SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
OR
/ /Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 0-28354
Great Lakes REIT, Inc.
(Exact name of Registrant as specified in its Charter)
Maryland 36-3844714
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
60523 823 Commerce Drive, Suite 300, Oak Brook, IL
(Zip Code) (Address of principal executive offices)
(630) 368 - 2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares of the registrant's common stock, $.01 par value,
outstanding as of November 12, 1997: 15,685,866
<PAGE>
Great Lakes REIT, Inc.
Index to Form 10-Q
September 30, 1997
Page Number
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets
as of September 30, 1997
and December 31, 1996 4
Consolidated Statements of Income
for the three months
ended September 30, 1997 and 1996 5
Consolidated Statements of Income
for the nine months
ended September 30, 1997 and 1996 6
Consolidated Statement of Changes
in Stockholders' Equity
for the nine months ended September 30, 1997 7
Consolidated Statements of Cash Flows
for the nine months
ended September 30, 1997 and 1996 8
Notes to Consolidated Financial Statements 9
Item 2. Management Discussion and Analysis of Results of
Operations and Financial Condition 12
Part II - Other Information
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(unaudited) September 30, December 31,
1997 1996
Assets
<S> <C> <C>
Properties:
Land $37,494,153 $31,529,000
Buildings, improvements, and equipment 213,724,561 157,902,629
---------------------------------------
251,218,714 189,431,629
Less accumulated depreciation 9,656,647 5,309,666
---------------------------------------
241,562,067 184,121,963
Cash and cash equivalents 2,363,204 1,688,173
Real estate tax escrows 316,529 1,065,182
Rents receivable 2,386,979 2,130,935
Deferred financing and leasing costs, net of accumulated amortization 2,614,185 2,976,902
Goodwill, net of accumulated amortization 1,377,355 1,433,194
Other assets 693,581 732,533
---------------------------------------
Total assets $251,313,900 $194,148,882
=======================================
Liabilities and Stockholders' Equity
Bank loan payable $39,000,000 $63,802,368
Mortgage loans payable 5,479,839 17,073,979
Bonds payable 5,030,000 5,235,000
Accounts payable and accrued liabilities 4,824,327 4,153,800
Accrued real estate taxes 5,329,353 5,423,160
Prepaid rent 2,594,617 1,170,101
Security deposits 827,465 695,570
---------------------------------------
Total liabilities 63,085,601 97,553,978
---------------------------------------
Minority interest 312,650
---------------------------------------
Preferred stock ($0.01 par value, 10,000,000 authorized; none issued 2,101
in 1997 and 210,128 issued in 1996)
Common stock ($0.01 par value, 60,000,000 authorized; 15,697,473 and 156,975 88,323
8,832,268 shares issued in 1997 and 1996 respectively)
Paid-in-capital 194,599,817 98,096,085
Retained earnings (deficit) (3,626,193) 177,320
Employee stock loans (2,865,086) (1,247,351)
Deferred compensation (79,625) (251,335)
Treasury stock, at cost (21,784 shares) (270,239) (270,239)
---------------------------------------
Total stockholders' equity 187,915,649 96,594,904
---------------------------------------
Total liabilities and stockholders' equity $251,313,900 $194,148,882
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Income
(unaudited)
<CAPTION>
Three Months Ended September 30,
----------------------------------------------
1997 1996
Revenues:
<S> <C> <C>
Rental $8,922,178 $4,924,980
Reimbursements 2,633,848 1,185,610
Interest and other 261,197 30,931
----------------------------------------------
Total revenues 11,817,223 6,141,521
----------------------------------------------
Expenses:
Real estate taxes 1,692,032 910,132
Other property operating 2,863,102 1,685,139
General and administrative 923,062 592,782
Interest 220,760 943,288
Depreciation and amortization 2,002,533 1,008,401
----------------------------------------------
Total expenses 7,701,489 5,139,742
----------------------------------------------
Net income $4,115,734 $1,001,779
==============================================
Earnings per common share
common share equivalent $0.26 $0.17
==============================================
Weighted average number of
common shares and common
share equivalents outstanding 15,727,905 5,830,369
==============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Income
(unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
1997 1996
<S> <C> <C>
Revenues:
Rental $25,219,293 $14,027,463
Reimbursements 7,775,120 3,506,757
Interest and other 539,811 78,366
-------------------------------------------
Total revenues 33,534,224 17,612,586
-------------------------------------------
Expenses:
Real estate taxes 5,400,664 2,907,224
Other property operating 8,323,061 4,691,157
General and administrative 2,598,460 1,493,041
Interest 3,144,940 2,865,533
Depreciation and amortization 5,839,273 2,743,067
-------------------------------------------
Total expenses 25,306,398 14,700,022
-------------------------------------------
Net income $8,227,826 $2,912,564
===========================================
Earnings per common share and
common share equivalent $0.66 $0.57
===========================================
Weighted average number of
common shares and common
share equivalents outstanding 12,475,363 5,081,833
===========================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1997
(unaudited)
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Paid in
Outstanding Outstanding Capital
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 1/1/97 210,128 $2,101 8,810,484 $88,323 $98,096,085
Net proceeds from the sale
of common stock (210,128) (2,101) 6,555,000 65,550 92,966,517
Exercise of stock options 192,071 1,921 2,002,648
Net income
Distributions / dividends
($0.30 per share)
Issuance of shares for
property acquisitions 118,134 1,181 1,534,567
Amortization of deferred compensation
--------------------------------------------------------------------------------------------
Balance at 9/30/97 0 $0 15,675,689 $156,975 $194,599,817
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1997
(unaudited)
<CAPTION>
Retained Total
Earnings Employee Deferred Treasury Stockholders'
(Deficit) Stock Loans Compensation Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at 1/1/97 $177,320 ($1,247,351) ($251,335) ($270,239) $96,594,904
Net proceeds from the sale
of common stock 93,029,966
Exercise of stock options (1,617,735) 386,834
Net income 8,227,826 8,227,826
Distributions / dividends
($0.30 per share) (12,031,339) (12,031,339)
Issuance of shares for
property acquisitions 1,535,748
Amortization of deferred compensation 171,710 171,710
--------------------------------------------------------------------------------------------
Balance at 9/30/97 ($3,626,193) ($2,865,086) ($79,625) ($270,239) $187,915,649
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
1997 1996
<S> <C> <C>
Net income $8,227,826 $2,912,564
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 5,839,273 2,743,067
Amortization of deferred compensation 171,710 152,444
Net changes in assets and liabilities:
Rents receivable (256,044) 541,726
Real estate tax escrows 767,049 611,337
Other assets 141,397 104,230
Accounts payable and accrued expenses 693,137 1,239,681
Accrued real estate taxes (93,807) (295,253)
Payment of deferred leasing costs (628,433) (1,150,682)
Other liabilities 1,554,742 (255,953)
------------------------------------------
Net cash provided by operating activities 16,416,850 6,603,161
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of properties (51,992,731) (18,689,351)
Additions to buildings, improvements and equipment (5,146,082) (3,008,552)
Decrease (increase) in earnest money deposits (100,000) 750,000
Acquisition of advisor - (435,154)
------------------------------------------
Net cash used by investing activities (57,238,813) (21,383,057)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock in private offering - 735
Proceeds from sale of common stock in private offering - 17,594,115
Proceeds from sale of common stock in initial public offering 101,602,500 -
Payment of stock offering costs (8,572,534) (2,807,617)
Proceeds from exercise of stock options 386,834 1,947,764
Proceeds from bank and mortgage loans payable 49,800,000 3,349,220
Distributions / dividends (12,031,339) (4,435,554)
Payment of bank and mortgage loans and bonds (89,390,923) (660,957)
Payment of deferred financing costs (297,544) (694,331)
------------------------------------------
Net cash provided by financing activities 41,496,994 14,293,375
------------------------------------------
Net increase (decrease) in cash and cash equivalents 675,031 (486,521)
Cash and cash equivalents, beginning of year 1,688,173 1,302,728
------------------------------------------
Cash and cash equivalents, end of quarter $2,363,204 $816,207
==========================================
Supplemental disclosure of cash flows:
Interest paid $3,091,493 $2,732,582
==========================================
Non cash financing transactions:
Issuance of common stock for acquisition of Advisor $1,350,000
=====================
Restricted stock awards $480,000
=====================
Employee stock loans $1,617,735 1,247,351
==========================================
Issuance of shares and units to acquire properties $1,848,398
=====================
Mortgages and loans assumed to acquire properties $2,989,415
=====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Great Lakes REIT, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. These statements should be read in conjunction with the Company's
most recent year-end audited financial statements. In the opinion of management,
the financial statements contain all adjustments (which are normal and
recurring) necessary for a fair statement of financial results for the interim
periods. For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
2. Properties Acquired in 1997
On February 10, 1997, the Company acquired Court Office Center, a 15,000 square
foot office building in Markham, Illinois for a total acquisition cost of
$1,262,886.
On February 10, 1997, the Company acquired 1675 Holmes Road, a 101,286 square
foot industrial building in Elgin, Illinois for a total acquisition cost of
$3,925,987. A portion of the acquisition cost was paid by issuing limited
partnership units in Great Lakes REIT, L.P., the Company's previously
wholly-owned operating partnership, which results in the recording of minority
interests in the accompanying consolidated balance sheet.
On April 18, 1997, the Company acquired a 53,353 square foot building located in
Brookfield, Wisconsin for a total acquisition cost of $4,964,815.
On September 1, 1997, the Company acquired a 213,346 square foot building
located in Schaumburg, Illinois, for a total acquisition cost of $19,897,432.
On September 30, 1997, the Company acquired two office buildings totalling
319,679 square feet located in Dublin, Ohio, for a total acquisition cost of
$26,905,205.
3. Pro forma Summary Information
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, on April 1, 1996 the Company acquired all of the outstanding
shares of Equity Partners Ltd. (the "Advisor") in exchange for 100,000 shares of
its common stock. The following unaudited pro forma summary information presents
the results of operations of the Company as if the acquisition of the Advisor,
the Company's private equity offering in 1996 of common and preferred stock, its
May 1997 initial public offering, and the property acquisitions and dispositions
completed during 1997 and 1996 had occurred at the beginning of 1996, after
giving effect to certain adjustments, including increased depreciation and
decreased interest expense. The unaudited pro forma summary information does not
necessarily reflect the results of operations as they would have been if the
Company had entered into these transactions on January 1, 1996.
3
<PAGE>
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, 1997 September 30, 1996
<S> <C> <C>
Revenues $39,559 $35,021
Net income $11,233 $9,826
Earnings per common
share and common
share equivalent $0.90 $0.79
</TABLE>
4. Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method it currently
uses to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
Company's computation of its earnings per share is not expected to be material.
5. Stock Options
On February 25, 1997, the Company granted options to purchase 1,000,000 shares
of the Company's common stock to certain employees subject to the approval of a
new stock option plan by the Company's stockholders. On May 29, 1997, the Board
of Directors adopted the 1997 Equity and Performance Incentive Plan (the "Plan")
which replaced the 1996 employee stock option plan and provided 2,250,000 shares
be reserved for issuance under the Plan, and on September 11, 1997 the Company's
stockholders approved the Plan. Fifty percent of the options granted on February
25, 1997 vested upon approval of the Plan by the Company's stockholders and 50%
vest the earlier of August 25, 1998 or upon a change in control of the Company.
These options are exercisable for 10 years from the date of grant and have an
exercise price of $16 per share.
During the quarter ended September 30, 1997, the Company granted 165,000 options
to certain employees at an average exercise price of $16.37. These options have
a term of ten years and vest 50% upon grant and 50% eighteen months from the
date of grant or upon a change in control of the Company.
6. Financing Activities
On May 1, 1997, the Company repaid three mortgage loans secured by its
Northbrook, Illinois, Wood Dale, Illinois, and 1011 Touhy Avenue, Des Plaines,
Illinois properties. These loans were repaid with amounts drawn under its bank
lines of credit. The total refinancing was approximately $7.4 million.
In May, 1997, the Company closed the initial public offering of its common
shares. The Company sold 6.55 million shares of common stock at the price of
$15.50 per share including shares issued upon exercise of the underwriter's
overallotment option. Net proceeds to the Company were approximately $93.4
million, substantially
4
<PAGE>
all of which was used to repay its bank lines of credit and other indebtedness
including certain mortgage debt on the Company's properties. With the completion
of the initial public offering, the outstanding preferred stock was cancelled.
In May, 1997, with the proceeds from the Company's initial public offering, the
Company repaid approximately $74.6 million of its bank lines of credit, and
repaid the following mortgage loans: a loan in an amount of approximately $3
million secured by its One Hawthorn Place, Vernon Hills, Illinois property; two
loans aggregating approximately $2.3 million secured by its Park Place VII,
Milwaukee, Wisconsin and Arlington Heights, Illinois properties; and a loan in
an amount of approximately $800,000 secured by its Bloomington, Minnesota
property.
7. Subsequent Events
On October 10, 1997, the Company acquired the Arlington Business Center, a
property composed of three single-story office/service center buildings totaling
97,913 square feet located in Arlington Heights, Illinois for a contract price
of $5,200,000.
The Company recently contracted to purchase three properties for an aggregate
purchase price of approximately $57,000,000. These three transactions, one in
the Chicago area and the other two in the Detroit area, total approximately
570,000 square feet. All three purchases are anticipated to close before
December 31, 1997.
5
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following is a discussion and analysis of the consolidated financial
condition and results of operations for the quarter and nine months ended
September 30, 1997. The following should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere herein
and the consolidated financial statements and related notes contained in the
Company's 1996 Form 10-K.
Overview
Great Lakes REIT, Inc. (the Company) a Maryland corporation, was formed on June
22, 1992 to invest in income-producing real property. The principal business of
the Company is the ownership, management, leasing, renovation, and acquisition
of suburban office and light industrial properties located within a 500 mile
radius of Chicago. At September 30, 1997, the Company owned and operated 31
properties located in suburban areas of Chicago, Detroit, Milwaukee, Cincinnati,
Columbus and Minneapolis. The Company leases office and industrial space to over
300 tenants in a variety of businesses.
The Company has expanded its real estate portfolio through the acquisition of
suburban office and office/service center properties. The Company has financed
its growth by the issuance of shares of its common stock and short and long-term
mortgage notes. Growth in net income and funds from operations (FFO) for the
three and nine months ended September 30, 1997 as compared to September 30, 1996
has been due to a combination of improved operations of the Company's properties
and the inclusion of the operating results of properties acquired in 1996 and
1997 from the dates of their respective acquisitions.
Three months ended September 30, 1997 compared to three months ended September
30, 1996
In analyzing the operating results for the quarter ended September 30, 1997 the
changes in rental income, real estate taxes and property operating expenses,
from 1996 are due principally to three factors: (1) the addition of operating
results from properties acquired during 1997 and the fourth quarter of 1996; (2)
the addition of a full quarter of operating results in 1997 from the properties
acquired in the third quarter of 1996 as compared to the partial quarter of
operating results from the dates of their respective acquisitions in 1996, and
(3) improved operations of properties during 1997 as compared to 1996.
The Company acquired three properties in the third quarter of 1997. The
operating results of these properties have been included in the Company's
financial statements from the date of their acquisition. During the third and
fourth quarters of 1996 the Company acquired 8 properties, and in 1997 a full
quarter of operations for these properties has been included in the Company's
financial statements.
6
<PAGE>
A summary of these changes as they impact rental income, real estate taxes, and
property operating expenses follows:
<TABLE>
<CAPTION>
Rental and Real estate Property
reimbursement taxes operating
income expenses
<S> <C> <C> <C>
Increase due to inclusion
of results of properties
acquired in 1996 $4,964,000 $767,000
$1,126,000
Increase due to 1997 acquisitions 719,000 86,000 166,000
Property dispositions in 1996 (486,000) (56,000) (155,000)
Improved operations in 1997
compared to 1996 248,000 (15,000)
---------- --------
41,000
Total increase in 1997 $5,445,000 $782,000 $1,178,000
========== ======== ==========
</TABLE>
Interest expense during the quarter ended September 30, 1997 decreased by
$723,000 as a result of the repayment of debt with proceeds from the Company's
initial public offering.
General and administrative expenses increased by $162,000 principally due to
costs associated with the hiring of its new president.
Depreciation and amortization increased in 1997 by $994,000 as the Company
incurred these expenses on 31 properties as of September 30, 1997 as compared to
19 properties as of September 30, 1996.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
In analyzing the operating results for the nine months ended September 30, 1997
of the Company, the changes in rental income, real estate taxes and property
operating expenses, from 1996 are due principally to three factors: (1) the
addition of operating results from properties acquired during 1997 and the
fourth quarter of 1996; (2) the addition of a full nine months of operating
results in 1997 from properties acquired in during the first three quarters of
1996 as compared to the partial period of operating results from the dates of
their respective acquisitions in 1996; and (3) improved operations of properties
during 1997 as compared to 1996.
During the nine months ended September 30, 1997, the Company acquired six new
investment properties. The operating results of these properties have been
included in the Company's financial statements from the date of their
acquisitions. In 1996, the Company acquired 10 properties, and in 1997 a full
nine months of operations of these properties has been included in the Company's
financial statements.
A summary of these changes as they impact rental income, real estate taxes, and
property operating expenses follows:
Expenses
7
<PAGE>
<TABLE>
<CAPTION>
Rental and Property
Reimbursement Real Estate Operating
Income Taxes
<S> <C> <C> <C>
Increase due to inclusion
of results of properties
acquired in 1996 $14,658,000 $2,398,000
$3,510,000
Increase due to 1997 acquisitions 1,172,000 156,000 255,000
Property dispositions in 1996 (1,525,000) (144,000) (394,000)
Improved operations in 1997
compared to 1996 1,155,000 83,000
--------- ------
261,000
Total increase in 1997 $15,460,000 $2,493,000 $3,632,000
=========== ========== ==========
</TABLE>
Interest expense during the nine months ended September 30, 1997 increased by
$279,000 as the Company had substantially increased amounts of long and
short-term indebtedness outstanding during the first and second quarters of 1997
compared with 1996. For the nine month period this factor countered the
reduction in debt following the initial public offering which impacted the third
quarter. This indebtedness was incurred to finance the acquisition of properties
acquired in 1996 and 1997.
General and administrative expenses increased by $763,000 due to: increases in
costs associated with the implementation of a performance based compensation
system in 1997 compared to the outside advisory fees paid in 1996 ($197,000);
increased costs associated with the hiring of the Company's new president
($175,000); amortization of deferred compensation ($171,000); an increase in the
size of the Company ($92,000); increased legal and audit fees ($80,000); and
professional fees related to certain employee matters ($48,000).
Depreciation and amortization increased in 1997 by $3,078,000 as the Company
incurred these expenses on 31 properties as of September 30, 1997 as compared to
19 properties as of September 30, 1996.
Liquidity and Capital Resources
Cash and cash equivalents as of September 30, 1997 were $2,363,000, an increase
of $675,000 as compared to December 31, 1996. The increase is primarily due to
increased cash flow from operating activities in 1997 as compared to 1996 and
increased net cash provided by financing activities in 1997 as compared to 1996.
The Company expects to meet its short-term liquidity requirements for general
operations principally through its working capital and net cash provided by
operating activities. The Company considers its cash provided by operating
activities to be adequate to meet operating requirements and to fund the payment
of dividends in order to comply with certain federal income tax requirements
applicable to real estate investment trusts ("REITs").
The Company expects to meet its short term liquidity requirements for property
acquisitions and significant capital improvements initially through additional
borrowings on its existing $75 million line of credit which matures in April of
1998. The Company anticipates that the existing line of credit will not be
sufficient to fund all such requirements and has commenced negotiations to
establish an additional short term secured credit facility of approximately $25
million which
8
<PAGE>
the Company expects will be sufficient to provide the required funds until such
time as the line of credit is renewed and expanded or the short term debt is
replaced with long term debt or is repaid with the proceeds of additional equity
offerings.
The Company expects to meet its long-term liquidity requirements (such as
scheduled mortgage debt maturities, property acquisitions, and significant
capital improvements) through long-term collateralized and uncollateralized
borrowings and the issuance of debt or additional equity securities in the
Company. The Company completed an initial public offering of its common shares
in May 1997. The net proceeds of approximately $93.4 million were used to repay
its bank lines of credit, for repayment of other indebtedness (including certain
mortgage debt secured by certain of the Company's properties), and for working
capital.
Funds from Operations (FFO)
The White Paper on Funds From Operations approved by the Board of Governors of
the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 (the "White Paper") defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains or
losses from debt restructuring and sales of property, plus real estate
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance of an equity REIT because it is predicated on cash flow analyses.
The Company computes FFO in accordance with standards established by the White
Paper (except for the amortization of deferred compensation related to
restricted stock awards issued in connection with the Merger) which may differ
from the methodology for calculating FFO utilized by other equity REITs and
accordingly, may not be comparable to other such REITs. FFO should not be
considered as an alternative to net income (determined in accordance with
generally accepted accounting principles) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with generally accepted accounting principles) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. FFO for the
three months ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income $ 4,115,734 $ 1,001,779
Depreciation and amortization 1,763,705 964,680
--------- -------
FFO $5,879,439 $1,966,459
========== ==========
</TABLE>
FFO for the nine months ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income $8,227,826 $2,912,564
Depreciation and amortization 4,982,678 2,454,721
Loan prepayment costs 644,189 ----
------- ----
FFO $13,854,693 $5,367,285
=========== ==========
</TABLE>
9
<PAGE>
Forward-Looking Statements
Certain statements in this document constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Acts of 1934, and the Company intends that such
"forward-looking statements" be subject to the safe harbors created thereby. The
words "believe", "expect" and "anticipate" and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are subject to many uncertainties and factors relating to the Company's
operations and business environment that may cause the actual results of the
Company to be materially different from any future results expressed or implied
by such forward-looking statements. Examples of such uncertainties include, but
are not limited to, changes in interest rates, increased competition for
acquisition of new properties, unanticipated expenses and delays in acquiring
properties or increasing occupancy rates and regional economic and business
conditions.
10
<PAGE>
Part II Other Information
Item 1. Legal Proceedings
The Company was not involved as a defendant or a plaintiff in any material legal
proceedings other than routine litigation incidental to the business.
Item 2. Changes in Securities
At the Annual Stockholders' Meeting held on September 11, 1997 the Company's
stockholders approved the amendment and restatement of the Charter of the
Company as described in the Articles of Amendment and Restatement attached to
this Form 10-Q as Exhibit 3.1.
The Articles of Amendment and Restatement which were subsequently filed with the
State Department of Assessments and Taxation of Maryland on September 20, 1997
contain the following four principal modifications to the Company's Articles of
Incorporation: (1) an increase in the number of shares of Common Stock that the
Company is authorized to issue from 20,000,000 to 60,000,000; (2) the
incorporation from the Company's Bylaws of certain stock ownership limitations
deemed appropriate and necessary to maintain the Company's REIT status under the
Internal Revenue Code; (3) elimination of provisions in the Articles of
Incorporation which exempted the Company and its shares from provisions of the
Maryland General Corporation Law that govern certain business combinations and
provisions of Maryland General Corporation Law that restrict the voting rights
of "control shares" of a Maryland corporation; and (4) general modifications to
reflect what the Board of Directors believes are appropriate corporate
governance provisions for a public REIT.
During the quarter ended September 30, 1997, the Company issued 133,641 shares
of common stock pursuant to the exercise of outstanding stock options with an
aggregate exercise price of $1,383,164. These shares were issued to the
optionholders pursuant to exemptions from the registration requirements of the
Securities Act of 1933, as amended (the "Act") provided by Section 4(2) of the
Act or Rule 701 thereunder.
Item 3. Defaults Upon Senior Securities
The Company is not in default on any Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 11, 1997, the Company conducted its 1997 Annual Stockholders'
Meeting in Schaumburg, Illinois pursuant to a Notice of Meeting and Proxy
Statement dated July 31, 1997.
All of the members of the Company's Board of Directors were nominated and were
reelected to serve another term at such Annual Meeting. The following is the
list of the individuals who were nominated and reelected to the Board of
Directors: Mr. James J. Brinkerhoff, Mr. Daniel E. Josephs, Mr. Edward
Lowenthal, Mr. Richard A. May, Mr. Donald E. Phillips, Mr. Richard L. Rasley,
Mr. Walter H. Teninga. The following is a description of the voting results for
each of the nominees.
<TABLE>
<CAPTION>
Issue: Election of Directors For Against Abstain Total
=========================================================== ====================================================================
Nominees Name:
<S> <C> <C> <C> <C>
James J. Brinkerhoff 11,411,140 14,912 12,853 11,438,905
Daniel E. Josephs 11,389,854 36,198 12,853 11,438,905
Edward Lowenthal 11,413,340 12,712 12,853 11,438,905
Richard May 11,413,340 12,712 12,853 11,438,905
Donald Phillips 11,230,757 195,295 12,853 11,438,905
Richard Rasley 11,413,340 12,712 12,853 11,438,905
Walter H. Teninga 11,389,854 36,198 12,853 11,438,905
</TABLE>
Three other matters were submitted to a vote at the Annual Meeting. The
following is a brief description of the other matters voted upon at the meeting
and of the voting on each matter.
11
1. Ratification of Ernst & Young LLP as independent auditors of the Company for
the year ending December 31, 1997. The proposal was approved by the Company's
stockholders with the following vote totals: 11,408,037 for and 17,882 against
with 12,986 abstentions and broker non-votes.
2. Approval of the Great Lakes REIT, Inc. 1997 Equity and Performance
Incentive Plan (the "Plan"). The Plan was adopted by the Board of Directors on
May 29, 1997, subject to approval by the Company's stockholders at the 1997
Annual Meeting. The proposal was approved by the Company's stockholders with the
following vote totals: 8,017,988 for and 1,455,170 against with 1,965,747
abstentions and broker non-votes.
3. Approval of the amendment of the Company's Charter as set forth in the
Articles of Amendment and Restatement. The proposal was approved by the
Company's stockholders with the following vote totals: 8,017,988 for and
1,455,170 against with 1,965,747 abstentions and broker non-votes.
Item 5. Other Information.
The Company recently completed contracts to purchase two properties for an
aggregate purchase price (including budgeted renovation costs) of $48.5 million
and is in the final stages of contract negotiations for an additional $8.5
million property. These three properties, one in the Chicago area and the other
two in the Detroit area, total 570,000 rentable square feet, have an average
annualized return of 10.25% based on the respective December 1997 rent rolls
annualized and an average occupancy rate of 94%. All three of the purchases are
expected to close in December 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are attached hereto:
Exhibit
Number Description of Document
3.1 The Company's Articles of Amendment and Restatement
10.1 Change in Control Agreement between Company and Mr. Adam Berman.
10.2 The 1997 Equity and Performance Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the quarter ended
September 30, 1997: the report dated September 15, 1997 regarding a real estate
acquisition in Schaumburg, Illinois, One Century Centre.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Great Lakes REIT, Inc.
(Registrant)
Date: November 12, 1997 /s/ James Hicks
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE>
Exhibits:
Exhibit 3.1 The Company's Articles of Amendment and Restatement
GREAT LAKES REIT, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Great Lakes REIT, Inc. a Maryland corporation (the "Corporation"),
desires to amend and restate its charter as currently in effect and as
hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, Anne Hamblin Schiave, whose address is 40th Floor, 500
West Madison Street, Chicago, Illinois 60661-2511, being at least 18 years of
age, does hereby form a corporation under the general laws of the State of
Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Great Lakes REIT, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real estate
investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of the
resident agent of the Corporation in the State of Maryland is James J. Hanks,
Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, 300 East
Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen of
and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
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<PAGE>
Section 5.1 Number and Classification of Directors. The business and
affairs of the Corporation shall be managed under the direction of the Board of
Directors. The number of directors of the Corporation shall be nine, which
number may be increased or decreased pursuant to the Bylaws, but shall never be
less than the minimum number required by the Maryland General Corporation Law.
The names of the current directors are:
James J. Brinkerhoff
Daniel E. Josephs
Edward Lowenthal
Richard A. May
Donald E. Phillips
Richard L. Rasley
Walter H. Teninga
The directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors in the manner provided in the Bylaws.
At any meeting of stockholders, the directors (other than any director
elected solely by holders of one or more classes or series of Preferred Stock)
may be classified, with respect to the terms for which they severally hold
office, into three classes, as nearly equal in number as possible, one class to
hold office initially for a term expiring at the next succeeding annual meeting
of stockholders, another class to hold office initially for a term expiring at
the second succeeding annual meeting of stockholders and another class to hold
office initially for a term expiring at the third succeeding annual meeting of
stockholders, with the members of each class to hold office until their
successors are duly elected and qualify. At each annual meeting of the
stockholders, the successors to the class of directors whose term expires at
such meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
Section 5.2 Extraordinary Actions. Except as specifically provided in
Article VIII, notwithstanding any provision of law permitting or requiring any
action to be taken or authorized by the affirmative vote of the holders of a
greater number of votes, any such action shall be effective and valid if taken
or authorized by the affirmative vote of holders of shares entitled to cast a
majority of all the votes entitled to be cast on the matter.
Section 5.3 Authorization by Board of Stock Issuance. The Board of
Directors may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a stock
split or stock dividend), subject to such restrictions or limitations, if any,
as may be set forth in the charter or the Bylaws.
Section 5.4 Preemptive Rights. Except as may be provided by the Board
of Directors in setting the terms of classified or reclassified shares of stock
pursuant to Section 6.4, no holder of shares of stock of the Corporation shall,
as such holder, have any preemptive right to purchase or subscribe for any
additional
15
<PAGE>
shares of stock of the Corporation or any other security of the Corporation
which it may issue or sell.
Section 5.5 Indemnification. The Corporation shall, to the maximum
extent permitted by Maryland law in effect from time to time, indemnify, and pay
or reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former director or officer of the
Corporation or (b) any individual who, while a director of the Corporation and
at the request of the Corporation, serves or has served as a director, officer,
partner or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of expenses
to a person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its stock or the payment of other distributions on its stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or Corporation; and any matters relating to the holding and
disposition of any assets by the held by the acquisition, Corporation.
Section 5.7 REIT Qualification. If the Corporation elects to qualify
for federal income tax treatment as a REIT, the Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, if the Board of
Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code. The Board of Directors also may determine that
compliance with any restriction or limitation on stock ownership and transfers
set forth in Article VII is no longer required for REIT qualification.
Section 5.8 Removal of Directors. Subject to the rights of holders of
one or more classes or series of Preferred Stock to elect one or more directors,
any director, or the entire Board of Directors, may be removed from office at
any time with or without cause, by the affirmative vote of the holders of at
least a majority of the votes entitled to be cast in the election of directors.
16
<PAGE>
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The Corporation has authority to issue
sixty million shares of Common Stock, $.01 par value per share ("Common Stock")
and ten million shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"). The aggregate par value of all authorized shares of stock having par
value is Seven Hundred Thousand Dollars.
Section 6.2 Common Stock. Subject to the provisions of Article VII,
each share of Common Stock shall entitle the holder thereof to one vote. The
Board of Directors may reclassify any unissued shares of Common Stock from time
to time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified but
unissued shares of Preferred Stock of any series from time to time, in one or
more series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to issuance of
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set or change, subject to
the provisions of Article VII and subject to the express terms of any class or
series of stock of the Corporation outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Corporation to file
articles supplementary with the State Department of Assessments and Taxation of
Maryland ("SDAT"). Any of the terms of any class or series of stock set or
changed pursuant to clause (c) of this Section 6.4 may be made dependent upon
facts or events ascertainable outside the charter (including determinations by
the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire stock in
the Corporation shall acquire the same subject to the provisions of the Charter
and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII, the following
terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership
Limit" shall mean not more than 9.9 percent in value of the aggregate of the
outstanding shares of Capital Stock. The value of the outstanding shares of
Capital Stock shall be determined by the Board of Directors of the Corporation
in good faith, which determination shall be conclusive for all purposes hereof.
17
<PAGE>
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or
series of stock of the Corporation, including, without limitation, Common Stock
and Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Trust as determined pursuant to Section 7.3.6,
provided that each such organization must be described in Section 501(c)(3) of
the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Charter. The term "Charter" shall mean the charter of the Corporation, as
that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a stockholder of
the Corporation for whom an Excepted Holder Limit is created by these Articles
or by the Board of Directors pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 7.2.7,
and subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Directors pursuant to Section 7.2.7.
Initial Date. The term "Initial Date" shall mean the date upon which
the Articles of Amendment containing this Article VII are filed with the SDAT.
Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on any
date shall mean the last sale price for such Capital Stock, regular way, or, in
case no such sale takes
18
<PAGE>
place on such day, the average of the closing bid and asked prices, regular way,
for such Capital Stock, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if such Capital Stock is not listed or admitted to
trading on the NYSE, as reported on the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such Capital Stock is listed or admitted to trading
or, if such Capital Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotation
system that may then be in use or, if such Capital Stock is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in such Capital Stock selected by
the Board of Directors of the Corporation or, in the event that no trading price
is available for such Capital Stock, the fair market value of the Capital Stock,
as determined in good faith by the Board of Directors of the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange, Inc.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, and a group to which an Excepted Holder Limit applies.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
7.2.1, would Beneficially Own or Constructively Own shares of Capital Stock, and
if appropriate in the context, shall also mean any Person who would have been
the record owner of the shares that the Prohibited Owner would have so owned.
REIT. The term "REIT" shall mean a real estate investment trust within the
meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Section 5.7 of the charter that it is no longer in the
best interests of the Corporation to attempt to, or continue to, qualify as a
REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of shares of Capital Stock set
forth herein is no longer required in order for the Corporation to qualify as a
REIT.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Beneficial Ownership or Constructive Ownership, or
any agreement
19
<PAGE>
to take any such actions or cause any such events, of Capital Stock or the right
to vote or receive dividends on Capital Stock, including (a) the granting or
exercise of any option (or any disposition of any option), (b) any disposition
of any securities or rights convertible into or exchangeable for Capital Stock
or any interest in Capital Stock or any exercise of any such conversion or
exchange right and (c) Transfers of interests in other entities that result in
changes in Beneficial or Constructive Ownership of Capital Stock; in each case,
whether voluntary or involuntary, whether owned of record, Constructively Owned
or Beneficially Owned and whether by operation of law or otherwise. The terms
"Transferring" and "Transferred" shall have the correlative meanings.
Trust. The term "Trust" shall mean any trust provided for in Section 7.3.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of the Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period commencing on the
Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) No Person, other than an Excepted Holder, shall Beneficially
Own or Constructively Own shares of Capital Stock in excess of the Aggregate
Stock Ownership Limit, and (2) no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the Excepted Holder
Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own shares
of Capital Stock to the extent that such Beneficial or Constructive Ownership of
Capital Stock would result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code (without regard to whether the ownership
interest is held during the last half of a taxable year), or otherwise failing
to qualify as a REIT (including, but not limited to, Beneficial or Constructive
Ownership that would result in the Corporation owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Corporation from such
tenant would cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
(iii) Subject to Section 7.4 hereof and notwithstanding any
other provisions contained herein, any Transfer of shares of Capital Stock
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) that, if effective, would result in the
Capital Stock being beneficially owned by less than 100 Persons (determined
under the principles of Section 856(a)(5) of the Code) shall be void ab initio,
and the intended transferee shall acquire no rights in such shares of Capital
Stock.
(b) Transfer in Trust. If any Transfer of shares of Capital
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) occurs which, if effective, would
result in any
20
<PAGE>
Person Beneficially Owning or Constructively Owning shares of Capital Stock in
violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would cause such Person
to violate Section 7.2.1(a)(i) or (ii) (rounded to the nearest whole share)
shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7.3, effective as of the close of business
on the Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of
this sentence would not be effective for any reason to prevent the violation of
Section 7.2.1(a)(i) or (ii), then the Transfer of that number of shares of
Capital Stock that otherwise would cause any Person to violate Section
7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee shall
acquire no rights in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors
of the Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 7.2.1 or that a Person intends to acquire or
has attempted to acquire Beneficial or Constructive Ownership of any shares of
Capital Stock in violation of Section 7.2.1 (whether or not such violation is
intended), the Board of Directors or a committee thereof shall take such action
as it deems advisable to refuse to give effect to or to prevent such Transfer or
other event, including, without limitation, causing the Corporation to redeem
shares, refusing to give effect to such Transfer on the books of the Corporation
or instituting proceedings to enjoin such Transfer or other event; provided,
however, that any Transfers or attempted Transfers or other events in violation
of Section 7.2.1 shall automatically result in the transfer to the Trust
described above, and, where applicable, such Transfer (or other event) shall be
void ab initio as provided above irrespective of any action (or non-action) by
the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Capital Stock that will or may violate Section 7.2.1(a),
or any Person who would have owned shares of Capital Stock that resulted in a
transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the case
of such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the Initial Date
and prior to the Restriction Termination Date:
(a) Every owner of more than five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Capital Stock, within 30 days after the
end of each taxable year, shall give written notice to the Corporation stating
the name and address of
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<PAGE>
such owner, the number of shares of Capital Stock and other shares of the
Capital Stock Beneficially Owned and a description of the manner in which such
shares are held. Each such owner shall provide to the Corporation such
additional information as the Corporation may request in order to determine the
effect, if any, of such Beneficial Ownership on the Corporation's status as a
REIT and to ensure compliance with the Aggregate Stock Ownership Limit.
(b) Each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial or Constructive Owner shall provide to
the Corporation such information as the Corporation may request, in good faith,
in order to determine the Corporation's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine
such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.7 of
the Charter, nothing contained in this Section 7.2 shall limit the authority of
the Board of Directors of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3, or any
definition contained in Section 7.1, the Board of Directors of the Corporation
shall have the power to determine the application of the provisions of this
Section 7.2 or Section 7.3 with respect to any situation based on the facts
known to it. In the event Section 7.2 or Section 7.3 requires an action by the
Board of Directors and the Charter fails to provide specific guidance with
respect to such action, the Board of Directors shall have the power to determine
the action to be taken so long as such action is not contrary to the provisions
of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors of
the Corporation, in its sole discretion, may exempt a Person from the Aggregate
Stock Ownership Limit, and may establish or increase an Excepted Holder Limit
for such Person if:
(i) the Board of Directors obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain that no individual's
Beneficial or Constructive Ownership of such shares of Capital Stock will
violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not own, actually or
Constructively, an interest in a tenant of the Corporation (or a tenant of any
entity owned or controlled by the Corporation) that would cause the Corporation
to own, actually or Constructively, more than a 9.9% interest (as set forth in
Section 856(d)(2)(B) of the Code) in such tenant and the Board of Directors
obtains such representations and undertakings from such Person as are reasonably
necessary to ascertain this fact (for this purpose, a tenant from whom the
Corporation (or an entity owned or controlled by the Corporation) derives (and
is expected to continue to derive) a sufficiently small amount of revenue such
that, in the opinion of the Board of Directors of the Corporation, rent from
such tenant
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would not adversely affect the Corporation's ability to qualify as a REIT, shall
not be treated as a tenant of the Corporation); and
(iii) such Person agrees that any violation or attempted violation of such
representations or undertakings (or other action which is contrary to the
restrictions contained in Sections 7.2.1 through 7.2.6) will result in such
shares of Capital Stock being automatically transferred to a Trust in accordance
with Sections 7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section 7.2.7
(a), the Board of Directors of the Corporation may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in form and
substance satisfactory to the Board of Directors in its sole discretion, as it
may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) may Beneficially
Own or Constructively Own shares of Capital Stock (or securities convertible
into or exchangeable for Capital Stock) in excess of the Aggregate Stock
Ownership Limit, but only to the extent necessary to facilitate such public
offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such Excepted
Holder at any time, or (2) pursuant to the terms and conditions of the
agreements and Undertakings entered into with such Excepted Holder in connection
with the establishment of the Excepted Holder Limit for that Excepted Holder. No
Excepted Holder Limit shall be reduced to a percentage that is less than the
Aggregate Stock Ownership Limit.
Section 7.2.8 Increase in Aggregate Stock Ownership Limit. The
Board of Directors may from time to time increase the Aggregate Stock Ownership
Limit.
Section 7.2.9 Legend. Each certificate for shares of Capital Stock shall
bear substantially the following legend:
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person may
Beneficially or Constructively Own shares of Capital Stock of the
Corporation in excess of 9.9 percent of the value of the total
outstanding shares of Capital Stock of the Corporation, unless such
Person is an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable); (ii) no Person may Beneficially or Constructively
Own Capital Stock that would result in the Corporation being "closely
held" under Section 856(h) of the Code or otherwise cause the
Corporation to fail to qualify as a REIT; and (iii) no Person may
Transfer shares of Capital Stock if such Transfer would result in the
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Capital Stock of the Corporation being owned by fewer than 100 Persons.
Any Person who Beneficially or Constructively Owns or attempts to
Beneficially or Constructively Own shares of Capital Stock which causes
or will cause a Person to Beneficially or Constructively Own shares of
Capital Stock in excess or in violation of the above limitations must
immediately notify the Corporation. If any of the restrictions on
transfer or ownership are violated, the shares of Capital Stock
represented hereby will be automatically transferred to a Trustee of a
Trust for the benefit of one or more Charitable Beneficiaries. In
addition, upon the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void ab initio.
All capitalized terms in this legend have the meanings defined in the
charter of the Corporation, as the same may be amended from time to
time, a copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Capital Stock of the
Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that
restrictions on ownership exist and the Corporation will furnish a full
statement about certain restrictions on transferability to a stockholder on
request and without charge.
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer
or other event described in Section 7.2.1(b) that would result in a transfer of
shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed
to have been transferred to the Trustee as trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the Business Day
prior to the purported Transfer or other event that results in the transfer to
the Trust pursuant to Section 7.2.1(b). The Trustee shall be appointed by the
Corporation and shall be a Person unaffiliated with the Corporation and any
Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Corporation as provided in Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Shares of
Capital Stock held by the Trustee shall be issued and outstanding shares of
Capital Stock of the Company. The Prohibited Owner shall have no rights in the
shares held by the Trustee. The Prohibited Owner shall not benefit economically
from ownership of any shares held in trust by the Trustee, shall have no rights
to dividends and shall not possess any rights to vote or other rights
attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall
have all voting rights and rights to dividends or other distributions with
respect to shares of Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or other distribution paid prior to the discovery by the Corporation that the
shares of Capital Stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when due
to the Trustee. Any dividend or distribution so paid to the Trustee shall be
held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to
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shares held in the Trust and, subject to Maryland law, effective as of the date
that the shares of Capital Stock have been transferred to the Trustee, the
Trustee shall have the authority (at the Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Owner prior to the discovery by
the Corporation that the shares of Capital Stock have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Corporation has already taken irreversible corporate action, then
the Trustee shall not have the authority to rescind and recast such vote.
Notwithstanding the provisions of this Article VII, until the Corporation has
received notification that shares of Capital Stock have been transferred into a
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in Section 7.2.1(a).
Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Prohibited Owner and to the Charitable Beneficiary as provided
in this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the
price paid by the Prohibited Owner for the shares or, if the Prohibited Owner
did not give value for the shares in connection with the event causing the
shares to be held in the Trust (e.g., in the case of a gift, devise or other
such transaction), the Market Price of the shares on the day of the event
causing the shares to be held in the Trust and (2) the price per share received
by the Trustee from the sale or other disposition of the shares held in the
Trust. Any net sales proceeds in excess of the amount payable to the Prohibited
Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the
discovery by the Corporation that shares of Capital Stock have been transferred
to the Trustee, such shares are sold by a Prohibited Owner, then (i) such shares
shall be deemed to have been sold on behalf of the Trust and (ii) to the extent
that the Prohibited Owner received an amount for such shares that exceeds the
amount that such Prohibited Owner was entitled to receive pursuant to this
Section 7.3.4, such excess shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
held in the Trust pursuant to Section 7.3.4. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By written notice to
the Trustee, the Corporation shall designate one or more nonprofit
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organizations to be the Charitable Beneficiary of the interest in the Trust such
that (i) the shares of Capital Stock held in the Trust would not violate the
restrictions set forth in Section 7.2.1(a) in the hands of such Charitable
Beneficiary and (ii) each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction takes place
shall not negate the effect of any other provision of this Article VII and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article VII.
Section 7.5 Enforcement. The Corporation is authorized specifically to
seek equitable relief, including injunctive relief, to enforce the provisions of
this Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
charter, of any shares of outstanding stock. All rights and powers conferred by
the charter on stockholders, directors and officers are granted subject to this
reservation. Any amendment to the charter shall be valid only if approved by the
affirmative vote of a majority of all the votes entitled to be cast on the
matter.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a corporation,
no director or officer of the Corporation shall be liable to the Corporation or
its stockholders for money damages. Neither the amendment nor repeal of this
Article IX, nor the adoption or amendment of any other provision of the charter
or Bylaws inconsistent with this Article IX, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
THIRD: The amendment to and restatement of the charter as herein above set
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
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FOURTH: The current address of the principal office of the Corporation in
Maryland is as set forth in Article IV of the foregoing amendment and
restatement of the charter.
FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article V of the foregoing amendment and
restatement of the charter.
SEVENTH: The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment and restatement was
30,000,000, consisting of 20,000,000 shares of Common Stock, $.01 par value per
share and 10,000,000 shares of Preferred Stock, $.01 par value per share. The
aggregate par value of all shares of stock having par value was $300,000.
EIGHTH: The total number of shares of stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter is 70,000,000 consisting of 60,000,000 shares of Common Stock, $.01 par
value per share, and 10,000,000 shares of Preferred Stock, $.01 par value per
share. The aggregate par value of all authorized shares of stock having par
value is $700,000.
NINTH: The undersigned President acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation and as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Secretary on this 19th day of September, 1997.
GREAT LAKES REIT, INC.
By: /s/ Patrick R. Hunt
Patrick R. Hunt, President
ATTEST:
By: /s/ Richard L. Rasley
Richard L. Rasley Secretary
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Exhibit 10.1 Change in Control Agreement between Company and Mr. Adam Berman.
CHANGE IN CONTROL AGREEMENT
This Agreement between GREAT LAKES REIT INC. (the "Company") and Adam E.
Berman ("Executive"), is made as of the 29th day of September, 1997:
RECITALS:
A. The Company wishes to attract and retain well-qualified executive and
key management personnel and to assure itself of the continuity of its
management.
B. Executive is an officer or other key executive of the Company with
significant management responsibilities in the conduct of the Company's
business.
C. The Company recognizes that Executive is a valuable resource of the
Company and the Company desires to be assured of the continued services of
Executive.
D. In the regular course of his employment by the Company, Executive
acquires significant confidential information about the suburban office building
market, including but not limited to leasing patterns and trends, acquisition
and disposition prospects, and sources of capital.
E. The Company is concerned that in a possible change in control of the
Company, Executive may have concerns about the continuation of employment status
and responsibilities and may be approached by others offering competing
employment; the Company therefore desires to provide Executive with assurances
as to the continuation of employment status and responsibilities in such event.
F. The Company further desires to assure that if a possible change in
control arises and Executive is involved in deliberations or negotiations in
connection with it, Executive will be in a secure position to consider and
participate in such a transaction as objectively as possible and in the best
interests of the Company; the Company therefore desires to protect Executive
from any direct or implied threat to his financial well-being.
G. Executive is willing to continue to serve as an Executive of the
Company and to make certain covenants with the Company, but Executive desires
assurance that in the event of a change in control he will continue to have the
employment compensation, benefits, and responsibilities he could reasonably
expect absent such event, and that, in the event such is not possible, he will
have fair and reasonable severance protection.
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Operation of Agreement.
(a) The "effective date of this Agreement" shall be the date on which a
change in control of the Company (as described in Section 3) occurs. Until there
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is a change in control of the Company as defined in Section 3, the Company will
continue to employ Executive as an employee at will, and Executive hereby
acknowledges that he is an employee at will of the Company. The Company will
have no obligation hereunder, if the employment of Executive with the Company
terminates prior to a change in control of the Company. Executive will have no
right on account of this Agreement to be retained in the employ of the Company
or to be retained in any particular position in the Company, unless and until a
change in control of the Company has occurred.
(b) For the period commencing on the date of a change in
control of the Company and ending on the last day of the month in which occurs
the first anniversary of the change in control of the Company (the "Employment
Period"), the Company hereby agrees to continue to employ Executive. During the
Employment Period, Executive shall exercise such authority and perform such
responsibilities as are commensurate with the authority being exercised and
duties being performed by Executive immediately prior thereto, which services
shall be performed at the location where Executive was employed immediately
prior thereto or at such other location as the Company may reasonably require;
provided, however, that Executive shall not be required to accept any such other
location that Executive deems unreasonable in the light of his personal
circumstances. Executive agrees that during the Employment Period he shall
faithfully and efficiently devote his full business time exclusively to the
responsibilities and duties to the Company.
2. Non-competition, Confidentiality and Nonsolicitation Covenants.
(a) If there is a Termination (as defined in Section 5) of
Executive's employment with the Company, Executive shall not during the
Employment Period, without the written consent of the Company, engage, directly
or indirectly, in any business enterprise ("Competitor") which is (a) in the
business (in whole or in part) of investing in suburban office building (b) in
any geographic metropolitan market in which the Company was competing as of the
date of the termination of Executive's employment; provided, however, that (x)
Executive shall be permitted to acquire a stock or other ownership interest in a
Competitor provided such stock or other ownership interest is publicly traded
and the stock or other ownership interest is not more than 1% of the outstanding
shares or other ownership interest of such Competitor, and (y) Executive shall
be permitted to be employed by any general service private law firm whether or
not such law firm has or may in the future represent such Competitors. Executive
agrees that this limited period of non-competition is reasonable and necessary
to protect the Company's legitimate business interests.
(b) If there is a Termination of Executive's employment with
the Company, he will not during the Employment Period and thereafter divulge or
appropriate to his own use or the use of others any secret or confidential
information pertaining to the business of the Company or any of its subsidiaries
obtained during employment by the Company, it being understood that this
obligation shall not apply when and to the extent any of such information
becomes publicly known or available other than because of Executive's act or
omission.
(c) If there is a Termination of Executive's employment with
the Company, Executive will not during the Employment Period, directly or
indirectly, solicit or hire any key employee of the Company, assist in the
solicitation or
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hiring or such a key employee by any other person, or encourage any such key
employee to terminate his employment with the Company.
3. Change in Control. A "change in control of the Company" shall mean a
change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 as in effect on the date of this
Agreement (the "Exchange Act") or, if Item 6(e) is no longer in effect, any
regulation issued by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 which serves similar purposes; provided,
however, that notwithstanding the foregoing and except as expressly provided in
the last unnumbered paragraph of this Section 3, a change in control of the
Company shall be deemed to have occurred if:
(a) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Company or one or more trusts
established by the Company for the benefit of employees of the Company or a
corporation controlled by the Company or the Company's stockholders, shall
become the beneficial owner (within the meaning of rule 13d-3 under the Exchange
Act) of fifty percent (50%) or more of the Company's outstanding Common Stock (a
"Fifty Percent Beneficial Owner");
(b) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director during such period whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding for this purpose
any such individual whose initial assumption of office is in connection with an
actual or threatened contest for the election of directors (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or, if
Rule 14a-11 is no longer in effect, any regulation issued by the Securities and
Exchange Commission pursuant to the Exchange Act which serves similar purposes)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;
(c) there shall be consummated a consolidation or merger of
the Company, in which the Company is not the continuing or surviving corporation
or other entity, other than a consolidation or merger of the Company in which
immediately after the transaction, (i) the holders of shares of the Company's
Common Stock immediately prior to the consolidation or merger have at least
fifty percent (50%) of the total voting power of the surviving corporation or
other entity, (ii) at least a majority of the Board of Directors of the
resulting corporation or other entity were members of the Incumbent Board, and
(iii) no Person is a Fifty Percent Beneficial Owner; or
(d) there shall be consummated a sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company other than a sale, lease,
exchange or other transfer to an entity in which the Company owns, directly or
indirectly, at least eighty percent (80%) of the outstanding voting securities
after such transfer, and in which immediately after such sale, lease, exchange
or other transfer, (i) at least a majority of the Board of Directors of the
transferee entity
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were members of the Incumbent Board, and (ii) no Person (except the Company) is
a Fifty Percent Beneficial Owner of the transferee entity.
Provided, further, that notwithstanding any provision of this
Agreement to the contrary, under no circumstances shall a change in control of
the Company be deemed to have occurred if: (i) the Company's Board of Directors
is expanded and its composition changed pursuant to Section 7.2 of that Stock
Purchase Agreement dated August 20, 1996 between the Company and certain
institutional investors; or (ii) the Board of Directors decides to liquidate the
Company because the shares of the Company's common stock are not publicly traded
by December 31, 2001.
4. Compensation and Benefits. During the Employment Period, Executive shall
receive the following compensation and benefits:
(a) Executive shall receive an annual base salary which is not
less than the highest monthly base salary paid to Executive by the Company
during the twelve-month period immediately prior to the effective date of this
Agreement, with the opportunity for increases from time to time thereafter which
are in accordance with the Company's regular executive compensation practices.
(b) Executive shall be eligible to participate on a reasonable
basis, and to continue his existing participation in, annual incentive, stock
option, restricted stock, long-term incentives, and any other incentive
compensation plans which provide opportunities to receive compensation in
addition to annual base salary, to the extent of the opportunities provided by
the Company for executives with comparable duties or level of responsibility and
authority.
(c) Executive shall be entitled to receive and participate in
salaried employee benefits and perquisites (including, but not limited to,
medical, life, accident insurance, disability benefits, savings plan, welfare
benefit, and retirement plan participation), which are the greater of: (i) the
employee benefits and perquisites provided by the Company to executives with
comparable duties, or (ii) the employee benefits and perquisites to which
Executive was entitled or in which Executive participated at any time during the
120-day period immediately prior to the effective date of this Agreement.
5. Termination. The term "Termination" shall mean termination of the
employment of Executive with the Company after a change in control of the
Company and prior to the expiration of the Employment Period, for any reason
other than death, disability (as defined below), cause (as defined below), or
voluntary resignation (as defined below).
(a) The term "disability" means physical or mental incapacity
qualifying Executive for long-term disability under the Company's long term
disability plan.
(b) The term "cause" means: (i) the willful and continued
failure of Executive to substantially perform his duties with the Company (other
than any failure due to physical or mental incapacity) after a demand for
substantial performance is delivered to him by the Board of Directors which
specifically identifies the manner in which the Board believes he has not
substantially performed his duties, or (ii) willful misconduct or willful
illegal conduct which is materially injurious to the Company. No act or failure
to act by Executive shall
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be considered "willful" unless done or omitted to be done not in good faith and
without reasonable belief that the action or omission was in the best interests
of the Company. The unwillingness of Executive to accept any or all of a change
in the nature or scope of duties or level of responsibility and authority, a
reduction in total compensation or benefits, a relocation Executive deems
unreasonable in light of his personal circumstances, or other action by or at
the request of the Company in respect of Executive's position, authority, or
responsibility that he reasonably deems to be contrary to this Agreement, may
not be considered by the Board of Directors to be a failure to perform,
misconduct or illegal conduct by Executive. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for cause for purposes of
this Agreement unless and until there shall have been delivered to Executive a
copy of a resolution, duly adopted by a vote of three-quarters of the entire
Board of Directors of the Company at a meeting of the Board called and held
(after reasonable notice to Executive and an opportunity for Executive and his
counsel to be heard before the Board) for the purpose of considering whether
Executive has been guilty of such a willful failure to perform, or such willful
misconduct or illegal conduct, as justifies termination for cause hereunder,
finding that in the good faith opinion of the Board, Executive has been guilty
thereof and specifying the particulars thereof.
(c) The resignation of Executive shall be deemed "voluntary"
if it is for any reason other than one or more of the following, each a "good
reason":
(i) Executive's resignation or retirement is requested by the Company other
than for cause;
(ii) any significant change in the nature or scope of
Executive's duties or level of authority and responsibility from those described
in Section 3; provided, however, that a change in job title or in the name of
the office or position held shall not be deemed a "significant change", nor
shall it be deemed a factor in any determination of whether there has been a
"significant change", within the meaning of this Section 5(c)(ii);
(iii) any reduction in Executive's total compensation or benefits from that
provided in Section 4, if that reduction in compensation or benefits is unique
to Executive and is not part of a reduction in compensation or benefits
applicable to substantially all of the Company's employees;
(iv) a breach by the Company of any other material provision of this
Agreement; or
(v) a reasonable determination by Executive that, as a result of a change
in control of the Company and a change in circumstances thereafter significantly
affecting his position, Executive is unable to exercise the authority and
responsibility described in Section 3; provided, however, that a change in job
title or in the name of the office or position held shall not be deemed to be a
change in circumstances "significantly affecting" his position, nor shall it be
deemed a factor in any determination of either whether the Executive's position
has been significantly effected, or whether he is unable to exercise the
authority and responsibility described in Section 3.
(d) Termination that entitles Executive to the payments and benefits
provided in Section 6 shall not be deemed or treated by the Company as the
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termination of Executive's employment or the forfeiture of his participation,
award, or eligibility for the purpose of any plan, practice or agreement of the
Company referred to in Section 4.
6. Termination Payments and Benefits. In the event of a Termination, the
Company shall pay to Executive the following cash payments when such payments
would otherwise have been paid in the regular course of business as if the
Termination did not occur:
(a) base salary and all other benefits due Executive as if he
had remained an employee pursuant to this Agreement through the remainder of the
month in which Termination occurs, less applicable withholding taxes and other
authorized payroll deductions;
(b) the amount equal to the target cash bonus and other
incentive awards for Executive under the Company's annual incentive compensation
plan for the fiscal year in which Termination occurs, reduced pro rata for that
portion of the fiscal year not completed as of the end of the month in which
Termination occurs; provided, however, that if Executive has deferred his award
for such year under the plan, the payment due Executive under this paragraph (b)
shall be paid in accordance with the terms of the deferral;
(c) other unpaid compensation and vacation pay; and
(d) a severance allowance equal to the sum of the following:
(i) an amount equivalent to his annual base salary at the rate
in effect immediately prior to Termination, less any sums paid to Executive by
the Company as base salary for the Employment Period through the end of month in
which the Termination occurred; plus
(ii) an amount equivalent to the average annual incentive
compensation received by Executive for the three fiscal years immediately prior
to the fiscal year in which Termination occurs, less any sums paid to the
Executive by the Company as incentive compensation for the Employment Period
through the end of the month in which the termination occurred.
In addition to the foregoing, the Company shall pay or otherwise provide to
Executive all of the following:
(e) During the remainder of the Employment Period, Executive
shall continue to be deemed and treated as an eligible employee under the
provisions of all stock option, restricted stock, and other incentive
compensation plans of the Company under which Executive held options or awards
or in which Executive participated at the time of Termination, and he may
exercise options and rights, and shall receive payments and distributions
accordingly.
(f) During the remainder of the Employment Period, Executive
shall continue to participate in and be entitled to all benefits and credited
service for benefits under the benefit plans, programs and arrangements
described in Section 4(c) as if he remained employed by the Company at the
compensation levels referred to in this Section 6 during such period, exclusive,
however, of disability benefits.
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(g) Section 4 shall be applicable in determining the payments
and benefits due Executive under this Section 6, and if Termination occurs after
a reduction in all or any part of Executive's total compensation or benefits,
the severance allowance and other compensation and benefits payable to Executive
pursuant to this Section 6 shall be based upon compensation and benefits before
the reduction.
(h) If any provision of this Section 6 cannot, in whole or in
part, be implemented and carried out under the terms of the applicable
compensation, benefit, or other plan or arrangement of the Company because
Executive has ceased to be an actual employee of the Company, because he has
insufficient or reduced credited service based upon actual employment by the
Company, because the plan or arrangement has been terminated or amended after
the effective date of this Agreement, or for any other reason, the Company
itself shall pay or otherwise provide the equivalent of such rights, benefits,
and credits for such benefits to Executive, his dependents, beneficiaries and
estate.
(i) The Company's obligation under this Section 6 to continue
to pay or provide health care and life and accident insurance to Executive
during the remainder of the Employment Period shall be reduced when and to the
extent any of such benefits are paid or provided to Executive by another
employer, provided that Executive shall have all rights afforded to retirees to
convert group insurance coverage to individual coverage as, to the extent of,
and whenever Executive's group insurance coverage under this Section 6 is
reduced or expires.
(j) The Company shall deduct applicable withholding taxes in
performing its obligations under this Section 6.
(k) Except for Section 6(i) above, Executive shall have no obligation to
mitigate damages.
Nothing in this Section 6 is intended, or shall be deemed or
interpreted, to be an amendment to any compensation, benefit, or other plan of
the Company. To the extent the Company's performance under this Section 6
includes the performance of the Company's obligations to Executive under any
such plan or under another agreement between the Company and Executive, the
rights of Executive under such plan or other agreement, as well as under this
Agreement, are discharged, surrendered, or released pro tanto.
7. Parachute Payment Limitation. Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Executive, whether payable pursuant to this
Agreement or otherwise, shall be one dollar less than three (3) times
Executive's base amount and, to the extent necessary, payments under this
Agreement and any parachute payments payable under any other agreement between
Executive and the Company shall be reduced in order that this limitation not be
exceeded. The terms "parachute payment," "base amount" and "present value" shall
have the meanings assigned thereto under Section 280G of the Code. It is the
intention of this Section 7 to avoid excise taxes on Executive under Section
4999 of the Code and the disallowance of a deduction to the Company pursuant to
Section 280G of the Code. The determination of whether any reduction in the
amount of parachute payments is required under this Section 7 shall be made by
the Company's independent accountants, and Executive shall be entitled to select
the parachute payments that
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will remain payable after the application of this Section 7. The fact that
Executive has payments under this Agreement reduced as a result of the
limitations set forth in this Section 7 will not of itself limit or otherwise
affect any rights of Executive arising other than pursuant to this Agreement.
8. Arrangements Not Exclusive or Limiting. The specific arrangements
referred to herein are not intended to exclude or limit Executive's
participation in other benefits available to executive personnel generally, or
to preclude or limit other compensation or benefits as may be authorized by the
Board of Directors of the Company at any time, or to limit or reduce any
compensation or benefit to which Executive would be entitled but for this
Agreement.
9. Enforcement Costs. The Company is aware that upon the occurrence of
a change in control of the Company, the Board of Directors or a stockholder of
the Company may then cause or attempt to cause the Company to refuse to comply
with its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute, litigation, seeking to have this
Agreement declared unenforceable, or may take, or attempt to take, other action
to deny Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the parties that Executive not be required to incur the legal fees and
expenses associated with the protection or enforcement of rights under this
Agreement by litigation or other legal action because such costs would
substantially detract from the benefits intended for Executive hereunder, nor be
bound to negotiate any settlement of rights hereunder under threat of incurring
such costs. Accordingly, if at any time after a change in control of the
Company, it should appear to Executive that the Company is or has acted contrary
to or is failing or has failed to comply with any of its obligations under this
Agreement for the reason that it regards this Agreement to be void or
unenforceable or for any other reason, or that the Company has purported to
terminate his employment for cause or is in the course of doing so, in either
case contrary to this Agreement, or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable or
institutes any litigation or other legal action designed to deny, diminish or to
recover the benefits provided or intended to be provided to Executive hereunder,
and Executive has acted in good faith to perform his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice at the expense of the Company to represent
Executive in connection with the protection and enforcement of his rights
hereunder, including without limitation representation in connection with
termination of employment contrary to this Agreement or with the initiation of
defense of any litigation or other legal action, whether by or against Executive
or the Company or any director, officer, stockholder, or other person affiliated
with Company, in any jurisdiction. The reasonable fees and expenses of counsel
selected from time to time by Executive as herein above provided shall be paid
or reimbursed to Executive by the Company on a regular, periodic basis upon
presentation by Executive of a statement or statements prepared by such counsel
in accordance with its customary practices, up to a maximum aggregate amount of
$100,000. Counsel so retained by Executive may be counsel representing other
officers or key executives of the Company in connection with the protection and
enforcement of their rights under similar agreements between them and the
Company and, unless in Executive's sole judgment use of common counsel could be
prejudicial to him would not be likely to reduce the fees and expenses
chargeable hereunder to the Company, Executive agrees to use his best efforts to
agree with such other officers or executives to retain common counsel.
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10. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and personally delivered by
hand or sent by registered or certified mail, if to Executive, at the last
address Executive has filed in writing with the Company, and if to the Company,
to its corporate secretary at its principal executive offices.
11. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate, or in any way create a lien upon any amounts provided
under this Agreement, and no payments or benefits due hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary acts or
by operation of law. So long as Executive lives, no person, other than the
parties hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties in respect of the subject matter hereof. No provision
of this Agreement may be amended, waived, or discharged except by the mutual
written agreement of the parties. The consent of any other person to any such
amendment, waiver, or discharge shall not be required.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, by operation of
law or otherwise, including without limitation any corporation or other entity
or person which shall succeed (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and
assets of the Company, and the Company shall require any successor, by agreement
in form and substance satisfactory to Executive, to expressly assume and agree
to perform the Agreement. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of Executive and his legal
representatives, heirs, and assigns; provided, however, that in the event of
Executive's death prior to payment or distribution of all amounts,
distributions, and benefits due him hereunder, each unpaid amount and
distribution shall be paid in accordance with this Agreement to the person or
persons designated by Executive to the Company to receive such payment or
distribution and if Executive has made no applicable designation, to the person
or persons designated by Executive as beneficiary or beneficiaries of proceeds
of life insurance payable in the event of Executive's death under the Company's
group life insurance plan.
14. Governing Law. Except to the extent required to be governed by the law
of the State of Maryland because the Company is incorporated under the laws of
that State, the validity, interpretation, and enforcement of this Agreement
shall be governed by the law of the State of Illinois, excepting its choice of
law provisions.
15. Severabililty. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be original but all of which
together constitute one and the same instrument.
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IN WITNESS WHEREOF, Executive has executed this Agreement upon his own
accord and the Company has executed this Agreement pursuant to the authorization
of its Board of Directors.
Great Lakes REIT, Inc.
By: /s/ Richard A. May
Richard A. May, Chief Executive Officer
By: /s/ Adam E. Berman
Adam E. Berman
<PAGE>
10.2 The 1997 Equity and Performance Incentive Plan
GREAT LAKES REIT, INC.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. Purpose. The purpose of the 1997 Equity and Performance Incentive Plan
(the "Plan") is to attract and retain directors, officers and other key
employees for Great Lakes REIT, Inc. (the "Company") and to provide to such
persons incentives and rewards for superior performance.
2. Definitions. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, and shall include both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof) pursuant
to Section 14 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 11 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Shares" means shares of Common Stock, par value $.01 per share,
of the Company or any security into which such shares of Common Stock may be
changed by reason of any transaction or event of the type referred to in Section
10 of this Plan.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which
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date shall not be earlier than the date on which the Board takes action with
respect thereto).
"Deferral Period" means the period of time during which Deferred Shares
are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a specified Deferral
Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such law, rules and regulations may
be amended from time to time.
"Exercise Price" means the price payable upon exercise of a
Free-Standing Appreciation Right.
"Free-Standing Appreciation Right" means an Appreciation Right not
granted in tandem with an Option Right.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits pursuant to this Plan. Management Objectives may be described in terms
of Company-wide objectives or objectives that are related to the performance of
the individual Participant or of the Subsidiary, division, department, region or
function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of other
corporations. The Management Objectives applicable to any award to a Covered
Employee shall be based on specified levels of or growth in one or more of the
following criteria:
i. cash flow/net assets ratio;
ii. debt/capital ratio;
iii. return on total capital;
iv. return on equity;
v. funds from operations;
vi. funds from operations per share growth;
vii. revenue growth; and
viii. total return to stockholders.
Except where a modification would result in an award no longer qualifying as
performance based compensation within the meaning of Section 162(m) of the Code,
the Board may in its discretion modify such Management Objectives or the related
minimum acceptable level of achievement, in whole or in part, as the Board deems
appropriate and equitable.
"Market Value per Share" means, as of any particular date, the fair
market value of the Common Shares as listed on the NYSE as of the close of
business on such date or the latest such date on which there is a listing.
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"Non-Employee Director" means a Director of the Company who is not an
employee of the Company or any Subsidiary.
"NYSE" means the New York Stock Exchange, Inc.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer, or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the Date
of Grant.
"Performance Period" means, with respect to a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(g) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the prohibition on transfers referred to in such Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
(or any successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Exercise Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Tandem Appreciation Right" means an Appreciation Right granted in
tandem with an Option Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
directors of the Company.
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3. Shares Available Under the Plan. (a) Subject to adjustment as
provided in paragraph (b) below and Section 10 of this Plan, the number of
Common Shares that may be issued or transferred (i) upon the exercise of Option
Rights or Appreciation Rights, (ii) as Restricted Shares and released from
substantial risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in
payment of Performance Shares or Performance Units that have been earned, or (v)
in payment of dividend equivalents paid with respect to awards made under the
Plan, shall not exceed in the aggregate 2,250,000 Common Shares plus any shares
described in paragraph (b) below. Such shares may be shares of original issuance
or treasury shares or a combination of the foregoing.
(b) The number of shares available in paragraph (a) above shall be
adjusted to account for shares relating to awards that expire; are forfeited; or
are transferred, surrendered, or relinquished upon the payment of any Option
Price by the transfer to the Company of Common Shares or upon satisfaction of
any withholding amount.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary, the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 2,250,000 Common Shares, subject to adjustments as provided in
Section 10 of this Plan. Further, no Participant shall be granted Option Rights
for more than 750,000 Common Shares during any period of 5 years, subject to
adjustments as provided in Section 10 of this Plan.
(d) Upon payment in cash of the benefit provided by any award granted
under this Plan, any shares that were covered by that award shall again be
available for issue or transfer hereunder.
(e) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any period of 5 years receive more than
500,000 Appreciation Rights, subject to adjustments as provided in Section 10 of
this Plan.
(f) Notwithstanding any other provision of this Plan to the contrary,
the number of shares issued as Restricted Shares shall not in the aggregate
exceed 500,000 Common Shares, subject to adjustments as provided in Section 10
of this Plan; and, in no event shall any Participant in any period of 5 years
receive more than 500,000 Restricted Shares or 500,000 Deferred Shares, subject
to adjustments as provided in Section 10 of this Plan.
(g) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any calendar year receive an award of
Performance Shares or Performance Units having an aggregate maximum value as of
their respective Dates of Grant in excess of $3,000,000.
4. Option Rights. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
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(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, or (ii) by the actual or
constructive transfer to the Company of nonforfeitable, unrestricted Common
Shares owned by the Optionee (or other consideration authorized pursuant to
subsection (d) below) having a value at the time of exercise equal to the total
Option Price, or (iii) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any option (other than an Incentive Stock Option)
may also be made in whole or in part in the form of Restricted Shares or other
Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
paragraph, the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent of (i) the number of shares or Performance Shares, (ii) the Spread of any
unexercisable portion of Option Rights, or (iii) the stated value of Performance
Units surrendered.
(e) Any grant may provide for deferred payment of the Option Price from
the proceeds of sale through a bank or broker on a date satisfactory to the
Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments, with or without interest, upon terms
determined by the Board.
(g) Any grant may, at or after the Date of Grant, provide for the
automatic grant of Reload Option Rights to an Optionee upon the exercise of
Option Rights (including Reload Option Rights) using Common Shares or other
consideration specified in paragraph (d) above. Reload Option Rights shall cover
up to the number of Common Shares, Deferred Shares, Option Rights or Performance
Shares (or the number of Common Shares having a value equal to the value of any
Performance Units) surrendered to the Company upon any such exercise in payment
of the Option Price or to meet any withholding obligations. Reload Options may
have an Option Price that is no less than the applicable Market Value per Share
at the time of exercise and shall be on such other terms as may be specified by
the Directors, which may be the same as or different from those of the original
Option Rights.
(h) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain unexercised.
(i) Each grant shall specify the period or periods (if any) of continuous
service by the Optionee with the Company or any Subsidiary following the grant
that
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is necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a Change in Control or other similar transaction or event.
(j) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(k) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(1) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(m) The exercise of an Option Right shall result in the cancellation on
a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(n) No Option Right shall be exercisable more than 10 years from the Date
of Grant.
(o) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the Optionee
and containing such terms and provisions, consistent with this Plan, as the
Board may approve.
5. Appreciation Rights. (a) The Board may also authorize the granting
to any Optionee of Tandem Appreciation Rights with respect to Option Rights
granted hereunder at any time prior to the exercise or termination of such
related Option Rights; provided, however, that a Tandem Appreciation Right
awarded in relation to an Incentive Stock Option must be granted concurrently
with such Incentive Stock Option. A Tandem Appreciation Right shall be a right
of the Optionee, exercisable by surrender of the related Option Right, to
receive from the Company an amount determined by the Board, which shall be
expressed as a percentage of the Spread (not exceeding 100 percent) at the time
of exercise.
(b) The Board may also authorize the granting to any Participant of
FreeStanding Appreciation Rights. A Free-Standing Appreciation Right shall be a
right of the Participant to receive from the Company an amount determined by the
Board, which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(c) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(i) Any grant may specify that the amount payable on exercise
of an Appreciation Right may be paid by the Company in cash, in Common Shares or
in any combination thereof and may either grant to the Participant or retain in
the Board the right to elect among those alternatives.
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(ii) Any grant may specify that the amount payable on exercise
of an Appreciation Right may not exceed a maximum specified by the Board at the
Date of Grant.
(iii) Any grant may specify waiting periods before exercise
and permissible exercise dates or periods and shall provide that no Appreciation
Right may be exercised except at a time when the related Option Right (if
applicable) is also exercisable and at a time when the Spread is positive.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of a Change in Control or other similar transaction
or event.
(v) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to and
accepted by the Participant, which agreement shall describe such Appreciation
Rights, identify the related Option Rights (if applicable), state that such
Appreciation Rights are subject to all the terms and conditions of this Plan,
and contain such other terms and provisions, consistent with this Plan, as the
Board may approve.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such rights.
6. Restricted Shares. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code, for a period of not
less than one year to be determined by the Board at the Date of Grant, except in
the event of a Change in Control or other similar transaction or event.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Board at the Date of Grant (which restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
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(e) Any grant of Restricted Shares may specify Management Objectives
which, if achieved, will result in termination or early termination of the
restrictions applicable to such shares and each grant may specify with respect
to such specified Management Objectives, a minimum acceptable level of
achievement and shall set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance is at or
above the minimum level, but falls short of full achievement of the specified
Management Objectives.
(f) Any such grant or sale of Restricted Shares may require that any or
all dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional Restricted
Shares, which may be subject to the same restrictions as the underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by an authorized officer and
delivered to and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing Restricted Shares
shall be held in custody by the Company until all restrictions thereon shall
have lapsed, together with a stock power or powers executed by the Participant
in whose name such certificates are registered, endorsed in blank and covering
such Shares.
7. Deferred Shares. The Board may also authorize the granting or sale of
Deferred Shares to Participants. Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements contained
in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than one year, as determined by the Board at the Date of Grant except
(if the Board shall so determine) in the event of a Change in Control or other
similar transaction or event.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of ownership
in the Deferred Shares and shall have no right to vote them, but the Board may,
at or after the Date of Grant, authorize the payment of dividend equivalents on
such Shares on either a current or deferred or contingent basis, either in cash
or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by an authorized officer and
delivered to and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve.
44
<PAGE>
8. Performance Shares and Performance Units. The Board may also
authorize the granting of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment reflect changes in compensation or other factors; provided, however,
that no such adjustment shall be made in the case of a Covered Employee.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time (not less than one year, except in
the event of a Change in Control or other similar transaction or event, if the
Board shall so determine) commencing with the Date of Grant (as shall be
determined by the Board at the time of grant).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify with respect to such specified
Management Objectives a minimum acceptable level of achievement and shall set
forth a formula for determining the number of Performance Shares or Performance
Units that will be earned if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives. The
grant of Performance Shares or Performance Units shall specify that, before the
Performance Shares or Performance Units shall be earned and paid, the Board must
certify that the Management Objectives have been satisfied.
(d) Each grant shall specify a minimum acceptable level of achievement
with respect to the specified Management Objectives below which no payment will
be made and shall set forth a formula for determining the amount of payment to
be made if performance is at or above such minimum but short of full achievement
of the Management Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units which have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.
(f) Any grant of Performance Shares may specify that the amount payable
with respect thereto may not exceed a maximum specified by the Board at the Date
of Grant. Any grant of Performance Units may specify that the amount payable or
the number of Common Shares issued with respect thereto may not exceed maximums
specified by the Board at the Date of Grant.
(g) The Board may, at or after the Date of Grant of Performance Shares,
provide for the payment of dividend equivalents to the holder thereof on either
a current or deferred or contingent basis, either in cash or in additional
Common Shares.
(h) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by an authorized
officer
45
<PAGE>
and delivered to and accepted by the Participant, which agreement shall state
that such Performance Shares or Performance Units are subject to all the terms
and conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
9. Transferability. (a) Except as otherwise determined by the Board on
a case-by-case basis, no Option Right, Appreciation Right or other derivative
security granted under the Plan shall be transferable by an Optionee other than
by will or the laws of descent and distribution. Except as otherwise determined
by the Board on a case-by-case basis, Option Rights and Appreciation Rights
shall be exercisable during the Optionee's lifetime only by him or her or by his
or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
10. Adjustments. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the prices
per share applicable to such Option Rights and Appreciation Rights and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 10.
11. Change in Control. For purposes of this Plan, a "Change in Control"
shall mean if at any time any of the following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Common Shares immediately prior to such transaction;
46
<PAGE>
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's stockholders, of each director
of the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period.
Notwithstanding the foregoing provisions of Section 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred for purposes
of this Plan (i) solely because (A) the Company; (B) a Subsidiary; or (C) any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares, whether in
excess of 20% of the Voting Power or otherwise, or because the Company reports
that a change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership or (ii) solely
because of a change in control of any Subsidiary.
12. Fractional Shares. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
13. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a
47
<PAGE>
Participant or such other person may also make similar arrangements with respect
to the payment of any taxes with respect to which withholding is not required.
14. Administration of the Plan. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than three Non-Employee Directors appointed by the Board. A majority
of the committee (or subcommittee) shall constitute a quorum, and the action of
the members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or
document shall be final and conclusive. No member of the Board shall be liable
for any such action or determination made in good faith.
15. Amendments, Etc. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that any amendment
which must be approved by the stockholders of the Company in order to comply
with applicable law or the rules of the NYSE or, if the Common Shares are not
traded on the NYSE, the principal national securities exchange upon which the
Common Shares are traded or quoted, shall not be effective unless and until such
approval has been obtained. Presentation of this Plan or any amendment hereof
for stockholder approval shall not be construed to limit the Company's authority
to offer similar or dissimilar benefits under other plans without stockholder
approval.
(b) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Board also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
(c) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.
(d) In case of termination of employment by reason of death, disability
or normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right or Appreciation Right
not immediately exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, or any Deferred Shares as to which the Deferral Period has not been
completed, or any Performance Shares or Performance Units which have not been
fully earned, or who holds Common Shares subject to any transfer restriction
imposed pursuant to Section 9(b) of this Plan, the Board may, in its sole
discretion, accelerate the time at which such Option Right or Appreciation Right
may be exercised or the time at which such substantial risk of
48
<PAGE>
forfeiture or prohibition or restriction on transfer will lapse or the time when
such Deferral Period will end or the time at which such Performance Shares or
Performance Units will be deemed to have been fully earned or the time when such
transfer restriction will terminate or may waive any other limitation or
requirement under any such award.
(e) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.
(f) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to such
Option Right. Such provision, however, shall remain in effect for other Option
Rights and there shall be no further effect on any provision of this Plan.
16. Termination. No grant shall be made under this Plan more than 10
years after the date on which this Plan is first approved by the stockholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
As adopted September 11, 1997
/s/ Richard L. Rasley
Richard L. Rasley, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,363,204
<SECURITIES> 0
<RECEIVABLES> 2,386,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,760,293
<PP&E> 251,218,714
<DEPRECIATION> 9,656,647
<TOTAL-ASSETS> 251,313,900
<CURRENT-LIABILITIES> 52,575,762
<BONDS> 10,509,839
0
0
<COMMON> 156,975
<OTHER-SE> 187,758,674
<TOTAL-LIABILITY-AND-EQUITY> 251,313,900
<SALES> 32,994,413
<TOTAL-REVENUES> 33,534,224
<CGS> 0
<TOTAL-COSTS> 22,161,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,144,940
<INCOME-PRETAX> 8,227,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,227,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,227,826
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<PAGE>
</TABLE>
