<PAGE>
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 Section240.14a-11(c) or
Section240.14a-12
PRIME GROUP REALTY TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
Michael W. Reschke
CHAIRMAN OF THE BOARD
April 29, 1998
Dear Shareholder:
You are cordially invited to attend the first Annual Meeting of Shareholders
(the "Meeting") of Prime Group Realty Trust (the "Company") to be held on
Friday, May 22, 1998, at 10:00 a.m., local time, at 35 West Wacker Drive, 35th
Floor, Conference Room A, Chicago, Illinois. The purpose of the Meeting is to
consider and vote upon proposals (i) to elect two Trustees, (ii) to ratify the
appointment of the Company's independent auditors and (iii) to transact such
other business as may properly come before the Meeting. Additional information
with respect to these matters is set forth in the enclosed Proxy Statement.
Whether or not you plan to attend the Meeting and regardless of the number
of shares you own, it is important that your shares be represented at the
Meeting. Therefore, after you read the enclosed Proxy Statement, I urge you to
mark, date, sign, and return the enclosed Proxy Card to ensure that your vote on
the important business matters to be considered at the Meeting will be recorded.
The Board of Trustees appreciate your investment and your interest in the
Company, and look forward to seeing you at the meeting.
<TABLE>
<S> <C>
[SIGNATURE]
MICHAEL W. RESCHKE
CHAIRMAN OF THE BOARD
</TABLE>
<PAGE>
PRIME GROUP REALTY TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 1998
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Prime
Group Realty Trust, a Maryland real estate investment trust (the "Company"),
will be held at 35 West Wacker Drive, 35th Floor, Conference Room A, Chicago,
Illinois on Friday, May 22, 1998, at 10:00 a.m., local time (the "Meeting"), to
consider and take action on the following matters:
1. To elect two Class I Trustees for a term of three years each;
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the
Meeting and at any adjournment(s) thereof.
Shareholders of record at the close of business on April 7, 1998 shall be
entitled to notice of, and to vote at, the Meeting.
<TABLE>
<S> <C>
By order of the Board of Trustees,
[SIGNATURE]
James F. Hoffman, SECRETARY
</TABLE>
April 29, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK,
DATE AND SIGN YOUR PROXY, AND RETURN IT PROMPTLY IN THE STAMPED ENVELOPE
ENCLOSED FOR YOUR CONVENIENCE.
<PAGE>
PRIME GROUP REALTY TRUST
77 WEST WACKER DRIVE
SUITE 3900
CHICAGO, ILLINOIS 60601
------------------------
PROXY STATEMENT
FOR THE
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 1998
The enclosed proxy is solicited by and on behalf of the board of trustees
(the "Board of Trustees" or the "Board") of Prime Group Realty Trust, a Maryland
real estate investment trust (the "Company"), for use at the Annual Meeting of
Shareholders (the "Meeting") to be held at 35 West Wacker Drive, 35th Floor,
Conference Room A, Chicago, Illinois, on May 22, 1998 at 10 a.m., local time,
and at any postponement(s) or adjournment(s) thereof, at which shareholders of
record at the close of business on April 7, 1998 shall be entitled to vote. This
Proxy Statement and accompanying Proxy Card are being mailed to shareholders on
or about April 29, 1998. In addition, there is being mailed herewith, to each
shareholder of record, the Company's Annual Report to Shareholders for 1997.
Each proxy executed and returned by a shareholder may be revoked at any time
before it is voted by timely submission of written notice of revocation or by
submission of a duly executed proxy bearing a later date (in either case
directed to the Secretary of the Company) or, if present at the Meeting, a
shareholder may elect to revoke his or her proxy and vote shares personally. The
principal executive offices of the Company are located at 77 West Wacker Drive,
Suite 3900, Chicago, Illinois 60601.
The cost of solicitation of proxies will be borne by the Company. The
Company may use the services of its trustees, officers, employees and others to
solicit proxies, personally or by telephone. Those persons will not be
compensated specially for such services. Arrangements may also be made with
brokerage houses and other custodians, nominees, fiduciaries and shareholders of
record to forward solicitation material to the beneficial owners of shares held
of record by such persons. The Company may reimburse such solicitors or holders
for reasonable out-of-pocket expenses incurred by them in solicitation. The
Company may pay reasonable and customary proxy solicitation fees to a
third-party solicitation firm, if engaged.
Only holders of record of the Company's common shares of beneficial
interest, par value $.01 per share ("Common Shares"), on April 7, 1998 (the
"Record Date") will be entitled to vote at the Meeting. As of the Record Date,
the Company had 15,572,494 Common Shares outstanding and entitled to vote with
respect to all matters to be acted upon at the Meeting. Each holder of Common
Shares is entitled to one vote for each Common Share held by such holder. Under
Maryland law, the presence of holders in person or by proxy representing a
majority of all the votes entitled to be cast at the Meeting will constitute a
quorum at the Meeting. Abstentions and "broker non-votes" (which occur when a
nominee holding shares for a beneficial owner does not have discretionary voting
power with respect to that matter and has not received instructions from the
beneficial owner) are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Assuming the presence of a
quorum, (i) election of Trustees will require the affirmative vote of a
plurality of all the votes cast by holders of Common Shares at the Meeting and
(ii) approval of the appointment of independent auditors will require the
affirmative vote of a majority of all the votes cast for or against such
proposals, with abstentions not being counted. Broker non-votes will not be
counted at the Meeting other than for quorum purposes.
PRINCIPAL SECURITY HOLDERS OF THE COMPANY
The following tables set forth certain information regarding the beneficial
ownership of the Common Shares and of common units of limited partnership
interests ("Common Units") in Prime Group Realty,
<PAGE>
L.P., a Delaware limited partnership in which the Company is the managing
general partner (the "Operating Partnership"), for (a) each person who is a
shareholder of the Company beneficially owning more than five percent (5%) of
the voting securities of the Company, (b) each named executive officer listed in
the Summary Compensation Table presented below, (c) the Trustees of the Company
and (d) the Trustees and executive officers of the Company as a group. Unless
otherwise indicated in the footnotes, all of such interests are owned directly,
and the indicated person or entity has sole voting and investment power. The
number of Common Shares represents the number of Common Shares the person holds
or the number of Common Shares into which Common Units held by such person are
exchangeable (if, as discussed below, the Company elects to issue Common Shares
rather than pay cash upon such exchange). The extent to which a person holds
Common Shares as opposed to Common Units is set forth in the footnotes. The
agreement of limited partnership of the Operating Partnership (the "Operating
Partnership Agreement") provides that Common Units may be exchanged, subject to
certain limitations, into Common Shares or, at the option of the Company, cash
equal to the fair market value of a Common Share at the time of exchange.
The following table sets forth information as to the persons known to the
Company to be the beneficial owners of more than five percent (5%) of the
Company's Common Shares and/or Common Units as of April 15, 1998.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES/
COMMON UNITS PERCENT OF ALL
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF ALL COMMON SHARES/
BENEFICIAL OWNER OWNED(1) COMMON SHARES(2) COMMON UNITS(3)
- ----------------------------------------------------- -------------------- ------------------- -----------------
<S> <C> <C> <C>
Primestone Investment Partners, L.P.(4).............. 7,944,893 33.8% 30.7%
The Prime Group, Inc.(5)............................. 4,814,461 23.6% 18.6%
Michael W. Reschke(6)(7)............................. 4,814,461 23.6% 18.6%
Cohen & Steers Capital Management, Inc.(8)........... 2,650,000 17.0% 10.3%
Southeastern Asset Management, Inc.(9)............... 1,850,000 11.9% 7.2%
Morgan Stanley, Dean Witter,
Discover & Co.(10).................................. 1,462,300 9.4% 5.7%
Capital Growth Management Limited Partnership(11).... 1,217,500 7.8% 4.7%
Morgan Stanley Asset Management Inc.(10)............. 1,004,600 6.5% 3.9%
AMVESCAP PLC(12)..................................... 785,100 5.0% 3.0%
</TABLE>
- ------------------------
(1) The ownership of Common Shares reported herein is based upon filings with
the Securities and Exchange Commission (the "Commission") and is subject to
confirmation by the Company that such ownership did not violate the
ownership restrictions in the Company's Declaration of Trust. Information
presented does not include Common Shares that may be acquired upon
conversion of the Company's Series A Cumulative Convertible Preferred
Shares, par value $0.01 per share (the "Preferred Shares"). Preferred
Shares may be converted to Common Shares on or after the earliest to occur
of (i) September 17, 1998, (ii) the first day on which a Change of Control
(as defined in the Company's Prospectus dated November 11, 1997 (the
"Prospectus")) occurs, (iii) the occurrence of the REIT Termination Event
(as defined in the Prospectus) or (iv) such date determined by the Company
to convert all or any portion of such Preferred Shares into the number of
fully paid and non-assessable Common Shares obtained by dividing the
aggregate Liquidation Preference Amount (as defined in the Prospectus) of
such shares by the conversion price by surrendering such shares to be
converted. Such conversion rights shall expire at the close of business on
the fifth business day prior to the redemption date fixed for such
redemption. Information presented does not include Common Shares issuable
upon exercise of options granted to the Company's executive officers and
Trustees because none of such outstanding options are exercisable within 60
days of the date of the information presented above. The ownership of
Common Units reported herein is derived from the
2
<PAGE>
transfer records maintained by the Operating Partnership based on
information provided by the limited partners of the Operating Partnership
(the "Limited Partners").
(2) Information presented assumes exchange only of Common Units owned by such
beneficial owner for Common Shares.
(3) Information presented assumes exchange of all outstanding Common Units for
Common Shares and does not include Common Shares issuable upon exercise of
options granted to the Company's executive officers and Trustees because
none of such outstanding options are exercisable within 60 days of the date
of the information presented above. See "Compensation of Executives Share
Incentive Plan." The Limited Partners have agreed not to exchange their
Common Units for certain periods following completion of the Company's
initial public offering without the consent of Prudential Securities
Incorporated, on behalf of itself, Friedman, Billings, Ramsey & Co., Inc.,
Smith Barney Inc. and Morgan Keegan & Company, Inc., which participated in
the Company's initial public offering (the "Underwriters"), and the
Company. In addition, to protect the Company's real estate investment trust
(" REIT") status, each holder of Common Units may not exchange such Common
Units for Common Shares to the extent that such exchange would result in
such holder's owning or being deemed to own, actively or constructively,
more than 9.9% of the Common Shares (the "Ownership Limit"), unless such
holder has been granted an exception to the Ownership Limit.
(4) The address of Primestone Investment Partners, L.P. is 77 West Wacker
Drive, Suite 3900, Chicago, Illinois 60601. The Common Shares shown for
this entity are not beneficially owned because the Common Units held by
such entity may not be exchanged for Common Shares until November 17, 1998
and are disclaimed for beneficial ownership purposes. In addition, certain
of such Common Shares are also reflected in the number of Common Shares
listed in this table as owned by (i) The Prime Group, Inc., which is a
general partner of Primestone Investment Partners, L.P., and (ii) Michael
W. Reschke, who is the Chairman and Chief Executive Officer of The Prime
Group, Inc. Such Common Shares are shown to illustrate the beneficial
ownership that would result from an exchange of Common Units for Common
Shares by such person after such prohibition expires.
(5) The address of The Prime Group, Inc. is 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601. The Common Shares shown for this entity are not
beneficially owned because the Common Units attributable to such entity may
not be exchanged for Common Shares until November 17, 1998 and are
disclaimed for beneficial ownership purposes. In addition, such Common
Shares are also reflected in the number of Common Shares listed in this
table as beneficially owned by (i) Primestone Investment Partners, L.P.,
which is the nominal owner of the Common Units and of which The Prime
Group, Inc. is a general partner, and (ii) Michael W. Reschke, who is the
Chairman and Chief Executive Officer of The Prime Group, Inc. Such Common
Shares are shown to illustrate the beneficial ownership that would result
from an exchange of Common Units for Common Shares by such person after
such prohibition expires.
(6) The Common Shares shown for Mr. Reschke are not beneficially owned because
the Common Units attributable to him may not be exchanged for Common Shares
until November 17, 1998 and are disclaimed for beneficial ownership
purposes. In addition, such Common Shares are also reflected in the number
of Common Shares listed in this table as beneficially owned by (i)
Primestone Investment Partners, L.P., which is the nominal owner of the
Common Units and of which The Prime Group, Inc. is a general partner, and
(ii) The Prime Group, Inc., of which Mr. Reschke is the Chairman and Chief
Executive Officer. Such Common Shares are shown to illustrate the
beneficial ownership that would result from an exchange of Common Units for
Common Shares by such person after such prohibition expires.
(7) The address of Mr. Reschke is 77 West Wacker Drive, Suite 3900, Chicago,
Illinois 60601. Mr. Reschke has also received certain options pursuant to
the Share Incentive Plan which options begin
3
<PAGE>
vesting in installments on November 17, 1998 and which are excluded from
this table. See "Management--Share Incentive Plan."
(8) The address of Cohen & Steers Capital Management, Inc. ("Cohen & Steers")
is 757 Third Avenue, New York, NY 10017. Information presented is based on
a Schedule 13G filed with the Commission on February 12, 1998, as amended
on April 9, 1998 by Cohen & Steers. The Schedule 13G indicates that Cohen &
Steers has sole voting power over 2,602,000 Common Shares and sole
dispositive power over 2,650,000 Common Shares.
(9) Information presented is based on a Schedule 13G filed with the Commission
on February 12, 1998 by Southeastern Asset Management, Inc.
("Southeastern"), Longleaf Partners Realty Fund ("Longleaf") and O. Mason
Hawkins. The Schedule 13G indicates that Southeastern and Longleaf have
shared voting and dispositive power for all 1,850,000 Common Shares and
each beneficially owns the Common Shares. The Schedule 13G indicates that
O. Mason Hawkins filed the Schedule 13G in the event he could be deemed a
controlling person of Southeastern. Mr. Hawkins disclaims such control and
the Schedule 13G indicates that he does not directly or indirectly own any
Common Shares or share in any voting or dispositive powers. The address for
all three filers is at 6410 Poplar Ave., Suite 900, Memphis, TN 38119.
(10) Information presented is based on a Schedule 13G filed with the Commission
on January 14, 1998 by Morgan Stanley, Dean Witter, Discover & Co.
("MSDW") and Morgan Stanley Asset Management Inc. ("Morgan Stanley"). The
Schedule 13G indicates that MSDW beneficially owns 1,462,300 Common
Shares, has shared voting power over 1,296,100 Common Shares and has
shared dispositive power over 1,462,300 Common Shares. The Schedule 13G
further indicates that Morgan Stanley beneficially owns 1,004,600 Common
Shares, has shared voting power over 166,200 Common Shares and has shared
dispositive power over 1,004,600 Common Shares. The Schedule 13G indicates
that both MSDW and Morgan Stanley are investment advisors and that Morgan
Stanley is a wholly-owned subsidiary of MSDW. The address of MSDW is 1585
Broadway, New York, NY 10036. The address of Morgan Stanley is 1221 Avenue
of the Americas, New York, NY 10020.
(11) The address of Capital Growth Management Limited Partnership ("Capital
Growth") is One International Place, Boston, MA 02110. Information
presented is based on a Schedule 13G filed with the Commission on February
12, 1998 by Capital Growth. The Schedule 13G indicates that Capital Growth
has sole voting power and shared dispositive power over 1,217,500 Common
Shares. The Schedule 13G further indicates that Capital Growth is an
investment company and is of the view that it and the clients whose
accounts it manages, should not be required to attribute to each other
their beneficially owned securities. Thus, while disclaiming any
beneficial interest in the Common Shares, Capital Growth filed the 13G
voluntarily.
(12) Information presented is based on a Schedule 13G filed with the Commission
on February 11, 1998 by AMVESCAP PLC, AVZ, Inc., AIM Management Group,
Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO North American
Holdings, Inc., INVESCO Capital Management, Inc., INVESCO Funds Group,
Inc., INVESCO Management and Research, Inc., and INVESCO Realty Advisors,
Inc. The Schedule 13G indicates that AMVESCAP PLC is a parent holding
company of the other filers and that all filers beneficially own 785,100
Common Shares and have shared voting and dispositive power on the same.
The address of all filers is 11 Devonshire Square, London EC2M 4YR,
England.
4
<PAGE>
The following table sets forth the beneficial ownership of Common Shares as
of April 15, 1998 by the Company's current Trustees and the named executive
officers named in the Summary Compensation Table below.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES/
COMMON UNITS PERCENT OF ALL
NAME OF BENEFICIALLY PERCENT OF ALL COMMON SHARES/
BENEFICIAL OWNER OWNED(1) COMMON SHARES(2) COMMON UNITS(3)
- ----------------------------------------------------- -------------------- ------------------- -----------------
<S> <C> <C> <C>
Michael W. Reschke(4)(5)(6).......................... 4,814,461 23.6% 18.6%
Richard S. Curto(5)(7)............................... 5,000 -- --
William M. Karnes(5)................................. 20,000 .1% .1%
Jeffrey A. Patterson(4)(5)........................... 110,000 .7% .4%
Kevork M. Derderian(5)............................... 6,000 -- --
Edward S. Hadesman(4)(5)(8).......................... 860,161 5.2% 3.3%
Stephen J. Nardi(4)(5)(9)............................ 927,100 5.6% 3.6%
Jacque M. Ducharme(5)................................ -- -- --
Christopher J. Nassetta(5)........................... -- -- --
Thomas J. Saylak(5).................................. -- -- --
James R. Thompson(5)................................. -- -- --
Trustees and Executive Officers of the Company as a
group (21 persons).................................. 6,743,722 30.2% 26.1%
</TABLE>
- ------------------------
(1) The ownership of Common Shares reported herein is based upon filings with
the Commission and is subject to confirmation by the Company that such
ownership did not violate the ownership restrictions in the Company's
Declaration of Trust. The ownership of Common Units reported herein is
derived from the transfer records maintained by the Operating Partnership
based on information provided by the Limited Partners. Information presented
does not include Common Shares issuable upon exercise of options granted to
the Company's executive officers and Trustees because none of such
outstanding options are exercisable within 60 days of the date of the
information presented above.
(2) Assumes exchange only of Common Units owned by such beneficial owner for
Common Shares.
(3) Information presented assumes exchange of all outstanding Common Units for
Common Shares and does not include Common Shares issuable upon exercise of
options granted to the Company's executive officers and Trustees because
none of such outstanding options are exercisable within 60 days of the
information presented above. See "Compensation of Executives--Share
Incentive Plan." The Limited Partners have agreed not to exchange their
Common Units for certain periods following completion of the Company's
initial public offering without the consent of the Company and Prudential
Securities Incorporated, on behalf of the Underwriters. In addition, to
protect the Company's REIT status, each holder of Common Units may not
exchange such Common Units for Common Shares to the extent that such
exchange would result in such holder's exceeding the Ownership Limit, unless
such holder has been granted an exception to the Ownership Limit.
(4) The Common Shares shown for this person are not beneficially owned because
the Common Units held by such person may not be exchanged for Common Shares
until November 17, 1998 and are disclaimed for beneficial ownership
purposes. Such Common Shares are shown to illustrate the beneficial
ownership resulting from an exchange of Common Units for Common Shares by
such person after such prohibition expires.
(5) This person has also received certain options pursuant to the Share
Incentive Plan which options begin vesting in installments beginning one
year after the completion of the Company's initial public
5
<PAGE>
offering of Common Shares on November 17, 1998 (the "Offering") and as a
result are excluded from this table. See "Management--Share Incentive Plan."
(6) This person owns a controlling interest in The Prime Group, Inc., and
therefore may be deemed to beneficially own the Common Units that are
beneficially owned by The Prime Group, Inc.
(7) These shares are owned by Mr. Curto under the Illinois Uniform Gift to
Minors Act, 2,500 shares for each of his two sons. This person also has a
right to receive a substantial, but not a controlling, interest in The Prime
Group, Inc., and therefore will not be deemed to beneficially own the Common
Units that are beneficially owned by The Prime Group, Inc.
(8) The Common Units shown for Mr. Hadesman include an aggregate of 397,118
Common Units which are held in separate trusts for his spouse and children.
Mr. Hadesman disclaims beneficial ownership of such Common Units.
(9) The GP Common Units (as defined in the Prospectus) beneficially owned by Mr.
Nardi, an affiliate of a limited liability company which serves as a general
partner of the Company (the "NAC General Partner"), are not exchangeable for
Common Shares; however, this amount illustrates the common equity of the
Operating Partnership beneficially owned by Mr. Nardi.
As of April 15, 1998, Security Capital Preferred Growth Incorporated owned
2,000,000 shares of the Company's Convertible Preferred Shares, representing
100% of the outstanding shares of such class. On or after September 17, 1998,
holders of Convertible Preferred Shares will have the right, subject to
ownership and transfer restrictions in the Company's Declaration of Trust,
intended to allow the Company to maintain its status as a REIT, to convert all
or any of their Convertible Preferred Shares into Common Shares, initially at
the conversion price of $20.00 per Common Share, subject to certain adjustments.
Except as described above, no Trustee or officer of the Company owns any
shares of any other class of the Company's equity securities.
ELECTION OF TRUSTEES
Pursuant to the Amended and Restated Bylaws of the Company, the Board of
Trustees may determine the number of Trustees of the Company, which shall not be
less than three. Currently, the Board of Trustees has set the number of Trustees
at seven. Trustees are divided into three classes serving staggered three-year
terms of office. The Board of Trustees proposes the election of two Class I
Trustees at this Meeting, each to hold office for a three-year term until the
2001 Annual Meeting of Shareholders and until his successor is duly elected and
qualified. Class II and Class III Trustees will be elected at the Annual
Meetings to be held in 1999 and 2000, respectively, for three-year terms, and
until their respective successors are duly elected and qualified. It is intended
that the accompanying form of Proxy will be voted for the nominees set forth
below, each of whom is currently a Trustee of the Company. If some unexpected
occurrence should make necessary, in the Board of Trustees' judgment, the
substitution of some other person or persons for any of the nominees, shares
will be voted for such other person or persons as the Board of Trustees may
select. The Board of Trustees is not aware that any nominee may be unable or
unwilling to serve as a Trustee. The following sets forth certain information
with respect to each nominee and also with respect to each Trustee whose term of
office will continue after the Meeting.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
YEAR TERM OF
PRINCIPAL OCCUPATION OFFICE SERVED AS A
NAME AGE AND POSITION HELD WILL EXPIRE TRUSTEE SINCE
- ------------------------------------------- --- ----------------------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Michael W. Reschke......................... 42 Chairman of the Board, Trustee 1998 1997
Jacque M. Ducharme......................... 48 Independent Trustee 1998 1997
</TABLE>
6
<PAGE>
MICHAEL W. RESCHKE. Michael W. Reschke has served as the Chairman of the
Board of Trustees of the Company since November 1997. Mr. Reschke founded The
Prime Group, Inc., an Illinois corporation ("PGI") in 1981 and, since that time,
has acted as PGI's Chairman and Chief Executive Officer. Mr. Reschke is also
Chairman of the Executive Committee of PGI and is Chairman of the Board of Prime
Retail, Inc. (NYSE: PRT) and Brookdale Living Communities, Inc. (Nasdaq: BLCI)
and a member of the Board of Directors of Ambassador Apartments, Inc. For
approximately the last 17 years, Mr. Reschke has directed and managed the
acquisition, development, finance, construction, leasing, marketing, renovation,
and property management activities of PGI. Mr. Reschke is licensed to practice
law in the State of Illinois and is a certified public accountant. Mr. Reschke
is a member of the Chairman's Roundtable and the Executive Committee of the
National Realty Committee and is a full member of the Urban Land Institute. Mr.
Reschke also serves on the Board of Visitors of the University of Illinois Law
School.
JACQUE M. DUCHARME. Jacque M. Ducharme has served as a Trustee of the
Company since November 1997. Since 1972, Mr. Ducharme has been employed by
Julien J. Studley, Inc., a real estate corporate and tenant services firm, where
he currently serves as Senior Executive Vice President and is the Chicago and
Midwest Regional Manager. His clients include some of the largest companies in
the Chicago Metropolitan Area, including Quaker Oats, Arthur Andersen and First
Chicago. Mr. Ducharme is a past president of the Chicago Office Leasing Brokers
Association.
THE BOARD OF TRUSTEES OF THE COMPANY RECOMMENDS A VOTE FOR REELECTION OF
MESSRS. RESCHKE AND DUCHARME AS TRUSTEES OF THE COMPANY WITH TERMS EXPIRING IN
2001.
TRUSTEES WHOSE TERM OF OFFICE WILL CONTINUE AFTER THE MEETING
<TABLE>
<CAPTION>
YEAR TERM
OF OFFICE SERVED AS A
WILL TRUSTEE
NAME AGE PRINCIPAL OCCUPATION AND POSITION HELD EXPIRE SINCE
- ---------------------------------------- --- -------------------------------------- ---------- ------------
<S> <C> <C> <C> <C>
Richard S. Curto........................ 46 President, Chief Executive Officer, 1999 1997
Trustee
Stephen J. Nardi........................ 68 Trustee 2000 1997
Christopher J. Nassetta................. 35 Independent Trustee 1999 1997
Thomas J. Saylak........................ 37 Independent Trustee 2000 1997
James R. Thompson....................... 61 Independent Trustee 2000 1997
</TABLE>
RICHARD S. CURTO. Richard S. Curto has served as President, Chief Executive
Officer and Trustee of the Company since November 1997. Mr. Curto served as
Executive Vice President of PGI from May 1994 to November 1997. After joining
PGI, Mr. Curto was responsible for the capital markets transactions and other
project-related financings of PGI. From September 1981 to April 1994, Mr. Curto
was employed by Kemper Financial Services, a $65 billion money management firm
overseeing the activities of the lending and equity investment group related to
real property, most recently serving as Senior Vice President. Mr. Curto held
various positions with Northwestern Mutual Life Insurance Co. in the Real Estate
Department prior to 1981. Mr. Curto is a member of the Urban Land Institute and
the National Realty Committee.
STEPHEN J. NARDI. Stephen J. Nardi has served as Trustee and Vice Chairman
of the Board since November 1997. For the past thirty-five years, Mr. Nardi has
served as President and Chief Executive Officer of The Nardi Group Ltd., a
corporate real estate development firm which has designed, built and managed
millions of square feet of properties throughout the Chicago Metropolitan Area
and other parts of the country. Mr. Nardi is a member of the Chicago Real Estate
Board, the National Association of Realtors, the Society of Industrial and
Office Realtors, National Association of Industrial and Office Parks and the
Urban Land Institute. Mr. Nardi is the father of S. Craig Nardi, the Senior Vice
President-- Industrial Marketing and Leasing of the Company.
CHRISTOPHER J. NASSETTA. Christopher J. Nassetta has served as a Trustee of
the Company since November 1997. From October 1995 to the present, Mr. Nassetta
has acted as the Executive Vice President and Chief Operating Officer of Host
Marriott Corporation, where he is responsible for
7
<PAGE>
acquisitions, real estate operations, asset management, lodging partnerships and
administration and serves on its Executive Committee. From October 1991 through
October 1995, Mr. Nassetta served as President of Bailey Capital Corporation, a
real estate investment and advisory firm that he co-founded, where he oversaw
all operations. Prior to founding Bailey Capital Corporation, Mr. Nassetta was
employed by The Oliver Carr Company, a commercial real estate company, for seven
years, where he served as Development Director, Vice President and Regional
Partner and ultimately Chief Development Officer, as well as serving on its
management committee. Mr. Nassetta serves on the McIntire School of Commerce
Advisory Board for the University of Virginia.
THOMAS J. SAYLAK. Thomas J. Saylak has served as a Trustee of the Company
since November 1997. Mr. Saylak is presently a Senior Managing Director of The
Blackstone Group and of Blackstone Real Estate Advisors. Since joining
Blackstone Real Estate Advisors in 1993, Mr. Saylak's major accomplishments
include creating the Interstone Hotel acquisitions joint venture, as well as
leading the multi-billion dollar restructurings of two large regional mall
owners, Edward J. DeBartolo Corp. and Cadillac Fairview, Inc. Prior to joining
Blackstone Real Estate Advisors, from 1987 to 1993, Mr. Saylak was a principal
in Trammell Crow Ventures, the investment advisory arm of Trammell Crow Company,
a real estate development and management firm, where he completed over $3.0
billion of real estate acquisitions and financings and led the firm's Distressed
Portfolio Initiative. Mr. Saylak currently serves as a director of Interstate
Hotel Corporation and Cadillac Fairview, Inc. Mr. Saylak also serves on the
Executive Committee of the National Realty Committee and is a charter member of
The Columbia Real Estate Forum.
GOVERNOR JAMES R. THOMPSON. James R. Thompson has served as a Trustee of
the Company since November 1997. Governor Thompson is the Chairman of the law
firm of Winston & Strawn and has been a partner with the firm since 1991. Prior
to joining Winston & Strawn, Governor Thompson served as the Governor of
Illinois from 1977-1991. Governor Thompson serves on the board of directors of
FMC Corporation, the Chicago Board of Trade, Jefferson Smurfit Group (Dublin),
International Advisory Council of the Bank of Montreal, Pechiney International,
Prime Retail, Inc., Union Pacific Resources Company, Hollinger International,
Inc. and American National Can Co. Governor Thompson received his Juris
Doctorate degree from the Northwestern University Law School.
INFORMATION REGARDING MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
The Company's Board of Trustees has established an Audit Committee, an
Executive Committee, an Executive Compensation Committee and a Committee of
Independent Trustees. The Company does not have a nominating committee.
AUDIT COMMITTEE. The Audit Committee consists of Messrs. Ducharme, Nassetta
and Saylak, and has responsibility for making recommendations concerning the
engagement of independent public accountants, reviewing with the independent
public accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants, reviewing
the independence of the independent public accountants, considering the range of
audit and non-audit fees, and reviewing the adequacy of the Company's internal
accounting controls.
EXECUTIVE COMMITTEE. The Executive Committee consists of Messrs. Reschke,
Curto and Nardi. The Executive Committee has been granted certain authority to
acquire and dispose of real property and the power to authorize, on behalf of
the full Board of Trustees, the execution of certain contracts and agreements,
including those related to the borrowing of money by the Company, and consistent
with the Operating Partnership Agreement, to cause the Operating Partnership to
take such actions.
EXECUTIVE COMPENSATION COMMITTEE. The Executive Compensation Committee
consists of Messrs. Ducharme, Nassetta and Saylak and has responsibility for
determining the compensation for the Company's executive officers. It also
administers the Company's Share Incentive Plan (the "Share Incentive Plan").
COMMITTEE OF INDEPENDENT TRUSTEES. The Committee of Independent Trustees
consists of Messrs. Ducharme, Nassetta, Saylak and Thompson. The Committee of
Independent Trustees was
8
<PAGE>
established to consider and approve or reject, on behalf of the full Board of
Trustees, any proposed transactions between the Company and any of its
shareholders, trustees, officers or employees.
In the period from the Company's November 17, 1997 initial public offering
through December 31, 1997, no meetings were held by the Audit Committee,
Executive Committee, Executive Compensation Committee, or the Committee of
Independent Trustees. The Board of Trustees held one meeting during this period
on December 10, 1997. All Trustees of the Company attended or participated
telephonically in the meeting, except Thomas J. Saylak.
COMPENSATION OF TRUSTEES
The Company pays its Trustees who are not employees of the Company or
affiliated with PGI or the Company a fee for their services as Trustees. Such
persons receive annual compensation of $26,000 plus a fee of $1,000 for
attendance at each meeting of the Board of Trustees and $500 for attendance at
each committee meeting, and receive reimbursement of all travel and lodging
expenses related to their attendance at both Board and committee meetings.
Pursuant to the Share Incentive Plan, the Company granted options to
purchase 5,000 Common Shares to non-employee Trustees as follows (with the
number of Common Shares to be issued upon exercise thereof indicated
parenthetically): Christopher J. Nassetta (5,000), Jacque M. Ducharme (5,000),
James R. Thompson (5,000) and Thomas J. Saylak (5,000). The options will vest at
a rate of 33.3% per year over three years commencing on November 17, 1998 and
will have a term of ten years. The exercise price of such options is $20.00 per
share, which represents the initial public offering price for the Common Shares.
See "Compensation of Executives--Share Incentive Plan."
The Company has entered into a consulting agreement with Stephen J. Nardi, a
Trustee of the Company. The consulting agreement has a term of two years and
requires Mr. Nardi to devote substantially all of his time and energy to
performing consulting services on behalf of the Company. In addition to an
initial base fee of $200,000 per annum, Mr. Nardi is entitled to receive
additional incentive compensation in an amount up to 100% of his base fee based
on achievement of such corporate and individual goals and objectives as are
established by the Board of Trustees or its Executive Compensation Committee.
The consulting agreement contains non-compete provisions for two years following
termination of the consulting agreement. In addition, the Executive Compensation
Committee has, pursuant to the consulting agreement, granted Mr. Nardi 75,000
options to purchase Common Shares and will grant him 2,500 Common Shares each
year of the initial term of the consulting agreement.
9
<PAGE>
COMPENSATION OF EXECUTIVES
EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's executive officers and key employees serving in such capacities:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael W. Reschke................................... 42 Chairman of the Board, Trustee
Richard S. Curto..................................... 46 President and Chief Executive Officer, Trustee
William M. Karnes.................................... 52 Executive Vice President and Chief Financial Officer
Jeffrey A. Patterson................................. 38 Executive Vice President and Chief Investment Officer
Kevork M. Derderian.................................. 47 President--Office Division
Edward S. Hadesman................................... 65 President--Industrial Division
John O. Wilson....................................... 38 President--Prime Group Realty Services, Inc.
Donald H. Faloon..................................... 51 Executive Vice President--Development
Murray J. Alscher.................................... 41 Senior Vice President--Acquisitions
Steven R. Baron...................................... 49 Senior Vice President--Marketing and Leasing/ CBD
Office
Philip A. Hoffer..................................... 48 Senior Vice President--Real Estate Operations
James F. Hoffman..................................... 35 Senior Vice President--General Counsel and Secretary
Tucker B. Magid...................................... 32 Senior Vice President--Industrial Development
S. Craig Nardi....................................... 34 Senior Vice President--Industrial Marketing and
Leasing
Faye I. Oomen........................................ 49 Senior Vice President--Development and Leasing/
Suburban Office
Roy P. Rendino....................................... 41 Senior Vice President--Finance and Chief Accounting
Officer
Christopher "Kit" J. Sultz........................... 32 Senior Vice President--Industrial Operations
</TABLE>
MICHAEL W. RESCHKE. Michael W. Reschke has served as the Chairman of the
Board of Trustees of the Company since November 1997. Mr. Reschke founded PGI in
1981 and, since that time, has acted as PGI's Chairman and Chief Executive
Officer. Mr. Reschke is also Chairman of the Executive Committee of PGI and is
Chairman of the Board of Prime Retail, Inc. (NYSE: PRT) and Brookdale Living
Communities, Inc. (Nasdaq: BLCI) and a member of the Board of Directors of
Ambassador Apartments, Inc. For approximately the last 17 years, Mr. Reschke has
directed and managed the acquisition, development, finance, construction,
leasing, marketing, renovation, and property management activities of PGI. Mr.
Reschke is licensed to practice law in the State of Illinois and is a certified
public accountant. Mr. Reschke is a member of the Chairman's Roundtable and the
Executive Committee of the National Realty Committee and is a full member of the
Urban Land Institute. Mr. Reschke also serves on the Board of Visitors of the
University of Illinois Law School.
RICHARD S. CURTO. Richard S. Curto serves as President, Chief Executive
Officer and Trustee of the Company. Mr. Curto served as Executive Vice President
of PGI from May 1994 to November 1997. After joining PGI, Mr. Curto was
responsible for the capital markets transactions and other project-related
financings of PGI. From September 1981 to April 1994, Mr. Curto was employed by
Kemper Financial Services, a $65 billion money management firm overseeing the
activities of the lending and equity investment group related to real property,
most recently serving as Senior Vice President. Mr. Curto held various positions
with Northwestern Mutual Life Insurance Co. in the Real Estate Department prior
to 1981. Mr. Curto is a member of the Urban Land Institute and the National
Realty Committee.
WILLIAM M. KARNES. William M. Karnes serves as Executive Vice President and
Chief Financial Officer of the Company. From June 1997 to immediately prior to
the Offering, Mr. Karnes was employed
10
<PAGE>
by PGI as an Executive Vice President. From April 1996 to June 1997, Mr. Karnes
served as Senior Vice President, Finance and Chief Financial Officer of Capstar
Hotel Company. From 1994 to April 1996, Mr. Karnes served as Senior Vice
President and Chief Financial Officer of Tucker Properties Corporation, a
publicly traded REIT. From 1991 to 1994, Mr. Karnes served as Senior Vice
President, Finance and Administration for Banyan Management Corp., a company
that provides management services for five public REITs and three master limited
partnerships. Prior to that, from 1989 to 1991, Mr. Karnes served as Chief
Operating Officer of Miglin-Beiter, Inc., a private real estate development,
management and leasing firm. Mr. Karnes is a member of the Urban Land Institute.
Jeffrey A. Patterson. Jeffrey A. Patterson serves as Executive Vice
President and Chief Investment Officer of the Company. From 1989 to immediately
prior to the Offering, Mr. Patterson was Executive Vice President of PGI, with
primary responsibility for the acquisition, financing and redevelopment of
office and mixed-use properties. Mr. Patterson was asset manager for PGI's
office properties and has provided real estate advisory services for several
major institutional investors related to office buildings. Prior to joining PGI,
Mr. Patterson served as Director of Development in Tishman Speyer Properties'
Chicago office and as a Senior Financial Analyst at Metropolitan Life Insurance
Company's Real Estate Investment Group. Mr. Patterson is an associate member of
the Urban Land Institute.
Kevork M. Derderian. Kevork M. Derderian serves as President--Office
Division of the Company. From 1989 to immediately prior to the Offering, Mr.
Derderian was employed by Continental Offices Ltd. ("Continental"), most
recently serving as its President and Chief Executive Officer. At Continental,
he oversaw all business operations, including office property management,
leasing and construction. Continental managed in excess of $650.0 million in
properties. Mr. Derderian is a member of the Urban Land Institute and BOMA
International, and a member of the board of the U.S. Green Building Council.
Edward S. Hadesman. Edward S. Hadesman serves as President--Industrial
Division of the Company. In such capacity, Mr. Hadesman is responsible for the
acquisition, development, operation of the properties and the management
personnel of the Industrial Division. Prior to joining the Company, Mr. Hadesman
was the President and Chief Executive of Industrial Building and Development
Company ("IBD"), which he formed in 1965. IBD owned, operated leased and managed
in excess of 1.1 million square feet and developed and constructed over 1.6
million square feet, consisting primarily of high quality warehouse,
distribution, manufacturing and office buildings. Mr. Hadesman, as founder and
President of IBD, personally supervised all aspects of IBD's business, including
development, leasing, acquisition and management.
John O. Wilson. John O. Wilson serves as President--Prime Group Realty
Services, Inc. of the Company. From January 1995 to immediately prior to the
Offering, Mr. Wilson served as President of PGI's Corporate Real Estate Services
department. Over a 15-year period prior to joining PGI, Mr. Wilson served as
President and Chief Executive Officer of Realsource, Inc., a regional real
estate service firm, which he co-founded in 1981. Mr. Wilson's responsibilities
included overseeing all aspects of property marketing, corporate client services
and the implementation of management plans. Prior to 1981, Mr. Wilson was an
officer in the Chicago office of Cushman & Wakefield. He is a Charter Member of
the Chicago Office Leasing Brokers Association and The International Development
and Research Council.
Donald H. Faloon. Donald H. Faloon serves as Executive Vice
President--Development of the Company. From January 1989 to immediately prior to
the Offering, Mr. Faloon was employed by PGI in its commercial development
activities. Previous responsibilities for PGI included overseeing PGI's Diagonal
Mar project in Barcelona, Spain and serving as Executive Project Manager for the
77 West Wacker Drive Building. Prior to joining PGI, Mr. Faloon had 17 years of
experience in the management of real estate development at Homart Development
Co. and Urban Investment and Development Co.
Murray J. Alscher. Murray J. Alscher serves as Senior Vice
President--Acquisitions for the Company. From April 1997 to immediately prior to
the Offering, Mr. Alscher acted as a consultant to PGI in its acquisition
efforts. From November 1996 to April 1997, Mr. Alscher was a self-employed real
estate consultant. From May 1983 through November 1996, Mr. Alscher was employed
(most recently as Senior Vice President) by Metropolitan Structures, a private
real estate investment, development and management company, where he was
responsible for investment, development and asset management matters.
Steven R. Baron. Steven R. Baron serves as Senior Vice President--Marketing
and Leasing/CBD Office of the Company. From December 1996 to immediately prior
to the Offering, Mr. Baron was
11
<PAGE>
employed by PGI as Senior Vice President responsible for commercial development
and sales at a 2650-acre planned development in Huntley, Illinois. From February
1996 to December 1996, he served as Senior Vice President of Benjamin E. Sherman
& Sons, a real estate company, where he oversaw the management portfolio and
leasing activity. From February 1994 to December 1995, he was the Managing
Director of PM Realty Group's Midwest Division where he oversaw the leasing and
management portfolio. From 1988 to 1994, Mr. Baron was employed by PGI as
Executive Vice President responsible for the leasing and marketing of the 77
West Wacker Drive Building. Mr. Baron is a licensed real estate broker and is an
instructor at Kellogg School of Management where he lectures on commercial real
estate development, leasing and marketing.
Philip A. Hoffer. Philip A. Hoffer serves as Senior Vice President--Real
Estate Operations of the Company. From February 1996 to immediately prior to the
Offering, Mr. Hoffer was Vice President and Chief Operating Officer of
Continental, where he was responsible for all real estate operations including
asset management, construction and leasing for the owned and third party
portfolio. From 1989 to 1996, Mr. Hoffer served as Chief Operating Officer for
Insignia/Frain Camins & Swartchild, where he oversaw third party institutional
property management and leasing for 13 million square feet of office, industrial
and retail space located in Chicago and Los Angeles.
James F. Hoffman. James F. Hoffman serves as Senior Vice President--General
Counsel and Secretary of the Company. From January 1991 to immediately prior to
the Offering, Mr. Hoffman served as Assistant General Counsel of PGI. Prior to
his employment with PGI, Mr. Hoffman was an associate with the law firm of
Mayer, Brown & Platt from September 1987 to December 1990.
Tucker B. Magid. Tucker B. Magid serves as Senior Vice
President--Industrial Development of the Company. In such capacity, he is
responsible for overseeing the development activities of the industrial
division. From 1991 to immediately prior to the Offering, Mr. Magid was Senior
Vice President of IBD, where he was responsible for the management, leasing and
operations of the approximately 1.2 million square foot industrial portfolio and
development of the Motorola Building and Libertyville Business Park. Mr. Magid
is a member of the Association of Industrial Real Estate Brokers ("AIREB").
S. Craig Nardi. S. Craig Nardi serves as Senior Vice President--Industrial
Marketing and Leasing of the Company. From 1989 to immediately prior to the
Offering, Mr. Nardi served as Vice President of Operations of The Nardi Group
Ltd., a corporate real estate development firm, and as Executive Vice President
of Nardi Asset Management, the property management arm of The Nardi Group Ltd.
Prior to joining The Nardi Group Ltd. and Nardi Asset Management, Mr. Nardi
worked as a real estate broker in New York City. Mr. Nardi is a member of the
International Association of Corporate Real Estate Executives, the National
Association of Industrial and Office Parks and the Elmhurst Economic Development
Corporation. Mr. Nardi is the son of Stephen J. Nardi, the Vice Chairman of the
Board and a Trustee of the Company.
Faye I. Oomen. Faye I. Oomen serves as Senior Vice President--Development
and Leasing/ Suburban Office of the Company. From 1978 to immediately prior to
the Offering, Ms. Oomen was employed by Continental, most recently serving as
Vice President of Leasing and Construction. She has over 23 years of experience
in real estate leasing, marketing and development. At Continental, she
negotiated more than 200 leasing transactions for more than 1.5 million square
feet of Continental's portfolio, including Continental Towers, Continental
Office Plaza, Regency Office Plaza and The Marquette Building. She also was
responsible for development and base building construction at One Financial
Place and Continental Towers. She has received numerous awards, including being
named the 1995 Sun-Times Suburban Property Representative of the Year.
Roy P. Rendino. Roy P. Rendino was elected by the Board as of April 23,
1998 and serves as Senior Vice President--Finance and Chief Accounting Officer
of the Company. Mr. Rendino joined the Company in April 1998. From January 1998
to April 1998, Mr. Rendino was Executive Vice President--Finance of Ambassador
Apartments, Inc., a publicly-traded apartment REIT. From 1986 through December
1997, Mr. Rendino was associated with Deloitte & Touche LLP, where he held
positions including Partner and Midwest Director of Real Estate. Mr. Rendino
began his career with Coopers and Lybrand in 1978 where he served as a manager
in the real estate and construction practices. Mr. Rendino is a certified public
accountant and is a member of the Board of Directors of the National Association
of Real Estate Companies and the Real Estate Investment Association.
12
<PAGE>
Christopher "Kit" J. Sultz. Christopher J. Sultz serves as Senior Vice
President--Industrial Operations of the Company. From June 1994 to immediately
prior to the Offering, Mr. Sultz was employed by PGI in its Industrial Division
as Vice President--Asset Management. Prior to joining PGI, Mr. Sultz was
employed by Coopers & Lybrand, LLP from August 1991 to June 1994 in its real
estate consulting practice. Mr. Sultz is a certified public accountant.
Summary Compensation Table
Prior to November 17, 1997, the Company did not pay any compensation to its
executive officers. The following table sets forth the compensation earned for
the period from November 17, 1997 to December 31, 1997 with respect to the
Chairman of the Board, the Chief Executive Officer and the four other persons
who are the most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
COMPENSATION AWARDS
----------------- ---------------
NAMES AND PRINCIPAL POSITION SALARY(2) BONUS OPTIONS/SARS(1)
- ------------------------------------------------ --------- ----- ---------------
<S> <C> <C> <C>
Michael W. Reschke
Chairman of the Board of Trustees............. $ 15,625 $0 175,000
Richard S. Curto
President, Chief Executive Officer............ 28,645 0 175,000
William M. Karnes
Executive Vice President, Chief Financial
Officer....................................... 20,833 0 70,000
Jeffrey A. Patterson
Executive Vice President, Chief Investment
Officer....................................... 20,833 0 85,000
Kevork M. Derderian
President--Office Division.................... 20,833 0 70,000
Edward S. Hadesman
President--Industrial Division................ 20,833 0 70,000
</TABLE>
- ------------------------
(1) Granted pursuant to the Share Incentive Plan. See "Compensation of
Executives--Share Incentive Plan."
(2) Annual compensation for each of the six executive officers had the Company
been in existence for a full year: Mr. Reschke--$150,000; Mr.
Curto--$275,000; Mr. Karnes--$200,000; Mr. Patterson-- $200,000; Mr.
Derderian--$200,000; and Mr. Hadesman--$200,000.
Employment Agreements
The Company has entered into agreements with each of the executive officers
named in the summary compensation table above. The agreements with Messrs.
Reschke, Curto, Karnes, Patterson, Derderian and Hadesman (the "Employment
Agreements") generally provide that such executive officers shall devote
substantially all of their business time to the operation of the Company, except
Mr. Reschke who shall only be required to devote such time as he deems necessary
to fulfill his duties and obligations to the Company as Chairman of the Board.
The Employment Agreements establish the initial base salaries reflected in the
table above and provide for an initial three year term which, in the case of
Messrs. Reschke's, Curto's and Hadesman's agreements only, are automatically
extended for an additional year after expiration of the initial term and any
extension period unless either the Company provides the applicable officer with
at least six months prior written notice or the applicable officer provides the
Company with at least thirty days prior written notice, that such term shall not
be extended. The agreements also contain (i) an agreement not to solicit,
attempt to hire or hire any employee or client of the Company or solicit or
attempt to lease space to or lease space to any tenant of the Company for two
years following termination of employment and (ii) with the exception of Mr.
Derderian's agreement, non-compete provisions restricting the executive officers
from developing, acquiring or operating office or industrial properties (within
a ten mile radius of any facility of the Company) for two years following
termination of employment if the employment is terminated either by the Company
for cause or by the executive officer voluntarily (with certain limited
exceptions in the case of Mr. Hadesman's agreement).
13
<PAGE>
The Employment Agreements also set forth the potential bonuses to which the
executive officers are entitled. In the case of Messrs. Reschke, Curto, Karnes,
Patterson and Hadesman, they are each entitled to receive a discretionary bonus
based on achievement of such corporate and individual goals and objectives as
may be established by the Board of Trustees or its Executive Compensation
Committee. In the case of Mr. Derderian, he is entitled to receive a bonus in an
amount of up to 100% of his base salary determined pursuant to the following
formula: (i) up to 75% of his base salary based upon the extent to which actual
Funds from Operations (as defined in his agreement) exceed the projected budget
for Funds from Operations and (ii) up to 25% of his base salary based on
achievement of such corporate and individual goals and objectives as may be
established by the Board of Trustees or its Executive Compensation Committee.
If any Employment Agreement is terminated by the Company (i) without cause
(as defined in the agreements), (ii) by the executive following the occurrence
of a "change of control" and a resulting "diminution event" (as defined in the
Employment Agreements) or (iii)(a) in the case of Mr. Reschke's Employment
Agreement, by Mr. Reschke if he is removed as a Trustee of the Company or (b) in
the case of Mr. Curto's Employment Agreement, by the Company the event of Mr.
Curto's disability (as defined in the agreement), the applicable executive shall
be entitled to a lump sum termination payment. With respect to Messrs. Reschke
and Curto, such payment will be (x) an amount equal to two times their then
current annual base salary, if the termination is by the Company without cause
or, in the case of Mr. Curto, following Mr. Curto's disability or (y) an amount
equal to two times the applicable average base salary and bonus for the two
prior years, if the termination is by Mr. Reschke or Mr. Curto, as the case may
be, due to the occurrence of a change of control and diminution event. With
respect to each of Mr. Karnes and Mr. Patterson, such payment will be an amount
equal to the greater of 100.0% of his then current base salary and 100.0% of his
aggregate base salary for the remainder of the term of his Employment Agreement,
if the termination is either by the Company without cause or by the executive
due to the occurrence of a change of control and resulting diminution event (or
in the case of Mr. Karnes only, a relocation of his office outside the Chicago
metropolitan area). With respect to each of Mr. Derderian and Mr. Hadesman, such
payment will be (xx) an amount equal to the product of (A) his then current base
salary plus his last annualized bonus multiplied by (B) a fraction, the
numerator of which is the number of days remaining in the term of his employment
agreement at the time of termination (but in no event less than 365 in the case
of Mr. Derderian's agreement) and the denominator of which is 365, if the
termination is by the Company without cause or (yy) an amount equal to the
product of two times the sum of his then current base salary plus his last
annualized bonus, if the termination is by the executive due to the occurrence
of a change of control and resulting diminution event. See "Other
Information--Certain Relationships and Related Transactions." In addition, Mr.
Karnes was granted 10,000 Common Shares pursuant to his Employment Agreement.
OPTION GRANTS IN 1997
The following table shows all options to purchase Common Shares granted to
the Chairman of the Board and each of the named executive officers of the
Company in 1997. The table also shows the potential realizable value of such
options if the Common Shares appreciate at compounded annual rates of 5% and 10%
over the life of the options. The 5% and 10% rates of appreciation based on the
grant date price of $20.00 per share (based on the Offering) are required to be
disclosed by the rules of the Commission and are not intended to forecast
potential future appreciation, if any, in the price of the Common Shares. The
Company did not use an alternative present value formula permitted by the rules
of the Commission because, in the Company's view, potential future unknown or
volatile factors result in
14
<PAGE>
there being no such formula that can determine with reasonable accuracy the
present value of such option grants.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS SHARE PRICE
----------------------------- APPRECIATION FOR
% OF TOTAL OPTION TERM FROM
OPTIONS/SARS EXERCISE DATE OF GRANT
GRANTED TO OR BASE ($20.00)(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (1)(#) FISCAL YEAR ($/SH)(2) DATE 5% 10%
- ---------------------------------- -------------- ------------- --------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Michael W. Reschke................ 175,000 15.7% $ 20 11/2007 $ 2,202 $ 5,577
Richard S. Curto.................. 175,000 15.7% 20 11/2007 2,202 5,577
William M. Karnes................. 70,000 6.3% 20 11/2007 881 2,231
Jeffrey A. Patterson.............. 85,000 7.6% 20 11/2007 1,069 2,709
Kevork M. Derderian............... 70,000 6.3% 20 11/2007 881 2,231
Edward S. Hadesman................ 70,000 6.3% 20 11/2007 881 2,231
</TABLE>
- ------------------------
(1) The options granted will vest in three equal installments on November 17,
1998, November 17, 1999 and November 17, 2000.
(2) Exercise price represents the initial public offering price for the Common
Shares.
(3) The potential realizable value is reported net of the option price but
before the income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5.0% and 10.0% only from
the date of grant to the expiration date of the option.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
named executive officers concerning options held as of December 31, 1997. No
options were exercisable by the named executive officers during 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
---------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Michael W. Reschke........................................ -- 175,000 -- $ 0
Richard S. Curto.......................................... -- 175,000 -- 0
William M. Karnes......................................... -- 70,000 -- 0
Jeffrey A. Patterson...................................... -- 85,000 -- 0
Kevork M. Derderian....................................... -- 70,000 -- 0
Edward S. Hadesman........................................ -- 70,000 -- 0
</TABLE>
SHARE INCENTIVE PLAN
The Company established the Share Incentive Plan for the purpose of
attracting and retaining Trustees, executive officers and other key employees.
Each option granted pursuant to the Share Incentive Plan may be designated at
the time of grant as either an "incentive share option" or as a "non-qualified
share option."
The Share Incentive Plan provides for the grant of options ("Options") to
purchase a specified number of Common Shares. The Share Incentive Plan is
administered by the Compensation Committee and permits the grant of share
options, share appreciation rights, restricted shares, restricted units and
performance units to officers and other key employees of the Company, its
subsidiaries, the Operating
15
<PAGE>
Partnership, the Services Company and Company-owned corporations, partnerships
or trusts. The Share Incentive Plan also permits the grant of share options to
nonemployee Trustees.
Under the Share Incentive Plan, up to 1.85 million Common Shares may be
issued or transferred to participants. The maximum aggregate number of Common
Shares and share equivalent units that may be subject to awards granted during
any calendar year to any one participant under the Share Incentive Plan,
regardless of the type of awards, is 200,000. This limit applies regardless of
whether such compensation is paid in Common Shares or in cash.
If any award is canceled, terminates, expires or lapses for any reason, any
Common Shares subject to such award will again be available for grant under the
Share Incentive Plan, except that such Common Shares will still be counted for
purposes of the annual individual award limit described above. In the event of
any change in capitalization of the Company, such as a share split, or a
corporate transaction, such as a merger or consolidation or any reorganization,
or any partial or complete liquidation of the Company, an adjustment may be made
in the number and class of Common Shares that may be delivered under the Share
Incentive Plan, in the number and class of and/or price of Common Shares subject
to outstanding awards, and in the annual individual award limit set forth above,
as may be determined to be appropriate and equitable by the Executive
Compensation Committee to prevent dilution or enlargement of rights.
The Executive Compensation Committee has been authorized to grant options
under the Share Incentive Plan to purchase Common Shares. The Executive
Compensation Committee may grant "incentive share options" (within the meaning
of Section 422 of the Code) and/or nonqualified share options to employees of
the Company and its corporate subsidiaries. Other employees, including employees
of the Operating Partnership and the Services Company, and nonemployee trustees
may only receive nonqualified share options. The exercise price of any Option
will be at least equal to 100% of the fair market value of a Common Share on the
date the Option is granted. Each option will expire no later than the tenth
anniversary of the date of grant.
In connection with the Offering, the Company granted Options to purchase
Common Shares (the "Initial Grants") to the following key officers and employees
of the Company (with the number of Common Shares to be issued upon exercise
thereof indicated parenthetically): Michael W. Reschke (175,000); Richard S.
Curto (175,000); William M. Karnes (70,000); Jeffrey A. Patterson (85,000);
Kevork M. Derderian (70,000); Edward S. Hadesman (70,000); John O. Wilson
(30,000); Donald H. Faloon (40,000); Philip A. Hoffer (30,000); Steven R. Baron
(30,000); Faye I. Oomen (30,000); Tucker B. Magid (22,500); Christopher J. Sultz
(22,500); S. Craig Nardi (20,000); James F. Hoffman (18,000); and certain other
employees (227,500).
The Initial Grants vest at a rate of 33.3% per year on November 17, 1998,
November 17, 1999 and November 17, 2000 and have a term of ten years. The
exercise price of the Options issued pursuant to the Initial Grants is $20.00
per share, which represents the initial public offering price of the Common
Shares. The exercise price for Options is generally payable in cash or, in
certain circumstances, by the surrender, at the fair market value on the date on
which the Option is exercised, of Common Shares.
All unvested Options held by an optionee will automatically be forfeited if
the optionee leaves employment for any reason other than the optionee's death or
disability on or after November 17, 1998. Upon a "change in control" (as defined
in the Share Incentive Plan), all unvested Options will vest. The rights of any
participants to exercise an Option may not be transferred in any way other than
by will or laws of descent and distribution.
The Share Incentive Plan terminates ten years from the date the plan was
adopted by the Board of Trustees (November 17, 2007).
The Company also granted Options for 5,000 Common Shares to each of its
Independent Trustees, and 75,000 Common Shares to Mr. Nardi pursuant to his
consulting agreement with the Company, that will vest at a rate of 33.3% per
year over three years commencing on November 17, 1997. See "Compensation
16
<PAGE>
of Trustees." The exercise price of these Options is $20.00, the initial public
offering price of the Common Shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Trustees, which is
required to have a majority of outside Trustees who are neither employees or
officers of the Company, is charged with determining compensation for the
Company's executive officers and to implement and administer the Company's Share
Incentive Plan. Messrs. Ducharme, Nassetta and Saylak currently serve on the
Executive Compensation Committee. See "Compensation of Trustees."
No executive officer of the Company served as a Trustee or member of (i) the
compensation committee of another entity in which one of the executive officers
of such entity served on the Company's Executive Compensation Committee, (ii)
the Board of Trustees of another entity in which one of the executive officers
of such entity served on the Company's Executive Compensation Committee, or
(iii) the compensation committee of any other entity in which one of the
executive officers of such entity served as a member of the Company's Board of
Trustees, during the year ended December 31, 1997. Mr. Reschke is Chairman of
the Board of Trustees of the Company. See "Other Information--Certain
Relationships and Related Transactions."
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
Compensation of the Chairman, Chief Executive Officer and other executive
officers of the Company is determined by the Executive Compensation Committee of
the Board of Trustees. The Executive Compensation Committee was formed on
November 17, 1998 upon the completion of the Company's initial public offering.
The current members of the Executive Compensation Committee are Messrs.
Ducharme, Nassetta and Saylak. Prior to the Offering, the Company did not pay
any compensation to its executive officers.
The policy of the Company's compensation programs is to attract and retain
highly qualified individuals while providing the economic incentive necessary to
achieve the Company's performance goals. The Company intends to maintain
compensation policies, plans and programs which will reward management and
provide additional incentives for the enhancement of cash flows, and
consequently real property and shareholder values.
The Company intends to continue to maintain compensation policies, plans and
programs which will reward management and provide additional incentives for the
enhancement of cash flows, and consequently real property and shareholder
values. The Executive Compensation Committee believes that, through their
ownership of equity interests in the Company, the Operating Partnership and the
grant of incentive share options in the Company, as applicable, the financial
interests (and net worth) of the Company's senior executives are aligned with
the interests of shareholders.
While the Executive Compensation Committee will continue to evaluate the
compensation practices of the Company's industry peer group as an important
factor in determining executive compensation, the Company's achievement of its
performance goals and the contribution of senior executives to such achievement
will greatly influence whether the Company's compensation program remains at or
exceeds the median of its peer group. The peer group of companies identified by
the Executive Compensation Committee is further described in the Performance
Graph presented elsewhere in this Proxy Statement.
The Company's executive compensation programs consist of the following
components:
(a) employment agreements with its most senior executives setting base
salary at fixed levels, and containing such other provisions, sufficient
to attract and retain employees capable of contributing to the Company's
performance objectives with discretionary increases by the Executive
Compensation Committee after review at least annually;
17
<PAGE>
(b) incentive bonuses determined by the Board of Trustees or the Executive
Compensation Committee upon achievement of such corporate and individual
performance goals and objectives as may be determined by the Board of
Trustees or the Executive Compensation Committee, in order to reward
executive officers for attaining performance goals;
(c) share options with scheduled vesting periods to align the interests of
the executive with those of the Company's shareholders; and
(d) participation in other benefit programs available to employees
generally.
The Company has entered into Employment Agreements with its Chairman of the
Board, the President and Chief Executive Officer, the Chief Financial Officer
and certain other senior executives. The Employment Agreements established the
base salaries of such executives for 1997. The annualized base salary of the
Chairman of the Board for the period from November 17, 1997 through December 31,
1997 was $150,000. The annualized base salary for the President and Chief
Executive Officer for the period from November 17, 1997 through December 31,
1997 was $275,000. The annualized base salary for the Chief Financial Officer
for the period from November 17, 1997 through December 31, 1997 was $200,000.
See "Compensation of Executives--Employment Agreements." As provided in the
Employment Agreements, annual base salary adjustments will be made by the
Executive Compensation Committee based on individual performance reviews as well
as other market factors.
Other elements of the Employment Agreements which serve to retain senior
management include non-competition provisions which under certain circumstances
extend for a specified time beyond the term of employment. The Employment
Agreements of the Chairman of the Board, the President and Chief Executive
Officer and the Chief Financial Officer and other senior management generally
prohibit these executives from directly or indirectly competing with the
business of the Company during the term of employment and for a two year period
after termination "with cause" by the Company or "without good reason" by the
employee. In addition, the Employment Agreements provide that upon termination
all unvested share options held by the executive are forfeited if the employee
is terminated "with cause" by the Company.
Executive officers are eligible to receive annual incentive bonuses. The
amount of any executive officer's bonus is based upon each individual's
contributions to the Company's achievement of financial and operating goals and,
to a lesser degree, factors such as leadership and contribution to strategy
development. The Executive Compensation Committee will continue to establish
overall performance goals for the Company based primarily on the growth in funds
from operations; satisfaction of expansion, development, operating and occupancy
goals; and the relative performance of the Company in comparison with its
industry peer group.
In connection with the Offering, the Company granted share options to the
Chairman of the Board, the President and Chief Executive Officer, the Chief
Financial Officer and certain other executive officers of the Company. The
Company determined the number of share options to be granted to each executive
officer based upon discussions with the underwriters participating in the
Offering and a comparative analysis of compensation programs for public
companies similar to the Company. The Chairman of the Board, the President and
Chief Executive Officer and the Chief Financial Officer each were granted
options to purchase 175,000, 175,000 and 70,000 Common Shares, respectively. The
Executive Compensation Committee believes the options granted under the Share
Incentive Plan and the vesting schedules thereof will continue to align the
interests of management with those of the Company's shareholders by emphasizing
long-term share ownership and increases in shareholder value. See "Compensation
of Executives--Share Incentive Plan."
The Code limits the ability of a publicly-held corporation such as the
Company to deduct compensation for its Chief Executive Officer and the four
highest paid officers other than the Chief Executive Officer in excess of
$1,000,000 per individual, per year. Performance-based compensation is not
counted
18
<PAGE>
toward the $1,000,000 limit. It is the Company's policy to take this rule into
account in setting the compensation of its affected executives. The Company will
not be denied any deduction under Section 162(m) for compensation paid during
its taxable year ending December 31, 1997. Based upon proposed Treasury
regulations, bonuses payable to the Company's executives under their current
employment agreements and compensation attributable to options (both statutory
and non-statutory) granted under the Share Incentive Plan may be considered as
compensation subject to the Section 162(m) limitation. Accordingly, it is
possible that in some future year some portion of the compensation to a Company
executive will not be tax-deductible under Section 162(m). This will depend upon
the market price of the Company's shares on the date the non-statutory options
are exercised and the number of non-statutory options exercised in any one
taxable year.
EXECUTIVE COMPENSATION COMMITTEE
Jacque M. Ducharme
Christopher J. Nassetta
Thomas J. Saylak
PERFORMANCE GRAPH
The following performance graph compares the Company's performance to the
Standard and Poors' 500 Stock Index (the "S&P 500 Index") and the National
Association of Real Estate Investment Trusts Equity Index (the "NAREIT Equity
Index"). Share price performance for the period from November 12, 1997, the date
on which trading in the Common Shares commenced, through December 31, 1997 is
not necessarily indicative of future results. All share price performance
assumes an initial investment of $100 at the beginning of the period and assumes
the reinvestment of any dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SHARE PERFORMANCE GRAPH*
<S> <C> <C> <C>
Company S&P 500 NAREIT
11/30/97 $100.00 $100.00 $100.00
12/31/97 $102.11 $101.97 $101.94
</TABLE>
<TABLE>
<CAPTION>
12/31/97
---------
<S> <C> <C>
Company............................................. $ 102.11
S&P 500 Index....................................... $ 101.97
NAREIT Equity Index................................. $ 101.94
</TABLE>
19
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Trustees of the Company has selected Ernst & Young LLP as
independent auditors of the Company for the year ending December 31, 1998. Ernst
& Young LLP served in this capacity for the period from November 17, 1997
through December 31, 1997. A representative of Ernst & Young LLP will attend the
meeting and, while not intending to make a statement, will have an opportunity
to make a statement if they desire to do so and will respond to appropriate
questions directed to Ernst & Young LLP.
The appointment of auditors is approved annually by the Board and
subsequently submitted to the shareholders for ratification. The decision of the
Board is based on the recommendation of the Audit Committee. The committee also
reviews and approves proposed nonaudit services to ensure that they will not
impair the independence of the accountants.
Before making its recommendation to the Board for appointment of Ernst &
Young LLP, the Audit Committee carefully considered that firm's qualifications
as auditors for the Company. This included a review of its performance last
year, as well as its reputation for integrity and competence in the fields of
accounting and auditing. The committee has expressed its satisfaction with Ernst
& Young LLP in all of these respects.
THE BOARD OF TRUSTEES OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S AUDITORS.
OTHER INFORMATION
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
Trustees, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of the ownership and changes in the
ownership (Forms 3, 4 and 5) with the Commission and the NYSE. Officers,
Trustees and beneficial owners of more than ten percent of the Company's equity
securities are required by Commission regulation to furnish the Company with
copies of all such forms which they file.
Based solely on the Company's review of the copies of Forms 3, 4 and 5 and
the amendments thereto received by it for the period ended December 31, 1997, or
written representations from certain reporting persons that no Forms 5 were
required to be filed by those persons, to the Company's knowledge no
transactions were reported late during the period ended December 31, 1997 except
that, due to administrative error, the Form 3 filed on behalf of each of the
following persons was filed late (on November 12, 1997 rather than on November
10, 1997): Murray J. Alscher, Donald E. Anderson, Steven R. Baron, Richard S.
Curto, Kathryn A. Deane, Kevork M. Derderian, Rolanda H. Derderian, Jacque M.
Ducharme, Donald H. Faloon, Edward S. Hadesman, Philip A. Hoffer, James F.
Hoffman, William M. Karnes, Tucker B. Magid, Patrick L. McGaughy, Scott D.
McKibben, S. Craig Nardi, Stephen J. Nardi, Christopher J. Nassetta, Faye I.
Oomen, Jeffrey A. Patterson, Michael W. Reschke, Robert J. Rudnik, James F.
Runnion, Thomas J. Saylak, Christopher J. Sultz, Governor James R. Thompson,
Phillip E. Waters and John O. Wilson. None of these Form 3 filings except that
of Mr. Karnes indicated any transactions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION TRANSACTIONS. In connection with the Offering and the
organizational and formation transactions related thereto (the "Formation
Transactions") of the Company on November 17, 1997, the following affiliates of
the Company received the following benefits:
PGI (i) received approximately $15.0 million in cash and $7.2 million in
aggregate net worth of securities previously pledged as additional collateral by
PGI to secure its limited recourse guarantee obligations to the issuers of the
letters of credit which secure the payment of principal and interest of certain
tax-exempt bonds secured by certain of the Company's properties; (ii) received
3,465,000 Common
20
<PAGE>
Units with an aggregate value of $69.3 million as of the Offering (assuming that
each Common Unit held by PGI has a value equal to that of a Common Share); (iii)
was reimbursed by the Operating Partnership for approximately $6.5 million of
expenses incurred in connection with transactions related to the Offering; (iv)
became no longer liable as general partner of the partnerships that own certain
of the Company's properties; and (v) was released from various limited recourse
guarantees and obligations to indemnify lenders in connection with the
tax-exempt bonds referenced in clause (i) above and $60.0 million of other debt.
The IBD Contributors (which consist of Edward S. Hadesman Trust dated May
22, 1992, Grandville/ Northwestern Management Corporation, Carolyn B. Hadesman
Trust dated May 21, 1992, Lisa Hadesman 1991 Trust, Cynthia Hadesman 1991 Trust,
Tucker B. Magid, Frances S. Shubert, Grandville Road Property, Inc., HR Trust,
Edward E. Johnson and Sky Harbor Associates) (i) received 922,317 Common Units
with an aggregate value of $18.4 million as of the Offering (assuming that each
Common Unit held by the IBD Contributors has a value equal to that of a Common
Share), (ii) received a note for the purchase of a property under construction
of $4.0 million, and (iii) received cash of $0.9 million. In addition, the
Operating Partnership assumed approximately $6.4 million in debt relating to a
property contributed to the Operating Partnership by certain of the IBD
Contributors. See "--IBD Contribution Agreement" and "--Tax Indemnification
Agreements."
Certain affiliates (the "NAC Contributors") of a limited liability company
controlled by Stephen J. Nardi (the "NAC General Partner") received (i) $14.9
million in cash and (ii) 927,100 GP Common Units with an aggregate value of
$18.5 million as of the Offering (assuming each GP Common Unit held by the NAC
Contributors has a value equal to that of a Common Share) and Stephen J. Nardi,
an affiliate of the NAC General Partner, entered into a two-year consulting
agreement with the Company and was elected a Trustee. The NAC General Partner
also entered into an agreement with the Company which gives the NAC General
Partner the ability to require the Company to repurchase its interests in the
Operating Partnership for cash. See "--NAC Contribution Agreement; Put Option
Agreement" and "--Tax Indemnification Agreements."
OPERATING PARTNERSHIP AGREEMENT
The Company, the NAC General Partner, PGI, the NAC Contributors and the IBD
Contributors have entered into the Operating Partnership Agreement which sets
forth the terms of such partnership and establishes the Company as the managing
general partner of the Operating Partnership with primary responsibility and
discretion in the management and control of the Operating Partnership.
EXCHANGE RIGHTS AND REGISTRATION RIGHTS
Subject to certain conditions, beginning November 17, 1998, each Common Unit
held by a Limited Partner may be exchanged for one Common Share (subject to
adjustment) or, at the option of the Company, for cash equal to the fair market
value of a Common Share at the time of exchange. In addition, the Limited
Partners have agreed not to sell, pledge or otherwise transfer their Common
Units for the applicable holding period without the consent of Prudential
Securities Incorporated, on behalf of the other Underwriters. In order to
protect the Company's status as a REIT, each holder of Common Units is
prohibited from exchanging such Common Units for Common Shares to the extent
that as a result of such exchange any person would own or would be deemed to
own, actually or constructively, more than 9.9% of the Common Shares, except to
the extent such holder has been granted an exception to the Company's ownership
limit.
The Company has granted the Limited Partners receiving Common Units in
connection with the Formation Transactions certain "demand" and "piggyback"
registration rights (collectively, the "Registration Rights") with respect to
the Common Shares acquired by them upon exchange of Common Units for Common
Shares. Subject to certain conditions, the demand registration rights permit
such Limited
21
<PAGE>
Partners to request up to two demand registrations per year. Subject to certain
conditions, the piggyback registration rights permit the Limited Partners to
include their Common Shares in the registration by the Company of its Common
Shares or other similar equity securities issued by the Company other than in
connection with the registration by the Company under the Securities Act of
1933, as amended, of any of its securities in connection with mergers,
acquisitions, exchange offers, subscription offers, share options or employee
benefit plans. The Limited Partners are classified by investor groups and may
each require up to two registrations per calendar year per group. The Company
has granted the Limited Partners piggyback registration rights with respect to
Common Shares acquired by them by any means. The Company also agreed to provide
the Registration Rights to any other person who may become an owner of Common
Units, provided such person provides the Company with satisfactory undertakings.
In addition, the Company has granted registration rights to Security Capital
Preferred Growth Incorporated with respect to the Common Shares which would be
acquired by it upon the conversion of the Convertible Preferred Shares into
Common Shares. The Company will bear all expenses arising from exercise of all
of the foregoing registration rights, except that the Company shall not pay any
underwriting discounts or commissions, transfer taxes, Securities and Exchange
Commission or blue sky registration fees relating to the registration of such
Common Shares.
THE PRIMESTONE JOINT VENTURE
Pursuant to a contribution agreement relating to a joint venture (the
"Primestone Joint Venture") between PGI and certain affiliates of Blackstone
Real Estate Advisors, L.P. (together with certain of its affiliates,
"Blackstone"), BRE/Primestone Investment L.L.C., a Delaware limited liability
company, and BRE/Primestone Management Investment L.L.C., a Delaware limited
liability company, PGI contributed to the Primestone Joint Venture 3,375,000 of
the Common Units it received in exchange for its contributions to the Operating
Partnership. Blackstone contributed $45.0 million in cash to the Primestone
Joint Venture. In exchange, PGI received a 60.0% interest, and Blackstone
received a 40.0% interest, in the Primestone Joint Venture. The Primestone Joint
Venture borrowed $40.0 million from Prudential Securities Credit Corporation
("PSCC") and used such loan proceeds together with the $45.0 million contributed
by Blackstone to purchase 4,569,893 Common Units from the Operating Partnership,
at a price per Common Unit equal to the per share initial public offering price
of the Common Shares, net of an amount equal to the underwriting discounts,
commissions and certain expenses applicable to the Common Shares, simultaneously
with the other formation transactions. As a result, the Primestone Joint Venture
owns, in the aggregate, 7,944,893 Common Units, representing a 34.2% limited
partnership interest in the Operating Partnership as of December 31, 1997. The
loan from PSCC is secured by all of the Common Units held by the Primestone
Joint Venture. In connection with the purchase of the Common Units, Blackstone
designated Mr. Saylak to be elected one of the Trustees. Blackstone has the
right after 30 months following the completion of the Offering, or earlier under
certain circumstances, to require PGI or the Primestone Joint Venture to
purchase or redeem Blackstone's interest in the Primestone Joint Venture. After
30 months following the completion of the Offering. or earlier upon the
occurrence of certain events, PGI may require Blackstone to sell its interests
in the Primestone Joint Venture to PGI or the Primestone Joint Venture. Up to
50.0% of the price payable upon the exercise of PGI's call right may, under
certain circumstances, be made by the delivery of Common Units or Common Shares.
After three years following the completion of the Offering or a Change in
Control Event (as defined in the agreement forming the Primestone Joint
Venture), either PGI or Blackstone may withdraw from the Primestone Joint
Venture and require a pro rata distribution of such party's respective interest.
The Company has granted the Primestone Joint Venture registration rights for
the Common Shares it receives from exchanging Common Units. Blackstone, and PGI
with the consent of Blackstone, are permitted, under the agreement forming the
Primestone Joint Venture, to pledge their interests in the Primestone Joint
Venture to third-party lenders. Any such lender, may become a partner in the
Primestone Joint Venture, in the event of a default under the respective loan
documents and upon the foreclosure of
22
<PAGE>
such pledge and assumption of certain obligations, with all the rights of the
party to whose interest they have succeeded.
IBD CONTRIBUTION AGREEMENT
The IBD Contributors and PGI entered into a contribution agreement pursuant
to which the IBD Contributors contributed to the Operating Partnership their
interests in the IBD Contribution Properties. In exchange, the IBD Contributors
received an aggregate of 922,317 Common Units of limited partnership interest,
representing an aggregate 3.9 % limited partnership interest in the Operating
Partnership as of December 31, 1997, cash of $0.9 million and a note in the
amount of $4.0 million. Pursuant to such contribution agreement, certain of the
IBD Contributors have elected to have a portion of the Common Units they
received in the foregoing exchange subject to an arrangement pursuant to which
upon the earlier of (i) the exchange of the subject Common Units for Common
Shares and sale thereof by the holder not earlier than two years following the
completion of the Offering or (ii) the third anniversary date of the completion
of the Offering, either (x) PGI shall transfer to such holder an amount in cash
or Common Units (based on the then current market price) equal to the excess, if
any, of an annual pre-tax return of 16.8% on the subject Common Units to the
date of transfer over the actual return on such Common Units during such period
or (y) such holder shall transfer to PGI an amount in cash or Common Units
(based on the then current market price) equal to the excess, if any, of the
actual return on such Common Units over an annual pre-tax return of 19.8% on
such Common Units.
NAC CONTRIBUTION AGREEMENT; PUT OPTION AGREEMENT
The NAC Contributors, PGI, the Company and the Operating Partnership have
entered the NAC Contribution Agreement pursuant to which the NAC Contributors
contributed to the Operating Partnership their interests in the NAC Contribution
Properties. In exchange, the NAC Contributors received 927,100 GP Common Units,
representing a 3.9% general partnership interest in the Operating Partnership as
of December 31, 1997, and cash of $14.9 million. All of the GP Common Units are
held by the NAC General Partner.
After 21 months following the completion of the Offering, pursuant to a
certain Put Option Agreement, the NAC General Partner will have the right to
cause the Operating Partnership and the Company to purchase for cash at least
50.0% of the NAC General Partner's GP Common Units at a price per Common Unit
equal to 95.0% of the then current per share market value of the Common Shares.
Further, after 32 months following the completion of the Offering, the NAC
General Partner shall have the right to cause the Operating Partnership and the
Company to purchase for cash all, but not less than all, of the NAC General
Partner's then-remaining GP Common Units at a price per Common Unit equal to
95.0% of the then current per share market value of the Common Shares.
TAX INDEMNIFICATION AGREEMENTS
The Operating Partnership entered a tax indemnification agreement with
certain principals of the IBD Contributors pursuant to which the Operating
Partnership is required to indemnify such principals of the IBD Contributors
for, among other things, income or gain which they might realize upon the
refinancing or sale by the Operating Partnership of the Properties they
contributed. Under the terms of such agreement, the Operating Partnership will
indemnify such principals of the IBD Contributors for certain tax liabilities
based on income or gain which such a principal is required to include in its
gross income for federal or state income tax purposes. The percentage of the tax
liabilities which the Operating Partnership is required to indemnity is 100% for
the taxable years ending on or before December 31, 1998, and declines by 10.0%
each year thereafter until December 31, 2007. The Operating Partnership is not
required to indemnity the IBD Contributors for income or gain realized by them
after the taxable year ended December 31, 2007. PGI has entered an agreement
with the Operating Partnership pursuant to which PGI has agreed to indemnify the
Operating Partnership for any amounts paid by the Operating
23
<PAGE>
Partnership to the IBD Contributors pursuant to such agreement; provided, that
PGI shall be liable to the Operating Partnership for such amounts only to the
extent that the Operating Partnership used its best efforts to avoid such tax
liability (including exploring the opportunity for a tax-free exchange under
Section 1031 of the Code for the transaction that gave rise to the obligation
under such agreement).
The Operating Partnership also entered a tax indemnification agreement with
certain principals of the NAC Contributors, pursuant to which the Operating
Partnership is required to indemnify such principals of the NAC Contributors
for, among other things, income or gain which they might realize upon the
refinancing or sale by the Operating Partnership of the properties contributed
by the NAC Contributors. Under the terms of such agreement, the Operating
Partnership will indemnify such principals of the NAC Contributors for certain
tax liabilities based on income or gain which such a principal is required to
include in its gross income for federal, applicable state and certain local
income tax purposes. The Operating Partnership is not required to indemnify the
NAC Contributors for income or gain realized by them for any taxable year
beginning after the tenth anniversary of the date upon which the NAC General
Partner is no longer a general partner in the Operating Partnership. PGI has
also entered an agreement with the Operating Partnership pursuant to which PGI
has agreed to indemnify the Operating Partnership for any amounts paid by the
Operating Partnership to such principals of the NAC Contributors pursuant to
such agreement; provided, that PGI shall be liable to the Operating Partnership
for such amounts only to the extent that the Operating Partnership used its best
efforts to avoid such tax liability (including exploring the opportunity for a
tax-free exchange under Section 1031 of the Code for the transaction that gave
rise to the obligation under such agreement).
NON-COMPETE AGREEMENT AMONG THE COMPANY, PGI AND MICHAEL W. RESCHKE
The Company, PGI and Mr. Reschke entered a Non-Compete Agreement that
provided that, so long as PGI and/or its affiliates own a 5.0% or greater
economic interest in the Company or Mr. Reschke is Chairman of the Board of the
Company, neither Mr. Reschke nor PGI (including its affiliates) will own,
acquire or manage office or industrial properties (except any ownership
resulting from foreclosure of indebtedness). Excluded from the foregoing
restrictions are (i) any interest in the Company or the Operating Partnership,
(ii) all properties in which PGI had an interest prior to the Formation
Transactions and (iii) PGI's or Mr. Reschke's ownership of less than 5.0% of any
class of securities listed on a national securities exchange or on the Nasdaq
National Market. In addition, PGI and Mr. Reschke will not be prohibited from
providing debt or lease financing for properties similar to the properties owned
or managed by the Company or from acquiring any preferred equity position in any
owner or lessee of any such type of properties.
CONSULTING AGREEMENT WITH STEPHEN J. NARDI
For a description of the Consulting Agreement, see "Compensation of
Trustees."
OPTION TO PURCHASE AND RIGHT OF FIRST OFFER
The Company has a ten-year option to purchase a property at 300 N. LaSalle
in Chicago from PGI. 300 N. LaSalle contains approximately 58,000 square feet
suitable for development. The Company will have an option to purchase the
property at 95.0% of the then fair market value of the property.
The Company also has a 15-year right of first offer to develop (or develop
and acquire an ownership interest in) all or any portion of approximately 360
acres of undeveloped office and industrial land in Huntley, Illinois. The right
of first offer will apply to the extent that PGI determines that such parcel
shall be utilized for the construction of an office or industrial facility to be
owned and leased to third parties by PGI or held by PGI for sale to a third
party. The site is subject to a participation interest held by an unaffiliated
third-party lender.
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The foregoing option and right of first offer may be exercised only with the
approval of the Company's independent trustees.
The Company also has obligations to purchase 2050 Hammond Drive for
approximately $3.1 million and 5600 Proviso Drive for approximately $8.0
million. These properties are each owned by joint ventures between an affiliate
of the NAC General Partner and a third party. The Company will be obligated to
purchase 2050 Hammond Drive or 5600 Proviso Drive if the respective third party
partner gives its consent to the purchase within 180 days following the
consummation of the Formation Transactions and the completion of the Offering.
The Company also has obligations to purchase 300 Craig Place for
approximately $7.5 million and 130 E. Rawls Road for approximately $2.5 million.
The properties are each owned by an affiliate of the NAC General Partner. The
Company will be obligated to purchase 300 Craig Place or 130 E. Rawls Road if
the respective property is leased on certain terms within 180 days following the
consummation of the Formation Transactions and the completion of the Offering.
PATTERSON CONTRIBUTION AGREEMENT
Jeffrey A. Patterson, Executive Vice President and Chief Investment Officer
of the Company, and PGI entered a contribution agreement pursuant to which Mr.
Patterson contributed his interests in the assets of the office and industrial
division of PGI to the Operating Partnership in exchange for 110,000 Common
Units.
LEASES WITH PGI AFFILIATES
Certain entities in which PGI has a controlling ownership interest have
leased space in the Company's 77 West Wacker Drive Building. These entities
include (i) Brookdale Living Communities, Inc., which is leasing space for an
approximate annual rent of $418,000 pursuant to a lease which expires April 30,
2003 and (ii) The Prime Group, Inc., which is leasing space for an approximate
annual rent of $418,000 pursuant to a lease which expires on December 31, 2002.
SALE OF COMMON SHARES TO MR. RESCHKE
Prior to the Offering, the Company sold 100 unregistered Common Shares to
Michael W. Reschke for $10 per share, or an aggregate consideration of $1,000.
Such Common Shares were purchased by Mr. Reschke solely to facilitate the
organization of the Company. Upon completion of the Offering, all of the shares
so acquired by Mr. Reschke were redeemed by the Company for an aggregate
redemption price of $1,000.
OTHER TRANSACTIONS
PGI has in the past provided asset and property management, leasing,
acquisition, renovation, development, construction management, legal and
administrative services for the entities owning certain of the Company's
properties. PGI received fees relating to these services in the amounts of
$2,084, $2,277 and $2,698, (in thousands) for the period from January 1, 1997
through November 16, 1997 and for the years ended December 31, 1996 and 1995,
respectively. Since the Offering, all such management services have been
performed by Prime Group Realty Services, Inc., (the "Services Company").
Messrs. Reschke and Curto own 100% of the voting stock of the Services Company.
The Operating Partnership paid on behalf of PGI, or reimbursed PGI, for
approximately $6.5 million of expenses incurred in connection with the Formation
Transactions and the Offering.
The Company is aware of contamination at certain of the Company's industrial
properties. PGI has contractually agreed to retain liability for, and indemnify
the Company for, environmental remediation costs with regard to certain of these
properties.
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Governor James R. Thompson, a Trustee of the Company, is Chairman of the law
firm of Winston & Strawn, which has provided, and continues to provide, legal
services to the Company.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Proposals of shareholders intended to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by the Company on or prior to
December 22, 1998 to be eligible for inclusion in the Company's Proxy Statement
and form of Proxy to be used in connection with the 1999 annual meeting. Nothing
in this paragraph shall be deemed to require the Company to include in its Proxy
Statement and Proxy relating to the 1999 annual meeting any shareholder proposal
which may be omitted from the Company's proxy materials pursuant to the
applicable regulations of the SEC in effect at the time such proposal is
received.
OTHER BUSINESS
The Board of Trustees knows of no business that will be presented for
consideration at the Meeting other than the matters described in this Proxy
Statement. If any other matter should be presented at the Meeting for action,
the persons named in the accompanying proxy card will vote the proxy in their
own discretion.
[SIGNATURE]
James F. Hoffman
SECRETARY
Chicago, Illinois
April 29, 1998
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PROXY PROXY
PRIME GROUP REALTY TRUST
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 22, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Michael W. Reschke, Richard S. Curto, William
M. Karnes and James F. Hoffman, and each of them, as proxies with full power
of substitution to represent and to vote, as designated on the reverse side
of this proxy, all of the common shares of beneficial interest, par value
$0.01 per share, of Prime Group Realty Trust which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held on May 22,
1998 at 10:00 a.m., local time, at 35 West Wacker Drive, 35th Floor,
Conference Room A, Chicago, Illinois, and at any adjournments thereof and,
in such proxies' discretion, to vote upon such other business as may properly
come before the meeting, all as more fully set forth in the Proxy Statement
related to such meeting, receipt of which is hereby acknowledged.
Comments/Change of address:
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[PLEASE SEE REVERSE SIDE]
<PAGE>
PLEASE MARK YOUR VOTES IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
For All
A. ELECTION OF TWO CLASS I TRUSTEES Withhold (Except Nominee(s)
FOR A TERM OF THREE YEARS EACH FOR Authority Written Below)
Nominees: Michael W. Reschke,
Jacque M. Ducharme / / / / / /
-------------------------------
For Against Abstain
B. To ratify the appointment of Ernst & Young LLP / / / / / /
as independent auditors of the Company for the
fiscal year ended December 31, 1998
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE TRUSTEE NOMINEES AND FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS OF THE COMPANY.
Dated:_____________________________________________________
Signature(s)_______________________________________________
__________________________________________________________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by the president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
The signer hereby revokes all proxies heretofore given by the signer to vote
at said meeting or any adjournments thereof.
Please return promptly in the enclosed postage-paid envelope.
TRIANGLE FOLD AND DETACH HERE TRIANGLE
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
