<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PROXY STATEMENT PURSUANT
TO SECTION 14(A) OF
THE SECURITIES EXCHANGE
ACT OF 1934
Filed by the Registrant|X|
Filed by a party other than the Registrant|_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)) |_| Definitive Proxy statement |_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GREAT LAKES REIT, INC.
(Exact Name of Registrant as specified in its Charter)
APPROXIMATE DATE OF DISTRIBUTION OF THE DEFINITIVE PROXY MATERIAL TO
THE REGISTRANT'S SHAREHOLDERS: JULY 31, 1997
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing fee (check the appropriate box):
|X|No fee required
|_| Fee computed on table below per Exchange Act rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule )-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) total fee paid:
|_| Fee paid previously with preliminary materials.
|_|Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously Paid:
(2) form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Chairman's Letter
July 31, 1997
Dear Stockholder:
We cordially invite you to attend the 1997 Annual Meeting of Stockholders to be
held on Thursday, September 11, 1997 at 10:00a.m., Central Time, at the Hyatt
Regency Woodfield Hotel, 1800 East Golf Road Schaumburg, Illinois.
The following pages include a formal notice of the meeting and the proxy
statement. The proxy statement describes various matters on the agenda for the
meeting. In addition to those matters, we will discuss the Company's 1996
financial performance, the progress made in meeting important strategic
objectives and other items of general interest. We will be pleased to answer any
questions which you might wish to raise at the meeting.
We encourage you to attend in person. If that is not possible , please sign and
return the enclosed proxy card as soon as possible. Otherwise, your vote cannot
be counted.
Sincerely,
/s/ Richard A. May
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
GREAT LAKES REIT, INC.
823 Commerce Drive, Suite 300
Oak Brook, Illinois 60523
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, SEPTEMBER 11, 1997
To the Stockholders of Great Lakes REIT, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Great
Lakes REIT, Inc. (the "Company") will be held on Thursday, September 11, 1997 at
the Hyatt Regency Woodfield Hotel, 1800 East Golf Road Schaumburg, Illinois. The
Annual Meeting will commence at 10:00 a.m. Central Daylight Time, and will
consider the following items:
1. Election of seven Directors to serve for a term that will expire at the
Annual Meeting of Stockholders to be held in 1998.
2. Ratification of Ernst & Young LLP as independent auditors of the Company
for the year ending December 31, 1997.
3. Approval of the Great Lakes REIT, Inc. 1997 Equity and Performance
Incentive Plan.
4. Approval of the Amended and Restated Articles of Incorporation of the
Company.
The Stockholders at the Annual Meeting will also transact such other
business as may properly come before the meeting.
Only Stockholders of record at the close of business on July 21, 1997
will be entitled to notice of and to vote at this meeting.
By the order of the Board of Directors,
/s/ Richard L. Rasley
Secretary
Oak Brook, Illinois
July 31, 1997
IMPORTANT
Whether you expect to attend the meeting or not, we urge you to vote,
date, sign, and mail the enclosed proxy in the self-addressed return envelope
which is provided as promptly as possible. If you attend the meeting, you may
vote your shares in person, even though you have previously signed and returned
your proxy.
<PAGE>
PROXY STATEMENT FOR THE ANNUAL
MEETING OF STOCKHOLDERS OF
GREAT LAKES REIT, INC.
TO BE HELD 10:00 A.M., September 11, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Great Lakes REIT, Inc., a Maryland
corporation (the "Company") from the holders of the Company's common stock, $.01
par value (the "Common Stock"), in connection with the annual meeting of
stockholders of the Company (the "Annual Meeting"), to be held at 10:00 a.m.,
September 11, 1997, at the Hyatt Regency Woodfield Hotel, 1800 East Golf Road
Schaumburg, Illinois, and any adjournment thereof. This Notice of Annual Meeting
of Stockholders and Proxy Statement, and the accompanying proxy card, are being
mailed to stockholders on or about July 31, 1997, for the purposes set forth in
the notice of the Annual Meeting.
Only stockholders of record at the close of business on July 21, 1997
the ("Record Date") are entitled to receive notice of the Annual Meeting and to
vote the shares of Common Stock held by them on the Record Date at the Annual
Meeting or any postponements or adjournments thereof.
Properly executed proxies received prior to the meeting will be voted
at the meeting in accordance with the instructions therein. If a Stockholder
designates how the proxy is to be voted on any business to come before the
meeting, the executed proxy will be voted in accordance with that designation.
If the Stockholder fails to designate how his/her proxy should be voted, the
executed proxy will be voted: (i) for the election of the nominees named below
as Directors; (ii) for the ratification of Ernst & Young LLP as the Company's
independent auditors; (iii) for the approval of the 1997 Equity and Performance
Incentive Plan; (iv) for the approval of the Amendment and Restatement of the
Company's Articles of Incorporation; and (v) with regard to all other matters,
as recommended by the Company's Board of Directors or, if no such recommendation
is given, in their own discretion. The person granting the enclosed proxy may
revoke it at any time before it is exercised by writing to the Secretary of the
Company at its principal office, 823 Commerce Drive, Suite 300, Oak Brook,
Illinois 60523 or by attending the Annual Meeting and giving written notice to
the Secretary prior to the start of the meeting and by voting in person.
Attendance at the Annual Meeting will not, in itself, constitute revocation of a
previously granted proxy.
The Company will bear the cost of this proxy solicitation.
The presence at the Annual Meeting, in person of by proxy, of the
holder of a majority of the shares of Common Stock outstanding at the close of
business on the Record Date will constitute a quorum. As of that date, _________
shares of Common Stock were outstanding. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon at the Annual Meeting.
Abstentions and broker non-votes will not be counted, but will have the effect
of withholding votes from the nominees for Director and against the ratification
of Ernst & Young LLP as the Company's independent auditors, the approval of the
1997 Equity and Performance Incentive Plan and the Amendment and Restatement of
the Company's Articles of Incorporation.
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
At the Annual Meeting, seven Directors are to be elected to serve one-year
terms until the Company's Annual Meeting of stockholders to be held in 1998 and
until their successors are elected and qualified. The Company is soliciting
proxies to vote for its nominees, James J. Brinkerhoff, Daniel E. Josephs,
Edward Lowenthal, Richard A. May, Donald E. Phillips, Richard L. Rasley, and
Walter H. Teninga, as Directors of the Company.
The Company's Bylaws provide that each of the Company's Directors be
elected at each annual meeting of stockholders. On August 13, 1996, the Board of
Directors voted to expand the Board of Directors to ten members until the date
of the 1996 Annual Meeting and nine members thereafter. Two of the nine
Directors elected at the 1996 Annual Meeting, Messrs. Wayne Janus and Russell
Platt, resigned from the Board on February 25, 1997. The Board of Directors has
not nominated or elected Directors to fill the vacancies created by the
resignation of Messrs. Janus and Platt and the Company has no immediate plans to
fill the vacancies. The Company believes that the existence of the vacancies
will have no significant effect on the functioning of the Board of Directors.
The persons named as proxies in the accompanying form of proxy intend
to vote in favor of the election of the seven nominees for Director as
designated below, all of whom are presently Directors of the Company, to serve
until the next Annual Meeting of Stockholders and until their successors are
elected and shall qualify. It is expected that each of these nominees will be
able to serve, but if any such nominee is unable to serve for any reason, the
proxies reserve discretion to vote or refrain from voting for a substitute
nominee or nominees.
All proxies will be voted in accordance with the stated instructions.
Proxies given by Stockholders cannot be voted for more than seven persons as
Directors. The nominees for Director will be elected if they receive the
affirmative vote of a majority of the outstanding shares of Common Stock.
Abstentions and broker non-votes will not be counted, but will have the effect
of withholding votes from the nominees.
The Board of Directors recommends a vote to elect the Company's nominees,
Messrs. Brinkerhoff, Josephs, Lowenthal, May, Phillips, Rasley and Teninga, to
the Board of Directors of the Company.
Information Concerning the Nominees For Director
Name Age Position with the Company
James J. Brinkerhoff 46 Director
Daniel E. Josephs 66 Director
Edward Lowenthal 52 Director
Richard A. May 52 President, Chairman of the
Board
<PAGE>
Donald E. Phillips 65 Director
Richard L. Rasley 40 Executive Vice President,
Secretary, Director
Walter H. Teninga 69 Director
Richard A. May. Mr. May co-founded the Company in 1992 and has served as
Chairman and President of the Company and as a member of the Board of Directors
since its inception. Mr. May is currently the Chairman of the Board, President
and Chief Executive Officer of the Company. In 1986, Mr. May co-founded Equity
Partners Ltd. (the "Advisor") and, from 1987 until April 1, 1996, when the
Advisor was merged into the Company (the "Merger"), Mr. May was an officer and
shareholder of the Advisor. Mr. May is a licensed real estate broker in the
States of Illinois and Indiana and holds several inactive NASD licenses. He is
also a member of NAREIT. Mr. May received his Bachelor's Degree in mechanical
engineering from the University of Illinois and received his M.B.A. degree from
The University of Chicago.
Richard L. Rasley. Mr. Rasley co-founded the Company in 1992 and has served
as Secretary of the Company and a member of the Board of Directors since its
inception. Mr. Rasley is currently the Executive Vice President, General Counsel
and Secretary of the Company and has general supervisory responsibility for
administrative and legal matters. From 1987 until April l, 1996, Mr. Rasley was
employed by the Advisor; he was an officer and shareholder of the Advisor. Mr.
Rasley is a Certified Public Accountant, holds several inactive NASD licenses,
and is a member of the Illinois Bar and NAREIT. Mr. Rasley received his
Bachelor's Degree from the University of Iowa and received his M.B.A. and J.D.
degrees from the University of Illinois.
James J. Brinkerhoff. Mr. Brinkerhoff has served as a member of the Board
of Directors since August 1996. Mr. Brinkerhoff was appointed to the Board of
Directors pursuant to Fortis Benefits Insurance Company's right to nominate one
director under the Stock Purchase Agreement dated as of August 20, 1996 (the
"Stock Purchase Agreement") by and among the Company, Fortis Benefits Insurance
Company; Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio;
Morgan Stanley SICAV Subsidiary S.A., Wellsford Karpf Zarrilli Ventures, L.L.C.;
Logan, Inc.; and Pension Trust Account No. 104972 Held by Bankers Trust Company
as Trustee. Mr. Brinkerhoff is Senior Vice President, Real Estate, of Fortis
Advisers, Inc. ("Fortis Advisers"), the New York- based investment management
arm of Fortis, Inc. Prior to joining Fortis Advisers in 1994, he was Senior Vice
President and Portfolio Manager with Aldrich, Eastman & Waltch, responsible for
managing the United States Real Estate Portfolio of the Church Commissioners for
England. From 1983 to 1993, he was an officer and partner of Chesterton
International, a London-based real estate adviser, where he was responsible for
the creation and management of the Church Commissioners' United States Real
Estate Portfolio. Mr. Brinkerhoff received his M.B.A. degree from the Wharton
School, University of Pennsylvania, and his Bachelor's Degree from Boston
University. He is a full member of the Urban Land Institute.
Daniel E. Josephs. Mr. Josephs has served as a member of the Board of
Directors since March 1993. Mr. Josephs is currently an independent business
consultant. From 1985 through 1995, Mr. Josephs served as the President, Chief
Operating Officer and Director of Dominick's Finer
<PAGE>
Foods of Northlake, Illinois, a major Chicago-area retail grocery company.
Mr. Josephs currently serves on the Board of Directors of Grand Union Company, a
regional grocery firm, and the Board of Directors of Options for People, Inc., a
Chicago-area non-profit concern. Mr. Josephs received his Bachelor's Degree from
Northwestern University and received his M.B.A. degree from The University of
Chicago.
Edward Lowenthal. Mr. Lowenthal has served as a member of the Board of
Directors since August 1996. Mr. Lowenthal was nominated to the Board of
Directors pursuant to Wellsford Karpf Zarrilli Ventures, L.L.C.'s right to
appoint one director under the Stock Purchase Agreement. Mr. Lowenthal was a
Founder, Director and President of Wellsford Residential Property Trust ("WRP"),
a NYSE-listed multi-family REIT which merged with Equity Residential Properties
Trust ("Equity Residential"), a publicly traded apartment properties REIT, on
May 30, 1997. Upon completion of Equity Residential's acquisition of WRP, Mr.
Lowenthal (i) joined the Board of Directors of Equity Residential and (ii) began
serving as President of Wellsford Real Properties Inc., a newly formed real
estate company. Mr. Lowenthal is a member of the Executive Committee of NAREIT
and was Co-chair of its 1993 Annual Meeting. Mr. Lowenthal currently serves as a
member of the Boards of Directors of Omega Healthcare Investors, Inc., a real
estate investment trust ("REIT") and Corporate Renaissance Partners, a
securities mutual fund. Mr. Lowenthal is also a member of the Board of Trustees
of Corporate Realty Income Trust, a REIT that invests in triple-net leased
commercial and industrial properties. He received his Bachelor's Degree from
Case Western Reserve University and received his J.D. degree from Georgetown
University Law Center.
Donald E. Phillips. Mr. Phillips has served as a member of the Board of
Directors since September 1992. Mr. Phillips is currently retired. From 1960
until 1980, Mr. Phillips served as a corporate executive in a variety of
capacities for International Minerals & Chemicals Corporation of Northbrook,
Illinois and, from 1976 to 1980, he was Group President & CEO of IMC Industry
Group, Inc. ("IMC"), a chemical and minerals firm. From 1980 until 1988, he
served as Group President & CEO of Pitman Moore, Inc., then a wholly owned
subsidiary of IMC. Mr. Phillips presently serves as Chairman of the Board of
Directors of Synbiotics Corporation of Rancho Bernardo, California, a
manufacturer and distributor of veterinary devices and products. Mr. Phillips is
also a member of the Board of Directors of Potash Corporation of Saskatchewan,
Canada, a miner and distributer of minerals for agricultural application. Mr.
Phillips received his Bachelor's Degree from Mississippi College and received
his M.B.A. degree from the University of Mississippi. He is also a graduate of
the Executive Program in Business Administration in the Graduate School of
Business, Columbia University and he is a recipient of an Honorary Doctor of
Laws degree from Mississippi College.
Walter H. Teninga. Mr. Teninga has served as a member of the Board of
Directors since September 1992. From 1991 to 1993, Mr. Teninga served as the
President and Chief Executive Officer of American Club Stores, Inc., a wholly
owned subsidiary of American Stores Company, a grocery and food distribution
business. Prior to 1991, Mr. Teninga served as Chairman, Chief Executive Officer
and Director of the Warehouse Club, a wholesale cash-and-carry warehouse
business that he founded in 1982. Mr. Teninga is currently a member of the Board
of Directors of
<PAGE>
Developers Diversified Realty Corporation, a NYSE-listed real estate
investment trust and Solo Serve Corporation, an off-price apparel retailer. Mr.
Teninga received his Bachelor's Degree from the University of Michigan and his
M.B.A. degree from Michigan State University.
Board Meetings and Committees
In the year ended December 31, 1996, the Board of Directors held
fifteen meetings, in-person or by teleconference. Each incumbent member of the
Board of Directors attended at least 75 percent, in the aggregate, of (i) the
total number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees on which he served that were held during 1996
while such incumbent member was a director.
The Board of Directors has established the following standing
committees:
Audit Committee. The Audit Committee was established by the Board of
Directors in 1993 and is responsible for making recommendations concerning the
engagement of independent public accountants, reviewing with the independent
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants,
considering the range of audit and non-audit professional fees and reviewing
with the independent accountants and management the adequacy of the Company's
internal accounting controls. The Audit Committee is required to be comprised of
two or more Independent Directors. The current members of the Audit Committee
are Messrs. Teninga (Chairman), Phillips, and Brinkerhoff. In the year ended
December 31, 1996, the Audit Committee held two in-person meetings.
Compensation Committee. The Compensation Committee was established by
the Board of Directors in 1995 and is responsible for establishing remuneration
levels for executive officers of the Company and administering the Company's
1996 Stock Option Plan (the "1996 Option Plan") and any other incentive
programs. The Compensation Committee is required to be comprised of three or
more Independent Directors. The Compensation Committee currently consists of
Messrs. Phillips (Chairman), Josephs, and Lowenthal. In the year ended December
31, 1996, the Compensation Committee held six meetings, in-person or by
teleconference.
The Board of Directors has not established a separate committee of its
members to nominate candidates for election as directors of the Company.
Compensation of Directors
Members of the Board of Directors and committees thereof who are not
also officers of the Company receive an annual retainer fee of $12,000 plus fees
of $1,000 for each day on which they attend a meeting of the Board of Directors,
$500 for each day on which they attend a meeting of a Committee of the Board of
Directors and $250 for each day in which they participate telephonically in a
meeting of the Board of Directors or a Committee thereof. The Company reimburses
each Director for expenses incurred in attending meetings. In addition,
Directors who are not also officers
<PAGE>
of the Company are currently eligible to be granted options to acquire up to
5,000 shares of Common Stock under the Stock Option Plan for Independent
Directors (the "Directors Plan") at a price equal to the fair market value of
the Company's Common Stock as determined by the Board of Directors as of the end
of each fiscal year. As compensation for services performed during 1996, each of
Messrs. Brinkerhoff, Josephs, Lowenthal, Phillips and Teninga received an option
to purchase 5,000 shares of Common Stock at an exercise price of $13.00 per
share. Such options were exercisable when granted and will expire on December
31, 2006 or six months after a Director is removed by the stockholders for cause
pursuant to the Bylaws. Mr. Brinkerhoff assigned his stock options to Fortis
Benefits Insurance Company, the parent of his employer.
As cash compensation for their services in 1996 the Independent Directors
earned the following: Mr. Brinkerhoff $5,250; Mr. Josephs, $20,850; Mr.
Lowenthal $6,250; Phillips, $20,350; and Mr. Teninga, $19,600. Mr. Brinkerhoff
assigned the cash compensation earned for his service on the Board to Fortis
Benefits Insurance Company, the parent of his employer.
Executive Officers
The following is a biographical summary of the experience of the
executive officers of the Company.
Richard A. May. Chairman of the Board, President and Chief Executive
Officer. Information regarding Mr. May is set forth above under "Election of
Directors".
Richard L. Rasley. Executive Vice President, General Counsel and Secretary.
Information regarding Mr. Rasley is set forth above under "Election of
Directors".
James Hicks. Mr. Hicks, age 41, joined the Advisor in 1994 and
currently has general supervisory responsibility for the finance and accounting
activities of the Company. From 1989 to 1993, Mr. Hicks was employed by JMB
Institutional Realty Corporation, which was a real estate adviser to pension
funds and other institutional investors, as a vice president of portfolio
management with responsibility for overall asset management of a portfolio of
international and domestic commercial real estate properties. He received his
Bachelor's Degree in Accounting and Mathematics from Augustana College and his
M.B.A. degree from Northwestern University. Mr. Hicks is a Certified Public
Accountant and is a member of the Illinois CPA Society and American Institute of
Certified Public Accountants.
Raymond M. Braun. Mr. Braun, age 38, joined the Advisor in May 1990 and
currently has primary responsibility for all of the Company's real estate
acquisition activities. Prior to joining the Advisor, Mr. Braun was employed
from 1986 to 1990 by The Balcor Company, a major real estate investment company
involved in all aspects of real estate including development, management,
syndication and mortgage lending. Mr. Braun received his Bachelor's Degree from
the University of Illinois. Mr. Braun is a member of the National Association of
Industrial and Office Park Realtors.
<PAGE>
Kim S. Mills. Mr. Mills, age 49, joined the Advisor in January 1996. Mr.
Mills has primary responsibility for all of the Company's asset management,
property management and leasing activities. Prior to joining the Advisor, Mr.
Mills was employed by Simon Property Group REIT, a commercial property REIT,
from 1992 to 1995 as a regional manager with responsibility for overall
portfolio management of high rise office buildings totaling over four million
square feet. Mr. Mills received his Bachelor's Degree from Ohio Northern
University and has a Real Property Administrator designation from the Building
Owners and Managers Association.
Executive Compensation
Until April 1, 1996, the Company had no employees and all services were
provided by the Advisor pursuant to various fee-for-service agreements. The
table below sets forth the summary compensation of the Chief Executive Officer
and the four other most highly paid executive officers of the Company (the
"Named Executive Officers") based on the aggregate compensation paid to such
officers in 1996 (i) by the Company for the period beginning on April 1, 1996
and (ii) by the Advisor for the period from January 1, 1996 to April 1, 1996 and
for the years ended December 31, 1994 and 1995. All of the 1995 options to
purchase Common Stock and a portion of the 1996 options to purchase Common Stock
held by the Named Executive Officers were originally granted to the Advisor
pursuant to various services agreements and the Advisor subsequently transferred
such options to its employees as permitted by the Advisor Plan.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($) Awards($)(2) Options(#)(3) Compensation($)(4)
<S> <C> <C> <C> <C> <C> <C>
Richard A. May 1996 180,000 72,000 49,578 4,038
Chairman 1995 150,000 15,000 229,568 4,432
1994 128,750 15,000 4,432
Richard L. Rasley 1996 115,000 34,500 102,852 20,785 4,007
Executive Vice President 1995 100,000 10,000 86,310 4,438
1994 93,133 17,300 4,352
Raymond M. Braun 1996 105,000 36,750 222,852 18,800 4,224
Senior Vice President,
Acquisitions 1995 86,875 9,000 36,300 4,421
1994 70,333 13,000 4,525
James Hicks 1996 100,000 30,000 51,432 14,800 4,213
Senior Vice President,
Chief Financial Officer 1995 86,875 9,000 18,200 4,421
1994 47,470 4,850 2,278
Kim S. Mills 1996 100,000 30,000 12,000 255
Senior Vice President,
Asset Managment (5)
</TABLE>
<PAGE>
(1) The salary information for 1996 represents the individual's salary
compensation for the period from January 1, 1996 to April 1, 1996 as paid by the
Advisor and for the period from April 1, 1996 to December 31, 1996 as paid by
the Company.
(2) Effective April 1, 1996 and in connection with the Merger, Messrs. Rasley,
Braun and Hicks received 8,571, 8,571 and 4,286 restricted shares of Common
Stock, respectively, as an inducement to accept employment with the Company.
Effective May 1, 1996, Mr. Braun received an additional 10,000 restricted shares
as an inducement to remain employed with the Company. Such restricted shares
were valued at prices equal to the fair market value on the dates of grant,
which in all cases was deemed to be $12.00. As of December 31, 1996, the number
of restricted shares of Common Stock held by Messrs. Rasley, Braun and Hicks was
8,571, 18,571 and 4,286, respectively. As of December 31, 1996, the value of the
restricted shares held by Messrs. Rasley, Braun and Hicks was $111,423, $241,423
and $55,718, respectively (based upon a fair market value of $13.00). Dividends
are paid on all restricted shares held by Messrs. Rasley, Hicks and Braun. On
April 1, 1997, the restrictions lapsed with respect to 4,285 restricted shares
held by Messrs. Rasley and Braun and with respect to 2,143 restricted shares
held by Mr. Hicks. On May 13, 1997, upon the closing of the Company's public
offering of Common Stock, the restrictions lapsed with respect to the remaining
restricted shares held by Messrs. Rasley and Hicks and with respect to 4,286
restricted shares held by Mr. Braun.
(3) Options granted during 1996 were issued at exercise prices equal to the fair
market value of Common Stock on the dates of grant as determined by the Board of
Directors. Options granted during 1995 and options to purchase 17,578, 6,785,
2,800 and 2,800 shares of Common Stock deemed to have been granted to Messrs.
May, Rasley, Braun and Hicks, respectively, in 1996 represent Advisor Options
that were assigned to such individuals by the Advisor during 1995 from a pool of
options that had been granted to the Advisor by the Company pursuant to service
agreements during the period from the Company's incorporation through December
31, 1995. Advisor Options were exercisable on the date of grant. Options granted
under the 1996 Option Plan expire upon the earliest of (i) September 24, 2006,
(ii) one year after the termination of the optionee's employment due to death or
disability or (iii) three months after the termination of the optionee's
employment for any other reason. Options granted under the 1996 Option Plan
become exercisable at the rate of one-third of the shares covered thereby on
September 24 in each of 1997, 1998 and 1999. See "-- Stock Option Plans."
(4) These amounts represent group life and health insurance premiums paid by the
Advisor (for 1995) and the Advisor and Company (for 1996).
(5) Mr. Mills became an employee of the Advisor in January 1996; therefore,
no information is presented for 1994 or 1995.
<PAGE>
Stock Option Plans
1996 Incentive Stock Option Plan
The Company adopted the 1996 Incentive Stock Option Plan (the "1996
Option Plan") for the purpose of attracting and retaining certain key employees.
The 1996 Option Plan is administered by the Compensation Committee and provides
for the granting of options with respect to up to 500,000 shares of Common Stock
to executives or other key employees of the Company. Options may be granted in
the form of "incentive stock options," as defined in Section 422 of the Code, or
non-statutory stock options and are exercisable for up to ten years following
the date of grant (five years in certain cases involving incentive stock
options). The exercise price and other terms, including vesting provisions, of
each option will be set by the Compensation Committee; provided, however, that
in no event will the price per share be less than the fair market value of the
Common Stock on the date of grant, or 110% of the fair market value of the
Common Stock on the date of grant if the option is granted to an individual who
at the time the option is granted owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its parent
or subsidiary; provided further that no option can vest until the first
anniversary of the date of grant. Vested options granted under the 1996 Option
Plan expire the earlier of (i) ten years from the date of grant (five years in
certain cases involving incentive stock options), (ii) one year after the
termination of the optionee's employment due to death or disability or (iii)
three months after the termination of the optionee's employment for any other
reason.
Effective September 24, 1996, 94,000 options were granted under the
1996 Option Plan. Such options become exercisable at the rate of one-third of
the shares covered thereby on September 24 in each of 1997, 1998 and 1999.
Advisor Stock Option Plan
Effective July 2, 1992, the Company adopted the Advisor Stock Option
Plan (the "Advisor Plan") pursuant to which the Advisor was granted options to
purchase Common Stock ("Advisor Options"), which the Advisor could transfer to
key employees or affiliates of the Advisor. All Advisor Options have an exercise
price at least equal to the fair market value of the Common Stock on the date of
grant and terminate ten years after the date of grant. In connection with the
Merger of the Company and the Advisor, the Advisor Plan was terminated effective
April 1, 1996, subject to the rights of holders of Advisor Options granted prior
to the termination of the Advisor Plan.
During the period of 30 days after any "change in control," a person
entitled to exercise an option granted under the Advisor Plan may elect to
require the Company to purchase all or any portion of such option at a purchase
price equal to the difference between the fair market value and the option
exercise price. For purposes of the Advisor Plan, a "change in control" means
(i) certain consolidations or mergers of the Company, (ii) certain sales of all
or substantially all of the assets of the Company, (iii) the filing of a
Schedule 13D or Schedule 14D-1 under the Exchange Act disclosing that any person
has become the beneficial owner of 20% or more of the issued and
<PAGE>
outstanding shares of voting securities of the Company or (iv) during any period
of two consecutive years, individuals who at the beginning of any such period
constitute the Board of Directors 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 new member of the Board of Directors was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office at the beginning of any such period.
Under the Advisor Plan, the Advisor was annually granted options to
purchase shares of Common Stock equal to 1% of the average total outstanding
shares for each 1% that the Operations Yield (as defined in the Advisory
Agreement) exceeded 10%. Options granted under the Advisor Plan were exercisable
on the date of grant. For the three months ended March 31, 1996, the Advisor was
granted options to purchase 41,424 shares of Common Stock at an exercise price
of $12.00 per share. These options expire March 31, 2006. The Advisor assigned a
total of 29,963 of these options to Messrs. May, Rasley, Braun and Hicks. For
the year ended December 31, 1995, the Advisor was granted (i) options to
purchase 143,777 shares of Common Stock at an exercise price of $12.00 per share
and an expiration date of December 31, 2005, (ii) options to purchase 77,949
shares of Common Stock at an exercise price of $12.25 per share and an
expiration date of June 30, 2000 and (iii) options to purchase 20,783 shares of
Common Stock at an exercise price of $13.50 per share and an expiration date of
December 31, 2000. The Advisor assigned a total of 180,397 of these options to
Messrs. May, Rasley, Braun and Hicks. For the year ended December 31, 1994, the
Advisor was granted options to purchase 60,150 shares of Common Stock at an
exercise price of $10.75 per share and an expiration date of December 31, 2004.
The Advisor assigned a total of 44,887 of these options to Messrs. May, Rasley,
Braun and Hicks.
The following tables set forth certain information regarding stock
options granted to and exercised by the Named Executive Officers during 1996 and
the stock options held by them as of December 31, 1996:
<PAGE>
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants
<CAPTION>
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted To Exercise Price Stock Price Appreciation for
Options Employees in ($/sh) Expiration Date Option Term
Name Granted Fiscal Year
5%($)(3) 10%($)(3)
- -------------------- --------------- ------------------- ------------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. May 17,578(1) 12.98% 12.00 3/31/06 132,657 336,178
32,000(2) 23.63% 13.00 9/24/06 261,620 662,997
Richard L. Rasley 6,785(1) 5.01% 12.00 3/31/06 51,205 129,763
14,000(2) 10.34% 13.00 9/24/06 114,459 290,061
Raymond M. Braun 2,800(1) 2.07% 12.00 3/31/06 21,131 53,550
16,000(2) 11.81% 13.00 9/24/06 130,810 331,498
James Hicks 2,800(1) 2.07% 12.00 3/31/06 21,131 53,550
12,000(2) 8.86% 13.00 9/24/06 98,108 248,624
Kim S. Mills 12,000(2) 8.86% 13.00 9/24/06 98,108 248,624
</TABLE>
(1) Options were assigned under the Advisor Plan, vested on March 31, 1996
and were immediately exercisable.
(2) Options were granted under the 1996 Option Plan and become exercisable at
the rate of one-third of the shares covered thereby on September 24 in each of
1997, 1998 and 1999.
(3) Assumed annual rates of stock price appreciation for illustrative purposes
only as required by the rules of the Securities and Exchange Commisssion. The
actual price of Common Stock will vary from time to time based upon market
factors and the Company's financial performance. No assurance can be given that
such rates will be achieved.
<PAGE>
<TABLE>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Shares Acquired on Value Options at Fiscal Year-End Money Options at Year-End ($)
Name Exercise (#) Realized (#) Exercisable/Unexercisable Exercisable/Unexercisable (1)
- -------------------- ----------------------- --------------- -------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Richard A. May 192,637 $415,574 54,509/32,000 $37,023/0
Richard L. Rasley 0 0 93,095/14,000 $175,031/0
Raymond M. Braun 8,075 $24,975 31,025/16,000 $48,525/0
James Hicks 13,400 $16,000 7,600/12,000 $4,825/0
Kim S. Mills 0 0 0/12,000 0/0
</TABLE>
(1) Value is calculated by multiplying the number of shares of Common Stock
underlying the options by the difference between the exercise price of the
options and the fair market value of the Common Stock as of December 31, 1996.
See also "Approval of and Adoption of the 1997 Equity and Performance
Incentive Plan--Plan Benefits" for a description of options granted to the Named
Executive Officers in the first quarter of 1997 under such Plan.
Change in Control Agreements
The Company has entered into change in control agreements with Messrs.
May, Rasley, Braun, Hicks and Mills providing for the payment of specified
benefits under the circumstances described below after a "change in control." If
a "change in control" occurs, the executive will receive an amount equal to two
times the sum of his base salary plus two times the amount that would otherwise
be earned under certain existing executive compensation plans and arrangements
if within the period commencing on the date of a "change in control" and ending
on the last day of the month in which occurs the second anniversary of the
"change in control" of the Company (the "Employment Period"), the executive's
employment with the Company is terminated (a "Termination") other than for
death, disability or "cause" or termination by the executive for "good reason,"
defined as (i) the executive's resignation or retirement is requested by the
Company other than for cause; (ii) any significant change in the nature or scope
of the executive's duties or level of authority and responsibility; (iii) any
reduction in the executive's applicable total compensation or benefits other
than 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 the change in control agreement; or (v) a reasonable determination
by the executive that, as a result of a change in control of the Company and a
change in circumstances thereafter significantly affecting the executive's
position, the executive is unable to exercise the prior level of the executive
authority and responsibility. A "change in control" is deemed to occur under the
change in control agreements if
<PAGE>
(i) any person other than certain "excluded persons" becomes the beneficial
owner of 50% or more of the Company's outstanding Common Stock (a "50%
Beneficial Owner"), (ii) during any twenty-four-month period, 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 of
Directors; 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 any
successor rule) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board of Directors, (iii)
certain consolidations or mergers of the Company or (iv) certain sales, leases,
exchanges or other transfers of all, or substantially all, of the assets of the
Company. An executive subject to a Termination will be subject to a
non-competition agreement for the Employment Period.
Limited Purpose Employee Loan Program
The Company has established the Limited Purpose Employee Loan Program
(the "Employee Loan Program") for the purpose of attracting and retaining
certain key employees by facilitating their ability to exercise options to
purchase Common Stock. Under the Employee Loan Program, the Compensation
Committee may authorize the Company to make loans and loan guarantees to, or for
the benefit of, any employee of the Company to whom options to purchase Common
Stock have been granted. Under the Employee Loan Program, employees may borrow
up to 90% of the cost of exercising stock options held by the employee. Such
loans bear interest payable quarterly at the interest rate for borrowings under
the Company's senior secured bank credit facility, are recourse to the employees
and are secured by a pledge of the stock acquired by the employee through this
program. The loan expires on the earlier of the fifth anniversary of the loan
date and the date such employee's employment with the Company ceases. As of
December 31, 1996, employees had acquired an aggregate of 119,892 shares of
Common Stock through this program with aggregate outstanding loan amounts of
$1.2 million due the Company. Such amount is reflected as a reduction of
stockholders' equity until the loans are repaid. Richard A. May, Chairman of the
Board, President and Chief Executive Officer of the Company, borrowed $1,067,764
under the Employee Loan Program, all of which was outstanding at December 31,
1996. The proceeds of the loan were used, together with other funds supplied by
Mr. May, to pay the purchase price for options covering 102,064 shares of Common
Stock. Mr. Braun borrowed $71,325 in 1997, the proceeds of which were used to
pay the exercise price for options covering 7,925 shares of Common Stock.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Phillips
(Chairman), Josephs, and Lowenthal. For the year ended December 31, 1996, Mr.
Teninga was also a member of the Compensation Committee. None of the members of
the Compensation Committee is or has ever
<PAGE>
been an officer or employee of the Company or had any other relationship with
the Company, except as a member of the Board of Directors and as a stockholder.
Compensation Committee Report on Executive Compensation
During 1996, the Compensation Committee of the Board of Directors (the
"Committee") was comprised of Messrs. Josephs, Lowenthal (as of August 1996),
Phillips (Chairman) and Teninga. The Board of Directors has delegated to the
Committee the authority to determine the compensation of the Company's executive
officers and other key management employees.
The Committee's primary objective is to ensure that the Company's
compensation policies attract, motivate and retain qualified managers in a
manner consistent with maximization of stockholder value. The Company's
compensation is structured philosophically on a "pay for performance" foundation
and thus recognizes the desirability of compensation directed specifically to
motivate and reward executive managers for achieving both short and long-term
performance objectives. Compensation is comprised of three major components:
base salary, incentive bonus and stock options.
Until April 1, 1996, the Company had no employees and all services were
provided by Equity Partners, Ltd. (the "Advisor") pursuant to various
fee-for-service agreements. The information reported under "Executive
Compensation - Summary Compensation Table" represents the aggregate compensation
paid to the Named Executive Officers in 1996 (i) by the Company for the period
beginning on April 1, 1996 and (ii) by the Advisor for the period from January
1, 1996 to April 1, 1996 and for the years ended December 31, 1994 and 1995.
Base Salary
Base salaries are determined in the context of an individual's
responsibilities and competitive benchmarking. Base salaries are reviewed
annually and adjusted on the basis of individual performance and competitive
considerations. In making base salary adjustments, the Committee considers an
individual's performance, especially the effective discharge of assigned
responsibilities and the leadership and motivation provided to subordinates. In
making salary decisions for 1996, the Committee considered the effects of
inflation and certain subjective criteria, including the Committee's evaluation
of each executive officer's performance of his duties as an employee of the
Advisor, particularly the services that the Advisor provided to the Company, the
level of compensation that he received as an employee of the Advisor and the
increase in his responsibilities as a result of the merger of the Advisor with
and into the Company.
In 1996, the Company offered an annual incentive bonus compensation
program for the executive officers that was designed to motivate short-term
performance. Participants in the program were entitled to an annual incentive
bonus based upon (i) the relationship of the Company's actual funds from
operations growth ("FFO") versus budgeted FFO growth for the 1996 fiscal year;
and (ii) the individual's attainment of personal objectives. Seventy-five
percent of each participant's
<PAGE>
bonus was to be determined with reference to the FFO component and the remaining
25% of the bonus was to be determined with reference to personal goal
attainment. Personal goals generally specified attainment of particular
objectives or management responsibilities for the participant. The Committee
believes that the relatively heavy weight assigned to attainment of the
Company's budgeted FFO growth was appropriate in light of the priority of
maximizing stockholder value and the desirability of emphasizing teamwork in the
management of the Company.
Under the 1996 incentive compensation program, each executive officer
was assigned a "target" bonus that, depending on the participant, was a fixed
percentage of base salary (40% for Mr. May, 35% for Mr. Braun and 30% for
Messrs. Rasley, Hicks and Mills). Each participant was entitled to receive at
least 75% of the target bonus if the Company achieved 100% of budgeted FFO
growth. If the budgeted FFO growth target was not met, the bonus component
related to FFO would be reduced on a linear basis to the point at which FFO
growth was 50% of the budgeted amount, at which point no bonus would be payable
with respect to the FFO component. In 1996, the Company's actual FFO growth
exceeded its budgeted FFO growth and, after an analysis of each participant's
1996 personal objective attainment, the Committee determined that each
participant should receive their respective target bonus.
Stock Option Grants
The Committee seeks to ensure that the executive officers of the
Company focus attention on long-term objectives, including maximization of value
for stockholders. The Committee believes that stock options are an appropriate
compensation tool to motivate and reward executive managers for long-term
performance. The Committee believes that the Common Stock price is an
appropriate index of long-term value creation by the management group.
On September 24, 1996, the Committee granted to each executive officer
a performance-based stock option with the intention of motivating long-term
performance. Each executive officer received an option to purchase at fair
market value as of September 24, 1996 ($13.00 per share), the number of shares
derived by a formula that is based in part on a percentage of the executive
officer's 1996 salary (60% in the case of Mr. May, 50% in the case of Mr. Braun
and 40% in the case of Messrs. Hicks, Mills and Rasley). See "Executive
Compensation - Stock Option/ Grants Table". The options vest in three equal
installments beginning September 24, 1997 or in the event of a change in control
of the Company. In order for any portion of the grant to vest, the recipient
must remain continuously employed by the Company from the date of the grant
until the date such vesting occurs.
In addition, a portion of the 1996 options to purchase Common Stock
held by the Named Executive Officers were granted to the Advisor pursuant to
various services agreements and subsequently transferred to the Named Executive
Officers under the Advisor Stock Option Plan (the "Advisor Plan"). Options to
purchase 17,587, 6,785, 2,800 and 2,800 shares of Common Stock were deemed to
have been granted to Messrs. May, Rasley, Braun and Hicks, respectively, under
the Advisor Plan. Such options were exercisable on the date of grant.
<PAGE>
In 1993, changes were made to the federal corporate income tax law that
limit the ability of public companies to deduct compensation in excess of $1
million paid annually to each of the chief executive officer and the other four
most highly compensated executive officers. There are exemptions from this
limit, including compensation that is based on the attainment of performance
goals that are established by the Committee and approved by the Company's
stockholders. It is the Committee's policy to seek to qualify executive
compensation for deductibility where practicable and to the extent that such
policy is consistent with the Company's overall objectives in attracting,
motivating and retaining its executives. The Company believes that, based upon
current compensation levels, compensation paid in 1996 should be fully
deductible.
Compensation of Chief Executive Officer
Mr. May's salary compensation as reported under "Executive Compensation
- - Summary Compensation Table" for 1996 was $180,000, which was 20% higher than
the corresponding amount reported for 1995. In making such determination, the
Committee considered, among other things, competitive benchmarking and the
Company's performance in the preceding twelve-month period compared to budgeted
performance.
Mr. May participated in the annual incentive bonus compensation program
and his target bonus was 40% of his base salary. Consistent with the approach
described above regarding incentive bonuses for other executive officers, Mr.
May received a bonus payout for 1996. Mr. May received a performance-based stock
option for 32,000 shares of Common Stock, which will vest in three equal
installments beginning September 24, 1997 or in the event of a change in control
of the Company. Mr. May also received an option to purchase 17,578 shares of
Common Stock that was assigned to him from a pool of options that had been
granted to the Advisor by the Company pursuant to service agreements at various
times during the period from the Company's incorporation through December 31,
1995. Such options were exercisable on the date of grant.
Daniel E. Josephs
Edward Lowenthal
Donald E. Phillips
Walter H. Teninga.
Performance Graph
The Company did not complete its initial public offing until May 1997
and the shares of Common Stock of the Company were not traded during 1996 on any
national or regional stock exchange or other stock trading association.
Accordingly, a performance graph comparing the performance of the Common Stock
of other entities and indices is not presented.
<PAGE>
Certain Relationships and Related Transactions
Advisor Relationship
On April 1, 1996, following the approval of the Merger by the Company's
stockholders at a special meeting of stockholders held on February 27, 1996, the
Company became a self-administered REIT upon the consummation of the merger of
Equity Partners, Ltd. (the "Advisor") with and into the Company in exchange for
100,000 shares of Common Stock (the "Merger"). Messrs. May and Rasley, who are
directors and executive officers of the Company, owned 70.5% of the outstanding
shares of Common Stock of the Advisor and received 58,330 and 11,760 shares of
Common Stock, respectively, in the Merger.
From the Company's incorporation until the completion of the Merger,
the Advisor provided various services to the Company pursuant to an Advisory
Agreement dated July 2, 1992 as restated July 1, 1994, relating to the
selection, purchase, financing and operation of the Company's properties (the
"Advisory Agreement"), and pursuant to other agreements regarding property
management and offering administration activities. The Advisory Agreement and
the other agreements obligated the Advisor to manage and conduct the Company's
day-to-day operations in consideration for certain fees which were based in part
on the Company's funds from operations. Under the terms of the Advisory
Agreement and other agreements, the Advisor was paid $566,320, $791,103 and
$2,139,826 in 1993, 1994 and 1995, respectively, and $767,425 in 1996 prior to
the Merger. The Advisor also received Advisor Options under the Advisor Plan.
In connection with the Merger, the shareholders of the Advisor received
100,000 shares of Common Stock, 15,000 of which were placed in escrow to secure
the indemnification obligations of the shareholders of the Advisor (the
"Indemnification Shares"). Indemnification Shares that are not applied to
indemnifiable damages will be distributed to the shareholders of the Advisor
upon the later of (a) April 1, 2001 or (b) the expiration of the last applicable
statute of limitations within which tax-based claims can be made. In addition,
certain employees of the Advisor received restricted shares of Common Stock as
an inducement to accept employment with the Company, including 8,571, 8,571 and
4,286 restricted shares of Common Stock issued to Messrs. Rasley, Braun and
Hicks, respectively. The restrictions on one half of these shares lapsed on
April 1, 1997 and May 13, 1997 (the closing date of the Company's public
offering of Common Stock), respectively. In addition, effective May 1, 1996, Mr.
Braun received an additional 10,000 restricted shares of Common Stock that vest
in equal annual installments on May 1 of each of the years 1999 through 2002
provided that Mr. Braun is then employed by the Company.
Consultant Arrangement
Beginning in December 1996, the Company retained Karpf, Zarrilli & Co.
Incorporated ("Karpf Zarrilli") as a consultant in connection with certain
matters. In its capacity as consultant, the Company paid Karpf Zarrilli $118,750
plus expenses of $10,884 through the closing of the public offering, May 13,
1997. Steven A. Karpf and Frederick P. Zarrilli are (i) Principals of Karpf
<PAGE>
Zarrilli and (ii) members of Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV").
WKZV is the beneficial owner of 1,000,000 shares of Common Stock and has certain
registration rights with respect to such shares of Common Stock. In 1996, WKZV
nominated Edward Lowenthal, a member of WKZV, as a member of the Board of
Directors.
Registration Rights
Pursuant to the Registration Rights Agreement dated as of August 20, 1996
(the "Registration Rights Agreement") by and among the Company and Fortis
Benefits Insurance Company ("Fortis"); Morgan Stanley Institutional Fund, Inc. -
U.S. Real Estate Portfolio ("MSIF"); Morgan Stanley SICAV Subsidiary S.A.
("MSSICAV"); Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV"); Logan, Inc.
("Logan"); and Pension Trust Account No. 104972 Held by Bankers Trust Company as
Trustee ("Pension Trust Account No. 104972;" Fortis, MSIF, MS SICAV, WKZV, Logan
and Pension Trust Account No. 104972 are collectively referred to herein as the
"Institutional Investors") the Company has granted the Institutional Investors
certain registration rights with respect to the 3,867,000 shares of Common Stock
acquired by them pursuant to the Stock Purchase Agreement. Certain of the
Institutional Investors are principal stockholders of the Company. See "Share
Ownership of Certain Beneficial Owners and Management."
Company Loans to Employees
See "Compensation of Directors and Executive Officers--Limited Purpose
Employee Loan Program" for a description of Company loans to certain officers.
PROPOSAL 2: APPROVAL OF INDEPENDENT AUDITORS
For the years ended December 31, 1996 and 1995, the Company selected
Ernst & Young LLP as its independent auditors. There are no affiliations between
the Company and Ernst & Young LLP, its partners, associates or employees, other
than as pertain to its engagement as independent auditors. Subject to the
ratification of the Company's stockholders, the Directors have reappointed Ernst
& Young LLP, a certified public accounting firm, as independent auditors for the
Company for the year ending December 31, 1997. A representative of Ernst & Young
LLP is expected to be present at the Annual Meeting and will have an opportunity
to make an independent statement if he desires to do so. The representative is
expected to be available to respond to appropriate questions.
<PAGE>
The affirmative vote of the holders of the majority of outstanding
shares of the Company's Common Stock is necessary to ratify the reappointment
Ernst & Young LLP as the Company's independent auditors. Abstentions and broker
non-votes will not be counted, but will have the effect of voting against the
approval of Ernst & Young LLP as the Company's independent auditors. If the
stockholders do not ratify Ernst & Young LLP as the Company's independent
auditors, the Board of Directors will re-consider, but is not obligated to
change its decision reappointing that firm as the Company's independent
auditors.
The Board of Directors recommends a vote FOR the approval of Ernst & Young LLP
as the Company's independent auditors.
PROPOSAL 3: APPROVAL AND ADOPTION OF THE 1997 EQUITY AND
PERFORMANCE INCENTIVE PLAN
General
In an effort to motivate long term performance, the Company has granted
stock options to senior management and key employees. In today's competitive
marketplace, the Company's long term incentive program has become increasingly
important to attract and retain outstanding individuals. Based on a review
conducted by an independent consulting firm during 1996, the Company determined
that it will need to increase the scope and coverage of its long term incentive
program in order to be competitive. The Company recognized the value of
utilizing various kinds of performance-based awards to provide the incentives
that are best suited to the Company's changing needs. The Company also
identified the need to ensure continued compliance with the requirements of IRC
Section 162(m), which places a limit of $1,000,000 on the amount of compensation
that may be deducted by the Company for federal income tax purposes unless it is
performance-based.
In order to achieve these objectives, the Board of Directors adopted
the 1997 Equity and Performance Incentive Plan (the "Plan") on May 29, 1997,
subject to approval by the Company's stockholders at the 1997 Annual Meeting.
The Plan, if approved by the stockholders, will replace the 1996 Incentive Stock
Option Plan in its entirety, and all options granted and shares reserved for
exercise of options granted or to be granted under the 1996 Incentive Stock
Option Plan will be included within the Plan. The Plan affords the Board and the
Compensation Committee the ability to design compensatory awards that are
responsive to the Company's needs. It includes authorization for not only stock
options and stock appreciation rights, but also restricted and deferred shares
(which may include performance criteria), as well as performance shares and
performance units.
A summary of the Plan is set forth below. The full text of the Plan is
annexed to this Proxy Statement as Exhibit A, and the following summary is
qualified in its entirety by reference to Exhibit A. Capitalized terms not
otherwise defined herein shall have the same meanings as defined in the Plan.
<PAGE>
Summary of the Plan
Shares Available Under the Plan. Subject to adjustment as provided in
the Plan, the number of shares of Common Stock 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, and (v) in payment of dividend equivalents paid
with respect to awards made under the Plan shall not exceed in the aggregate
2,500,000 shares of Common Stock plus any shares relating to awards that expire,
are forfeited, or transferred as payment of the Option Price or in satisfaction
of any withholding amount. Such shares may be shares of original issuance or
treasury shares or a combination of the foregoing.
The aggregate number of shares of Common Stock actually issued or
transferred by the Company upon the exercise of Incentive Stock Options ("ISO")
shall not exceed 2,500,000 shares of Common Stock. Nor will any Participant be
granted more than 500,000 Restricted Shares in any period of five years.
Further, no Participant shall be granted Option Rights for more than 750,000
Shares of Common Stock during any period of five years, subject to adjustments
as provided in the Plan. In no event shall any Participant in any period of five
years receive more than 500,000 Appreciation Rights or receive an award of
Performance Shares or Performance Units in any calendar year having an aggregate
maximum value as of their respective Dates of Grant in excess of $3,000,000
subject to adjustments as provided in the Plan.
Eligibility. Officers and key employees of the Company may be selected by
the Board to receive benefits under the Plan.
Option Rights. Option Rights may be granted that entitle the optionee
to purchase shares of Common Stock at a price not less than fair market value.
The option price is payable (i) in cash at the time of exercise; (ii) by the
transfer to the Company of nonforfeitable, unrestricted shares of Common Stock
owned by the optionee having a value at the time of exercise at least equal to
the option price; (iii) by surrender of any other award under the Plan having a
value at the time of exercise at least equal to the option price; or (iv) a
combination of such payment methods. The Plan permits payment upon the exercise
of Option Rights by means of the delivery of then-owned shares of Common Stock
in partial or full satisfaction of the exercise price and the successive
re-delivery of the shares so obtained to satisfy the exercise price of
additional Option Rights until the grant has been fully exercised.
The Board has the authority to specify at the time Option Rights are
granted that shares of Common Stock will not be accepted in payment of the
option price until they have been owned by the optionee for a specified period;
however, the Plan does not require any such holding period and would permit
immediate sequential exchanges of shares of Common Stock at the time of exercise
of Option Rights. Any grant of Option Rights may provide for deferred payment of
the option price from the proceeds of sale through a bank or broker of some or
all of the shares of Common Stock to which the exercise relates.
<PAGE>
Any grant may provide for the automatic grant of additional Option
Rights ("Reload Option Rights") to an optionee upon the exercise of Option
Rights using then-owned shares of Common Stock as payment. Any Reload Option
Rights may cover up to the number of shares of Common Stock, Deferred Shares,
Option Rights or Performance Shares (or the number of shares of Common Stock
having a value equal to the value of any Performance Units) surrendered to the
Company upon exercise in payment of the option price or to meet any withholding
obligations. The Reload Option Rights 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. Depending on the
limitations, if any, imposed by the Board at the time of grant, Reload Option
Rights would permit an optionee, by delivery of previously owned shares of
Common Stock upon successive exercises of Reload Option Rights, to reduce or
eliminate the amounts payable upon original exercise of the Option Rights.
The Board may, at or after the date of grant of any Option Rights
(other than the grant of an ISO), provide for the payment of dividend
equivalents to the optionee on a current, deferred or contingent basis or may
provide that such equivalents be credited against the option price.
No Option Right shall be exercisable more than ten years from the date
of grant. Each grant must specify the period of continuous employment (if any)
with the Company or any subsidiary that is necessary before the Option Rights
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. Successive grants may be made to the same optionee whether or not Option
Rights previously granted remain unexercised. Any grant of Option Rights may
specify Management Objectives (as described below) that must be achieved as a
condition to exercise such rights.
Appreciation Rights. An Appreciation Right is a right, exercisable by
surrender of the related Option Right (if granted in tandem with Option Rights)
or by itself (if granted as a FreeStanding Appreciation Right), to receive from
the Company an amount equal to 100 percent, or such lesser percentage as the
Board may determine, of the spread between the strike price (or Option Price if
Tandem Appreciation Right) and the Market Value per Share of the Common Shares.
Any grant may specify that the amount payable on exercise of an Appreciation
Right may be paid by the Company in cash, in Shares of Common Stock, or in any
combination thereof, and may either grant to the optionee or retain in the Board
the right to elect among those alternatives.
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.
Any grant of Appreciation Rights may specify Management Objectives that must be
achieved as a condition to exercise such rights.
Restricted Shares. A grant of Restricted Shares involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of the performance of services. The
participant is entitled immediately to voting, dividend and other ownership
rights in such shares. The transfer may be made without additional
<PAGE>
consideration or in consideration of a payment by the participant that is at or
less than then-current Market Value per Share, as the Board may determine.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of IRC Section 83 for at least one year. An example would be
a provision that the Restricted Shares would be forfeited if the participant
ceased to serve the Company as an officer or key employee during a specified
period of years. In order to enforce these forfeiture provisions, the
transferability of Restricted Shares will be prohibited or restricted in a
manner and to the extent prescribed by the Board for the period during which the
forfeiture provisions are to continue. The Board may provide for a shorter
period during which the forfeiture provisions apply in the event of a Change in
Control or other similar transaction or event.
Any grant of Restricted Shares may specify Management Objectives that,
if achieved, will result in termination or early termination of the restrictions
applicable to such shares. Any such grant must also specify with respect to such
specified Management Objectives, a minimum acceptable level of achievement and
must 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 below full achievement of the specified Management Objectives.
Deferred Shares. A grant of Deferred Shares constitutes an agreement by
the Company to deliver shares of Common Stock 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. During
the Deferral Period, the participant has no right to transfer any rights under
his or her award and no right to vote such shares, 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 shares of Common Stock. Awards of Deferred Shares 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 award.
Deferred Shares must be subject to a Deferral Period of at least one
year, as determined by the Board at the date of the award, except that the Board
may provide for a shorter Deferral Period in the event of a Change in Control or
other similar transaction or event.
Performance Shares and Performance Units. A Performance Share is the
equivalent of one Common Share and a Performance Unit is the equivalent of
$1.00. A participant may be granted any number of Performance Shares or
Performance Units, subject to the limitations set forth under Available Shares.
The participant will be given one or more Management Objectives to meet within a
specified period (the "Performance Period"). The specified Performance Period
shall be a period of time not less than one year, except in the case of a Change
in Control or other similar transaction or event, if the Board so shall
determine. A minimum level of acceptable achievement will also be established by
the Board. If by the end of the Performance Period, the participant has achieved
the specified Management Objectives, the participant will be deemed to have
fully earned the Performance Shares or Performance Units. If the participant has
not achieved the Management
<PAGE>
Objectives, but has attained or exceeded the predetermined minimum level of
acceptable achievement, the participant will be deemed to have partly earned the
Performance Shares or Performance Units in accordance with a predetermined
formula. To the extent earned, the Performance Shares or Performance Units will
be paid to the participant at the time and in the manner determined by the Board
in cash, shares of Common Stock or any combination thereof. The grant may
provide for the payment of dividend equivalents thereon in cash or in shares of
Common Stock on a current, defined or contingent basis.
Management Objectives. The Plan requires that the Board establish
"Management Objectives" for purposes of Performance Shares and Performance
Units. When so determined by the Board, Option Rights, Appreciation Rights,
Restricted Shares and dividend credits may also specify Management Objectives.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of the individual
participant or area, department or function within the company or a subsidiary
in which the participant is employed. Management Objectives applicable to any
award to a participant who is, or is determined by the Board likely to become, a
Covered Employee, shall be limited to specified levels of or growth in (i) cash
flow/net assets ratio; (ii) debt/capital ratio; (iii) return on total capital;
(iv) return on equity; (v) funds from operations; (vi) fund 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 IRC Section 162(m), the
Board may modify such Management Objectives, in whole or in part, as the Board
deems appropriate and equitable.
Administration and Amendments. The Plan is to be administered by the
Board, except that the Board has the authority under the Plan to delegate any or
all of its powers under the Plan to a committee (or subcommittee thereof)
consisting of not less than three directors. The Board has delegated its
authority to administer the Plan to the Compensation Committee.
The Board is authorized to interpret the Plan and related agreements
and other documents. The Board may make awards to other officers and key
employees under any or a combination of all of the various categories of awards
that are authorized under the Plan, or in its discretion, make no awards. The
Board may amend the Plan from time to time without further approval by the
stockholders of the company except where required by applicable law or the rules
and regulations of a national securities exchange. The Company reserves
authority to offer similar or dissimilar benefits in plans that do not require
stockholder approval.
Transferability. Except as otherwise determined by the Board on a
case-by-case basis, no Option Right or Appreciation Right or other derivative
security is transferable by an optionee or recipient except, upon death, 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 are
exercisable during the optionee's or recipient's lifetime only by him or her.
<PAGE>
The Board may specify at the Date of Grant that part or all of the
shares of Common Stock that are (i) to be issued or transferred by the Company
upon exercise of Option Rights or Appreciation Rights, upon 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 the Plan, shall be subject to further restrictions on sale or
transfer.
Adjustments. The maximum number of shares that may be issued and
delivered under the Plan, the number of shares covered by outstanding Option
Rights and Appreciation Rights, and the prices per share applicable thereto, are
subject to adjustment in the event of stock dividends, stock splits,
combinations of shares, recapitalizations, mergers, consolidations, spin-offs,
reorganizations, liquidations, issuances of rights or warrants and similar
events. 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
the Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require 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 the Plan as the Board may determine appropriate
to reflect any transaction or event described above.
Change in Control. A definition of "Change in Control" has been
specifically included in the Plan, which definition can be found in the full
text of the Plan attached hereto as Exhibit A.
Possible Adverse Consequences of Option Rights. Since all the Option
Rights may become exercisable in the event of a Change of Control or other
similar transactions or events, the grant of an Option may be considered to have
the effect of deterring or rendering more difficult any tender offer or similar
transaction involving the Company.
Plan Benefits. It is not possible to determine specific amounts that
may be awarded in the future under the Plan. However, as indicated in the table
below, the Board of Directors made stock option awards to certain executive
officers named in the Summary Compensation Table and to certain other officers
and key employees during the first quarter of 1997. Such options expire on
February 24, 2007 and have an exercise price of $16.00 per share. The June 30,
1997 closing price of the Company's Common Stock on the New York Stock Exchange
was $16.4375. Fifty percent of the options granted during 1997 vested and can be
exercised immediately, the remaining 50 percent of the options vest and can be
exercised on August 27, 1998. The options granted during 1997 are subject to
approval of the Plan at the Annual Meeting.
<TABLE>
<CAPTION>
Name and Principal Position Number of Options Value (1)
- ------------------------------------------------------------- --------------------------- ------------------
<S> <C> <C>
Richard A. May 295,000 $129,062.50
Chairman
Richard L. Rasley 158,000 $69,125.00
Executive Vice President
<PAGE>
Raymond M. Braun 135,000 $59,062.50
Senior Vice President, Acquisitions
James Hicks 135,000 $59,062.50
Senior Vice President, Chief Financial Officer
Kim S. Mills 75,000 $32,812.50
Senior Vice President, Asset Management
Named Executive Officers Group Total 798,000 $349,125.00
Non-Executive Director Group 0 --
Non-Executive Officer Employee Group 202,000 $88,375.00
1,000,000 $437,500.00
</TABLE>
(1) Value is calculated by multiplying the number of shares of Common Stock
underlying the options by the difference between the exercise price of the
options and the closing price of the Company's Common Stock on the New York
Stock Exchange as of June 30, 1997.
Federal Income Tax Consequences
The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Plan based on Federal income tax
laws in effect on January 1, 1997. This summary is not intended to be complete
and does not describe state or local tax consequences.
Tax Consequences to Participants
Non-qualified Stock Options. In general, (i) no income will be
recognized by an optionee at the time a non-qualified Option Right is granted;
(ii) at the time of exercise of a non-qualified Option Right, ordinary income
will be recognized by the optionee in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares, if
unrestricted, in the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a non-qualified Option Right, appreciation
(or depreciation) in value of the shares after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Qualified Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an qualified option right ("Incentive
Stock Option" or "ISO"). If shares of Common Stock are issued to the optionee
pursuant to the exercise of an ISO, and if no disqualifying disposition of such
shares is made by such optionee within two years after the date of grant or
within one year after the transfer of such shares to the optionee, then upon
sale of such shares, any amount
<PAGE>
realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of such
shares at the time of exercise (or, if less, the amount realized on the
disposition of such shares if a sale or exchange) over the option price paid for
such shares. Any further gain (or loss) realized by the participant generally
will be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of a tandem Appreciation Right or a free-standing
Appreciation Right. When the Appreciation Right is exercised, the participant
normally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted shares of Common Stock received on the exercise.
Restricted Shares. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares (reduced by any amount paid by the participant for such
Restricted Shares) at such time as the shares are no longer subject to
forfeiture or restrictions on transfer for purposes of IRC Section 83
("Restrictions"). However, a recipient who so elects under IRC Section 83(b)
within 30 days of the date of transfer of the shares will have taxable ordinary
income on the date of transfer of the shares equal to the excess of the fair
market value of such shares (determined without regard to the Restrictions) over
the purchase price, if any, of such Restricted Shares. If a Section 83(b)
election has not been made, any dividends received with respect to Restricted
Shares generally will be treated as compensation that is taxable as ordinary
income to the participant.
Deferred Shares. No income generally will be recognized upon the award
of Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of Common Stock on the date that such shares are transferred to the
participant under the award (reduced by any amount paid by the participant for
such Deferred Shares), and the capital gains/loss holding period for such shares
will also commence on such date.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment with respect to the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
Special rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under
<PAGE>
Section 16(b) of the Exchange Act, the tax consequences to the officer or
director may differ from the tax consequences described above. In these
circumstances, unless a special election under IRC Section 83(b) has been made,
the principal difference (in cases where the officer or director would otherwise
be currently taxed upon his receipt of the stock) usually will be to postpone
valuation and taxation of the stock received so long as the sale of the stock
received could subject the officer or director to suit under Section 16(b) of
the Exchange Act, but no longer than six months.
Tax Consequences to the Company or Subsidiary
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of reasonableness,
is an ordinary and necessary business expense, is not an "excess parachute
payment" within the meaning of IRC Section 280G and is not disallowed by the $1
million limitation on certain executive compensation under IRC Section 162(m).
A favorable vote by the holders of a majority of the outstanding shares
of Common Stock is required to approve on the Plan. Abstentions and broker
non-votes will not be counted for determining whether the Plan has been
approved, but will have the effect of voting against the Plan.
The Board of Directors recommends a vote FOR the approval of the 1997
Equity and Performance Incentive Plan.
PROPOSAL 4: APPROVAL OF GREAT LAKES REIT, INC. ARTICLES OF
AMENDMENT AND RESTATEMENT
General
On May 29, 1997, the Board of Directors adopted the Great Lakes REIT,
Inc. Articles of Amendment and Restatement (the "Articles of Amendment") subject
to approval by the vote of a majority of the outstanding shares of Common Stock.
A copy of the Articles of Amendment is attached hereto as Exhibit B. The Board
of Directors determined that the Articles of Incorporation filed in June 1992
when the Company was a privately held corporation and that are currently in
effect (the "Articles of Incorporation"), are no longer appropriate for the
Company as publicly-traded REIT. The Articles of Amendment contain provisions
that are typical of public companies, as well as certain corporate governance
provisions. The decision of the Board of Directors to approve the Articles of
Amendment does not indicate any current intention of the Board of Directors to
issue additional shares of Common Stock or to change how it would function with
respect to stock ownership limitations, but it does reflect the express
reservation to the Board of Directors of certain powers under the Maryland
General Corporation Law ("MGCL") anti-takeover provisions.
<PAGE>
The Articles of Amendment contain the following four principal
modifications to the Articles of Incorporation: (1) an increase in the number of
shares of Common Stock from 20,000,000 to 60,000,000 that the Company is
authorized to issue; (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 of 1986, as amended (the
"Code"); (3) elimination of provisions in the Articles of Incorporation which
exempt the Company and its shares from provisions of the MGCL that govern
certain business combinations and provisions of MGCL that restrict the voting
rights of "control shares" of a Maryland corporation; and (4) general
modifications to reflect the current corporate governance provisions for a
public REIT.
Increase in Number of Authorized Shares of Common Stock
The Board of Directors has determined that it is in the best interests
of the Company's stockholders to amend Article VI of the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
20,000,000 to 60,000,000.
The Articles of Incorporation currently authorize the Company to issue
20,000,000 shares of Common Stock, $.01 par value, of which ______________
shares were outstanding as of July 21, 1997. The Board of Directors believes
that it is in the best interests of the Company's stockholders to increase the
number of authorized shares of Common Stock in order to have additional
authorized but unissued shares available for issuance to meet business needs as
they arise. The additional authorized shares could be used for any proper
purpose approved by the Board of Directors. The Board of Directors believes that
the availability of additional shares of authorized Common Stock will provide
the Company the flexibility it may need in the future to raise capital,
negotiate acquisitions of properties, restructure debt, issue stock dividends,
consummate stock splits or for other corporate purposes.
The additional shares of Common Stock to be authorized pursuant to the
Articles of Amendment would allow shares to be issued without the expense and
delay of a special stockholders' meeting. The Board of Directors does not
presently intend to seek further stockholder approval to issue any such shares,
except as may be required by applicable law or the rules of any stock exchange
or automated quotation system on which the Company's securities may be listed or
traded. The issuance by the Company of additional shares of Common Stock may,
depending on the context in which they are issued, dilute the stock ownership of
the existing stockholders of the Company. The Company's stockholders do not have
any preemptive or similar rights to subscribe for or purchase any additional
shares of Common Stock that may be issued in the future. In addition, the
issuance of additional shares could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. The Company has no arrangements, agreements or understandings at the
present time for the issuance or use of the additional shares of Common Stock to
be authorized.
Stock Ownership Limitations
<PAGE>
Article VII of the Articles of Incorporation authorizes the Board of
Directors to take such actions as are necessary or advisable to preserve its
qualification as a REIT and to refuse to permit any proposed transfer or
purchase of voting shares that, in the opinion of the Board of Directors, would
jeopardize the status of the Company as a REIT under the Code. In addition, the
current Bylaws contain certain restrictions on the number of shares of stock of
the Company that a person may own. The Articles of Amendment modify Article VII
to provide that the restrictions on the transferability of stock that are now
contained in the Bylaws will be contained in the Articles of Incorporation.
The Articles of Amendment prohibit any person, unless exempted by the
Board of Directors in its sole discretion, from owning shares of stock
representing more than 9.9% in value of the aggregate outstanding shares of
capital stock of the Company ("Aggregate Stock Ownership Limit"). Furthermore,
any transfer of shares of capital stock that would result in the capital stock
being held by less than 100 persons is void. If a transfer of shares results in
any person owning shares in excess of the Aggregate Stock Ownership Limit, then
that number of shares that caused the person to exceed the Aggregate Stock
Ownership Limit shall be automatically transferred to a trust for the benefit of
a charitable beneficiary and such person shall acquire no rights in such shares.
If a transfer to a trust is not effective, then the shares shall become void.
The Board of Directors may, in its sole discretion, exempt a person (an
"Excepted Holder") from the Aggregate Stock Ownership Limit and may establish or
reduce an Excepted Holder Limit, as defined in the Articles of Amendment,
provided that (i) the person represents to the Board that the ownership of such
shares would not result in the Company failing to qualify as a REIT under the
provisions of the Code, and (ii) the person does not and will not own an
interest in a tenant of the Company (or a tenant of any entity owned or
controlled by the Company) that would cause the Company to own more than a 9.9%
interest in such tenant. However, in no event shall the Excepted Holder Limit be
reduced to a percentage that is less than the Aggregate Stock Ownership Limit.
If a person acquires or attempts to acquire beneficial or constructive
ownership of shares of capital stock of the Company that will or may violate the
Aggregate Stock Ownership Limit, such person shall give the Company notice of
such transaction and provide the Company such other information as the Company
may request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.
Business Combination and Control Share Acquisition Provisions
The Company's Articles of Incorporation provide that the Company was
not governed by the business combination provisions of the MGCL. Similarly, the
Articles of Incorporation provide that the control share acquisition provisions
of the MGCL do not govern the Company and its shares of stock. The Articles of
Amendment do not contain either such provision. However, under MGCL, the Board
of Directors by resolution can, at any time, exempt particular transactions or
situations from the business combination provisions of the MGCL, and may amend
the Company's Bylaws so as to subject the Company and its shares to the control
share acquisition provisions of the MGCL. See,
<PAGE>
generally, "Anti-takeover Effects of Certain Provisions of Maryland Law and
the Company's Articles of Incorporation, Articles of Amendment and Bylaws --
Business Combinations" and "-- Control Share Acquisitions."
Corporate Governance Provisions
The Articles of Amendment include certain corporate governance
provisions which, although authorized by MGCL, were not expressly provided in
the Articles of Incorporation. For example, the Articles of Amendment authorize
the Company to have a Board of Directors with three classes of directors, each
class of director serving staggered three year terms. The current Articles of
Incorporation do not contain such a provision. See, "Anti-takeover Effects of
Certain Provisions of Maryland Law and the Company's Articles of Incorporation,
Articles of Amendment and Bylaws --Classified Board of Directors."
In accordance with Maryland law, if approved by the stockholders, the
Articles of Amendment will become effective upon the filing of the Articles of
Amendment with the Secretary of State of Maryland, which will occur as promptly
as practicable after the date of the Annual Meeting.
A favorable vote by the holders of a majority of the outstanding shares
of Common Stock is required to approve the Articles of Amendment. Abstentions
and broker non-votes will not be counted for determining whether the Articles of
Amendment have been approved but will have the effect of voting against the
Articles of Amendment.
The Board of Directors recommends that you vote FOR approval of the
Articles of Amendment.
Anti-takeover Effects of Certain Provisions of Maryland Law and the Articles of
Incorporation, Articles of Amendment and Bylaws
The existence of authorized but unissued shares of Preferred Stock in
the Articles of Incorporation and the Articles of Amendment, the business
combination provisions and the control share acquisition provisions of MGCL (and
the deletion by the Articles of Amendment of the applicable exemptive provisions
in the Articles of Incorporation by the Articles of Amendment), the provisions
of the Articles of Incorporation and the Articles of Amendment on removal of
directors, and the advance notice provisions of the Bylaws could delay, defer or
prevent a transaction or change in control of the Company that might involve a
premium price for holders of Common Stock or otherwise be in their best
interest.
Preferred Stock
The Articles of Incorporation authorize the Board of Directors to
classify and unissued shares of Preferred Stock and to reclassify any previously
classified but unissued shares of any series of
<PAGE>
which no shares have been issued. The Articles of Amendment do not modify this
provision. Prior to issuance of shares of each series, the Board is required by
the Maryland General Corporation Law ("MGCL") and the Articles of Incorporation
to set, subject to the provisions of the Articles of Incorporation regarding
restriction on transfer of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such series. The Board could authorize the issuance of shares of Preferred Stock
with terms and conditions that could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest. Currently, there are 10,000,000 authorized but unissued shares of
Preferred Stock; there are no shares of Preferred Stock outstanding; and the
Company has no present plans to issue any shares of Preferred Stock.
Classified Board of Directors
The Articles of Amendment authorize the Company to have a Board of
Directors with three classes, each class of directors serving staggered
three-year terms. The current Articles of Incorporation do not contain such a
provision. Although the Company currently has no intention of implementing a
classified Board of Directors, the Board of Directors would have the discretion
to do so at any time pursuant to the Articles of Amendment. Adoption of a
classified board of directors could delay, defer or prevent a transaction or
change in control of the Company that might involve a premium price for holders
of Common Stock or otherwise be in their best interest.
Removal of Directors
Pursuant to the Articles of Incorporation, a director may be removed
with or without cause by the affirmative vote of a majority of all the votes
entitled to be cast in the election of directors. This provision, which has not
been modified by the Articles of Amendment, when coupled with the provision in
the Bylaws authorizing the Board of Directors to fill vacant directorships,
precludes stockholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination generally must
be recommended by the board of directors of such corporation and approved by two
super-majority votes of the stockholders. These provisions
<PAGE>
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder.
As permitted by the MGCL, the Articles of Incorporation currently
provide that the Company shall not be governed by the business combination
provisions of the MGCL. However, the Articles of Amendment do not contain such a
provision, so if the Articles of Amendment are approved by the stockholders, the
Company will be subject to the business combination provisions of the MGCL,
unless the Board of Directors acts thereafter to exempt or approve a particular
interested shareholder. The Board of Directors currently is unaware of any
potential Interested Shareholder, so the Board has no current plans with respect
to these provisions.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, officers or by
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or with respect to which the acquiror is
able to exercise or direct the exercise of voting power (except solely by virtue
of a revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions. The
control share acquisition statute does not apply (a) to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or (b) to acquisitions approved or exempted by the charter or bylaws
of the corporation.
The Articles of Incorporation provide that the Company and its shares
of stock are not governed by the control share acquisition statute. The Articles
of Amendment do not contain such a provision. Therefore, if the Articles of
Amendment are approved the stockholders, the Company will not be subject to the
control share acquisition provisions of the MGCL, unless and until the Board of
Directors, in its discretion, amends the Company's Bylaws to subject the Company
and its shares to the control share acquisition statute. Although the Board of
Directors currently has no intention of so amending the Bylaws, there can be no
assurance that the Board will not do so in the future.
Advance Notice of Director Nominations and New Business
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice
<PAGE>
of the meeting, (ii) by the Board of Directors, or (iii) by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
procedures set forth in the Bylaws, and (b) with respect to special meetings of
stockholders, only the business specified in the Company's notice of meeting may
be brought before the meeting of stockholders and nominations of persons for
election to the Board of Directors may be made only (i) pursuant to the
Company's notice of the meeting, (ii) by the Board of Directors, or (iii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws. To
be timely, a stockholder's notice with respect to an annual meeting generally
must be delivered to the secretary at the principal executive offices of the
Company not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting. A stockholder's nomination of a person for
election to the Board of Directors at a special meeting must be delivered to the
secretary at the principal executive offices of the Company not later than the
close of business on the 60th day prior to such special meeting and not earlier
than the close of business on the later of the 90th day prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of [June 30, 1997] by (i) each director,
(ii) each of the Named Executive Officers, (iii) all directors and executive
officers of the Company as a group and (iv) each other person who is known by
the Company to be the beneficial owner of 5% or more of the outstanding shares
of Common Stock. All information with respect to beneficial ownership has been
furnished by the respective director, executive officer or stockholder, as the
case may be, or has been derived from documents filed with the Securities
Exchange Commission. Unless otherwise indicated in a footnote, all such shares
of Common Stock are owned directly, and the indicated person has sole voting and
investment power.
<TABLE>
<CAPTION>
Number of Shares of Percentage
Name and Address of Beneficial Owner (1) Common Stock Beneficially
Beneficially Owned (2) Owned
- -------------------------------------------------------- --------------------------------- --------------------
<S> <C> <C>
Fortis Benefits Insurance Company (3) 1,005,000 6.47%
One Chase Manhattan Plaza, 41st Floor
New York, New York 10005
Morgan Stanley Asset Management Inc. (4) 1,005,000 6.47%
1221 Avenue of the Americas, 21st Floor
New York, New York 10020
<PAGE>
Wellsford Karpf Zarrilli Ventures, L.L.C. 1,000,000 6.43%
201 Hamilton Road
Ridgewood, New Jersey 07450
Raymond M. Braun (5) 125,171 *
James J. Brinkerhoff -- *
James Hicks (6) 93,786 *
Daniel E. Josephs (7) 64,855 *
Edward Lowenthal (8) 1,005,000 6.47%
Richard A. May (9) 469,235 2.98%
Kim S. Mills (10) 37,500 *
Donald E. Phillips (11) 43,980 *
Richard L. Rasley (12) 194,013 1.23%
Walter H. Teninga (13) 44,422 *
All directors and executive officers as a 2,830,542 12.89%
group (10 persons) (14)
- - --------------------------
* Less than 1%
</TABLE>
(1) Except as otherwise noted, the address for each beneficial owner listed is
823 Commerce Drive, Suite 300, Oak Brook, Illinois 60523.
(2) All share amounts reflect beneficial ownership determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934.
(3) Includes options exercisable within 60 days to purchase 5,000 shares of
Common Stock, which options were granted to Mr. Brinkerhoff as director
compensation and assigned by Mr. Brinkerhoff to Fortis.
(4) As reported in Amendment No. 3 to a Schedule 13D filed by MSAM on March 11,
1997, (i) MSAM has shared voting power as to 1,054,339 shares of Common Stock
and shared dispositive power as to 1,054,339 shares of Common Stock, (ii) Morgan
Stanley Institutional Fund, Inc. ("MSIF") has shared voting power as to 643,150
shares of Common Stock and shared dispositive power as to 643,150 shares of
Common Stock, (iii) Morgan Stanley SICAV Subsidiary S.A. (the "SICAV
Subsidiary") has shared voting power as to 411,189 shares of Common Stock and
shared
<PAGE>
dispositive power as to 411,189 shares and (iv) Morgan Stanley Group Inc. has
shared voting power as to 1,054,339 shares of Common Stock and shared
dispositive power as to 1,054,339 shares of Common Stock. Such 13D included an
aggregate of 54,339 shares of Common Stock that were issuable pursuant to the
conversion of outstanding shares of Preferred Stock. All outstanding shares of
Preferred Stock were subsequently canceled upon the completion of the Company's
initial public offering in May 1997, as a result, such 54,339 shares of Common
Stock have been excluded from the share amount listed. MSAM acts as investment
adviser to MSIF and the SICAV Subsidiary. The share amount listed includes
options exercisable within 60 days to purchase 5,000 shares of Common Stock,
which options were granted to Mr. Russell Platt as director compensation and
assigned by Mr. Platt to MSAM.
(5) Includes options exercisable within 60 days to purchase 90,600 shares of
Common Stock.
(6) Includes options exercisable within 60 days to purchase 75,100 shares of
Common Stock.
(7) Includes options exercisable within 60 days to purchase 14,000 shares of
Common Stock.
(8) Mr. Lowenthal is a member of WKZV and may be deemed to beneficially own
the 1,000,000 shares of Common Stock that are beneficially owned by WKZV. Mr.
Lowenthal disclaims beneficial ownership of all but 19,231 of such shares.
Includes options exercisable within 60 days to purchase 5,000 shares of Common
Stock.
(9) Includes options exercisable within 60 days to purchase 201,029 shares of
Common Stock and Indemnification Shares held in escrow pursuant to the terms of
the Merger.
(10)Includes options exercisable within 60 days to purchase 37,500 shares of
Common Stock.
(11) Includes options exercisable within 60 days to purchase 8,000 shares of
Common Stock.
(12) Includes options exercisable within 60 days to purchase 172,095 shares of
Common Stock and Indemnification Shares held in escrow pursuant to the terms of
the Merger.
(13) Includes options exercisable within 60 days to purchase 15,000 shares of
Common Stock. Also includes 13,952 shares owned by Mr. Teninga's spouse.
(14) Includes options exercisable within 60 days to purchase an aggregate of
820,324 shares of Common Stock.
Section 16(a) Beneficial ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's Directors and executive officers, and holders of 10% or more of the
outstanding Common Stock to file an initial report of ownership (form 3) and
reports of changes of ownership (forms 4 and 5) of
<PAGE>
Common Stock with the Securities and Exchange Commission. Such persons are
required to furnish the Company with copies of all Section 16(a) forms that they
file. Based upon a review of these filings the Company believes that all
Directors and Executive Officers have complied with their Section 16(a)
obligations.
Additional Information
Reference should be made to the Company's report on Form 10-K for the
year ended December 31, 1996 and the Company's 1996 Annual Report to
Stockholders that accompany this proxy statement, and the Company's reports on
Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, and the
Company's reports on Form 8-K for financial information and related disclosures.
Stockholders may at no charge obtain copies of the Company's reports filed on
Form 10-Q and 8-K by contacting the Company in writing at its office at 823
Commerce Drive, Suite 300, Oak Brook, Illinois 60523, or by phone at
630-368-2900. In addition, the information may be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the Securities and Exchange
Commission ("SEC") regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago
Illinois 60661. The SEC maintains a website at http://www.sec.gov containing
reports proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the SEC.
Stockholders' Proposals for the 1998 annual Meeting
Proposals of stockholders intended to be presented at the Company's
Annual Meeting of Stockholders to be held in 1998 must be received by the
Company no later than December 15, 1997. Such proposals must comply with the
requirements as to form and substance established by the SEC for such proposals
in order to be included in the proxy statement.
Other matters
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting other
than the items referred to above. Proxies in the enclosed form will be voted in
respect of any other business that is properly brought before the Annual Meeting
in accordance with the recommendation of the Board of Directors or, if no such
recommendation is given, in the discretion of the person or persons voting the
proxies.
By the order of the Board of Directors,
Richard L. Rasley
Secretary
Oak Brook, Illinois
July 31, 1997
<PAGE>
Great Lakes REIT, Inc.
PROXY
The undersigned hereby appoints Richard A. May and Richard L. Rasley as proxies,
with the full power of substitution, to vote for the undersigned Stockholders
the shares of Great Lakes REIT, Inc. registered in the name(s) of the
undersigned at the Annual Meeting of Stockholders to be held on September 11,
1997, and at any and all adjournments thereof, upon the following matters which
are more fully described in the Proxy Statement.
1. ELECTION OF DIRECTORS
|_| FOR all nominees listed below(except as marked to the contrary below) |_|
WITHHOLD AUTHORITY to vote for all nominees listed below
(Instruction: To withhold authority to vote for any individual nominee mark
the box next to the nominee's name below)
|_| James J. Brinkerhoff |_| Daniel E. Josephs |_| Edward J. Lowenthal
|_| Richard A. May |_| Donald E. Phillips |_| Richard L. Rasley
|_| Walter H. Teninga
2. PROPOSAL TO APPROVE ERNST & YOUNG AS THE COMPANY'S INDEPENDENT
AUDITOR'S FOR THE YEAR ENDING DECEMBER 31, 1997.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL TO APPROVE THE COMPANY'S 1997 EQUITY AND PERFORMANCE
INCENTIVE PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
4. PROPOSAL TO APPROVE THE ARTICLES OF AMENDMENT AND RESTATEMENT.
|_| FOR |_| AGAINST |_| ABSTAIN
5. UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Number of Shares:
Name of Stockholder:
Signature of Stockholder Date
<PAGE>
Exhibit A
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 the Common Stock, par value $.01 per
share, of the Company or any security into which such 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 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.
<PAGE>
"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 Right" 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 in which there is a listing.
"Non-Employee Director" means a Director of the Company who is not an
employee of the Company or any Subsidiary.
<PAGE>
"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.
<PAGE>
"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.
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.
<PAGE>
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:
(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, (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
<PAGE>
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 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.
<PAGE>
(b) The Board may also authorize the granting to any
Participant of Free-Standing 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.
(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.
<PAGE>
(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 except (if the Board
shall so determine) in the event of a Change in Control or other similar
transaction or event, for a period of not less than one year to be determined by
the Board at the Date of Grant.
(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).
(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:
<PAGE>
(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.
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
<PAGE>
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 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
<PAGE>
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;
(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;
<PAGE>
(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; or (D) 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 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
<PAGE>
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 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
<PAGE>
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.
<PAGE>
Exhibit B
GREAT LAKES REIT, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Great Lakes REIT, 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,
<PAGE>
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
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 occurring before the first annual meeting of stockholders
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.
<PAGE>
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 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.
<PAGE>
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.
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,
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
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 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.
<PAGE>
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) (1) 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 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 (i-i)(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
<PAGE>
(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 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.
<PAGE>
(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 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 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
<PAGE>
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 Capital Stock of the
<PAGE>
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 hereinabove set
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation 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 $30,000.
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 $70,000.
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 ___ day of ___________, 1997.
ATTEST: GREAT LAKES REIT, INC.
By:
Secretary President
