrey L. Johnson........ 125,000 3.9 21.00 July 7, 2007 1,651,250 4,183,750
58,500 33.00 December 16, 2007 1,213,875 3,076,515
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, these amounts are the hypothetical
gains or "option spreads" that would exist for the respective options based
on assumed rates of annual compound share price appreciation of 5% and 10%
from the date the options were granted over the full option term. No gain to
the optionee is possible without an increase in the price of Common Shares,
which would benefit all Shareholders.
(2) All options were granted at the fair market value of the Common Shares at
the date of grant. Options granted are for a term of not more than ten years
from the date of grant and vest in three equal annual installments (rounded
to the nearest whole Common Share) over three years.
(3) The exercise price for the initial grant of options on July 7, 1997 was
based on the IPO price. The exercise price for the grant of options on
December 16, 1997 was the closing price of the Common Shares on the date of
grant.
(4) An annual compound share price appreciation of 5% from the IPO price of
$21.00 and the December 16, 1997 closing price of $33.00 per Common Share
yields a price of $34.21 and $53.75 per Common Share, respectively.
(5) An annual compound share price appreciation of 10% from the IPO price of
$21.00 and the December 16, 1997 closing price of $33.00 per Common Share
yields a price of $54.47 and $85.59 per Common Share, respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
- ---- ---------------------- -----------------------
<S> <C> <C>
Timothy H. Callahan................................. 0/450,000 0/2,112,500
Michael A. Steele................................... 0/250,000 0/1,584,375
Richard D. Kincaid.................................. 0/250,000 0/1,584,375
Stanley M. Stevens.................................. 0/225,000 0/1,584,375
Jeffrey L. Johnson.................................. 0/183,500 0/1,320,313
</TABLE>
- ---------------
(1) Represents the market value of a Common Share at December 31, 1997
($31.5625) less the exercise price of in-the-money options.
15
<PAGE> 18
Notwithstanding anything to the contrary set forth in any of the Trust's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), that might incorporate future
filings, including this Proxy Statement, in whole or in part, the Compensation
Committee Report on Executive Compensation presented below and the Performance
Graph following such report shall not be incorporated by reference into any such
future filings.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board consists of the independent
trustees of the Trust listed below. The Committee's functions include the review
and approval of the Trust's executive compensation structure and overall
benefits program. The purpose of the Trust's executive compensation program is
to establish and maintain a performance and achievement oriented environment
throughout the Trust so that the interests of its executives are aligned with
the interests of the Trust's Shareholders. The program emphasizes the
development of the Trust so as to achieve and sustain above average growth in
earnings with excellence in management. With this emphasis in mind, the program
is designed so that executives may earn higher than average total compensation
(base salary plus bonus) for an above-average job performance. At the end of
1997, the Trust engaged the services of an independent consulting firm, FPL
Associates Consulting, to advise the Trust as to the appropriate methods and
amounts of compensation for its executive officers. The Trust's overall
compensation structure is reviewed annually, using outside executive
compensation surveys of the (i) real estate industry in general; (ii) REITs in
particular; and (iii) other large profitable corporations outside the real
estate area, to ensure that it remains competitive. There are four major
components of executive compensation: (i) base salary; (ii) bonuses; (iii)
performance based shares; and (iv) share option awards. Each of these components
is further discussed below.
Base Salary. Positions are classified within the salary structure on the
basis of assigned responsibilities and on an evaluation of the latest survey
information available, as to appropriate compensation levels. The Trust has
established a range of earnings opportunities for each position within the
Trust. The mid-point of the salary range will be dependent upon the market value
of the position responsibilities and the value that the Trust determines is
appropriate to reinforce the achievement of its goals and objectives. Each
salary range has three defined points of reference: (i) minimum or the lowest
salary to be paid to a qualified incumbent; (ii) mid-point or the middle
position of the salary range established with reference to the market value and
objectives of the Trust; and (iii) maximum or the highest amount to be paid to
an incumbent in this position. Where salary information is unavailable for a
particular position, salary grade assigned is based on other positions having
similar responsibilities within the Trust and in companies with comparable
revenues. Individual base salaries are reviewed at least annually. Salary
increases are granted based on each executive's performance as well as such
executive's position in the applicable salary range.
Bonus. The objectives underlying the Trust's bonus program are to motivate
all employees by more closely linking bonus awards to value added for the
Trust's Shareholders, and promote a culture of performance and ownership among
the Trust's managers. Executive officers' mid-term incentives are accomplished
by tying the executive officers' performance to the continued performance of the
Trust. The Trust accomplishes this by awarding the Chief Executive Officer and
each other executive officer some of his or her bonus, as determined by the
Compensation Committee, in Common Shares. The Compensation Committee believes
that having its executive officers "invest" a portion of their bonuses in Common
Shares facilitates better alignment of the executive officer's compensation with
the performance of the Trust's Common Shares.
Performance Management Plan. The Performance Management Plan is designed
to focus the Trust's key employees eligible under this plan on achieving a high
level of total return (i.e., share appreciation and distributions) to the
Trust's Shareholders, and to encourage such key employees to continue their
employment with the Trust. The Performance Management Plan recognizes three
aspects of performance which are corporate, team and individual. Corporate
refers to the overall Trust's performance measures and is the primary dimension
utilized to determine executive and senior management incentive awards. Team
refers to
16
<PAGE> 19
key functional or departmental performance measures. This dimension is utilized
to link individuals to the performance of their collective work group or
assigned geographic territory, and is intended to foster cooperation within the
Trust. Individual performance refers to specific performance measures developed
for each individual participant in the plan. This dimension is intended to
motivate individuals to achieve a high level of individual success and personal
contribution. As a general rule, the more senior positions have their annual
incentives weighted more heavily toward the achievement of corporate and team
performance. Performance levels for each performance measure are identified that
correspond to a threshold, target and maximum performance level. Threshold
performance signifies a solid achievement but falls short of objectives. This
performance level must be achieved before any bonus is earned. Target
performance signifies achievement which meets the business objectives set by the
Trust. High performance signifies a significant achievement and would be
considered exceptional performance by industry standards.
Share Options. The Compensation Committee recognizes that while the bonus
program provides rewards for positive short-term and mid-term performance, the
interests of Shareholders are best served by giving key employees the
opportunity to participate in the appreciation of the Trust's Common Shares
through the granting of share options. The Compensation Committee believes that,
over an extended period of time, share performance will, to a meaningful extent,
reflect executive performance and that such arrangements further reinforce
management goals and incentives to achieve Shareholder objectives. All employee
share options granted to date vest over a period of three years at a rate of one
third of such grant each year, thereby encouraging the retention of key
employees who receive awards. The amount of share options awarded each employee
was determined utilizing the aforementioned employee compensation surveys, an
assessment of the employee's achieved performance goals and objectives and the
size of previous grants made to the employee.
Chief Executive Officer's Compensation. Based on the executive
compensation surveys and the Trust's financial performance in 1997, the
Compensation Committee believes that the salary, bonus, performance shares and
option grants of Mr. Callahan, the Chief Executive Officer and President of the
Trust, are fair and competitive and that the Trust's overall executive
compensation ranks in the upper quartile among the general real estate industry
and among REITs. This ranking correlates with the excellent financial
performance of the Trust in 1997 when compared against that of other REITs. The
Trust accomplished its main goals in 1997 by increasing its net income and funds
from operations per Common Share, strengthening its balance sheet and
diversifying its portfolio across the United States, which provides stability in
cash flows and insulation against regional economic downturns. During Mr.
Callahan's tenure as Chief Executive Officer and President, the Trust has become
the largest REIT owner and operator of office buildings. The key performance
measure the Compensation Committee used to determine Mr. Callahan's 1997
compensation was that the Trust's financial performance in 1997 was in the top
quartile in almost every financial category as compared to other REITs, due in
large part to Mr. Callahan's leadership, foresight and experience. The
Compensation Committee noted the following factors in support of its conclusion:
- Distributions per Common Share of $1.20 on an annualized basis;
- Continued superior return to the Trust's common Shareholders as the
price of the Trust's Common Shares appreciated 52.89% during 1997;
- Strong financial performance, with a $115.8 million increase in funds
from operations over 1996 and a total market capitalization of $13.3
billion at December 31, 1997; and
- Continued growth in the square footage of owned office buildings from
29.2 million in 1996 to 65.3 million in 1997, a 124% increase.
Based on the Trust's excellent performance in 1997, the Compensation
Committee believes that the compensation program properly rewards its employees
for achieving improvements in the Trust's performance and serving the interests
of its Shareholders.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a Federal income tax deduction for compensation in
excess of $1 million paid in any year to the Trust's Chief Executive Officer and
four other highest paid executive officers who are employed by the Trust on the
last day of a taxable year. Section 162(m), however, does allow a deduction for
payments of "performance based"
17
<PAGE> 20
compensation which includes most share option and other incentive arrangements,
the material terms of which have been approved by Shareholders. Awards under the
Trust's Employee Plan may, but need not, satisfy the requirements of Section
162(m). Options under the Employee Plan that have an exercise price equal to
grant date fair market value and that vest based solely on continued employment
qualify as "performance-based compensation." However, options and other awards
under the Employee Plan that are conditioned on achievement of performance
targets do not qualify as performance-based compensation, because Shareholders
have not been asked to vote on those targets. The Trust believes that because it
qualifies as a REIT under the Code and therefore is not subject to Federal
income taxes, the payment of compensation that does not satisfy the requirements
of Section 162(m) would not have an adverse financial consequence to the Trust,
provided the Trust distributes 100% of its taxable income.
Respectfully submitted,
James D. Harper, Jr., Chairman
Sheli Z. Rosenberg
David K. McKown
18
<PAGE> 21
PERFORMANCE GRAPH
The following share price performance graph compares Shareholders' return
on the Trust's Common Shares since July 11, 1997, the date of commencement of
the Trust's IPO, with the Standard and Poors ("S&P") 500 Stock Index and the
index of equity REITs prepared by the National Association of Real Estate
Investment Trusts ("NAREIT"). The Common Share price performance graph assumes
an investment of $100 in each of the Trust and the two indices on July 11, 1997
and the reinvestment of all distributions. Equity REITs are defined as those
companies which derive more than 75% of their income from equity investments in
real estate assets. The NAREIT equity index includes all tax qualified REITs
listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
Stock Market. Common Share price performance presented for the period from July
11, 1997 through December 31, 1997 is not necessarily indicative of future
results.
COMPARISON OF CUMULATIVE TOTAL RETURN*
LOGO
<TABLE>
<CAPTION>
JULY 1997 DEC. 1997
--------- ---------
<S> <C> <C>
TRUST................................................ $100.00 $152.89
S&P 500 Stock Index.................................. 100.00 110.58
NAREIT Equity Index.................................. 100.00 110.36
</TABLE>
19
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Compensation Committee members are Messrs. Harper and McKown and Ms.
Rosenberg.
Mr. Zell and Ms. Rosenberg serve as members of the board of directors of
EGI, as well as numerous other non-public companies owned in whole or in part by
Mr. Zell or his affiliates (the "Equity Group Companies"), which companies do
not have compensation committees. Ms. Rosenberg is the President and Chief
Executive Officer of EGI and, with respect to the Equity Group Companies, the
directors and executive officers of those companies include Mr. Zell and Ms.
Rosenberg.
For a description of certain transactions with Board members or their
affiliates, see "Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION TRANSACTIONS
BACKGROUND. The Trust was formed pursuant to the consolidation (the
"Consolidation") in July 1997 of the ownership of the Properties (as defined
below) owned by the four Zell/Merrill Lynch institutional real estate investment
funds (each a "ZML Fund" and collectively, the "ZML Funds") and the office
property management business of EOH and the office property asset management
business and the parking asset management business of EGI and EOH relating to
the Properties that were contributed to the Trust in the Consolidation (the
"Management Business") owned by the Equity Group (as defined below). The ZML
Funds were formed during the period from 1988 to 1996 to acquire, improve, own,
manage, operate and dispose of primarily office properties.
Each ZML Fund consisted of (i) a limited partnership organized under the
laws of the State of Illinois (each a "ZML Opportunity Partnership"), (ii) a
general partner of such ZML Opportunity Partnership (each a "ZML Partner") which
was controlled by Mr. Zell and in which Merrill Lynch & Co. ("Merrill Lynch")
was a limited partner and (iii) a Delaware corporation or Maryland real estate
investment trust (each a "ZML REIT"), as the case may be, that served as the
majority limited partner in ZML Opportunity Partnerships I and II and the sole
limited partner in ZML Opportunity Partnerships III and IV. There were several
institutional investor limited partners in ZML Opportunity Partnerships I and II
(collectively, "Investor Limited Partners") in addition to ZML REITs I and II.
All of the Investor Limited Partners were given an opportunity to convert their
interest into an interest in the corresponding ZML REIT in connection with the
Consolidation (which interests were subsequently converted into Common Shares as
described below), and all but one Investor Limited Partner (in ZML Opportunity
Partnership II) elected to do so.
CONSOLIDATION. In advance of or simultaneous with the IPO, the Trust
engaged in the transactions described below, which were designed to consolidate
the ownership of the office properties (the "Office Properties") owned by the
Trust or in which the Trust had an interest, the stand-alone parking facilities
owned by the Trust (the "Parking Facilities" and together with the Office
Properties, the "Properties") and the Management Business, to facilitate the IPO
and to enable the Trust to qualify as a REIT for federal income tax purposes
commencing with the taxable year ending December 31, 1997.
The ZML Opportunity Partnerships, the predecessor owners of the Office
Properties and Parking Facilities that comprised the Trust's initial
portfolio, contributed to the Operating Partnership all of their interests
in such Office Properties and Parking Facilities.
The ZML REITs (each a majority or sole limited partner of a ZML
Opportunity Partnership) merged into the Trust, with the Trust succeeding
to their interest in, and also becoming the managing general partner of,
the ZML Opportunity Partnerships.
Certain entities (collectively, the "Equity Group") owned directly or
indirectly by certain trusts (together with certain partnerships comprised
of such trusts, the "Equity Group Owners") established for
20
<PAGE> 23
the benefit of the families of Mr. Zell and of Mr. Robert Lurie, the
deceased former partner of Mr. Zell, contributed to the Operating
Partnership substantially all of the interests in the Management Business.
Shareholders in the ZML REITs received Common Shares in exchange for
their interests in the ZML REITs.
Partners in the ZML Opportunity Partnerships (including the Trust as
the successor to the ZML REITs) received Units (to be distributed over the
two-year period ending July 11, 1999). Such Units are intended to
correspond in value to, and be exchangeable commencing two years following
the closing of the IPO for, Common Shares or, at the Trust's option, cash
equal to the fair market value of such Common Shares.
Units in the Operating Partnership were issued to the Equity Group in
exchange for the Management Business, which Units will be exchangeable for
Common Shares, or, at the Trust's option, the cash equivalent thereof,
commencing one year following the closing of the IPO.
The Management Business made a distribution to the Equity Group Owners
of cash on hand from pre-closing operations, which funds were not acquired
by the Trust pursuant to the Consolidation. Affiliates of Mr. Zell received
approximately $11.4 million of such distribution.
The Operating Partnership and EOH transferred that portion of the
Management Business that relates to property management of the properties
in which the Operating Partnership does not own an interest and the
Properties which are held in partnerships or subject to participation
agreements with unaffiliated third parties to Equity Office Properties
Management Corp. ("EOP Management Corp."), in which the Operating
Partnership now owns nonvoting stock representing 95% of the equity
interest and EOH owns all of the voting stock, representing 5% of the
equity interest.
LEASES AND PARKING OPERATIONS
The Trust leases office space owned by Two North Riverside Plaza Joint
Venture, a partnership comprised of trusts established for the benefit of the
families of Mr. Zell and Mr. Lurie, at Two North Riverside Plaza, Chicago,
Illinois 60606. In addition, EGI, an entity owned by the Equity Group Owners,
and its affiliates has in the past provided the Trust and its predecessors with
certain administrative, office facility services and other services with respect
to certain aspects of the Trust's business, including, but not limited to,
financial and accounting services, tax services, investor relations, and other
services. The Trust paid approximately $12,786,000 and $12,684,700 during the
years ended December 31, 1996 and 1997, respectively, to EGI and its affiliates
for such office space and services, which amounts were calculated to approximate
a market rental rate for the office space and the actual cost of providing these
services. The independent members of the Board of Trustees annually review and
approve the rates charged by EGI for services rendered to the Trust.
EQR and certain other affiliates of the Trust lease space in certain of the
Office Properties. The terms of the leases are consistent with terms of
unaffiliated tenants' leases. Total rents and other amounts paid by affiliates
under their respective leases were approximately $2,959,600, $3,471,500 and
$2,657,500 for the years ended December 31, 1997, 1996 and 1995, respectively.
SZ Parking Limited Partnership, an affiliate of the Equity Group Owners,
has an indirect 10% limited partnership interest in Standard Parking Limited
Partnership ("SPLP") which manages the parking operations of certain Office
Properties. Management believes amounts paid to SPLP are equivalent to market
rates for such services.
The Trust entered into various lease agreements with SPLP or affiliates of
SPLP whereby SPLP or its affiliates lease certain Parking Facilities from the
Trust. Certain of these lease agreements provide SPLP or its affiliates with
annual successive options to extend the term of the lease through various dates.
The rent paid in the years ended December 31, 1997, 1996 and 1995 under these
lease agreements was approximately $11,044,500, $3,161,500 and $1,691,600,
respectively. In accordance with certain of these leases, the Trust
21
<PAGE> 24
may be obligated to make an early termination payment if agreement is not
reached as to rent amounts to be paid.
EQUITY GROUP DISTRIBUTIONS AND FEES
The partners of the ZML Partners, affiliates of the Equity Group Owners,
have received distributions and fees from the Trust through their ownership
interests in the ZML Partners of approximately $30,322,500 and $8,603,600 for
the years ended December 31, 1997 and 1996, respectively.
WRIGHT RUNSTAD ACQUISITION
In connection with the acquisition of ten Office Properties from Wright
Runstad Holdings L.P.; Wright Runstad Asset Management, L.P. and Mellon Bank,
N.A., as Trustee for First Plaza Group Trust ("First Plaza") (the "Wright
Runstad Acquisition"), H. Jon Runstad was elected as a trustee of the Trust
effective January 1, 1998. Mr. Runstad received, directly and indirectly,
552,968 Units in exchange for his interest in the ten Office Properties and
Wright Runstad Asset Limited Partnership. Also, Thomas E. Dobrowski, a trustee
of the Trust, is the managing director of real estate and alternative
investments of GMIMCO, an investment advisor to several pension funds of GM and
its subsidiaries and to several clients also controlled by GM, including First
Plaza, which received $192.4 million in cash, 3,435,688 Common Shares and
warrants to purchase 3,350,000 Common Shares in exchange for First Plaza's
interest in the Office Properties acquired in the Wright Runstad Acquisition.
MISCELLANEOUS
In March 1997, the general partners of ZML Opportunity Partnerships I and
II made certain payments to the Internal Revenue Service ("IRS") in connection
with closing agreements pursuant to which the IRS agreed that neither ZML REIT I
nor ZML REIT II would be disqualified as a REIT as a result of certain technical
violations of the REIT provisions of the Code. The amounts of such payments were
$15,000 and $5,270,000, respectively, for ZML REITs I and II.
EOP Management Company has entered into third-party management contracts,
on terms equivalent to third-party transactions, with respect to properties not
owned by the Trust, but that are owned or controlled by the Equity Group. Income
recognized for similar services rendered for the years ended December 31, 1997,
1996, and 1995, was approximately $4,949,600, $5,120,000, and $5,899,000,
respectively.
Rosenberg & Liebentritt, P.C., a law firm in which Ms. Rosenberg, a
trustee, was a principal until September 11, 1997, received legal fees from the
Trust of $3,005,700, $3,480,500 and $3,230,100 for the years ended December 31,
1997, 1996 and 1995, respectively.
Certain services for the Trust's tenants that may not be permissibly
undertaken by a REIT are conducted through a service corporation owned entirely
by affiliates of the Equity Group Owners. The Trust pays such service
corporation a fee for such services. The Trust has no control over, or ownership
interest in, such service corporation, which operates as an independent
contractor. The Trust may terminate such services at any time upon 30-days'
notice.
22
<PAGE> 25
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE TRUST'S
AMENDED AND RESTATED 1997 SHARE OPTION AND SHARE AWARD PLAN
The Trust seeks Shareholder approval of an amendment to the Trust's Amended
and Restated 1997 Share Option and Share Award Plan which increases the maximum
number of Common Shares authorized to be awarded under the Trust's Employee Plan
from 6.8% of the outstanding Common Shares, on a fully diluted basis, on the
date of the closing of the IPO of the Trust's Common Shares to an amount equal
to 6.8% of the outstanding Common Shares from time to time, calculated on a
fully diluted basis, determined as of the first day of each calendar year. The
Board approved the amendment to the Employee Plan on March 30, 1998 as set forth
in Exhibit A attached to this Proxy Statement and recommended that it be
submitted to the Shareholders of the Trust for approval.
The Employee Plan provides a means whereby the Trust may award Common
Shares, grants of share options to purchase Common Shares, share appreciation
rights, (in tandem with or independent of Options) and/or dividend equivalent
rights with respect to Common Shares, to certain key employees, officers,
trustees, directors, and consultants of the Trust and its subsidiaries who are
and will be responsible for the Trust's future growth and continued success. The
number of persons who are currently participants under the Employee Plan is
approximately 1,491. It is not possible to estimate the number of additional
persons who will become eligible to participate in the Employee Plan. The Board
believes that as the total number of outstanding Common Shares increases, it is
advisable to have additional Common Shares available for future issuance in
connection with employee share incentive programs.
At December 31, 1997, there were 6,020,231 remaining Common Shares
available for issuance under the Employee Plan. On March 20, 1997, the closing
price of the Common Shares was $29.875 per share. The purpose of amending the
Employee Plan is to increase the number of Common Shares eligible for issuance
thereunder on a yearly basis determined as of the first day of each calendar
year. The proposed amendment to the Employee Plan will not otherwise result in
any new plan benefits to the Trust's trustees, executive officers or other
employees.
It is not possible to determine the maximum benefits (other than pursuant
to limits on the number of Common Shares that may be granted in the aggregate or
to any person) that will be granted to any person in 1998 under the Employee
Plan or what benefits or amount would have been received by any person.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
A grantee will not recognize any taxable income at the time a nonqualified
share option ("NQSO") is granted. Upon the exercise of the NQSO, the grantee
will recognize ordinary income equal to the excess of the fair market value of
the shares received on the exercise over the option price.
The Trust is not entitled to a tax deduction at the time an NQSO is
granted; however, the Trust is entitled to a deduction equal to the grantee's
taxable income at the time the grantee recognized the income. The Trust will
withhold from the grantee taxes due, as the Trust determines are required.
The amendment to the Employee Plan shall not take effect until approved by
the holders of a majority of the Common Shares present, or represented, and
entitled to vote at the Meeting. Abstentions will have the same effect as votes
against the approval of the Employee Plan. Broker non-votes will not be counted
as Common Shares entitled to vote on the matter and will have no effect on the
vote.
THE BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE EMPLOYEE PLAN.
PROXIES SOLICITED BY THE BOARD WILL BE VOTED "FOR" THE EMPLOYEE PLAN UNLESS
INSTRUCTIONS TO WITHHOLD OR TO THE CONTRARY ARE GIVEN.
23
<PAGE> 26
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Trust to report, based on
its review of reports to the SEC about transactions in its Common Shares
furnished to the Trust and written representations of its trustees, executive
officers and 10% Common Shareholders, that for 1997:
Mr. Linneman filed a Form 4 late to report the acquisition of 24 Common
Shares.
AUDITORS
The Board has engaged Ernst & Young, L.L.P. ("Ernst & Young") to serve as
the Trust's auditors for the fiscal year ending December 31, 1998. Ernst & Young
was first engaged to serve as the Trust's auditors for the fiscal year ending
December 31, 1997. Representatives of Ernst & Young are expected to be available
at the Meeting. Such representatives will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS FOR THE 1999 MEETING
Shareholder proposals intended to be presented at the 1999 annual meeting
of Shareholders must be received by the Secretary of the Trust no later than
November 27, 1998, in order to be considered for inclusion in the Trust's Proxy
Statement relating to the 1999 meeting.
OTHER MATTERS
The Board knows of no other matters to be presented for Shareholder action
at the Meeting. If any other matters are properly presented at the Meeting for
action, it is intended that the persons named in the proxies will vote upon such
matters in accordance with their best judgment.
By Order of the Board of Trustees
Stanley M. Stevens,
Executive Vice President,
Chief Legal Counsel and Secretary
Chicago, Illinois
March 31, 1998
24
<PAGE> 27
EXHIBIT A
PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED 1997 SHARE OPTION AND SHARE AWARD PLAN
RESOLVED, that the first sentence of Paragraph 4 of the Equity Office
Properties Trust Amended and Restated 1997 Share Option and Share Award Plan is
hereby amended to read in its entirety as follows:
4. Shares Subject to the Plan. Subject to the provisions of paragraph 13,
the maximum number of Shares for which Share Awards, Options, SARs and Dividend
Equivalents may be granted under the Plan shall equal 6.8% of the outstanding
Shares from time to time, calculated on a fully diluted basis, determined
annually on the first day of each calendar year.
25
<PAGE> 28
DETACH HERE
PROXY
EQUITY OFFICE PROPERTIES TRUST
TWO NORTH RIVERSIDE PLAZA, SUITE 2200, CHICAGO, ILLINOIS 60608
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 15, 1998
The undersigned shareholder of Equity Office Properties Trust, a Maryland
real estate investment trust (the "Trust"), hereby appoints TIMOTHY H. CALLAHAN
and SAMUEL ZELL, or either of them (the "Representatives"), with full power
of substitution, as proxies for the undersigned to represent the undersigned
at the Annual Meeting of Shareholders of the Trust to be held in Chicago,
Illinois, on May 15, 1998, and any adjournment thereof (the "Annual Meeting"),
and to vote all Common Shares of the Trust which the undersigned may be
entitled to vote at the Annual Meeting. The undersigned hereby acknowledges
receipt of the Notice of the Annual Meeting of Shareholders and of the
accompanying Proxy Statement and revokes any proxy heretofore given with respect
to such Common Shares.
You are encouraged to specify your choices by marking the appropriate
boxes ON THE REVERSE SIDE. If you do not mark any boxes, your proxy will be
voted in accordance with the Board of Trustees' recommendations. The
Representatives cannot vote your shares unless you sign and return this card.
Note: If you plan to attend the Annual Meeting in person, please let us
know by marking the enclosed proxy card in the space provided.
- ------------- -------------
|SEE REVERSE| CONTINUED AND TO BE SIGNED ON REVERSE SIDE |SEE REVERSE|
| SIDE | | SIDE |
- ------------- -------------
<PAGE> 29
DETACH HERE
Please mark
[X] votes as in
this example.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, the Proxy will
be voted FOR the election as trustees of the five nominees to terms expiring
in 2001 and FOR items 2-3 and otherwise in the discretion of the proxy holders.
1. Authority to vote for the election as trustees of the five nominees listed
below to terms expiring in 2001:
Samuel Zell, Thomas E. Dobrowski, Jerry M. Reinsdorf, H. Jon Runstad, Edwin
N. Sidman
FOR [ ] WITHHELD [ ] MARK HERE [ ]
ALL FROM ALL IF YOU PLAN TO
NOMINEES NOMINEES ATTEND THE
MEETING
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE BELOW
[ ] ___________________________________________
For all nominees except as noted above
2. Authority to vote for the approval of the amendment to the Amended and
Restated 1997 Share Option and Share Award Plan (the "Employee Plan")
increasing the maximum number of shares for which Share Awards, Options,
Share Appreciation Rights and Dividend Equivalents may be granted under
the Employee Plan to an amount equal to 6.8% of the outstanding Common
Shares from time to time, calculated on a fully diluted basis, determined
annually on the first day of each calendar year.
3. In their discretion, the Representatives are authorized to vote
upon such other matters as may properly come before the meeting.
MARK HERE TO DISCONTINUE EXTRA ANNUAL REPORT. [ ]
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title under signature.
Signature: Date:
------------------ -------------
<PAGE> 1
EXHIBIT 99.1
EQUITY OFFICE PROPERTIES TRUST
1997 SHARE OPTION AND SHARE AWARD PLAN
(AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SECTION Page
- -------------------------------------------------------------------------------
<S> <C> <C>
1. Purposes............................................................ 1
2. Administration...................................................... 1
3. Participation....................................................... 1
4. Shares Subject to the Plan.......................................... 3
5. Share Awards........................................................ 3
6. Share Options....................................................... 4
7. Share Appreciation Rights........................................... 6
8. Dividend Equivalents................................................ 8
9. Withholding......................................................... 9
10. Compliance with Applicable Laws and Policies........................ 9
11. Transferability..................................................... 9
12. Service and Shareholder Status...................................... 10
13. Adjustments to Number of Shares Subject to the Plan and to Terms of
Options, SARs and Dividend Equivalents.............................. 10
14. Agreement with Company.............................................. 10
15. Term of Plan........................................................ 10
16. Amendment and Termination of Plan................................... 10
17. Headings, References and Construction............................... 11
</TABLE>
<PAGE> 3
EQUITY OFFICE PROPERTIES TRUST
1997 SHARE OPTION AND SHARE AWARD PLAN
1. Purposes. The Equity Office Properties Trust 1997 Share Option and
Share Award Plan (the "Plan") was established by Equity Office Properties
Trust, a Maryland real estate investment trust (the "Company"), to secure for
the Company and its shareholders the benefits arising from capital ownership by
those key employees, officers, trustees and consultants of the Company and its
Related Companies who are and will be responsible for its future growth and
continued success. (The Plan is hereby amended and restated to further
accomplish those objectives.) The term "Related Company" means Equity Office
Properties Management Corp. and each other company determined by the Board (as
defined below) from time to time and set forth on Exhibit A hereto, as it may
be amended.
The Plan will provide a means whereby such individuals may receive: (a)
authorized common shares of beneficial interest of the Company ("Shares"),
subject to conditions and restrictions described herein and otherwise
determined by the Committee (as defined below) ("Share Awards"); (b) options to
purchase Shares ("Options"); (c) Share Appreciation Rights ("SARs") in tandem
with or independent of Options; or (d) dividend equivalent rights with respect
to Shares ("Dividend Equivalents").
2. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in a Committee (the "Committee")
consisting of two or more members of the Board of Trustees of the Company (the
"Board"), each of whom is a "disinterested person" as such term is defined in
Section 16b-3(c)(2)(i) of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934 (the "Act") (and, in addition, with respect
to any grant of an Option or SAR, or the determination of conditions and
restrictions intended to make the grant or award subject thereto constitute
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Internal Revenue Code, as amended ("Code"), such grant, award or
determination is made by a Committee consisting of two or more "outside
directors" as such term is defined in Treasury Regulation Section
1.162-27(e)(3)), who shall be appointed, and may be removed, by such Board.
Any interpretation of the Plan by the Committee and any decision made by the
Committee on any other matter within its discretion is final and binding on all
persons. No member of the Committee shall be liable for any action or
determination made with respect to the Plan.
3. Participation.
(a) Generally. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate from time to time the key employees,
officers, trustees and consultants of the Company and its Related Companies to
whom Share Awards, Options, SARs or Dividend Equivalents are to be granted
("Grantees" and individually, a "Grantee"), the terms of such grants and the
number of Shares subject to such grants. Notwithstanding the foregoing, the
maximum number of Shares with respect to which Options and SARs may be granted
during any calendar year to any Grantee is 1,000,000 Shares.
<PAGE> 4
(b) Board of Trustees.
(i) Each member of the Board shall automatically receive the following
awards under the Plan:
(A) if he or she is a member of the Board on the tenth (10th) day
after the Company's initial public offering of Shares, an Option to purchase
10,000 Shares at the per Share initial public offering price; and
(B) on each annual meeting date thereafter on which he or she is
a member of the Board, an Option to purchase 10,000 Shares (prorated for
partial service if such member has not served for the entire year preceding
such meeting) at a price equal to the Fair Market Value (as defined in
paragraph 6(b)) of Shares.
(ii) Board and Committee fees paid to each Trustee shall, unless the
Committee otherwise determines, be payable in Share Awards issued under the
Plan having a Grant Value (as defined in subparagraph (d) below) as of the date
the fees are payable equal to the amount of such fees. A Trustee who is not
otherwise a Grantee shall become a Grantee on the first date on which the
Trustee is awarded an Option or a Share Award pursuant to this subparagraph
(b). Trustees may, in addition to Share Awards and Options awarded under this
subparagraph (b), also be awarded Share Awards, Options, SARs and Dividend
Equivalents under paragraph 3(a).
(c) Annual Incentive Bonus Plan. As of a date (the "Bonus Date") selected
by the Committee that is not less than 30 days before or after the date on
which a cash distribution (a "Bonus") is earned by an individual under the
Company's annual incentive bonus plan (the "Bonus Plan"), the Committee may, in
its discretion, elect to pay all or a portion of such Bonus in the form of a
Share Award, Option or SAR having an aggregate Grant Value, determined as of
the Bonus Date, equal to the cash amount of the Grantee's Bonus being so
replaced (the "Award Portion"). All awards made under this subparagraph (c)
shall be governed by paragraphs 5, 6 or 7 hereof, as applicable. If approved
by the Committee, each individual who participates in the Bonus Plan and who
receives a Share Award under this subparagraph (c) will be given an opportunity
to elect, in accordance with procedures established by the Committee, to have
all or a portion of his Bonus in excess of the Award Portion paid in the form
of a Share Award so as to increase the total Award Portion. Such opportunity
provided under this subparagraph (c) is subject to compliance with all
applicable federal and state securities laws.
(d) Value. For all purposes of the Plan:
(i) the "Grant Value" of grants made pursuant to paragraph 3(b) or 3(c)
shall equal (A) for a Share Award, the Fair Market Value of a Share (as defined
below) as of the date of grant, (B) for an Option or SAR (1) if the Company has
complied with the disclosure requirements described in Item 402(c) of
Regulation S-K under the Act by disclosing the present value of options under
the Black-Scholes or binomial option pricing model or another valuation method
(any of the foregoing constituting a "Valuation Method"), the value of such
Option or SAR calculated based on the Valuation Method and assumptions
contained in the most recent document used by the Company to satisfy those
requirements; or (2) if the Company has not so disclosed the present value of
Options, then "Grant Value" shall, at the election of the Committee either be
calculated using a Valuation Method and assumptions that
- 2 -
<PAGE> 5
would satisfy such requirements, or shall equal the difference between the Fair
Market Value of a Share as of the date of grant and the exercise or base price
of the Option or SAR, times the number of Shares subject to the Option or SAR;
and
(ii) except as provided in paragraph 6(b), the "Fair Market Value"
of a Share shall equal the closing price paid for Shares on the New York Stock
Exchange on the first trading day immediately preceding the date for which Fair
Market Value is being determined.
4. Shares Subject to the Plan. Subject to the provisions of paragraph 13,
the aggregate number of Shares for which Share Awards, Options and SARs may be
granted under the Plan shall not exceed 6.8% of the outstanding Shares, on a
fully diluted basis, on the date of the closing of the initial public offering
of the Shares. In the event that (a) any Option granted under the Plan expires
unexercised or is terminated, surrendered or canceled (other than in connection
with the exercise of a "Tandem" (as defined in paragraph 7 below) SAR) without
being exercised, in whole or in part, for any reason, (b) any Tandem SAR
granted under the Plan expires unexercised or is terminated, surrendered or
canceled (other than in connection with the exercise of its related Option), or
(c) any "Non-Tandem" (as defined paragraph 7 below) SAR granted under the Plan
expires unexercised or is terminated, surrendered or canceled without being
exercised, in whole or in part, for any reason, then the number of Shares then
subject to the Option or SAR, or the unexercised, terminated, surrendered,
forfeited, canceled or reacquired portion thereof, shall be added to the
remaining number of Shares available for grant under the Plan unless the Plan
shall have terminated.
5. Share Awards. This paragraph 5 sets forth specific terms and
conditions applicable to Share Awards under the Plan.
(a) Conditions and Restrictions on Certain Awards. Share Awards granted
under paragraph 3(a) shall be subject to the following conditions and/or
restrictions:
(i) A Share Award will be forfeited to the Company upon the
termination of the Grantee's Service (as defined below) within one (1) year
from the date of grant of the Share Award ("Date of Grant') (or such lesser
period of time as may be established by the Board), and may be subject to such
further conditions and restrictions established by the Board of Trustees of the
Company at the Date of Grant (including conditions requiring Service by the
Grantee for a period in excess of one (1) year). An individual's "Service"
shall continue until he or she is no longer an employee, officer, trustee,
director or consultant of the Company or an Extended Company. The term
"Extended Company" means a Related Company or each other company designated by
the Board that has provided that awards provided to its employees and other
persons, which are comparable to the awards provided under the Plan, will not
expire if such employees or other persons terminate their relationship with
such company and immediately become employees, officers, trustees, directors or
consultants of the Company. The Extended Companies shall be set forth in
Exhibit B, as it may be amended from time to time upon the determination of the
Board.
(ii) The Committee may, but need not, establish performance goals
to be achieved within such performance periods as may be selected by it in its
sole discretion, using such measures of the performance of the Company and/or
one (1) or more of its Related Companies as it may select.
- 3 -
<PAGE> 6
(iii) Notwithstanding the foregoing, the restrictions set forth in
the preceding subparagraphs (i) and (ii) shall immediately lapse such that
they are of no effect in the event of the termination of a Grantee's Service
(A) because of the Grantee's "Disability" (as defined below) or death, (B) with
respect to a Grantee who is an employee or officer, in connection with his
retirement at or after age 62, (C) with respect to a Grantee who is a
consultant, in connection with his retirement (as determined by the Committee
in its discretion), (D) with respect to a Grantee who is a Trustee, in
connection with his failure to be re-elected to the Board, or (E) following a
"Change in Control" of the Company (as defined below). For purposes of this
Plan, "Disability" shall mean a physical or mental condition that entitles a
Participant to benefits under the Employer-sponsored long-term disability plan
in which he or she participates, as determined by the Plan Administrator in its
sole and absolute discretion. In addition, for purposes of this Plan, a
"Change in Control" shall be deemed to occur upon: (1) the acquisition by any
entity, person, or group of more than 50% of the outstanding Shares from the
holders thereof; (2) a merger or consolidation of the Company with one (1) or
more other entities as a result of which the ultimate holders of outstanding
Shares immediately prior to such merger hold less than 50% of the shares of
beneficial ownership of the surviving or resulting corporation; or (3) a direct
or indirect transfer of substantially all of the property of the Company other
than to an entity of which the Company directly or indirectly owns at least 50%
of the shares of beneficial ownership.
(b) Rights of Grantee. The Grantee shall be entitled to all of the
rights of a shareholder with respect to the Share Awards including the right
to vote such Shares and to receive dividends and other distributions payable
with respect to such Shares from and after the Date of Grant; provided that any
securities or other property (but not cash) received in any such distribution
with respect to a Share Award that is still subject to the restrictions in
subparagraphs (a)(i), (ii) or (iii) above, shall be subject to all of the
restrictions set forth herein with respect to such Share Award.
(c) Issuance. If certificates for the Share Award have been issued,
such certificates shall be held in escrow by the Company. Except in the
case of a Share Award under paragraph 3(b), stock powers for such Shares shall
be executed in blank by the Grantee, until all restrictions lapse or such
Shares are forfeited as provided herein. A certificate or certificates
representing a Share Award as to which restrictions have lapsed shall be
delivered to the Grantee upon such lapse.
6. Share Options. This paragraph 6 addresses specific terms and
conditions for Share Options.
(a) ISO/NQSO. Any Option to purchase Shares granted under paragraph
3(a) that satisfies all of the requirements of Section 422 of the Code, may
be designated by the Committee as an "Incentive Share Option." Options that are
not so designated, or that do not satisfy the requirements of Section 422 of
the Code or that are granted under paragraph 3(b) shall not constitute
Incentive Share Options and shall be Non-Qualified Share Options.
(b) Exercise Price. The Option price of an Incentive Share Option shall
not be less than the Fair Market Value of a Share on the date the Option is
awarded under the Plan and, with respect to an employee who owns on the Date of
Grant more than 10% of the Company's Shares, shall not be less than 110% of its
Fair Market Value on such date. The price at which a Share may be purchased
pursuant to the exercise of any Non-Qualified Share Option shall not be less
than 100% of its Fair Market Value on the date the Option is awarded
- 4 -
<PAGE> 7
under the Plan. Notwithstanding any provision of the Plan to the contrary, for
purposes of this paragraph (b), the "Fair Market Value" of a Share shall equal
the lesser of: (i) the average closing price of the Shares on the New York
Stock Exchange for the five (5) trading days immediately preceding (but not
including) the date on which Fair Market Value is determined, and (ii) the
closing price paid for Shares on the New York Stock Exchange on the first
trading day immediately preceding the date of grant; provided that the
Committee, in good faith, determines the such price accurately reflects the
fair market value of a Share.
(c) Expiration Date. Subject to earlier termination as provided in
paragraph 16, the "Expiration Date" with respect to an Option or any portion
thereof granted under paragraph 3(a) means the date established by the
Committee at the Date of Grant, but in no event later than the date that is ten
(10) years after the date on which the Option is granted and, with respect to
an Incentive Share Option granted to an employee who owns on the Date of Grant,
more than 10% of the Company's Shares, in no event later than the date that is
five (5) years from the date on which the Option is granted. If the Service of
a Grantee terminates for cause (as determined by the Committee in its
discretion), his Option shall expire immediately. The Committee may establish
guidelines for determining whether a Grantee's Service has terminated for cause
and communicate such guidelines in the Grantee's award agreement. If the
Grantee's Service terminates other than for cause and other than because of
circumstances described in the last sentence of paragraph (d)(i) below, his
Option shall not thereafter become exercisable with respect to any additional
Shares, and his Option shall expire three months after the date on which his
Service terminated, but no later than the Expiration Date. If such Service
terminates because of the Grantee's death, his Option shall be exercisable by
the person or persons to whom that right passes by will or by the laws of
descent and distribution for a period of 12 months after the date of death (at
which time it will expire), but no later than the Expiration Date. The
Expiration Date with respect to an Option or any portion thereof granted under
paragraph 3(b) means the date which is 10 years after the date on which the
Option is granted. All rights to purchase Shares pursuant to an Option shall
cease as of the Option's Expiration Date.
(d) Exercise of Options. The following paragraphs address specific
terms that control a Grantee's right to exercise Options:
(i) Each Option granted under paragraph 3(a) shall be exercisable,
either in whole or in part, at such time or times as shall be determined by
the Committee at the time the Option is granted or later, but in no event later
than the Option's Expiration Date. The Committee may establish performance
goals to be achieved within such periods as may be selected by it in its sole
discretion, using such measures of the performance of the Company and/or a
Related Company as it may select. Notwithstanding the foregoing, an Option
granted under the Plan shall be immediately exercisable in the event of the
termination of a Grantee's Service (A) because of the Grantee's Disability or
death, (B) with respect to a Grantee who is an employee or officer, in
connection with his retirement at or after age 62, (C) with respect to a
Grantee who is a consultant, in connection with his retirement (as determined
by the Committee in its discretion), (D) with respect to a Grantee who is a
Trustee, in connection with his failure to be re-elected to the Board, or (E)
following a Change in Control.
(ii) Each Option granted under paragraph 3(b) shall be exercisable,
either in whole or in part, (A) with respect to one-third (1/3) of the Shares
subject to such Option (rounded to the nearest whole share) at any time on or
after six months from the Date of Grant, (B) with respect to an additional
one-third (1/3) of the Shares subject to such Option (rounded
- 5 -
<PAGE> 8
to the nearest whole share) at any time on or after the first anniversary of
the Date of Grant, and (C) with respect to the remaining Shares, at any time on
or after the second anniversary of the Date of Grant, but in each case, no
later than the Option's Expiration Date.
(iii) The Fair Market Value of Shares with respect to which
Incentive Share Options are exercisable for the first time by a Grantee
during any calendar year may not exceed $100,000. Any Incentive Share Options
that become exercisable in excess of such amount shall be deemed to be
Non-Qualified Share Options to the extent of such excess.
(iv) An Incentive Share Option may be exercised during the
lifetime of the Grantee only by the Grantee and, after the death of the
Grantee, only by the individuals or entities described in paragraph 6(f).
(v) Notwithstanding the foregoing, at any time following the
grant of an Option, the Committee, in its sole discretion, may elect to
accelerate the date as of which the Grantee may exercise the Option with
respect to all or a portion of the Shares subject thereto.
(vi) Subject to the foregoing, a Grantee may exercise an Option
by giving written notice thereof prior to the Option's Expiration Date to
the Secretary of the Company at the principal executive offices of the Company.
Contemporaneously with the delivery of notice with respect to exercise of an
Option, the full purchase price of the Shares purchased pursuant to the
exercise of the Option, together with any required state or federal withholding
taxes, shall be paid in cash, by tender of share certificates in proper form
for transfer to the Company valued at the Fair Market Value of the Shares on
the preceding day, by any combination of the foregoing, or with any other
consideration reasonably acceptable to the Committee.
(e) Suspension of Right. Notwithstanding any other provision of
this paragraph 6, the Chief Legal Counsel of the Company, in his sole
discretion, may suspend the right of any person to exercise an Option for up to
30 days if the Grantee's Service has been suspended or terminated for any
reason.
(f) Parties Entitled to Exercise Options. An Option may be
exercised only by the Grantee, or by his legatee or legatees of such Option
under his last will, by his executors, personal representatives or
distributees, or by a transferee to the extent that a transfer of the Option is
permitted pursuant to paragraph 11(b).
7. Share Appreciation Rights. The Committee may grant an SAR to a
Grantee who is awarded an Option under paragraph 3 or to any other key
employee, officer, trustee, director or consultant of the Company or a Related
Company. Each SAR shall be subject to such restrictions and conditions and
other terms as the Committee may specify when the SAR is granted.
(a) Grant. An SAR granted at the time an Option is granted may be
granted either in addition to the related Option ("Non-Tandem SAR") or in
tandem with the related Option ("Tandem SAR"). An SAR granted other than at
the time an Option is granted will be subject to the provisions applicable to
Non-Tandem SARs. At the time a Non-Tandem SAR is granted, the Committee shall
specify the base price of the Shares to be used in connection with the
calculation described in subsection (b)(i) below. The base price of a
Non-Tandem SAR
- 6 -
<PAGE> 9
shall be a percentage (as low as zero) of the Fair Market Value of a Share on
the date of grant. The number of Shares subject to a Tandem SAR shall not
exceed one for each Share subject to the related Option. No Tandem SAR may be
granted to a key employee in connection with an Incentive Share Option in a
manner that will disqualify the Incentive Share Option under Section 422 of the
Code unless the key employee consents thereto.
(b) Value. Upon exercise, an SAR shall entitle the Grantee to receive
from the Company the number of Shares having an aggregate Fair Market Value
equal to the following:
(i) in the case of a Non-Tandem SAR, the excess of the Fair Market
Value of one Share as of the date on which the SAR is exercised over the base
Share price specified in such SAR, multiplied by the number of Shares then
subject to the SAR, or the portion thereof being exercised.
(ii) in the case of a Tandem SAR, the excess of the Fair Market
Value of one Share as of the date on which the SAR is exercised over the
exercise price per Share specified in the related Option, multiplied by the
number of Shares then subject to the Option, or the portion thereof as to which
the SAR is being exercised.
Cash shall be delivered in lieu of any fractional shares. The
Committee, in its discretion, shall be entitled to cause the Company to
elect to settle any part or all of its obligation arising out of the exercise
of an SAR by the payment of cash in lieu of all or part of the Shares it would
otherwise be obligated to deliver in an amount equal to the Fair Market Value
of such Shares on the date of exercise.
(c) Exercise of Tandem SARs. A Tandem SAR shall be exercisable during
such time, and be subject to such restrictions and conditions and other terms,
as the Committee shall specify at the time such Tandem SAR is granted which
restrictions and conditions and other terms need not be the same for all
Grantees. Notwithstanding the preceding sentence, the Tandem SAR shall be
exercisable only at such time as the Option to which it relates is exercisable
and shall be subject to the restrictions and conditions and other terms
applicable to such Option. Upon the exercise of a Tandem SAR, the unexercised
Option, or the portion thereof to which the exercised portion of the Tandem SAR
is related, shall expire. The exercise of any Option shall cause the
expiration of the Tandem SAR related to such Option, or portion thereof, that
is exercised.
(d) Exercise of Non-Tandem SARs.
(i) A Non-Tandem SAR granted under the Plan shall be exercisable
during such time, and shall be subject to such restrictions and conditions and
other terms, as the Committee shall specify at the time the Non-Tandem SAR is
granted. The Committee may establish performance goals to be achieved within
such periods as may be selected by it in its sole discretion, using such
measures of the performance of the Company and/or a Related Company as it may
select. Without limiting the generality of the foregoing, the Committee may
specify a minimum number of full Shares with respect to which any exercise of a
Non-Tandem SAR must be made.
(ii) Subject to earlier termination as provided in the last
sentence of this subparagraph, a Non-Tandem SAR granted under the Plan
shall expire on the date
- 7 -
<PAGE> 10
specified by the Committee, provided that such date shall not be more than 10
years after the Date of Grant. The Committee shall specify at the time each
Non-Tandem SAR is granted, the time during which the Non-Tandem SAR may be
exercised prior to its expiration and other provisions relevant to the SAR.
The Committee, in its discretion, shall have the power to accelerate the dates
for exercise of any or all Non-Tandem SARs or any part thereof, granted under
the Plan. Notwithstanding the foregoing, any Non-Tandem SAR shall expire,
notwithstanding any restrictions and conditions that the Committee may impose,
following a termination of the Grantee's Service in the same manner as an
Option held by such Grantee would expire pursuant to the provisions of
paragraph 6(c).
(e) Acceleration. Notwithstanding any restrictions or conditions
imposed on an SAR pursuant to subparagraphs (c) or (d)(i) above, an SAR granted
under the Plan shall be immediately exercisable in the event of the termination
of the Grantee's Service (A) because of the Grantee's Disability or death, (B)
with respect to a Grantee who is an employee or officer, in connection with his
retirement at or after age 62, (C) with respect to a Grantee who is a
consultant, in connection with his retirement (as determined by the Committee
in its discretion), (D) with respect to a Grantee who is a Trustee, in
connection with his failure to be re-elected to the Board, or (E) following a
Change in Control. In addition, at any time following the grant of an SAR, the
Committee, in its sole discretion, may elect to accelerate the date as of which
the Grantee may exercise the SAR.
(f) Suspension of Right. Notwithstanding any other provisions of this
paragraph 7, the Chief Legal Counsel of the Company, in his sole discretion,
may suspend the right of any person to exercise an SAR for up to 30 days if the
Grantee's Service has been suspended or terminated for any reason.
(g) Parties Entitled to Exercise SARs. An SAR may be exercised only by
the Grantee, or by a legatee or legatees of such SAR under his last will, by
his executors, personal representatives or distributees, or by a transferee to
the extent that a transfer of the SAR is permitted pursuant to paragraph 11(b).
(h) Settlement of SARs. As soon as is reasonably practicable after the
exercise of an SAR, the Company shall (i) issue, in the name of the Grantee,
Shares representing the total number of full Shares to which the Grantee is
entitled pursuant to subparagraph 7(b) hereof and cash in an amount equal to
the Fair Market Value, as of the date of exercise, of any resulting fractional
Shares, and (ii) if the Committee causes the Company to elect to settle all or
part of its obligations arising out of the exercise of the SAR in cash, deliver
to the Grantee an amount in cash equal to the Fair Market Value, as of the date
of exercise, of the Shares it would otherwise be obligated to deliver.
8. Dividend Equivalents. A Dividend Equivalent shall be related to a
number of Shares specified at the time of grant and shall entitle the holder to
cash payments that equal the cash dividend, if any, paid with respect to such
Shares provided that the Dividend Equivalent is outstanding on the record date
thereof and that it is not subject to any condition limiting the Grantee's
right to receive such payments. A Dividend Equivalent shall be subject to such
restrictions and conditions and other terms including those relating to
expiration or forfeiture, as the Committee shall specify at the time such
Dividend Equivalent is granted. A Dividend Equivalent granted pursuant to
subsection 3(c) shall not be subject to any restriction or condition limiting
the Grantee's right to receive the cash payment discussed above from and after
the second anniversary of its Date of Grant. Notwithstanding the foregoing,
any restriction
- 8 -
<PAGE> 11
or condition (other than expiration or forfeiture) limiting the Grantee's right
to receive the cash payment described above shall lapse in the event of (A) the
termination of the Grantee's Service because of the Grantee's Disability or
death, (B) with respect to a Grantee who is an employee or officer, his
retirement at or after age 62, (C) with respect to a Grantee who is a
consultant, his retirement (as determined by the Committee in its discretion),
(D) with respect to a Grantee who is a Trustee, his failure to be re-elected to
the Board, or (E) following a Change in Control.
9. Withholding. Whenever under the Plan a Grantee recognizes income with
respect to any Share Award, Option, SAR or Dividend Equivalent (the "Award")
hereunder, the Company shall have the right to withhold from amounts payable to
such recipient in any manner, as necessary to satisfy all federal, state and
local payroll tax withholding requirements. Without limiting the generality of
the foregoing, (i) a Grantee may elect to satisfy all or part of the foregoing
withholding requirements by delivery of unrestricted Shares owned by the
Grantee having a Fair Market Value (determined as of the date of such delivery
by the Grantee) equal to the amount to be so withheld; and (ii) the Committee
may permit any such delivery to be made by withholding Shares otherwise
issuable pursuant to the award giving rise to the tax withholding obligation
(in which event the date of delivery shall be deemed the date such award was
exercised). If Shares are being surrendered by or withheld for a Grantee who
is subject to Section 16 of the Act, the foregoing shall be accomplished in a
manner consistent with Rule 16b-3(e) thereunder.
10. Compliance with Applicable Laws and Policies. Notwithstanding any
other provision in the Plan, the Company shall have no liability to issue any
Shares under the Plan unless such issuance would comply with all applicable
laws and applicable requirements of any securities exchange or similar entity.
Prior to the issuance of any Shares under the Plan, the Company may require a
written statement that the recipient is acquiring the Shares for investment and
not for the purpose of or with the intention of distributing the Shares.
Notwithstanding any other provision of the Plan, a Grantee or such other
persons as are entitled to exercise an Option or SAR (as described in paragraph
11(b)) will be prohibited from exercising the Option or SAR to the extent that
the Chief Legal Counsel of the Company has determined that purchases and sales
of Company securities should be restricted because of the existence or
potential existence of material nonpublic information concerning the Company,
whether or not such determination has been communicated to the Grantee or such
persons. If the Chief Legal Counsel of the Company has made such a
determination and the Grantee or such persons give notice of an intent to
exercise the Option or SAR (and satisfy all other conditions to the exercise
thereof), the Chief Legal Counsel of the Company shall advise the Grantee or
such persons concerning such restrictions, and the effective time of the
Grantee's exercise shall be postponed to the earlier of the date that the Chief
Legal Counsel of the Company determines that such restriction is no longer
necessary with respect to exercises of the Option or SAR, or the day before the
date that the Option or SAR expires.
11. Transferability. This paragraph 11 shall govern the transferability
of the various benefits under this Plan.
(a) Share Awards. The Shares subject to Share Awards granted under
paragraph 3(a) or 3(c) shall not be sold, assigned, pledged or otherwise
transferred, voluntarily or involuntarily, by the Grantee, while they are
subject to the restrictions described in paragraph 5(a).
- 9 -
<PAGE> 12
(b) Options, SARs and Dividend Equivalents. Options, SARs and Dividend
Equivalents granted under the Plan are not transferable except (i) by will or
by the laws of descent and distribution or, to the extent not inconsistent with
the applicable provisions of the Code, pursuant to a qualified domestic
relations order (as that term is defined in the Code); and (ii) a Grantee may
transfer all or part of an Option that is not an Incentive Share Option, or an
SAR, to the Grantee's spouse, child or children, grandchild or grandchildren,
or other relatives or to a trust for the benefit of any of the foregoing;
provided that the transferee thereof shall hold such Option or SAR subject to
all of the conditions and restrictions contained herein and otherwise
applicable to the Option or SAR, and that, as a condition to such transfer, the
Company may require the transferee to agree in writing (in a form acceptable to
the Company) that the transfer is subject to such conditions and restrictions.
12. Service and Shareholder Status. The Plan does not constitute a
contract of employment or continued Service, and selection as a Grantee will
not give any employee or Grantee other than individual the right to be retained
as an employee, officer, trustee, director or consultant of the Company or any
Extended Company. No person entitled to exercise any Option or SAR granted
under the Plan shall have any of the rights or privileges of a shareholder of
record with respect to any Shares issuable upon exercise of such Option or SAR
until such Shares have been issued. If the redistribution of Shares is
restricted pursuant to paragraph 13, certificates representing such Shares may
bear a legend referring to such restrictions.
13. Adjustments to Number of Shares Subject to the Plan and to Terms of
Options, SARs and Dividend Equivalents. Subject to the following provisions of
this paragraph 13, in the event of any change in the outstanding Shares by
reason of any share dividend, split, recapitalization, merger, consolidation,
combination, exchange of shares or other similar corporate change, the
aggregate number and kind of Shares reserved for issuance under the Plan or
subject to Options, SARs or Dividend Equivalents outstanding or to be granted
under the Plan shall be proportionately adjusted so that the value of each such
unit shall not be changed, and the terms of any outstanding Option, SAR or
Dividend Equivalent may be adjusted by the Committee in such manner as it deems
equitable, provided that in no event shall the Option price for a Share be
adjusted below the par value of such Share, nor shall any fraction of a Share
be issued upon the exercise of an Option. Shares subject to a Share Award
shall be treated in the same manner as other outstanding Shares; provided that
any conditions and restrictions applicable to a Share Award shall continue to
apply to any Shares, other security or other consideration received in
connection with the foregoing.
14. Agreement with Company. At the time of a grant, the Committee may
require a Grantee to enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the Plan and
to such additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
15. Term of Plan. This amended and restated Plan is effective July 1,
1997. No Incentive Share Options may be granted under the Plan after July 1,
2007 or, if earlier, the date on which the Plan is terminated pursuant to
paragraph 16.
16. Amendment and Termination of Plan. Subject to any approval of the
shareholders of the Company which may be required by law, the Board of Trustees
of the Company may at any time amend, suspend or terminate the Plan. No
amendment, suspension or termination of the Plan shall alter or impair any
Share Award, Option, SAR or Dividend Equivalent previously granted under the
Plan without the consent of the holder thereof. No
- 10 -
<PAGE> 13
amendment requiring shareholder approval under Section 240.16b-3 of the Act,
Treasury Regulation Section 1.162-27 or Section 422 of the Code shall be valid
unless such shareholder approval is secured as provided therein.
17. Headings, References and Construction. The headings to sections of
this Plan have been included for the convenience of reference only. This Plan
shall be interpreted and construed in accordance with the laws of the State of
Maryland.
- 11 -
