SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
Great Lakes REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland 36-3844714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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823 Commerce Drive, Suite 300, Oak Brook, IL 60521
(Address of principal executive offices) (Zip)
Registrants telephone number, including area code: (630) 368-2900
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
Securities to be registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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ITEM 1.
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BUSINESS
General
Great Lakes REIT, Inc.
(the Company) was incorporated as a Marylandcorporation on June 22, 1992 to
invest in income producing property. The principal business of the Company is
the acquisition, ownership, management, leasing and renovation of suburban
office and to a lesser degree, office service center and industrial properties
located in the Midwestern United States. TheCompany has elected to be treated
for federal income tax purposes as a real estate investment trust (REIT) under
section 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its taxable year ended December 31, 1993. At December
31, 1995, the Company owned and operatedsixteen properties aggregating
approximately 1.5 million square feet located insuburban areas of Chicago,
Illinois; Detroit, Michigan; Milwaukee, Wisconsin;and Minneapolis, Minnesota.
The Company leases office and industrial space toover 333 tenants in a variety
of businesses. In 1993, three tenants individually accounted for more than 10%
of total revenues. In 1994, 1995 and 1996, notenant individually accounted for
more than 10% of total revenues.
Operating Strategy
The Companys operating strategy is to acquire, manage, and, when
appropriate, redevelop suburban office properties in certain large
metropolitanmarkets within approximately a 400 mile radius of Chicago. Through
December 31,1996, the Company had acquired twenty-six properties which to-date
have generally provided attractive investment returns based upon the Companys
investment in those properties. The Company seeks to increase its asset base
through the acquisition of additional individual suburban office properties and
portfolios of such properties. Based upon its experience in acquiring properties
in the identified Midwest market area, its on-going contacts with certain
institutional sellers, and its contacts with certain investment property
brokers, the Company believes that opportunities continue to exist to acquire
suburban office properties in the Midwestern United States which provide the
potential for attractive investment returns.
The Company also believes that
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improvements in economic conditions in the Midwestern United States during the
last four years have caused market vacancy rates to decline and that the drop in
market vacancy rates have favorably impacted and will continue to favorably
affect its occupancy levels, rents and real estate values although there can
beno assurance that this will in fact occur. The Company believes that office
employment growth is a reliable indicator
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of future demand for suburban office space and has targeted markets where
projected office employment growth is above average. A CB Commercial
Torto-Wheaton research report dated Fall 1996, predicts office employment growth
for 54 large metropolitan markets at 2.4% for the next 6 years.
Torto-Wheaton predicts the office employment growth for the next six years in
five of the metropolitan markets in which the Company owns properties as
follows: Chicago- 2.7%; Minneapolis-2.7%; Detroit suburban-2.6%;
Cincinnati-2.6%; and Columbus-2.9%.
In addition, the Company believes that certain supply-side constraints, such as
limited availability of undeveloped land and financing for speculative real
estate construction reduce the number of potential competitors and increase a
market's potential for higher average rents over time. Therefore, the Company
currently targets selected suburban markets in the Midwestern United States that
have experienced and are expected to continue to experience above average office
employment growth, and certain supply-side constraints to the development of
competitive properties.
The Company currently maintains its headquarters in Oak Brook, Illinois,
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and it also operates property management offices in Des Plaines, Illinois;
Vernon Hills, Illinois; Southfield, Michigan; and Milwaukee, Wisconsin.
Competition
Leasing of
Space to Tenants: The Company faces significant competition from both
institutional and local property owners for the leasing of space to tenants.
Many factors enter into a tenant's decision to lease space in a particular
building, including: the property's location, functionality, amenities, rental
rates, and available tenant improvement allowances. The supply of available
space in the markets in which the Company operates its properties also has a
significant impact on rental rates and tenant improvement costs incurred by
landlords. Based upon the Company's experience the Company believes no single
competitor or group of competitors holds a dominant position in any of the
markets in which the Company operates its properties. The cash flow of a real
estate asset can vary significantly from year to year depending on tenant
turnover. When a lease expires and a tenant renews or vacates its space, costs
associated with tenant improvements, leasing commissions and lost income due to
vacancy or construction down-time can significantly reduce the cash flow from a
property.
Due to the capital intensive nature of suburban office properties and, to a
lesser degree, light industrial properties, the Company believes that planning
and budgeting for future costs associated with tenant turnover is a prudent
component of
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evaluating investment yields and managing the cash flow of properties. For
its
existing portfolio, the Company estimates income lost due to vacancy and
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construction down-time on a property by property basis. Although these future
costs are not accrued for financial reporting purposes, the Company incorporates
these estimates in its annual cash budgets and long-term cash forecasts. Based
upon its experience, the Company believes that its ability to fund tenant
improvements and pay leasing commissions helps it to retain and attract tenants
when compared with other landlords which may be less well capitalized and
therefore less able to fund certain tenant improvements.
Acquisition of Properties:
The Company's strategy is to acquire well-located, well-constructed
suburban office, office service center and light industrial properties that are
less than 15 years old with purchase prices of less than $15 million in certain
large metropolitan markets within approximately a 400 mile radius of Chicago.
Based upon the Company's experience, most institutional buyers of commercial
real estate have tended to focus their acquisition activities on properties with
purchase prices exceeding $20 million. There are currently four publicly traded
REITs which have the stated objective to purchase suburban office properties in
the Company's Midwest market area.
To date these other REITs have
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principally
acquired larger properties than those targeted by the Company.
As a
result of
the purchasing bias of institutions and the absence of competition from other
publicly traded REITs, the Company has encountered few well-capitalized
competitors for the Company's target properties in its target markets. By
avoiding properties that institutional investors have been interested in
purchasing, the Company believes it has been able to achieve more favorable
pricing on the Company's property acquisitions because the Company has been able
to contract for the purchase of properties without financing and similar
contingencies which are generally required by likely competitive bidders for
properties of the type targeted by the Company. In addition, the Company has
established a successful track record and reputation for closing on properties
it has contracted to purchase. Based upon its experience the Company believes
that:(1) the experience of its management team; (2) its conservative capital
structure and its available liquidity; (3) its strong relationships with the
region's investment real estate brokers; and (4) its integrated asset management
program, have enhanced available liquidity, and will continue to enhance its
ability to identify and capitalize on attractive acquisition opportunities.
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Each acquisition opportunity is reviewed to evaluate whether it meets the
following criteria: (1) the potential for higher occupancy levels and/or rents
as well as for lower turnover and/or operating expenses; (2) the ability to
generate returns in excess of the Company's weighted average cost of capital,
taking into account the estimated costs associated with tenant turnover (i.e.
tenant improvements, leasing commissions and the loss of income due to vacancy);
and (3) a purchase price at or below estimated replacement cost.
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Investment Growth Strategy
The Company's long term objective is to manage the Company and its
properties so that the Company's shareholders enjoy: (i) preservation of
capital; (ii) capital appreciation; and (iii) dividends that increase over time.
To accomplish this objective, the Company intends to increase its funds from
operations and the value of the Company's properties by seeking to: (1) retain
existing tenants when their current leases expire; (2) lease vacant space in its
properties; (3) maintain or improve (as necessary) the interior and exterior
appearance of its properties; (4) reduce and control operating costs of its
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properties through prudent and careful property management; and (5) acquire
under-leased and under-managed properties at favorable prices and then
increasing funds from operations through better leasing and management of the
properties.
The Company believes that by managing its own properties, it will be more
effective at operating its properties than other owners who employ third party
management companies.
To accomplish its operating objectives, the Company intends to:
- - Capitalize on its experienced management team, whose senior officers have
extensive experience in the ownership, management and acquisition of suburban
office properties in the Midwestern United States;
- - Focus its acquisition efforts in the Midwestern United States;
- - Pursue a market-driven strategy which is based upon an analysis of the
regional factors which the Company believes impact the supply of, and demand
for, suburban office properties;
- - Plan for future anticipated expenses associated with tenant turnover by
budgeting for tenant improvements, lease commissions and lost income due to
vacancy or construction down-time;
- - Concentrate on acquiring general purpose, flexible properties which are
suitable for a diverse range of tenants;
- - Utilize its in-house asset and property management personnel in order to
reduce overhead costs and increase the Cmmpany's responsiveness to tenant needs;
- - Coordinate with local leasing brokers to more effectively attract and retain
tenants; and
- - Maintain a conservative capital structure by limiting total indebtedness to no
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more than 50% of the total value of its properties.
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Financing
The Company seeks to maintain a well-balanced, conservative and flexible
capital structure by: (1) targeting a ratio of long and short-term debt to
property value of no greater than 50%; (2) generally borrowing on a long-term
basis at fixed rates and limiting the use of its variable rate credit facility
to short term financing of acquisitions and working capital requirements; and
(3) maintaining conservative debt service and fixed charge ratios.
The Company recently expanded its revolving credit facility with the First
National Bank of Boston (as agent) to $75 million.
Insurance
The Company carries commercial general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as well as
a $10 million umbrella liability policy. This coverage protects the Company
against liability claims as well as the cost of lawsuits. The Company believes
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its liability coverage is appropriate given the nature of the properties and
past experience and is consistent with industry practice.
The Company also carries property insurance on a replacement value basis,
covering both the cost of direct physical damage and the loss of rental income.
Government Regulations
The Company's properties are subject to various federal, state and local
statutes and regulations including: the Americans with Disabilities Act (the
"ADA"), and various other federal, state and local environmental regulations,
(collectively "Property Regulations"). If the Company's properties did not
comply with the ADA or other Property Regulations,
substantial capital
expenditures might be required to correct the non-compliance including the
substantial modification of property common area facilities. However, based upon
engineering studies conducted prior to the acquisition of the various
properties, the Company believes that its properties are currently in
substantial compliance with all applicable Property Regulations, although
expenditures may be required to comply with any future changes in such Property
Regulations. Under certain Property Regulations regarding environmental matters,
an owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under,
or in such property. Such Property Regulations often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances.
The costs of such removal or
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remediation with respect to any individual property could be substantial.
Additionally, the presence of such substances or the failure to properly
remediate such substances may adversely affect the owner's ability to borrow
using such real estate as collateral.
All of the Company's properties have had Phase I environmental site assessments
(which involve inspection without soil sampling or groundwater analysis)
performed by independent environmental consultants and have been inspected for
hazardous materials as part of the Company's acquisition inspections. According
to these consultants, none of these Phase I assessments has revealed any
environmental conditions requiring material expenditures for remediation. There
can be no assurances however, that Phase I environmental assessments would
detect all environmental conditions which would give rise to material
environmental liabilities. The Company believes that it is in compliance in all
material respects with all Property Regulations regarding hazardous or toxic
substances, and the Company has not been notified by any governmental authority
of any non-compliance or other claim in connection with any of its present or
former properties. The Company does not anticipate that compliance with all
Property Regulations regarding environmental matters will have any material
adverse impact on the financial position, results of operations or liquidity of
the Company.
Corporate Structure
As of December 31, 1995, the Company had no employees and the Company's
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day-to- day operations were conducted by Equity Partners Ltd. (
the "Advisor") pursuant to the terms of several agreements between the Company
and the Advisor. Services related to real estate acquisition, asset management,
shareholder communication and other general corporate matters were performed by
the Advisor pursuant to an advisory agreement dated July 2, 1992 as restated
July 1, 1994 (the "Advisory Agreement"). Services related to the three private
securities offerings concluded by the Company prior to April 1, 1996 were
performed by the Advisor pursuant to three separate offering services
agreements. These offering services agreements required the Advisor to supervise
and participate in the preparation and distribution of offering materials, state
and federal securities law compliance, and other matters related to the
offerings. The Advisor managed each of the Company's properties pursuant to
separate property management agreements negotiated for each property. Richard A.
May, Chairman of the Board of Directors, President and Chief Executive Officer
of the Company; Richard L.
Rasley, Executive Vice President and General Counsel and Secretary of the
Company; James Hicks, Senior Vice President, Finance, Chief Financial Officer
and Treasurer of the Company; Raymond M. Braun, Senior Vice President of the
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Company; Edith M. Scurto, Vice President of the Company; and Brett A. Brown,
Controller of the Company were previously employed by the Advisor. (For
additional information, see Item 7, "Certain Relationships and Related
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Transactions".)
In January 1996, the Company entered into an agreement to merge with the
Advisor (the "Merger Agreement") with the intent to thereby become a
self-managed and self-advised REIT (This transaction is referred to herein as
the "Merger") Under the terms of the Merger Agreement, the three shareholders of
the Advisor, who included Messrs. May and Rasley, received a total of 100,000
shares of the Company's common stock.
In addition, it was a condition to the Company's obligation to complete the
merger, that certain members of the Advisor's senior management (Messrs. Rasley,
Braun, Hicks, Brown and Ms. Scurto) be issued a total of 30,000 shares of the
Company's common stock as an incentive to continue as employees of the Company
after the merger of the Advisor into the Company, and that those individuals
execute restricted stock agreements with respect to those shares. On February
27, 1996, at a duly held stockholder's meeting, the proposed Merger of the
Advisor with and into the Company was approved. On April 1, 1996, the Company
consummated the acquisition of the Advisor by statutory merger.
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In connection with the consummation of the Merger, the Company offered
employment to the employees of the Advisor.
The Company is now self-managed and as of December 31, 1996 had approximately 35
employees.
Effective December 1996, the Company transferred all of the properties that
are subject to the lien securing the Company's obligations under its secured
credit facility with First National Bank of Boston to Great Lakes REIT, L.P. , a
Delaware limited partnership (the "Operating Partnership") in exchange for a
controlling interest in the Operating Partnership.
A majority of
REITs that have become public companies during the last three years have
adopted a structure whereby an operating partnership or similar entity holds
title to the real estate assets and may manage and administer such assets.
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Such a structure permits the acquisition of properties on a tax- deferred
basis for many current property owners. The Company expects to transfer its
remaining real estate properties to the Operating Partnership in 1997.
Although the Company and the Operating Partnership are separate entities,
and except as otherwise noted, all references in this Registration Statement to
the "Company" refer to the Company and the Operating Partnership, collectively.
The Company and a wholly-owned subsidiary, GLR No. 3, a Maryland business
trust, currently own 100% of the interests of the Operating Partnership. All
properties will be transferred to the Operating Partnership by the Company at
cost and the Company will consolidate the results of the Operating Partnership
into its financial statements. As the Company currently owns 100% of the
Operating Partnership, no pro forma financial information is presented with
respect to the Operating Partnership because the transfer to the Operating
Partnership will not impact the financial information presented in the Company's
consolidated financial information.
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ITEM 2. FINANCIAL INFORMATION
The following selected financial data for the four years ended December 31,
1995 are derived from the audited financial statements of the Company. The
financial data for the nine month periods ended September 30, 1996 and 1995 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
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Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1996. The data
should be read in conjunction with the financial statements, related notes, and
other financial information included herein.
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(2) The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 (the "White Paper") defines Funds from Operations as
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers Funds from Operations an
appropriate measure of performance of an equity REIT because it is predicated on
cash flow analyses. The Company computes Funds from Operations in accordance
with standards established by the White Paper which may differ from the
methodology for calculating Funds from Operations utilized by other equity REITs
and, accordingly, may not be comparable to such other REITs. Funds from
Operations should not be considered as an alternative to net income (determined
in accordance with GAAP) as an indicator of the Company's financial performance
or to cash flow from operating activities (determined in accordance with GAAP)
as a measure of the Company's liquidity, nor is it indicative of funds available
to fund the Company's cash needs, including its ability to make distributions. A
reconciliation of net income to FFO for the fiscal years ended December 31 is as
follows:
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following discussion and analysis should be read in conjunction with
the historical Financial Statements and notes thereto which are included in Item
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13 of this Registration Statement. Over the past three years, the Company has
expanded its real estate portfolio through the acquisition of suburban office
and office/service center properties in the Midwest. The Company has financed
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its growth by the issuance of additional shares of its common stock and issuance
of mortgage notes. Growth in net income has been due to a combination of
improved operations of the Company's properties as compared to prior years and
the inclusion of the operating results of properties acquired in 1994, 1995 and
1996 from the dates of their respective acquisitions. The White Paper defines
Funds from Operations as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Management considers Funds from
Operations an appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes Funds from Operations in
accordance with standards established by the White Paper which may differ from
the methodology for calculating Funds from Operations utilized by other equity
REITs and, accordingly, may not be comparable to such other REITs.
Results of Operations Nine Months ended September 30, 1996 compared to 1995
The changes in the income statement items for the nine months ended September
30, 1996 as compared to 1995 are as follows:
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In analyzing the operating results for the nine months ended September 30,
1996, the increases in rental income, real estate taxes, and other property
operating expenses compared to the 1995 period are due principally to three
factors: (1) the addition of operating results from properties acquired in 1996
from the dates of their respective acquisitions, (2) the addition of nine months
of operating results in 1996 attributable to properties acquired in 1995 as
compared to the partial period of operating results from the dates of their
respective acquisitions in 1995 and (3) improved operations of properties during
1996 as compared to 1995.
During the nine months ended September 30, 1996, the Company acquired four
new properties. The operating results of these properties have been included in
the Company's financial statements from the date of their acquisition. In 1995,
the Company acquired 7 properties, and in 1996 a full nine months of operations
of these properties has been included in the Company's financial statements.
A summary of these changes as they impact rental income, real estate taxes and
other property operating expenses follows:
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Interest expense during the nine months ended September 30, 1996 increased
by $1,560,000 as the Company had greater amounts of long and short-term debt
outstanding in 1996. This debt was used to finance the acquisition of properties
acquired in 1995 and 1996.
General and administrative expenses increased by $928,000 due to the
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increase in the size of the Company ($682,000), and certain one-time costs
associated with the relocation of the Company's offices ($60,000), the adoption
of certain employee agreements ($40,000) and the increase in the Amortization of
deferred compensation ($146,000).
Depreciation and amortization increased in 1996 by $1,514,000 as the
Company incurred these expenses on twenty properties in 1996 compared to
fourteen properties in 1995.
In April 1996, the Company acquired all the outstanding shares of the
Advisor in exchange for 100,000 shares of the Company's common stock. All
contracts between the Advisor and the Company were transferred to the Company.
As these contracts are effectively terminated, the costs assigned to the
contracts ($1,273,307) have been charged to contract termination expense in the
nine months ended September 30, 1996.
Liquidity and Capital Resources
Cash and cash equivalents as of September 30, 1996 were $816,000, a
decrease of $487,000 as compared to December 31, 1995. The decline was primarily
due to the Company continuing to invest in tenant and other capital improvements
at its properties and the acquisition of four investment properties in 1996.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities. The
Company considers its cash provided by operating activities to be adequate to
meet operating requirements and to fund the payment of dividends in accordance
with the REIT requirements under the Code.
The Company expects to meet its long-term liquidity requirements (such as
scheduled mortgage debt maturities, property acquisitions, and significant
capital improvements) by long-term collateralized and uncollateralized
borrowings and the issuance of debt or additional equity securities in the
Company. In December 1996, the Company increased its line of credit with the
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Bank of Boston to $75 million, subject to certain loan covenants. The Company
also extended its line of credit with the American National Bank until June 30,
1997. The maximum amount that may be borrowed from the American National Bank is
$5 million. At December 31, 1996, the Company had $63,802,368 outstanding on its
line of credit with the Bank of Boston with approximately $11,197,632 available
to borrow. The amount available to be borrowed at December 31, 1996 under the
American National Bank line of credit was $5 million.
In August 1996, the Company completed an agreement with a group of
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institutional investors to sell 3,867,000 shares of its common stock at a price
of $13 per share and issue 210,128 shares of preferred stock. In connection with
the stock sale, the Company received $17,594,850 in August 1996, $17,594,850 in
October 1996, and $15,081,300 on November 19, 1996. The Company has used the
proceeds from this stock sale to acquire additional investment properties, for
tenant and other capital improvements at its existing properties, to repay
indebtedness, and for general working capital purposes. At September 30, 1996,
the Company had committed to fund approximately $1.1 million of tenant
improvements at its Springdale, Ohio property. The Company expects to fund these
commitments, in part, through its bank credit facilities.
1995 compared to 1994
The changes in the income statement items in 1995 as compared to 1994 are
as follows:
During 1995, the Company acquired seven properties. The operating results
of these properties have been included in the Company's financial statements
from the dates of their respective acquisitions. In 1994, the Company acquired
three properties, and in 1995 a full year of operations of these properties has
been included in the Company's financial statements as compared to only the
operating results of these three properties from the respective dates of their
acquisitions in 1994. In analyzing the 1995 operating results of the Company,
the increases in rental income, real estate taxes, and other property operating
expenses (which include management fees, repairs and maintenance, janitorial and
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other services related to the operation of the properties) from 1994 are due
principally to three factors: (i) the addition of operating results from
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properties acquired during 1995; (ii) the addition of full year operating
results of properties acquired in 1994 as compared to the partial year operating
results from the dates of their respective acquisitions in 1994; and (iii)
improved operations of properties during 1995 as compared to 1994. An analysis
of the changes in rental income, real estate tax expense, and other property
operating expenses is as follows:
Interest expense increased by $1,385,000 in 1995 as compared to 1994 as the
Company increased its short and long-term mortgage debt to partially finance the
acquisition of investment properties in 1995. Depreciation and amortization
increased by $1,193,000 as the Company incurred depreciation and amortization
expense on sixteen properties in 1995 and compared to nine properties in 1995.
General and administrative expenses increased by $362,000 due to increased
advisory fees paid to the Advisor ($314,000) and increased professional fees
($48,000).
1994 compared to 1993
The changes in the income statement items in 1994 as compared to 1993 were
as follows:
During 1994 and 1993, the Company acquired three and six investment
properties, respectively. The operating results of those properties are
presented in the Company's financial statements from the dates of their
respective acquisition.
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Operating results of properties acquired in 1993 are included in the 1994
financial statements for the entire year as compared with operating results only
from the dates of their acquisition in 1993.
The
increases in, rental income, real estate taxes, and other property operating
expenses, resulted from: (1) the addition of operations of properties acquired
during 1994; (2) the inclusion of a full years' operations for properties
acquired during 1993 as compared to the partial year operating results from the
dates of their respective acquisitions in 1993; and (3) improved operating
results in 1994 for the properties acquired in 1993 due to increased leasing
levels at such properties.
A summary of these changes as they impact rental income, real estate taxes,
and property operating expenses follows:
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Interest expense during 1994 increased by $838,000 as the Company had
financed a portion of the purchase prices of eight properties as of December 31,
1994, compared to three properties as of December 31, 1993. Depreciation and
amortization increased by $601,000 as the Company incurred depreciation and
amortization on nine properties in 1994 compared to six properties in 1993.
General and administrative expenses increased by $384,000 due to
increased
professional fees ($154,000)and the advisory fee paid to the
Advisor ($230,000),
each of which were a consequence of the growth in the size of the Company in
1994.
Statements of Cash Flows
Nine Months Ended September 30, 1996 versus September 30, 1995
Cash flows from operating activities increased by $1.3 million as the
Company owned twenty properties during 1996 as compared to fourteen properties
during 1995.
Cash used by investing activities declined by $21.7 million in 1996 as
compared to 1995 as the Company acquired four properties during 1996 as compared
to five properties in 1995.
Cash provided by financing activities declined by $24.2 million as proceeds
from mortgage and bank loans declined by $21.9 million, and dividends reinvested
declined by $1.8 million as the dividend reinvestment plan was suspended.
1995 compared to 1994
Cash flows from operating activities increased by $3.7 million in 1995 as
compared to 1994 as the Company owned sixteen properties in 1995 compared to
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nine properties in 1994.
Cash flows used by investing activities increased by $31.2 million in 1995
as compared to 1994 as the Company acquired 7 properties in 1995 compared to
three properties in 1994. Cash flows from financing activities increased by
$27.2 million in 1995 compared to 1994 as the Company raised $18.8 million
through the private placement of its common stock in 1995 compared to $6 million
in 1994. In addition, the Company increased its borrowings by $15 million in
1995.
Forward-Looking Statements
Certain statements herein constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. The
words "believe", "expect" and "anticipate" and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are subject to many uncertainties and factors relating to the Company's
operations and business environment which may cause the actual results of the
Company to be materially different from any future results expressed or implied
by such forward-looking statements. Examples of such uncertainties include, but
are not limited to, changes in interest rates, increased competition for
acquisition of new properties, unanticipated expenses and delays in acquiring
properties or increasing occupancy rates, and regional economic and business
conditions.
ITEM 3. DESCRIPTION OF PROPERTIES
Tabular information regarding the Company's properties is presented
hereafter followed by narrative descriptions of the properties.
Each of the
following properties is wholly-owned in fee by the Company or the Operating
Partnership as noted below.
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An "n/a" indicates the Company did not own the property at the end of that
quarter.
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As of December 31, 1996 the Company has leases with approximately 333
tenants with a weighted average remaining lease term of 3.6 years. Given current
market condition and increasing rental rates in all of the Company's suburban
markets, the Company believes that re-leasing upon rollover to existing or new
tenants will provide increases in annual gross rents, net income and FFO. The
lease rollover schedule for the portfolio as of December 31, 1996 is summarized
below:
27
Summary of Primary Tenants
The Company has the following tenants which occupy ten percent or more of
the rentable square footage of the property they occupy. However, no tenant
occupies more than ten percent of the rentable square footage of the properties
in the aggregate, or represents more than ten percent of the aggregate annual
base rent of the properties. The following chart shows the principal provisions
of the lease with each of those tenants that occupy ten percent or more of the
leasable square footage of the particular property:
(1) Roadway Package Systems, Inc. has two five-year renewal options to
extend the term of its lease at rental rates as defined in the lease.
(2) American Honda Motor Co.
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<PAGE>
<PAGE>
and American Honda Finance Co. are affiliated companies.
(3) C.P. Clare has one five-year renewal option to
extend the term of its
lease at a market rental rate (as defined in the lease).
<PAGE>
(4) DonTech has two five-year renewal options to extend the term of its
lease at a market rental rate.
(5) OCE Printing has two three-year renewal
options to extend the term
of its lease at 90% of the market rental rate (as defined in the lease) at the
time of each renewal.
(6) AGIE, USA has two five-year renewal options to extend the term of its
lease at a market rental rate (as defined in the lease) at the time of each
renewal.
(7) Merisel, Inc. has a one year renewal option to extend the term of its
lease at a rental rate of $10.93 per square foot.
(8) Medical Business Consultants has one five-year renewal option to extend
the term of its lease at a market rental rate (as defined in the lease)
.
(9) Health Direct, Inc.
and
Advocate Health Care, Inc. (which are
affiliated companies) have exercised a termination option in their lease and
therefore the lease will terminate 06/28/97.
In connection with the exercise of
this termination option, the tenants are obligated to pay the Company $554,660
in addition to rent otherwise due through 6/28/97.
31
<PAGE>
(10)
<PAGE>
Hewlett Packard Co.
has two five-year renewal options to extend the term of its lease at 90% of the
market rental rate (as defined in the lease).
(11) Digital Equipment Corp.
<PAGE>
has two one-year renewal options to extend the term of its lease at a market
rental rate at the time of each renewal.
In no event can the rental rate on each renewal be less than $10.41 per square
foot.
(12) Abbott Laboratories has two three-year renewal options to extend the
term of its lease at a market rental rate (as defined in the lease).
(13) WorldCom, Inc. has two five-year renewal options to renew its lease at
market rent (as defined in the lease).
(14) Bay Networks, Inc. has two two-year renewal options to extend the term
of its lease at a market rental rate (as defined in the lease).
(15) Metropolitan Life has two five-year renewal options to extend the term
of its lease at the market rental rate (as defined in the lease).
(16) The tenant has a five-year renewal option to extend the term of its
lease at a market rental rate (as defined in the lease).
(17) Health Partners has one five-year renewal option at a rental rate as
defined in the lease.
<PAGE>
(18) Universal Underwriters has a four-year renewal option to extend the
term of its lease at a market rental rate (as defined in the lease).
(19) Association of Legal Administration has a five-year renewal option to
extend the term of its lease at a rental rate (as defined in the lease).
(20) Casualty Insurance Company has two three-year renewal options to
extend the term of its lease at a rental rate equal to 95% of market rental
rate.
(21) Healthspan, Ltd. has two five-year renewal options to extend the term of
its lease at a market rental rate (as defined in the lease).
(22) USF&G has two five-year renewal options to extend the term of its
lease at a rental rate equal to 95% of market rental rate.
(23) Marriott Corporation has a five-year renewal option to extend the term
of its lease at a market rental rate (as defined in the lease).
32
<PAGE>
<PAGE>
(24) CNR Health, Inc.
has a five-year renewal option to extend the term of its lease at a market
rental rate (as defined in the lease).
(25) Ameridata Consulting, Inc. has one three-year renewal option to extend the
term of its lease at a market rental rate (as defined in the lease).
(26) UAFP/U-Care has one four-year renewal option to extend the term of its
lease at a marekt rental rate (as defined in the lease).
(27) Hygrade Food Products has one six-year renewal option to extend the
term of its lease at a market rental rate (as defined in the lease).
(28) Crawford & Company occupies 58,100 square feet and has exercised its
option to reduce its premises to 38,700 at April 1, 1997. The annual base rent
at January 1, 1997 for the premises subject to lease expiring March 31, 2002 is
$263,934. The tenant has a five-year renewal option to extend the term of its
lease at a rental rate (as defined in the lease).
(29) Interim Technology has leased 30,448 square feet pursuant to two
leases. One lease for 14,026 square feet (with annual base rent of $203,377)
expires March 31, 1998, however, the tenant has a renewal option to extend the
term of this lease by 46 months. The second lease for 16,422 square feet (with
annual base rent of $305,449) expires on January 31, 2002.
Narrative Description of the Properties:
The following sets forth a narrative description of the Company's
<PAGE>
properties as of December 31, 1996. Based on market information obtained by
management from the Company's leasing agents and other service providers, the
Company believes that its market rental rates and concession packages offered to
tenants are competitive with the rental rates and concessions offered by other
property owners in the various markets in which the Company owns and operates
real estate properties.
Light Industrial/Distribution Facilities
11100 Hampshire Avenue, Bloomington, Minnesota.
This property is a single story light industrial building that includes two
stories of attached office space situated on approximately four acres of land.
There are parking spaces for 90 cars and 10 truck trailers. Built in 1980, the
property contains 50,625 square feet of which 8,750 square feet is office space
and the balance is warehouse space. The property competes with other
33
<PAGE>
office/warehouse properties in the surrounding suburban Minneapolis area. The
submarket in which the property is located contains approximately 8.0 million
square feet of office/warehouse building space. As of December 31, 1996, the
market occupancy rate for this type of space was approximately 94%.
This property was purchased by the Company in January 1993 for the fully
capitalized cost of $1,433,932 ($28.32 per square foot), and a portion of the
purchase price was refinanced by a first mortgage loan in the amount of
$940,000. The mortgage loan bears interest at 8.5% per annum, which is
adjustable on October 1, 1998 and each October 1 thereafter to the Moody's A
Corporate Bond Index Daily rate plus 0.125% per annum. Monthly payments of
$9,257 (including interest) are due until October 1998 when the monthly payment
is adjusted concurrent with the interest rate reset so that monthly payments are
based on a fifteen-year amortization period. The loan matures October 1, 2003,
when the remaining principal balance of $451,091 is due (assuming the interest
rate remains at 8.5% per annum throughout the term of the loan). The loan may be
prepaid at any time with 30 days' notice to the lender. A prepayment penalty is
due equal to a percentage of the then outstanding principal amount as follows:
Period Percentage
October 1, 1996 - September 30, 1997 3.5%
October 1, 1997 - September 30, 1998 3.0%
October 1, 1998 - September 30, 1999 2.5%
After September 30, 1999 2.0%
<PAGE>
The loan may be prepaid without penalty during the 15-day period prior to
the interest rate reset on October 1, 1998 and each October 1st thereafter and
during the last 60 days of the loan term. The loan balance as of December 31,
1996 was $827,139.
As of December 31, 1996, this property was 100% leased. The only tenant is
Roadway Package Systems, Inc., which occupies the property pursuant to a lease
expiring in 1997 with two five-year options. This tenant uses the space
primarily as a warehouse in connection with the operation of its freight
distribution and delivery business.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming the tenant does not
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$1,439,805 (including $310,000 for the land) as of December 31, 1995. Buildings
and improvements are depreciated over 40-year life using the straight-line
34
<PAGE>
method. Property taxes paid in 1996 were $73,975.
Office/Office Service Center Facilities:
601 Campus Drive, Arlington Heights, Illinois.
This property is a single story office/service center building built in
1987, and has approximately 96,219 square feet. It is located on a six-acre site
with parking spaces for 285 cars. The property competes with other
office/service properties and single-story office properties in the surrounding
area. The submarket in which the property is located contains approximately 10.9
million square feet of such space. The market occupancy rate for this type of
space is currently approximately 91%.
The Company purchased this property in May 1993 for the fully capitalized
cost of $3,163,967 ($32.69 per square foot), and later placed a first mortgage
loan on the property in the amount of $1,600,000.
<PAGE>
The mortgage loan bears interest at 8.25% per annum until November 1, 1998,
when the rate is reset on that date and on each November 1 thereafter at a rate
equal to the one-year Treasury Constant Maturity Index (as defined) plus 3.25%
per annum. In no event can the interest rate on the loan be less than 7% per
annum. Monthly payments of $15,522 (including interest) are required until
November 1, 1998, when the monthly payment will be adjusted concurrent with the
reset of the interest rate as if the loan were amortized over a 15-year term.
The loan matures October 31, 2003, when the remaining principal balance of
$807,905 is due (assuming the interest rate on the loan remains at 8.25% per
annum throughout the term of the loan). The loan may be prepaid with a penalty
equal to ninety days' interest at any time. In addition, the loan may be prepaid
without penalty during the period October 1, 1998 to October 31, 1998 and during
each sixty-day period immediately prior to the date of the annual interest rate
reset. The loan balance as of December 31, 1996 was $1,410,208.
As of December 31, 1996, the property was 87.4% leased.
Approximately half
the space is rented by American Honda Motor Co. to house its finance division
and to use as a mechanics classroom/training facility pursuant to leases
expiring in the year 2000. Other tenants use the space predominantly as office
space for sales and technical representatives.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
<PAGE>
35
<PAGE>
For Federal income tax purposes, the Company's basis in this property was
$3,876,799 (including $900,000 for the land) as of December 31, 1995.
<PAGE>
Buildings and improvements are depreciated over a 40-year life using the
straight-line method. Property taxes paid in 1996 were $306,407.
160, 165, 175, 180, and 185 Hansen Court, Wood Dale, Illinois.
This property consists of five single-story office/service center buildings
with a total rentable space of approximately 113,911 square feet on 10.58 acres.
There is parking available for 389 cars. The buildings were constructed in 1986.
Tenants use the space in the buildings predominantly as office/showroom space
for sales and technical representatives. The property competes with other
office/service properties and single-story office properties in the surrounding
area. The submarket in which the property is located contains approximately 10.9
million square feet of such space. The market occupancy rate for this type of
space is currently approximately 91%.
This property was acquired by the Company in January 1994 for the fully
capitalized cost of $5,310,289 ($46.62 per square foot) from a life insurance
company.
On April 29, 1994, the
<PAGE>
Company refinanced a portion of the purchase price of the property with a first
mortgage loan in the amount of $3,000,000. The mortgage loan bears interest at
7.875% per annum and requires monthly payments of $28,454 (including interest)
until May 1, 2009, when the loan will be fully amortized and retired. The loan
may be prepaid at any time with payment of a prepayment fee equal to 4% of the
then outstanding principal balance during the first ten years of the loan term.
The prepayment fee declines to 3% of the then outstanding principal balance
during the last five years of the loan term. The loan may be prepaid without
penalty during the last six months of the loan term. The loan balance as of
December 31, 1996 was $2,699,726.
36
<PAGE>
Approximately 88.3% of the rentable space was leased as of December 31,
1996.
Major tenants include the Sales Force Companies (18,241 square feet), Agie,
USA (16,935 square feet), and OCE Printing (12,384 square feet), with leases
expiring in 2005, 2002 and 1997, respectively, for approximately 42% of the
rentable space.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercises renewal options.
For Federal income tax purposes, the Company's basis in this property was
$6,030,727 (including $2,100,000 for the land) as of December 31, 1995.
<PAGE>
Buildings and improvements will be depreciated over a 40-year life using
the straight-line method. Property taxes paid in 1996 were $96,934.
150, 175, and 250 North Patrick, Brookfield, Wisconsin.
This property consists of two single-story office buildings and one
single-story service center building with a total rentable space of
approximately 117,615 square feet on 12 acres. There is parking available for
515 cars. This property is situated in Brookfield Lakes Corporate Center in
suburban Milwaukee which was developed by Trammel Crow Company in 1987. The
development includes five lakes, extensive landscaping, jogging trails, a
Wyndham Hotel/Health Club, a bank, child care facilities, restaurants and retail
facilities. Businesses of tenants in this property include insurance,
healthcare, electronics sales and service, and computer-related sales and
service. The property competes with other single-story and multi-story buildings
37
<PAGE>
in the surrounding area. The submarket in which the property is located contains
2.8 million square feet of single-story and multi- story office space. As of
December 31, 1996, the market occupancy for this type of space was approximately
<PAGE>
90%.
The
property was acquired by the Company in June 1994 for the fully capitalized cost
of $6,564,742 ($55.57 per square foot) from a life insurance company that had
foreclosed on the property in 1992. The Company obtained a mortgage loan in the
amount of $3,500,000 secured by the property in October 1994. The mortgage loan
bears interest at 8.95% per annum, has a twenty (20) year amortization schedule
and requires monthly payments of $31,378 (including interest) until October 13,
2004, when the remaining principal balance of $2,495,096 will be due and
payable. The Company has no right to prepay the loan for the first five years;
however, the lender may agree to accept prepayment with a 7% premium on the
principal amount prepaid. Beginning in the sixth year of the loan, the Company
may prepay the loan with a premium equal to a percentage of the principal amount
prepaid as follows:
Period Percentage
October 13, 1999 - October 12, 2000 5%
October 13, 2000 - October 12, 2001 4%
October 13, 2001 - October 12, 2002 3%
October 13, 2002 - October 12, 2003 2%
October 13, 2003 - April 12, 2004 1%
There is no prepayment premium due if the remaining principal balance is
paid on October 13, 2004 or during the 180 days before that date.
The loan balance as of December 31, 1996 was $3,355,652. Approximately 98.4% of
the
<PAGE>
rentable space was leased as of December 31, 1996.
Major tenants include Digital
Equipment (15,297 square feet), Hewlett-Packard (22,196 square feet), and the
Genetic Testing Institute (9,277 square feet), with leases expiring in 2000,
1999, and 2002, respectively, for approximately 41% of the rentable space .
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$7,050,902 (including $2,600,000 for the land) as of December 31, 1995.
Buildings and improvements are depreciated over a 40-year life using the
straight-line method. Property taxes paid in 1996 were $139,781.
4860-5000 Blazer Parkway, Dublin Ohio.
This property consists of two single-story office buildings and one single-story
service center building with a total rentable space of approximately 124,929
square feet on 13.6 acres. There is parking available for 473 cars. The property
competes with other single-story and multi-story buildings in the surrounding
area. The submarket in which the property is located contains 4.4 million square
feet of single-story and multi-story office space. As of December 31, 1996, the
market occupancy for
<PAGE>
this type of space was
approximately 94%.
The property was acquired by the Company in September 1996 for the contract
price of $8,400,000 ($67.24 per square foot). As of December 31, 1996, 100% of
the rentable space was leased. Major tenants include USF&G (21,468 square feet),
Motoman, Inc.(23,962 square feet), and Sterling Software Inc. (16,786 square
feet), with leases expiring in 1998, 2002, and 1997, respectively.
The
following table is a schedule of lease expirations for the leases in place as of
December 31, 1996 for this property, assuming none of the tenants exercise
renewal options.
For Federal income tax purposes, the Company's basis in this property will
be approximately $8,400,000 as of December 31, 1996 (including $1,325,000 for
the land). Buildings and improvements will be depreciated over a 40-year life
using the straight-line method.
Property taxes paid in 1996 were $212,201.
<PAGE>
3010-3020 Woodcreek Drive, Downers Grove Illinois
This property consists of one single-story office building and one
single-story service center building with a total rentable space of
approximately 127,713 square feet on 8.7 acres. There is parking available for
422 cars.
The property competes with other single-story and multi-story buildings in
the surrounding area. The submarket in which the property is located contains
25.8 million square feet of single-story and multi-story office space. The
current market occupancy for this type of space is approximately 91%.
The property was acquired by the Company in November 1996 for the contract
price of $9,348,500 ($75.92 per square foot). Approximately 93% of the rentable
space was leased as of December 31, 1996.
Major tenants include Stralfors International (20,702 square feet), Marriott
Corp.(15,323 square feet), and Minolta Corp.(14,509 square feet), with leases
expiring in 2001, 2001, and 2001,
respectively.
The following table is a schedule of
<PAGE>
lease expirations for the leases in place as of December 31, 1996 for this
property, assuming none of the tenants exercise renewal options.
40
<PAGE>
For Federal income tax purposes, the Company's basis in this property will
be approximately $9,348,500 as of December 31, 1996. Buildings and
improvements
will be depreciated over a 40-year life using the straight-line method. Property
taxes paid in 1996 were $152,839.
Office Properties:
11925 West Lake Park Drive, Milwaukee, Wisconsin.
This property is a single-story office building developed in 1989 and
situated in "Park Place Business Park," a 305-acre commercial development of an
affiliate of the Trammell Crow Company. The property has 36,069 square feet of
rentable space and rests on 3.4 acres. There are parking spaces for 131 cars.
The headquarters offices of the Sisters of the Sorrowful Mother Ministry
Corp., a prominent Wisconsin hospital and health care company, are located in
the building. This property competes with other single-story and multi-story
office properties in the surrounding area. Within the Park Place Business Park,
there is approximately 725,000 square feet of building space. As of December 31,
1996, the occupancy within the Park Place Business Park was approximately 93%.
The Company acquired this property in June 1993 from the Resolution Trust
corporation for the fully capitalized price of $2,137,808 ($59.27 per square
foot) and later obtained a first mortgage loan secured by the property in an
amount of $1,260,000. The mortgage note bears interest at 8.75% per annum and
requires monthly payments of $11,135 (including interest) until October 1, 2003
when the remaining principal balance of $893,034 is payable. The loan may be
prepaid with a penalty equal to a percentage of the then outstanding principal
balance as follows:
Period Percentage
October 1, 1996 - September 30, 1997 2%
October 1, 1997 - September 30, 1998 1%
<PAGE>
After September 30, 1998, the loan may be prepaid without penalty. The
mortgage loan requires that the Company limit secured borrowing on any
individual property it owns to a 70% loan-to-value ratio and aggregate secured
borrowing on its owned properties to a 50% loan-to-value ratio. The loan balance
as of December 31, 1996 was $1,175,080.
As of December 31, 1996, 100% of the property was leased and the major
tenants are the Sisters of the Sorrowful Mother Ministry Corp. (22,987 square
41
<PAGE>
feet) and Montgomery Watson (6,981 square feet). The Sisters of the Sorrowful
Mother Ministry Corp. has a lease for approximately 64% of the space which
expires in 2001. Montgomery Watson's lease for approximately 19% of the space
expires in 2000.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$2,265,014 (including $318,750 for the land) as of December 31, 1995. Buildings
and improvements are depreciated over a 40-year life using the straight-line
method. Property taxes paid in 1996 were $75,149.
3400 Dundee Road, Northbrook, Illinois.
This property is a three-story office building with 74,884 square feet of
rentable space on 2.6 acres with parking spaces for 296 cars. The building was
built in 1986. Tenants include insurance brokerage, financial planning, mortgage
banking and accounting firms, among others. This property competes with other
single- story and multi-story office properties in the surrounding area. The
submarket in which the property is located contains approximately 5.1 million
square feet of single-story and multi-story office space. The current market
occupancy rate for this type of space is approximately 93%.
<PAGE>
This property was acquired by the Company from a major insurance company in
October 1993 for the fully capitalized cost of $4,083,422 ($53.82 per square
foot). In April 1994, the Company financed a portion of the purchase price with
a first mortgage loan in an amount of $2,300,000 bearing interest at 7.875% per
annum and requiring monthly payments of $21,814 (including interest) until May
1, 2009 when the loan will be fully amortized and retired. The loan may be
42
<PAGE>
prepaid at any time with a prepayment fee equal to 4% of the then outstanding
principal amount during the first ten years of the loan term. The prepayment fee
declines to 3% of the then outstanding principal amount during the last five
years of the loan term. The loan may be repaid without penalty during the last
six months of the loan term. The loan balance as of December 31, 1996 was
$2,069,790.
As of December 31, 1996, this property was 100% leased.
Medical Business Consultants (12,561 square feet) and NASRA, Inc. (9,778
square feet) are the two largest tenants, representing 30% of the rentable
space, with leases expiring in 1999 and 1998, respectively.
The following table is a schedule of lease expirations for the leases in
place, as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
<PAGE>
For Federal income tax purposes, the Company's basis in this property was
$4,742,664 (including $607,500 for the land) as of December 31, 1995. Buildings
and improvements are depreciated over a 40-year life using the straight-line
method. Property taxes paid in 1996 were $305,526.
<PAGE>
1011 East Touhy Avenue, Des Plaines, Illinois.
This property is a five-story office building with 155,657 square feet of
rentable space on 5.3 acres. The property was built by an affiliate of the
Trammell Crow Company in 1978, and has parking spaces for 500 cars. Tenants use
this property's office space for a variety of service businesses, including
healthcare, insurance sales, financial planning and public relations. This
43
<PAGE>
property competes with other single and multi-story office properties in the
surrounding area. The submarket in which the property is located contains
approximately 13 million square feet of multi-story office space. The current
market occupancy rate for this type of space is approximately 87%.
<PAGE>
In December 1993, the Company acquired this property for the fully
capitalized cost of $4,652,623 ($29.87 per square foot) from an affiliate of a
major financial institution. The Company renovated this property to modernize
the atrium and common areas for approximately $900,000. Renovation was completed
in October 1995. After acquisition, the Company financed a portion of the
purchase price with a first mortgage loan in the amount of $2,675,000. The loan
bears interest at 8.5% per annum and requires monthly payments of $26,342
(including interest) until July 1, 2009 when the loan will be fully amortized
and retired. The loan may be repaid at any time with payment of a prepayment fee
equal to 4% of the then outstanding principal balance during the first ten years
of the loan term. The prepayment fee declines to 3% of the then outstanding
principal balance during the last five years of the loan term. The loan may be
repaid without penalty during the last six months of the loan term. The loan
balance as of December 31, 1996 was $2,437,894.
As of December 31, 1996, the property was 91% leased. The major tenants in
the building are Health Direct, Inc. (29,490 square feet), Lutheran General
Medical Group, S.C. (19,239 square feet), Prudential Insurance (10,846 square
feet), and Irwin Broh and Associates (12,867 square feet), who together rent 47%
of the total rentable space. Health Direct, Inc. and Lutheran General Medical
Group, S.C. are affiliated companies whose leases expire in 1997 and 2002
respectively. The Irwin Broh and Associates and Prudential Insurance leases
expire in 2003 and 2001 respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$6,030,727 (including $720,000 for the land) as of December 31, 1995. Buildings
and improvements are depreciated over a 40-year life using the straight-line
method. Property taxes paid in 1996 were $523,766.
One Hawthorn Place, 175 East Hawthorn Parkway, Vernon Hills, Illinois
This property is a four-story office building containing 84,065 square feet
of rentable space. This property was completed in 1986 and includes a two-story
glassed lobby with a cathedral ceiling and an inlaid mosaic floor. The property
is situated on approximately 4.6 acres of land and there are parking spaces for
280 cars. Tenants are engaged in a variety of businesses and industries. The
property competes with single-story and other multi-story office properties in
the surrounding area. The submarket in which the property is located contains
approximately 6.0 million square feet of such space. The current market
<PAGE>
occupancy rate for this type of space is approximately 89%.
On September 30, 1994, the Company purchased this property from Turner
Development Corp., a subsidiary of Turner Construction Co. The fully capitalized
purchase price was $6,312,338 ($73.67 per square foot). In April 1995, the
Company obtained a first mortgage loan in the amount of $3,250,000 with a term
of five years. The loan bears interest of 8.94% per annum and requires monthly
payments of $29,116 (including interest) until April 1, 2000 when the remaining
balance of $2,888,352 is due. The loan may be repaid at any time without
penalty. The loan balance as of December 31, 1996 was $3,150,319.
As of December 31, 1996, this property was 92% leased. The major tenant is
Abbott Laboratories, Inc. which occupies two spaces, one space of approximately
7,941 square feet under a lease which commenced December 1994 and expires in
1999, and another space of 5,441 square feet under a lease which commenced March
1995 and expires in 2000. These leases represent 15.0% of the rentable space in
this property. Another major tenant, Association of Legal Administrators,
occupies a space of 8,380 square feet under a lease expiring January 1999. This
lease represents 9.8% of the rentable space in this property.
45
<PAGE>
The following is a schedule of lease expirations for the leases in place as
of December 31, 1996 for this property, assuming none of the tenants exercise
renewal options.
For Federal income tax purposes, the Company's basis in this property was
$6,719,424 (including $1,600,000 for the land) as of December 31, 1995.
Buildings and improvements are depreciated over a 40-year life using the
straight-line method. Property taxes paid in 1996 were $146,807.
2800 River Road, Des Plaines, Illinois
This property is a four-story office building with 100,527 square feet of
rentable space on 1.97 acres. The property was built in 1983. There are parking
spaces for 322 cars, including a two-level parking deck and 52 underground
heated parking spaces. Tenants in the property are engaged in a variety of
businesses. The property competes with other single-story/multi-story office
properties in the surrounding area. The submarket in which the property is
located contains approximately 13 million square feet of single and multi-story
<PAGE>
office space. The current market occupancy rate for this type of space is
approximately 87%. Based upon information from its leasing agents the Company
believes that its market rental rates and concession packages offered to tenants
are competitive with the rental rates and concessions offered by other property
owners in this submarket.
The building was purchased by the Company from The California State
Teachers Retirement System in February 1995 for the fully capitalized cost of
$4,761,053 ($48.31 per square foot). As of December 31, 1996, the property was
77% leased. Major tenants include WorldCom, Inc. which occupies two spaces
aggregating 18,700 square feet, and Polygram Group which occupies 11,348 square
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feet. These leases represent 36% of the rentable space in the building and
expire in 2001 and 1999, respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
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For Federal income tax purposes, the Company's basis in this property was
$4,994,856 (including $1,300,000 for the land) as of December 31, 1995.
Buildings and improvements are depreciated over a forty-year life using the
standard line method. Property taxes paid in 1996 were $300,811.
2221 University Avenue Southeast, Minneapolis, Minnesota
This property is a four-story office building with 97,658 square feet of
rentable space on 2.82 acres. The property was built in 1980. There are parking
spaces for 259 cars, including 59 spaces in an underground heated garage. Given
the proximity of the property to the University of Minnesota-Minneapolis campus
and the University Hospital, tenants in the property are generally engaged in
University and health care related businesses. The property competes with other
single- story/multi-story office properties owned by private parties and the
University in the surrounding area. The submarket in which the property is
located contains approximately 2.4 million square feet of single and multi-story
<PAGE>
office space. The property is the closest privately-owned facility to the
University campus. The current market occupancy rate for this type of space is
approximately 92.9%.
The property was purchased by the Company from a private limited
partnership in May 1995 for the fully capitalized cost of $8,190,374 ($83.87 per
square foot). The property is subject to tax-exempt bonds issued by the City of
Minneapolis and secured by a letter of credit issued by a bank on behalf of the
Company. The bonds bear interest at a floating rate (with a maximum rate of 10%
per annum) which is determined by the bond placement agent. The rate on the
bonds as of December 31, 1995 was 5.3% per annum. The total interest cost on the
bonds to the Company is currently approximately 6% per annum which includes the
interest due on the bonds, a fee paid for the letter of credit, and certain
trustee and bond placement fees.
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The bonds mature on June 1, 2009, and are subject to annual principal
payments on June 1 of each year as follows:
Interest is payable monthly. The bonds may be repaid at any time without
penalty. The principal balance outstanding as of December 31, 1996 was
$5,235,000.
As of December 31, 1996, the property was 100% leased. Approximately 82,817
square feet of space (85% of the property) is leased to Health Partners, a
partnership of four medical associations, under a lease which expires January
31, 2001. The partners of Health Partners are the American Academy of Neurology,
the Hennepin County Medical Society, the Minnesota Hospital Association, and the
Minnesota Medical Association. The American Academy of Neurology occupies 16,364
square feet at the property. The balance of the space leased by Health Partners
has been sublet to the University of Minnesota.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$8,210,782 (including $1,100,000 for the land) as of December 31, 1995.
Buildings and improvements are depreciated over a forty-year life using the
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straight line method. Property taxes paid in 1996 were $273,466.
1660 Feehanville Drive, Mount Prospect, Illinois.
This property is a four-story office building with 85,874 square feet of
rentable space which was constructed during 1989 in the Kensington Center
Business Park, which is bounded by U.S. 12, Wolf Road, and Kensington Avenue.
The exterior is clad in two sizes of ironspot face brick with matte black accent
at the floor lines. Highlighting the entryway is the lobby's clear curtain wall
area and a silver reflective curtainwall with black horizontal trim on the east
elevation. The remainder of the building features strip windows with gray tinted
glass in black anodized aluminum frames. Metropolitan Life Insurance Company is
the major tenant. The seller was a prominent national real estate developer and
general contractor, which acted on a decision to liquidate its entire office
portfolio and focus on its construction management and build-to-suit business.
The submarket in which the property is located contains approximately 13 million
square feet of office space. The current market occupancy for this type of space
is approximately 87%.
The Company acquired this property in September 1995 for the fully
capitalized cost of $5,402,526 ($62.92 per square foot). The property is pledged
as security for the Company's line of credit.
As of December 31, 1996, the property's sole tenant was Metropolitan Life
Insurance Company (66,419 sq. ft.) which has a lease for approximately 77% of
the space which expires in 1998.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$5,404,926 as of December 31, 1995 (including $1,100,000 for the land).
Buildings and improvements are depreciated over a 40-year life using the
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straight-line method. Property taxes paid in 1996 were $406,357.
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24800 Denso Drive/ 40 Oak Hollow Southfield, Michigan
These three-story office buildings were constructed during 1986-1987 in the
Oak Hollow Corporate Campus, an award-winning office park located in the area's
only naturally wooded setting. The two buildings collectively total 159,830
square feet of rentable space. The site is within one mile of Detroit's primary
freeway hub, affording easy access in all directions via Telegraph Road, I-696,
and Northwestern Highway. Exterior construction consists of face brick on metal
stubs surrounding a steel frame. Continuous strip windows with anodized aluminum
frames and tinted double-pane insulating glass highlight each floor. The
submarket in which the property is located contains approximately 15 million
square feet of office space. The current market occupancy for this type of space
is approximately 87%.
The Company acquired 24800 Denso Drive (also referred to herein as "Oak
Hollow Gateway")in September 1995 for the fully capitalized cost of $5,859,067
($73.65 per square foot). The property is pledged as security for the Company's
line of credit. The Company acquired 40 Oak Hollow in December 1996 for the
contract price of $7,275,000 ($90.62 per square foot).
As of December 31, 1996, 98% of the rentable area of the buildings were
leased. The major tenants are Bay Networks (20,532 sq. ft.), Hygrade Food Co.
(16,022 sq. ft.), Lucent Technologies (16,523 sq. ft.), and Tokai Rika (13,662
sq. ft.) which leases expire in 2001, 2002, 2000 and 1997, respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for 24800 Denso Drive, assuming none of the
tenants exercise renewal options.
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The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for 40 Oak Hollow, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in the 24800 Denso
Drive property was $6,213,792 as of December 31, 1995. Building and improvements
are depreciated over a 40 year life using the straight line method. Property
taxes paid with respect to 24800 Denso Drive in 1996 were $147,101. The
Company's basis in the #40 Oak Hollow property will be approximately $7,275,000
as of December 31, 1996. Building and improvements will be depreciated over a
40- year life using the straight line method. Property taxes paid with respect
to 40 Oak Hollow in 1996 were $151,157. The Company had also owned 10 Oak
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Hollow but sold the property during October 1996 to an unaffiliated third party
for a contract sale price of $9,300,000.
One Park Plaza, Milwaukee, Wisconsin
This property is a twelve-story building with 197,122 square feet of
rentable square feet which is located in the 305-acre Park Place development in
the northwest sector of the city of Milwaukee. Park Place features a spring-fed
seven-acre lake with fountains, an outdoor plaza amphitheater, a 0.7 mile
walking path, and tennis and basketball courts. Constructed in 1984 by a
well-known national real estate developer, the building features an on-site
bank, a deli/restaurant, and a U.S. postal station. The exterior elevation of
this building consists of polished granite on the first two floors and
reflective glass set in anodized aluminum frames on the remaining levels.
Parking for 656 cars is provided by a two-story parking deck. The building's
location hear the intersection of U.S. 41, U.S. 45, and Good Hope Road affords
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easy access to all parts of the metropolitan area. Within the Park Place
Business Park, there is approximately 725,000 square feet of building space. The
current market occupancy within the Park Place Business Park is approximately
93%.
The Company acquired this property in September 1995 for the fully
capitalized cost of $15,675,908 ($79.91 per square foot). The property is
pledged as security for the Company's line of credit.
As of December 31, 1996, 95% of the property was leased and the major
tenants include Wausau Insurance (51,696 sq. ft., 26% of building), A.O. Smith
(51,762 sq. ft., 26% of building)and HNTB (33,177 sq. ft., 17% of building)
which leases expire in 2006, 2005, and 2000, respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property is
approximately $15,708,915 (including $940,000 for the land) as of December 31,
1995. Buildings and improvements are depreciated over a 40 year life using the
straight line method. Property taxes paid in 1996 were $539,370.
<PAGE>
823 Commerce Drive, Oak Brook, Illinois
This property is a three-story office building built in 1969 and has
approximately 45,162 square feet. It is located on a 2.6 acre site with parking
for 170 cars. The Company completed a renovation program which the Company
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believes will enable the property to effectively compete with other office
buildings in the surrounding area. The submarket in which this property is
located contains approximately 25.8 million square feet and the current market
occupancy rate is approximately 91%.
The renovation completed by the Company cost approximately $1.5 million and
included a new exterior facade, new windows, parking lots, landscaping, common
area corridors and lobby, elevator cabs, as well as a new HVAC system.
The Company purchased this property in November 1995 for the fully
capitalized cost of $1,760,930 ($40.02 per square foot). Upon completion of the
renovation, the Company's total investment in the property will be approximately
$3,300,000 ($78.27 per square foot). At December 31, 1996, the property was 81%
leased with Interim Technologies leasing 67% of the leasable space at the
property pursuant to two leases: one lease for 14,026 square feet which expires
in 1998, and a second lease for 16,422 square feet, which lease expires in 2002.
The Company occupies approximately 8,600 square feet at the property as its
corporate headquarters.
The following is a table of lease expirations for leases in place as of
December 31, 1996.
For Federal income tax purposes, the Company's basis in the property will
be approximately $3,300,000 (including $500,000 for the land) as of December 31,
1996. Buildings and improvements are depreciated on a 40 year life using the
straight-line method. Property taxes paid in 1996 were $21,710.
565 Lakeview Parkway, Vernon Hills, Illinois
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<PAGE>
This property is a single-story office building built in 1991, and has
approximately 84,808 square feet. It is located on a seven acre site with
parking spaces for 340 cars. The property competes with other office/service
properties and single-story office properties in the surrounding area. The
submarket in which the property is located contains approximately 6.0 million
square feet of such space. The market occupancy rate for this type of space is
approximately 89%.
The Company purchased this property in December, 1995 for approximately
$4,881,675 ($57.56 per square foot). As of December 31, 1996, the property was
68% leased. The principal tenants are PNC Mortgage Corporation (28,223 square
feet), The Asmussen Waxler Group (8,942 square feet) and Sparking Spring Water
Company (17,133 square feet) who lease 64% of the building under leases which
expire in 1997, 1999 and 2001 respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property was
$4,871,900 (including $1,300,000 for the land) as of December 31, 1995.
Buildings and improvements are depreciated over a 40 year life using the
straight-line method. Property taxes paid in 1996 were $89,994.
1251 Plum Grove Road, Schaumburg, Illinois
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This property is a single-story office building developed in 1986. The
property has 43,301 square feet of rentable space and rests on 3.2 acres. There
are parking spaces for 173 cars.
The current occupancy rate within this submarket is approximately 87%.
Based upon information from its leasing agents the Company believes that its
market rental rates and concession packages offered to tenants are competitive
with the rental rates and concessions offered by other property owners in this
submarket.
The Company acquired this property in January, 1996 for the contract price
of $1,050,000 ($24.25 per square foot). As of December 31, 1996, 43% of the
property was leased and the major tenants are State Farm Insurance (5,085 square
feet) and Vanguard Management (6,124 square feet) under leases which expire in
<PAGE>
1997 and 1998 respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property will
be approximately $1,080,000 (including $210,000 for the land). Buildings and
improvements are depreciated over a 40 year life using the straight-line method.
Property taxes paid in 1996 were $76,003.
30 Merchant Street, Springdale, Ohio
The Company purchased this property in April, 1996 for the contract price
of $6,075,000 ($63.34 per square foot). This property is a three story office
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building built in 1988, and has approximately 95,910 square feet. It is located
on a 5.9 acre site with parking spaces for 413 cars. The property competes with
other multi-story and single-story office properties in the surrounding area.
The submarket in which the property is located contains approximately 2.5
million square feet of such space. The market occupancy rate for this type of
space is approximately 91%. Based upon information from its leasing agents the
Company believes that its market rental rates and concession packages offered to
tenants are competitive with the rental rates and concessions offered by other
property owners in this submarket.
As of December 31, 1996, the property was 100% occupied. The principal
tenants occupying space in the property as of December 31, 1996 were: Community
Insurance Company (68,573 square feet), Health Span (12,545 square feet) and
Info Builders (8,633 square feet) under leases which expire in 2001, 2000 and
2000 respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property will
be approximately $6,075,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were $111,246.
<PAGE>
Two Marriott Drive, Lincolnshire, Illinois
The Company purchased this property in July 1996 for the contract price of
$2,976,000 ($71.71 per square foot). This property is a single-story office
building built in 1985, and has approximately 41,500 square feet. It is located
on a 3.4 acre site with parking spaces for 138 cars. The entire property has
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been leased for a ten year term expiring August 2006 to a single tenant, Aksys
Ltd. The property would otherwise compete with other multi-story and
single-story office properties in the surrounding area. The submarket in which
the property is located contains approximately 6.0 million square feet of such
space. The market occupancy rate for this type of space is approximately 89%.
For Federal income tax purposes, the Company's basis in this property will
be approximately $2,976,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were $46,705.
Lincoln Center II and III, West Allis, Wisconsin
The Company purchased these buildings in November 1996 for the contract
price of $8,000,000 ($67.42 per square foot). Lincoln Center II and III are
three-story office buildings built in 1984 and 1987, respectively, and contain
121,508 square feet in total. The two buildings are located on a 6.8 acre site
with parking spaces for 407 cars. The property competes with other multi-story
and single-story office properties in the surrounding area. The submarket in
which the property is located contains approximately 2.0 million square feet of
such space. The market occupancy rate for this type of space is currently
approximately 79%.
As of December 31, 1996, the property was approximately 96% occupied. The
principal tenants occupying space in the property as of December 31, 1996 were:
CNR Health (30,550 square feet), First Health (11,973 square feet) and Radian
Corp.(11,830 square feet) which leases expire in 2003, 1998 and 2000,
respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for the buildings, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property will
<PAGE>
be approximately $8,000,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were approximately $256,156.
1301 Long Lake Road, Troy, Michigan
This property is a three-story office building built in 1988, and has
approximately 169,959 square feet. It is located on a 11.53 acre site with
parking spaces for 1,067 cars. The property competes with other multi-story and
single-story office properties in the surrounding area. The submarket in which
the property is located contains approximately 11.5 million square feet of such
space. The market occupancy rate for this type of space is approximately 93%.
The Company purchased this property in November 1996 for the contract price
of $16,000,000 ($94.14 per square foot). As of Decmber 31, 1996, the property
was approximately 91% occupied. The principal tenants occupying space in the
property as of December 31, 1996 were: St. Paul Fire and Marine Insurance
Co.(27,091 square feet), Walsh College(20,836 square feet) and Variable Annuity
Life Insurance Co. (12,507 square feet), which leases expire in 1997, 1998, and
2001, respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
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For Federal income tax purposes, the Company's basis in this property will
be approximately $16,000,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were approximately $314,678.
2550 University Avenue, St. Paul, Minnesota
The property acquired by the Company is a fee simple interest in a portion
of a 320,000 rentable square foot four-story, class A office building located at
2550 University Avenue West, St. Paul, Minnesota (the "Building"). Originally
constructed in 1916, the Building was fully redeveloped and renovated in 1985.
The portion of the Building acquired by the Company ("Court International II")
consists of approximately 199,670 rentable square feet and was approximately 92%
occupied at acquisition. The property competes with other multi-story and
<PAGE>
single-story office properties in the surrounding area. The submarket in which
the property is located contains approximately 2.4 million square feet of such
space. The market occupancy rate for this type of space is approximately 92.9%.
The Company purchased this property in December 1996 for the contract price
of $14,300,000 ($71.62 per square foot). As of December 31, 1996, the property
was approximately 96% occupied. The principal tenants occupying space in the
property as of December 31, 1996 were: University Affiliated Family Physicians
(U.A.F.P.) (32,932 square feet), Minnesota Continuum Care(20,767 square feet)
and Ameridata Consulting (22,527 square feet) which leases expire in 1999, 2001
and 1998, respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
For Federal income tax purposes, the Company's basis in this property will
be approximately $14,300,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were $439,404.
1900 Golf Road, Schaumburg, Illinois
This property is a thirteen- story office building built in 1980, and has
approximately 259,730 rentable square feet. It is located on a 12.89 acre site
with parking spaces for 1,156 cars. The property competes with other multi-story
and single-story office properties in the surrounding area. The submarket in
which the property is located contains approximately 21.5 million square feet of
such space. The market occupancy rate for this type of space is approximately
87%.
The Company purchased this property in December 1996 for the contract price
of $24,000,000 ($92.40 per square foot). As of December 31, 1996, the property
was 96% occupied. The principal tenants occupying space in the property as of
December 31, 1996 were: United Health Care(105,949 square feet), Crawford &
Company(58,100 square feet) and Prudential Bache Securities (9,634 square feet).
Leases for United Health Care and Prudential Bache Securities, expire in 2002,
as does the Crawford & Company lease, although Crawford & Company has exercised
an option to reduce its space to a total of 38,700 square feet in March 1997.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1996 for this property, assuming none of the tenants
exercise renewal options.
<PAGE>
For Federal income tax purposes, the Company's basis in this property will
be approximately $24,000,000 as of December 31, 1996. Buildings and improvements
will be depreciated over a 40 year life using the straight-line method. Property
taxes paid in 1996 were $1,414,480.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of December 31, 1996, information to the
best of the Company's knowledge regarding the beneficial ownership of shares of
Common Stock by each director, by each executive officer, by all of the
Company's Directors and executive officers as a group, and by other persons who
own beneficially 5% or more of the outstanding shares of the Company's Common
Stock.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors currently consists of nine members.
Pursuant to the Company's Bylaws, each Director holds office for a one-year term
expiring at the next annual stockholders' meeting which is expected to be held
in 1997. Company officers are elected annually by the Board of Directors, but
may be removed at any time by the Board acting in its discretionary authority.
The following table sets forth information with respect to the Directors
and executive officers of the Company.
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The following is a biographical summary of the experience of the directors and
executive officers of the Company.
Directors:
James J. Brinkerhoff
Director
Mr. Brinkerhoff, is an Independent Director of the Company and joined the
Board in August 1996 pursuant to the terms of the Stock Purchase Agreement dated
August 20, 1996 (the "Stock Purchase Agreement"). Mr. Brinkerhoff is Senior Vice
<PAGE>
President, Real Estate, for Fortis Advisers, Inc., the investment management arm
of Fortis, Inc. based in New York City. Prior to joining Fortis in 1994, he was
Senior Vice President and Portfolio Manager with Aldrich, Eastman & Waltch
(AEW), responsible for managing the U.S. Real Estate Portfolio of the Church
Commissioners for England. From 1983 to 1993, he was an officer and partner with
Chesterton International, a London-based real estate adviser, and was
responsible for the creation and management of the Church Commissioners' U.S.
Real Estate Portfolio.
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Mr. Brinkerhoff received his MBA from the Wharton School, University of
Pennsylvania, and his B.S. degree from Boston University. He is a full member of
the Urban Land Institute.
Wayne M. Janus
Director
Mr. Janus is an Independent Director of the Company and joined the Board in
May 1994. Mr. Janus is President of JMG Financial Planning Group, Ltd. ("JMG"),
a registered investment adviser, which provides personal financial and tax
planning to senior executives of public and private companies and affluent
business owners. Mr. Janus co-founded JMG in 1984. Mr. Janus is a registered
representative of Dreher & Associates, an NASD broker-dealer. Prior to founding
JMG, Mr. Janus was a tax principal with Arthur Young & Company (now Ernst &
Young LLP) where he provided financial planning services and coordinated
executive compensation programs for a number of publicly-held Chicago area
companies.
Mr. Janus earned a Bachelor of Science degree in accounting and a Master of
Science degree in taxation from DePaul University. He is a Certified Public
Accountant, and a member of The Illinois CPA Society, the American Institute of
Certified Public Accountants, the Chicago Estate Planning Council and the
International Association for Financial Planning.
Daniel E. Josephs
Director
Mr. Josephs is an Independent Director of the Company and joined the Board
in March 1993. Mr. Josephs is currently an independent business consultant.
From 1985 until 1995, Mr. Josephs served as the President, Chief Operating
Officer and Director of Dominick's Finer Foods of Northlake, Illinois, a major
<PAGE>
Chicago-area retail grocery company. Prior to 1985, Mr. Josephs was the Chief
Operating Officer of both Kohl's Food Stores and Pantry Pride Food Stores. From
1948 to 1980, Mr. Josephs was employed by Jewel Food Stores, concluding his
tenure as Group Vice President for Marketing.
Mr. Josephs serves on the Board of Directors for Grand Union Company, a
regional grocery firm, the Board of Trustees for The Chicago Academy of Sciences
and the Board of Directors of Options for People, Inc., a Chicago-area
non-profit concern. He is a member of the Advisory Council of the Keller
Graduate School of Management. He has also been a guest lecturer for the
graduate business schools of Northwestern University and the University of
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Illinois. He has also served on the Board of Directors of the Chicago Economic
Development Corporation.
Mr. Josephs received his undergraduate degree from Northwestern University
and his MBA from The University of Chicago.
Edward Lowenthal
Director
Mr. Lowenthal is an Independent Director of the Company and joined the
Board in August 1996 pursuant to the terms of the Stock Purchase Agreement. Mr.
Lowenthal is a Founder, Director and President of Wellsford Residential Property
Trust ("WRP"), a New York Stock Exchange listed multi-family real estate
investment trust with offices in New York, Denver and Tacoma. WRP owns
approximately 19,000 residential apartment units in the Southwest and Northwest
states.
Mr. Lowenthal is a member of the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") and was Co-chair of its
1993 Annual Meeting. He serves on NAREIT's Executive and Government Relations
committees.
Mr. Lowenthal serves as a Director of United American Energy Corporation, a
major developer, owner and operator of hydroelectric and other alternative
energy facilities, and Omega Healthcare Investors, Inc. Mr. Lowenthal is also a
trustee of Corporate Realty Income Trust, a private real estate investment trust
which invests in triple-net leased commercial and industrial properties, and a
director of Corporate Renaissance Partners, a securities mutual fund. He also
serves as a member of the Advisory Committee to Case Western Reserve
<PAGE>
University's College of Arts and Sciences.
In January 1984, after practicing law in New York for 15 years, Mr.
Lowenthal became a Managing Director of A.G. Becker Paribas and then a Partner
of Bear Stearns & Co. As an investment banker, he was active in structuring and
negotiating transactions and raising the equity in some of the largest real
estate equity private placements requiring complex structuring and current
knowledge of the capital markets.
He holds a B.A. degree from Case Western University and a J.D. degree from
Georgetown University Law Center where he was editor of the Georgetown
University Law Journal. He is a member of the New York and New Jersey Bars.
Richard A. May
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President and Chairman of the Board
Director
In 1992, Mr. May co-founded the Company and has served as President and
Chairman of the Board of Directors from its inception. Mr. May is currently the
Chairman of the Board, President and Chief Executive Officer of the Company. In
1984 Mr. May co-founded JMG, and in 1986 he co-founded Equity Partners Ltd. (the
"Advisor") as an affiliate of JMG. The Advisor became an independent company in
1989, and Mr. May sold his JMG interest at that time. The Advisor served as the
Company's advisor from the Company's formation until April 1, 1996. See "Certain
Transactions." From 1968 to 1979, he was employed in the water pollution control
industry as a project engineer and marketer of engineering products and
services. He began his financial services career in 1979 as a commercial real
estate broker and worked for Inland Real Estate Corporation from 1981 to 1984
marketing real estate investment products.
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 bachelors degree in mechanical engineering from the
University of Illinois and his MBA degree from The University of Chicago.
Donald E. Phillips
Director
Mr. Phillips in an Independent Director of the Company and joined the Board
in September 1992. Mr. Phillips is currently retired. From 1960 until 1980, Mr.
<PAGE>
Phillips served as a corporate executive in a variety of capacities for
International Minerals & Chemicals Corporation of Northbrook, Illinois, a
mineral and chemical company, and from 1976 to 1980, he was Group President &
CEO of IMC Industry Group, Inc. ("IMC"). From 1980 until 1988, he served as
Group President & CEO of Pitman Moore, Inc., a mineral and chemical company,
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 company which
manufactures and distributes veterinary devices and products, and as a member of
the Board of Directors of Potash Corporation of Saskatchewan, Canada, a company
which mines and distributes minerals for agricultural application, the Board of
Regents of Bethel College and Seminary of Arden Hills, Minnesota, and as the
President of Holmes Community College Development Foundation, Goodman,
Mississippi.
Mr. Phillips is the past Chairman of the Board of Lake Forest Graduate
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School of Business and of the Board of The Skokie Valley Baptist Church. Mr.
Phillips received his undergraduate degree from Mississippi College and his MBA
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.
Russell Platt
Director
Mr. Platt is an Independent Director of the Company and joined the Board in
August 1996. Mr. Platt is a Managing Partner of Morgan Stanley Asset Management
Inc. and head of its real estate securities investment business. Mr. Platt
joined Morgan Stanley in 1982 and has been involved in all aspects of its real
estate business, including investment banking, direct property investment,
international real estate and securities investment management.
Mr. Platt serves on the advisory boards of The Wharton Real Estate Center,
the Real Estate Center at the Massachusetts Institute of Technology and the
National Multi-housing Council. He is a member of NAREIT, the Pension Real
Estate Association and the Urban Land Institute. Mr. Platt also is a trustee of
The Fountain Valley School of Colorado.
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Mr. Platt graduated from Williams College and received his MBA from Harvard
Business School.
Richard L. Rasley
Executive Vice President, Secretary
Director
In 1992, Mr. Rasley co-founded the Company and has served as Secretary and
Director from its inception. Mr. Rasley is currently the Executive Vice
President, General Counsel and Secretary of the Company.
From 1987 until April 1, 1996, Mr. Rasley was employed by the Advisor, and
was an officer and shareholder of the Advisor prior to April 1, 1996. See
"Certain Transactions" below. From 1985 to 1987, Mr. Rasley worked for Dreher &
Associates, Inc., a NASD broker-dealer, where he was responsible for the review,
approval, and monitoring of the firm's direct participation investments. Prior
to that, he worked for Deloitte, Haskins & Sells (now Deloitte & Touche LLP) as
a general business consultant. Mr. Rasley is a Certified Public Accountant,
holds several inactive NASD licenses, and is a member of the Illinois Bar and
NAREIT.
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Mr. Rasley received his BBA from the University of Iowa and received his
MBA and JD degrees from the University of Illinois.
Walter H. Teninga
Director
Mr. Teninga is an Independent Director of the Company and joined the Board
in September 1992. Mr. Teninga is the retired President and Chief Executive
Officer of American Club Stores, Inc., where he worked from 1991 to 1993. In
1982, he founded the Warehouse Club, a wholesale cash-and-carry warehouse
business, which became a public company in 1985. Mr. Teninga resigned as
Chairman, Chief Executive Officer and Director of the Warehouse Club in 1991.
From 1956 to 1979, Mr. Teninga was employed by K-mart Corporation in various
positions, including as a Director, Vice Chairman, and Chief Financial and
Development Officer.
Mr. Teninga is currently a member of the Board of Directors of Developers
Diversified Realty Corporation (a NYSE-listed real estate investment trust), and
Solo Serve Corporation, a paper products company.
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Mr. Teninga received his undergraduate degree from the University of
Michigan and his MBA degree from Michigan State University.
Additional Executive Officers:
Raymond M. Braun
Senior Vice President, Acquisitions
Raymond M. Braun joined the Advisor in May 1990. Mr. Braun 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. While with Balcor, Mr. Braun was involved in equity and debt
financing for various projects which, in the aggregate, exceeded 5,000 apartment
units, 4 million square feet of retail space, 1 million square feet of office
space, and 10,000 acres of unimproved land. Prior to joining Balcor, Mr. Braun
worked as a credit analyst and loan review officer for MBank, N.A. in Dallas,
Texas from 1984 to 1986.
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Mr. Braun received a Bachelor's degree in Finance from the University of
Illinois. Mr. Braun is both a member of the Chicago Board of Realtors and the
local CCIM chapter of the National Association of Realtors.
James Hicks
Sr. Vice President, Finance,
Chief Financial Officer and
Treasurer
James Hicks joined the Advisor in 1994. He 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
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responsibility for overall asset management of a portfolio of international and
domestic commercial real estate properties. As portfolio manager, he was
responsible for all leasing, redevelopment, financing, investor reporting and
financial reporting matters. From 1982 to 1989, he worked at The Balcor Company,
a real estate syndication company. Mr. Hicks was Controller of Balcor from 1982
to 1987 where he was responsible for all corporate financial reporting, tax
planning and reporting, and the installation of financial management information
systems, and thereafter was a vice president in The Balcor Capital Markets Group
where he was involved with the sale of pools of commercial real estate
mortgages. From 1977 to 1982, he was with Peat, Marwick, Mitchell & Co. (now
KPMG Peat Marwick LLP), where he audited publicly owned and private real estate
companies.
He received his bachelors degree in Accounting and Mathematics from
Augustana College and his MBA from Northwestern University. Mr. Hicks is a
Certified Public Accountant. Mr. Hicks is a member of the Illinois CPA Society
and American Institute of Certified Public Accountants.
Kim S. Mills
Senior Vice President, Asset Management and Leasing
Kim S. Mills joined the Advisor in January, 1996. Mr. Mills has primary
responsibility for all of the Company's asset management, property management
and leasing activities.
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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 4 million square feet. From 1984 to 1991, he worked for
the RREEF Funds which is a real estate adviser to pension funds and other
institutional investors. Mr. Mills was District Manager with RREEF from 1989 to
1991 with responsibility for all asset/property management functions in the
Chicago Suburban District for 4 million square feet of office, retail,
industrial and apartment properties and prior to 1989, he was District Manager
of the Denver suburban district. Prior to RREEF, Mr. Mills worked at Urban
Investment and Development Company as a property manager/leasing coordinator
from 1982 to 1984.
Mr. Mills received a bachelors degree from Ohio Northern University. Mr.
<PAGE>
Mills has a RPA (Real Property Administrator) designation from the Building
Owners and Managers Association ("BOMA").
ITEM 6. EXECUTIVE COMPENSATION
For the years ended December 31, 1993, 1994 and 1995, the Company had no
employees. 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") See Item 7 below which generally
describes the arrangements and agreements between the Company and certain
parties regarding compensation for services provided to the Company prior to
April 1, 1996.
Executive Compensation
In preparation for the acquisition of Equity Partners Ltd., the
Compensation Committee was established by the Board of Directors on October 17,
1995. The Committee is responsible for reviewing and recommending executive
compensation levels and methods of executive compensation. The Compensation
Committee currently consists of these Independent Directors: Messrs. Josephs,
Phillips (Chairman) and Teninga. The Compensation Committee held no meetings
during 1995. Given that the Company did not employ the officers of the Company
or determine the compensation of those persons in 1995, the Committee did not
establish compensation policies in 1995, and no Compensation Committee report is
provided in this Registration Statement.
The Company compensates Independent Directors as follows. Until July 1,
1996, the annual retainer fee was $7,200, the fee paid for each day a meeting
was attended was $750, and Independent Directors were granted options to acquire
3,000 shares of common stock at the Company's Net Asset Value as determined by
the Board of Directors as of the end of the year. The Board of Directors voted
to modify such compensation, efffective July 1, 1996, as follows: the annual
retainer fee is $10,000; the fee paid for each in-person Board of Director's
meeting is $1,000; the fee paid for each in-person Board of Director's Committee
meeting is $500; and the fee paid for each telephonically conducted Board of
Director's or Committee meeting is $250. In addition, the Independent Directors
are now eligible to be granted options to acquire up to 5,000 shares of Common
Stock at the Company's Net Asset Value as determined by the Board of Directors
as of the end of the year.
During the year ended December 31, 1995, Mr. Haahr, Mr. Janus, Mr. Josephs,
Mr. Phillips, and Mr. Teninga were each granted options to purchase 3,000 shares
of Common Stock. These options will expire in 10 years and have an exercise
<PAGE>
price of $12.00 per share. As cash compensation for their services in 1995 the
Independent Directors received the following: Mr. Haahr, $13,300; Mr. Janus,
$12,850; Mr. Josephs, $14,100; Mr. Phillips, $13,600; and Mr. Teninga, $14,100.
Except for their compensation as employees, the Company does not compensate
those Directors who are employees of the Company for their service as Directors.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the Company's incorporation until the completion of the Merger of the
Company and the Advisor on April 1, 1996, the Advisor served 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. Messrs. May and
Rasley, who are directors and officers of the Company, were shareholders owning
70.5% of the outstanding common stock of the Advisor. 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 $795,932 in 1996 prior to
the merger. In addition, see footnote 5 to the Financial Statements presented in
Item 13 for a summary of fees paid to the Advisor under the Advisory Agreement
and other agreements between the same parties.
In connection with rendering a fairness opinion with respect to the merger
of the Company and the Advisor, EVEREN Securities, Inc. ("EVEREN") received a
fee of $200,000 in 1996. The Company also reimbursed EVEREN in the amount of
$19,428 for its reasonable and out-of-pocket expenses, including the reasonable
fees and expenses of EVEREN's counsel, and agreed to indemnify EVEREN for
certain liabilities to which it may be subject in connection with its
engagement. The Company also retained EVEREN to act as agent for the private
placement of shares of the Company's common stock which concluded with the
completion of the Stock Purchase Agreement dated August 20, 1996. In connection
with that private placement EVEREN received customary fees and expense
reimbursements totaling $2,216,847. Jon K. Haahr, a Managing Director of EVEREN,
was a Director of the Company at the time EVEREN was engaged by the Company to
provide the fairness opinion and act as agent with respect to the private
placement of securities. Except for Mr. Haahr's status as a director, EVEREN was
not affiliated to the Company. Mr. Haahr, who served as a member of the Board of
Directors since his nomination on May 25, 1994, declined to stand for
<PAGE>
re-election as a Director when his term expired effective September 24, 1996.
Mr. Haahr's decision was not due to a disagreement with other members of the
Board of Directors or with management regarding the Company's operations,
policies or practices.
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ITEM 8. LEGAL PROCEEDINGS
As of December 31, 1996 the Company was not a party to any material legal
proceedings.
ITEM 9. MARKET PRICE OF DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDERS' MATTERS
At December 31, 1996, there is no established trading market for the common
shares of the Company.
At December 31, 1996, the Company has approximately 630 holders of record
of its common stock.
The Company currently has two classes of equity securities outstanding; one
class of common and one class of preferred stock.
The Company has paid quarterly dividends per common share during 1994, 1995
and 1996 as follows:
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31 June 30 September 30 December 31
1994 $0.20 $0.23 $0.26 $0.27
1995 $0.27 $0.27 $0.29 $0.30
1996 $0.30 $0.30 $0.30 $0.30
As of December 31, 1996, the Company had two stock option plans, the Plan
for Independent Directors and Brokers, and an Incentive Stock Option Plan which
was approved by the Company's Shareholders on September 24, 1996. Under the
plans, options have been granted to purchase shares at fair market value on the
date of grant. In connection with the acquisition of the Advisor, approved by
<PAGE>
the Company's stockholders on February 27, 1996, the Advisor Stock Option Plan
was canceled subject to the rights of the holders of the outstanding options,
and currently options under the remaining plan are only granted to Independent
Directors. At December 31, 1996 568,361 options on the purchase of common shares
were outstanding, and of these 509,631 were currently exercisable. At December
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31, 1996, 561,590 shares were available for future grant.
The following table is a summary of the option transactions during the
period from the Company's incorporation through December 31, 1996:
Shares Available for Future Sale
General
At December 31, 1996, the Company had 8,808,484 shares of Common Stock
issued and outstanding. All of the outstanding shares of Common Stock are
"restricted" securities within the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144") and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available
including exemptions contained in Rule 144. As described below, the Company has
granted certain holders of Common Stock registration rights with respect to such
shares of Common Stock.
In general, under Rule 144 as currently in effect, if two years have
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elapsed since the later of the date of acquisition of restricted securities from
the Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquirer or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the Common Stock then outstanding as shown by the
most recent report or statement published by the Company, or (ii) if the Common
Stock is listed on a national securities exchange or on the Nasdaq National
Market, the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
<PAGE>
certain manners of sales provisions, notice requirements and the availability of
current public information about the Company. If three years have elapsed since
the date of acquisition of restricted securities from the Company or from any
"affiliate" of the Company and the acquirer or subsequent holder thereof is
deemed not to have been an "affiliate" of the Company at any time during the 90
days preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Securities and Exchange Commission has proposed to amend the holding
period required by Rule 144 to permit sales of restricted securities after one
year rather than two years (and two years rather than three years for
"non-affiliates" who desire to sell such shares under Rule 144(k)). If such
proposed amendments were enacted, the Common Stock would become freely tradeable
(subject to any applicable contractual restrictions) at these earlier dates.
As of December 31, 1996, the Company estimates that there are 1,839,352
shares of Common Stock that were held by "non-affiliates" with a three-year
holding period and an additional 722,066 shares of Common Stock that have been
held for at least two years.
Registration Rights
Pursuant to the Registration Rights Agreement dated August 20, 1996 (the
"Registration Rights Agreement") among the Company, Fortis Benefits Insurance
Company ("Fortis"), Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate
Portfolio ("MS Institutional Fund"), Morgan Stanley SICAV Subsidiary S.A. ("MS
SICAV") (MS Institutional Fund and MS SICAV are collectively referred to as
"Morgan Stanley") Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV"), Logan,
Inc. ("Logan") and Pension Trust Account No. 104972 Held by Bankers Trust
Company as Trustee ("Fidelity") (Fortis, Morgan Stanley, WKZV, Logan and
Fidelity are collectively referred to as the Institutional Investors), the
Company has granted the Institutional Investors certain registration rights with
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respect to the 3,867,000 shares of Common Stock acquired by them pursuant to the
Stock Purchase Agreement dated August 20, 1996 among the Company and the
Institutional Investors and an additional 210,128 shares of Common Stock that
may be acquired in the event the outstanding Preferred Stock is converted into
Common Stock (collectively, the "Registrable Shares").
The following summary of certain material provisions of the Registration
<PAGE>
Rights Agreement is qualified in its entirety by reference to the Registration
Rights Agreement, a copy of which is filed as an exhibit to this Registration
Statement. Capitalized terms that are used in the following two paragraphs that
are not defined herein have the meanings assigned to such terms in the
Registration Rights Agreement.
Subject to certain terms and conditions the Registration Rights Agreement
provides that not later than the earlier of (i) the third anniversary of the
date of the Registration Rights Agreement or (ii) the date that is 180 days
after the settlement of the initial sale pursuant to the Company's First Public
Offering, the Company is obligated to use its best efforts to effect a
Registration Statement covering the Registrable Shares. The Company is obligated
to use its best efforts, subject to any Permitted Interruption, to cause such
Registration Statement to remain in effect until the earlier of: (i) the date on
which all Registrable Shares have been sold under such Registration Statement,
and (ii) if a Liquid IPO has been consummated, the later of (A) the date that is
twelve months after such Registration Statement becomes effective and (B) the
date that all Registrable Shares are freely transferable pursuant to Rule 144(k)
or any successor rule or the rules and regulations promulgated under the
Securities Act (assuming for purposes of calculating such period that no Holder
of Registrable Shares is an Affiliate of the Company) in any case, as extended
by the period of any Permitted Interruption.
The Registration Rights Agreement also provides that if the Company
proposes to register its Common Stock under the Securities Act on any
Registration Statement covering such Common Stock, the Holders of Registrable
Shares are entitled to have their shares included in such Registration Statement
on a pro rata basis subject to certain other terms and conditions set forth in
the Registration Rights Agreement.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following table is a summary of the Company's recent sales of unregistered
securities.
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ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES
General
<PAGE>
The following summary of the terms of Capital Stock of the Company does not
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purport to be complete and is qualified by reference to the Company's charter
(the "Charter") and the Company's bylaws (the "Bylaws"), copies of which have
been filed as exhibits to this Registration Statement on Form 10/A.
The Charter provides that the Company may issue up to 20 million shares of
common stock, par value $.01 per share ("Common Stock"), and 10 million shares
of preferred stock, par value $.01 per share ("Preferred Stock"). At December
31, 1996, 8,808,484 shares of Common Stock were issued and outstanding, and
210,128 shares of Class A Convertible Preferred Stock were issued and
outstanding. Of 1.5 million shares of Common Stock are reserved for issuance
pursuant to various stock option programs 561,590 shares remain available for
future grant. The Board of Directors is authorized to issue shares of Common
Stock and Preferred Stock without the approval of the Stockholders. Under
Maryland law, stockholders of the Company generally are not liable for a
corporation's debts or obligations.
Common Stock
All authorized and outstanding Common Stock is duly authorized, fully paid
and nonassessable. Subject to the preferential rights of any other shares or
series of stock and to the provisions of the Charter regarding the restrictiions
on transfer of stock, holders of Common Stock will be entitled to receive
dividends on the Common stock if, as and when authorized and declared by the
Board of Directors, out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company intends to pay regular quarterly dividends.
Subject to the provisions of the Charter, each outstanding share of Common
Stock entitles the holder to one vote on all matters submitted to a vote of
stockholders, including the election of directors and, except as otherwise
required by law or except as provided with respect to any other class or series
of stock, the holders of Common Stock possess the exclusive voting power. There
is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Common Stock can elect all of
the directors then standing for election and the holders of the remaining shares
of Common Stock will not be able to elect any directors. Holders of shares of
Common Stock have no preference, conversion, sinking fund, redemption rights or
<PAGE>
preemptive rights to subscribe for any securities of the Company subject to the
provisions of the Charter regarding restrictions on transfer of stock.
Under the General Corporation Law of Maryland ("MGCL"), a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
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substantially all of its assets, engage in a share exchange or engage in similar
transactions outside the ordinary course of business unless approved by the
affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter, unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in the
corporation's charter. The Company's Charter provide that a majority of all of
the votes entitled to be cast is sufficient to take such actions.
The transfer agent and registrar for the Common Stock is Gemisys
Corporation.
Preferred Stock
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock, as authorized by the Board of Directors. Prior to
issuance of shares of each series and, subject to the provisions of the Charter,
the Board of Directors is required by the MGCL and the Charter to fix for each
such series the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. To
date, the Board of Directors has so fixed only 210,128 shares of Class A
Convertible Preferred Stock (the "Class A Preferred Stock"). Pursuant to the
Stock Purchase Agreement dated August 20, 1996 the Company issued 210,128 shares
of Class A Convertible Preferred Stock. Such Class A Convertible Preferred Stock
is not eligible to receive a dividend and is not entitled to a liquidation
preference except to the extent of the par value of $.01 per share. The Class A
Convertible Preferred Stock is convertible into shares of Common Stock on a
one-for-one basis in the event the Company fails to attain certain objectives
established in the Stock Purchase Agreement regarding the size, timing and
pricing of a public offering of Common Stock. The Board of Directors could
authorize the issuance of additional shares of Preferred Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which holders of some, or a majority of, shares of Common Stock
might believe to be in their best interests or in which holders of some, or a
<PAGE>
majority of, shares of Common Stock might receive a premium for their shares of
Common Stock over the then market price of those shares.
Power to Issue Additional Shares of Common Stock and Preferred Stock
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Preferred Stock and thereafter to
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cause the Company to issue such classified or reclassified share of stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the Common Stock, will be available for
issuance without further action by the Company's stockholders, unless such
action is 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. Although the Board of Directors has no intention at the present time of
doing so, it could authorize the Company to issue a class or series, delay,
defer or prevent 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.
Restrictions on Ownership and Transfer of Shares
Shares of Common Stock are subject to certain restrictions on their
ownership and transferability, as described below. The Board of Directors has
the right to limit the investment of new stockholders, to redeem stockholder's
shares, and to restrict the transfer of shares by stockholders in the event the
Board of Directors deems it necessary to protect the status of the Company as a
REIT under the Code. There are also securities laws restrictions on the transfer
of certain currently outstanding shares of Common Stock.
For the Company to qualify as a REIT under the Code, Common Stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of twelve months (other than the first year) or during a proportionate part
of a shorter taxable year. Further, not more than 50% of the value of the issued
and outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
such as qualified pension plans) during the last half of a taxable year or
during a proportionate part of a shorter taxable year.
<PAGE>
Since the Company believes it is at present essential to continue to
qualify as a REIT, the Charter provide that the Board of Directors, acting on
behalf of the Company, may take certain actions with respect to a stockholder's
ownership or transfer of shares in order to preserve the Company's status as a
REIT. The Board of Directors may demand that a stockholder disclose in writing
information regarding the direct and indirect ownership of shares of Common
Stock or shares of Preferred Stock with voting rights (collectively the "Voting
Shares") as the Board of Directors deems appropriate to comply with the
provisions of the Code. In addition, the Board of Directors may require any
stockholder or proposed transferee or purchaser of Voting Shares to provide a
statement as to the number of Voting Shares already owned by the stockholder and
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related persons within the meaning of certain applicable attribution of
ownership provisions contained in the Code. Whenever the Board of Directors
determines that a proposed transfer or purchase of Voting Shares would
jeopardize the status of the Company as a REIT, the Board has the right (but not
the duty) to refuse to permit such transfer or purchase.
In addition, the Board of Directors may purchase or redeem any or all of
the Voting Shares which, in the opinion of the Board of Directors, jeopardize
the status of the Company as a REIT under the Code. Under these circumstances,
the purchase price for the Voting Shares called for purchase or redemption is
equal to the fair market value of the Voting Shares. The Articles provide that
the fair market value of the Voting Shares is conclusively deemed to be the
closing sales price for such shares if then listed on the NASDAQ National Market
System or the average of closing sales prices if those Shares are listed on more
than one exchange or over-the-counter system. If the Voting Shares are not
listed or traded, then the purchase price is the current Net Asset Value as
determined by the Board of Directors in good faith as of the date prior to the
date the notice is sent. When the Company purchases or redeems shares in such a
manner, the purchase price shall be in cash. After the date fixed for purchase,
the holder of any Voting Shares ceases to be entitled to any distributions,
voting rights or any other benefits with respect to the Voting Shares, except
the purchase price.
These ownership limitations could adversely impact a stockholder's ability
to liquidate his investment in the Company, or discourage a takeover or other
transaction in which holders of some, or a majority, of shares might receive a
premium for their shares over the then prevailing market price or which these
holders might believe to be otherwise in their best interests or which these
holders might believe to be otherwise in their best interest.
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL Permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
Corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
properly or services or (b) active or deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision that eliminates such liability except to the extent required by
the MGCL.
The Charter provides that the Company shall, to the fullest extent
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permitted by the MGCL, indemnify any and all directors and officers of the
Company, but such indemnification provisions are not exclusive of any other
right which the officer or director may have to be indemnified under any bylaw,
agreement, vote of the stockholders or otherwise. The MGCL requires a
corporation (unless its charter provides otherwise, which the Company's does
not) to indemnify a director or officer who has been successful, on the merits
or otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits a company to indemnify
its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities, unless it is established that (a)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding and was committed in bad faith or (ii)was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services, or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the MGCL requires the Company, as
a condition to advancing expenses, to obtain (a) written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the Bylaws
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it is ultimately determined that the standard of
conduct was not met.
<PAGE>
The Bylaws obligate the Company to indemnify any person who was or is a
party or threatened to be made a party to any threatened, pending or completed
civil, criminal, administrative or investigative action (other than an action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceedings if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company currently maintains a $3 million directors and officers
insurance policy.
87
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In addition, the Articles provide that the Directors and officers of the
Company shall have no liability for monetary damages to the Company or its
stockholders except to the extent required by Maryland law. Currently, the
Maryland General Corporation Law provides that a Director or officer may be held
liable to a company for monetary damages or to its stockholders if: (a) it is
proved that the individual person actually received an improper benefit or
profit in money, property, or services for the amount of benefit or profit in
money, property or services actually received; or (b) to the extent that a
judgment or other final adjudication adverse to the individual person is entered
in a proceeding based on finding in that proceeding that the person's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in that proceeding.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statement and Financial Statement Schedules
Report of Independent
Auditors.....................................................................90
Historical Financial Statements:
Balance sheets as of September 30, 1996 (unaudited) and
December 31,1995 and 1994..........................................91
Statements of Income for the Nine months ended September 30, 1996
<PAGE>
and 1995 (unaudited), and for the Years Ended December 31, 1995,
1994, and 1993 ....................................................92
Statements of Changes in Stockholders' Equity for the Nine Months
Ended September 30, 1996 (unaudited) and for the Years Ended
December 31, 1995, 1994 and 1993 ..................................93
Statements of Cash Flows for the Nine Months Ended September 30, 1996
and 1995, (unadudited) and for the Years Ended December 31, 1995
1994 and 1993......................................................95
Notes to Financial Statements.......................................96
Pro Forma Financial Statements:
Pro Forma Balance Sheet as of September 30, 1996 (unaudited).......111
Notes to Pro Forma Balance Sheet(unaudited)........................113
Pro Forma Statement of Income for the Nine Months Ended
September 30, 1996(unaudited).....................................113
Pro Forma Statement of Income for the Year Ended
December 31, 1995(unaudited)......................................116
88
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Notes to Pro Forma Statements of Income(unaudited).................116
Additional Financial Statements:
565 Lakeview Parkway, Vernon Hills, Illinois
Report of Independent Auditors.....................................118
Statement of Revenue and Certain Expenses for the Year Ended
November 30, 1995...............................................120
Notes to Statement of Revenue and Certain Expenses.................121
Kensington Corporate Center, Mt. Prospect, Illinois
Report of Independent Auditors.....................................123
Statement of Revenue and Certain Expenses for the Year
Ended March 31, 1995..............................................124
Notes to Statement of Revenue and Certain Expenses.................125
10 Oak Hollow and Oak Hollow Gateway, Southfield, Michigan
Report of Independent Auditors.....................................127
Statement of Revenues and Certain Expenses for the Year
Ended December 31, 1994..........................................128
Notes to Statement of Revenues and Certain Expenses................129
One Park Plaza, Milwaukee, Wisconsin
Report of Independent Auditors.....................................131
<PAGE>
Statement of Revenues and Certain Expenses for the Year
Ended December 31, 1994.........................................132
Notes to Statement of Revenues and Certain Expenses................133
University Office Plaza, Minneapolis, Minnesota
Report of Independent Auditors.....................................135
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1994.................................................136
Notes to Statement of Revenues and Certain Expenses................137
Schedules:
III Real Estate and Accumulated Depreciation.......................138
Schedules, other than as listed above are omitted because they are
inapplicable or equivalent information has been included elsewhere
herein.
89
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Report of Independent Auditors
The Board of Directors and Stockholders
Great Lakes REIT, Inc.
We have audited the accompanying balance sheet of Great Lakes REIT, Inc. as of
December 31, 1995 and 1994 and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. Our audit also included the financial statement schedule listed in the
index at Item 13. The financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Great Lakes REIT, Inc. at
December 31, 1995 and 1994, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Chicago, Illinois
April 24, 1996
90
<PAGE>
<PAGE>
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Activities
Great Lakes REIT, Inc., ( the "Company") a Maryland corporation, was formed on
June 22, 1992 to invest in income-producing real property. The principal
business of the Company is the ownership, management, leasing, renovation, and
acquisition of suburban office and industrial properties located in the Midwest.
At September 30, 1996, the Company owns and operates twenty properties located
in suburban areas of Chicago, Detroit, Milwaukee, Cincinnati, Columbus, and
Minneapolis. The Company leases office and industrial space to over 200 tenants
in a variety of businesses.
Basis of Presentation
96
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<PAGE>
The balance sheet as of September 30, 1996, the statement of changes in
stockholders' equity for the nine months ended September 30, 1996, and the
statements of income and cash flows for the nine months ended September 30, 1996
and 1995 and related footnote disclosures are unaudited but, in the opinion of
management, contain all adjustments, which are normal and recurring, necessary
for a fair presentation of financial condition and results of operations.
Properties
Costs incurred for the acquisition, development, construction and improvement of
properties are capitalized. Certain costs of yet-to-be acquired properties,
including deposits and professional fees, are capitalized as other assets. These
costs are subsequently capitalized as property acquisition costs or charged to
expense when it becomes apparent that acquisition of a particular property is
not probable. Maintenance and repairs are charged to expenses when incurred.
Depreciation of buildings is computed using the straight-line method over the
estimated useful lives of the assets, generally 40 years. Depreciation of tenant
improvements is computed using the straight-line method over the shorter of the
lease term or useful life. For the nine months ended September 30, 1996 and 1995
and for the years ended December 31, 1995, 1994, and 1993 depreciation expense
amounted to $2,191,068, $1,046,035, $1,665,730, $667,509 and $149,605,
respectively.
At December 31, 1994, properties were carried at cost, which was not in excess
of net realizable value as determined by Company management. In March 1995, the
Financial Accounting Standards Board issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of",
under which the Company would be required to recognize impairment losses for its
properties when indicators of impairment are present and a property's expected
undiscounted cash flows are not sufficient to recover the property's carrying
amount. The Company adopted Statement No. 121 in the fourth quarter of 1995
effective January 1, 1995 with no effect on the financial statements.
Deferred Costs
Deferred costs consist principally of financing fees and leasing commissions
which are amortized over the terms of the respective agreements.
Revenue Recognition
Minimum rentals are recognized on a straight-line basis over the term of the
related leases. Additional rents from expense reimbursements for common area
97
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<PAGE>
maintenance expenses and real estate taxes are recognized in the period in which
the related expenses are incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At September 30, 1996,
December 31, 1995 and 1994, the Company had $203,023, $1,300,265 and $2,501,150,
respectively, in a money market fund.
Income Taxes
The Company has elected to be treated as a real estate investment trust under
the applicable provisions of the Internal Revenue Code. In order to qualify as a
real estate investment trust, the Company is required to distribute to
stockholders at least 95% of its taxable income and to meet certain asset and
income tests as well as certain other requirements. Accordingly, no provision
for income taxes has been reflected in the financial statements. The carrying
amount of tenant improvements in the accompanying balance sheet at December 31,
1995 is $528,000 less than the carrying amount for Federal income tax purposes.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting for its stock
options. Under APB 25, no compensation expense is recognized because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant.
98
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation. Such reclassifications did not
affect the results of operations.
<PAGE>
99
<PAGE>
2. Deferred Costs
Deferred costs consisted of the following at September 30, 1996 and December 31,
1995 and 1994:
uring the nine months ended September 30, 1996 and 1995, and the years ended
December 31, 1995, 1994 and 1993 amortization of financing costs was $271,775,
$62,911, $130,500, $33,744 and $2,925, respectively and amortization of leasing
costs was $242,997, $105,621, $158,655, $60,031 and $7,845, respectively.
3. Long-Term Debt
Mortgage notes payable aggregated $18,158,065, $18,634,022 and $15,955,018 at
September 30, 1996, December 31, 1995 and 1994, respectively. The mortgage notes
payable require monthly payments of principal and interest and mature at various
dates through 2009. Interest rates at September 30, 1996 and December 31, 1995
ranged from 7.875% to 8.95%.
100
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In 1995 the Company acquired an office building located in Minneapolis,
Minnesota subject to Variable Rate Demand commercial Development Revenue Bonds
(the Bonds) issued by the City of Minneapolis with an outstanding principal
amount of $5,235,000 and $5,420,000 at September 30, 1996 and December 31, 1995,
respectively. The Company has obtained a bank letter of credit to secure
repayment of the Bonds in an amount of approximately $5.7 million. The Company
has guaranteed repayment of the letter of credit to the issuing bank as well as
granted the issuing bank a first mortgage on the property. The interest rate on
the bonds (3.85% per annum at September 30, 1996 and 5.3% per annum at December
31, 1995) is reset weekly by the bond placement agent. The bonds mature June 1,
2009 and require the Company to make annual principal payments on June 1 of each
year at a stipulated amount so that the bonds will be fully retired on June 1,
2009.
101
<PAGE>
As of December 31, 1995, the following is a summary of principal maturities of
<PAGE>
mortgage notes and bonds payable over the next five years:
Year Ending
December 31, Amount
1996 $ 826,851
1997 902,387
1998 987,742
1999 1,053,335
2000 3,992,522
The Company has obtained lines of credit from banks aggregating $55 million at
September 30, 1996. The borrowings under the lines of credit are limited by
certain loan-to-value covenants related to the Company's properties. At
September 30, 1996, amounts outstanding were $27,602,368 on the $50 million line
of credit and none on the $5 million line of credit. Interest accrues on the $50
million line of credit at LIBOR plus 1.875% per annum (7.5% at September 30,
1996). Interest accrues on the $5 million line of credit at prime plus 0.5% per
annum. The amounts outstanding at September 30, 1996, are due April 12, 1998. In
December 1996, the Company increased its $50 million bank line of credit to $75
million to partially finance the acquisition of properties acquired in December
1996.
102
<PAGE>
The Company had obtained at December 31, 1995, a line of credit from a bank in
an amount of $25 million. The line of credit was limited by certain
loan-to-value covenants related to the Company's properties. At December 31,
1995, the amount outstanding was $24,253,148. Interest accrued on the amounts
outstanding under the line of credit at the Bank's prime rate of interest plus
0.5% per annum (9.0% per annum at December 31, 1995). Amounts outstanding under
this line of credit were refinanced in 1996 with the $50 million line of credit
described above.
At September 30, 1996, and December 31, 1995, properties with a carrying amount
of approximately $95.8 million and $85.2 million respectively, were pledged as
collateral under the various debt agreements.
4. Dividend Reinvestment and Share Redemption Plans
The Company had established a dividend reinvestment plan whereby shareholders
were able to reinvest dividends and receive additional shares of the Company
priced at the Net Asset Value per share, as defined in the dividend reinvestment
plan, as set by the Board of Directors. Subsequent to December 31, 1995, the
Company suspended the dividend reinvestment plan.
<PAGE>
103
<PAGE>
Shareholders have the right to redeem their shares at the then Net Asset Value
per share (as defined) subject to approval of the Board of Directors and certain
other limitations. As of December 31, 1995, the aggregate amount subject to
share redemptions was approximately $4.6 million. During the year ended December
31, 1995, 12,951 shares were redeemed at a cost of $155,411.
5. Related Parties
On April 1, 1996, the Company acquired all the outstanding shares of Equity
Partners Ltd. ("the Advisor") in exchange for 100,000 of its common shares ("the
Merger"). The Merger has been accounted for as a purchase. Of the total purchase
price of $1,565,726, $1,273,307 was assigned to the contracts between the
Advisor and the Company, $76,693 to the net tangible assets of the Advisor
acquired by the Company, and $215,726 to goodwill. As the contracts between the
Advisor and the Company were terminated as a result of the Merger, the amount
allocated to the contracts has been charged to contract termination expense in
the income statement for the nine months ended September 30, 1996. As of April
1, 1996, the Company employed the employees of the Advisor and is now
self-managed and self-advised. Certain employees of the Advisor received 40,000
restricted shares of the Company's common stock. Certain restricted shares
(30,000 shares) vest to the recipients in equal amounts on April 1, 1997 and
April 1, 1998 provided the recipients are still employed by the Company. The
other restricted shares (10,000 shares) vest 25% on May 1, 1999 and 25% on May 1
of the next three years (2000-2002) provided the recipient is still employed by
the Company. The fair value of the restricted shares at dates of grant
($480,000) was deferred and is being recognized as compensation expense over the
vesting periods.
The following fees have been paid to Equity Partners Ltd., (the "Advisor") or
affiliates. Two directors of the Company were owners of the Advisor.
(a) Selling commissions were paid to owners and/or employees of the Advisor who
are registered representatives.
(b) Advisory fees are classified as general and administrative expenses in these
financial statements. Property management fees are classified as property
operating expenses in these financial statements.
Certain computer hardware and software owned by the Company was leased to the
Advisor under a five year lease which would have expired April 1, 1999.
Semiannual rental payments of $9,103 were made to the Company from the Advisor
until the lease agreement was terminated on the date of the Merger.
<PAGE>
6. Stock Options
As of December 31, 1995, the Company had two stock option plans, the Plan for
Independent Directors and Brokers, and the Advisor Stock Option Plan. Under the
plans, options have been granted to purchase shares at values which have been
determined to be fair market value on the date of grant. In connection with the
acquisition of the Advisor, the Advisor Stock Option Plan was canceled, and
currently options under the other plan are only granted to independent
Directors. At September 30, 1996, and December 31, 1995, options on 190,590 and
232,014 shares respectively, were available for future grant.
In September, 1996, the Company adopted the 1996 Incentive Stock Option Plan
(the"1996 Plan") which authorizes the issuance of up to 500,000 shares of the
Company's common stock to key employees. In September 1996, 94,000 options on
105
<PAGE>
shares were granted to certain employees under the 1996 Plan. The exercise price
of these options is $13 per share, the fair value of the Company's common stock
as determined by the Board of Directors at the date of grant. Accordingly, no
compensation expense has been recognized for the nine months ended September 30,
1996. These options have a term of ten years and vest in equal installments over
a three year period commencing on the first anniversary date of the grant.
A summary of the Company's stock option activity and related information for the
nine months ended September 30, 1996 and the years ended December 31, 1995,
1994, and 1993 is as follows:
The weighted average fair value of options granted in 1996 where the stock price
equals the exercise price is $0.13 per share. The weighted average fair value of
options granted in 1995 where the stock price equals the exercise price at date
of grant is $0.12 per share. The weighted average fair value of options granted
in 1995 where the stock price is less than the exercise price at the date of
grant is $0.02 per share. The weighted average life of options outstanding at
September 30, 1996 was 5.77 years.
106
<PAGE>
Pro forma information regarding net income and earnings per share is required by
FASB Statement 123 "Accounting for Stock Based Compensation", and has been
<PAGE>
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1993 to 1996: risk-free interest
rates of 6%; dividend yields of 9%; volatility factors of the expected market
price of the Company's common stock of 0.8%; and a weighted-average expected
life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of Pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows for the nine months ended September 30, 1996 and the
year ended December 31, 1995:
In September 1996, the Company adopted a limited purpose employee loan program
whereby employees may borrow up to 90% of the cost of exercising stock options
held by the employee. Such loans bear interest at LIBOR plus 2.375% per annum
payable quarterly, are recourse to the employees, have a term of five years
provided the employee remains employed by the Company, and are secured by a
pledge of the stock acquired by the employee through this program. As of
September 30, 1996, employees had acquired 119,892 shares through this program
with outstanding loan amounts of $1,247,351 due the Company. Such amount is
reflected as a reduction of stockholders' equity until the loans are repaid.
107
<PAGE>
7. Stock Offering
In August 1996, the Company completed an agreement to sell 3,867,000 of its
common shares at $13 per share and issue 210,128 preferred shares (the "1996
Offering"). The preferred shares carry no dividend or voting rights, and shall
be converted to common shares on a one-for-one basis or canceled, depending on
<PAGE>
the Company's attainment of certain objectives related to the timing, pricing
and size of a public offering of additional common shares by September 30, 1998.
In connection with the 1996 Offering, the Company issued 1,353,450 common shares
and 73,548 preferred shares in August 1996 and received $14,787,232 (net of
offering costs of $2,807,617); the Company issued 1,353,450 common shares and
73,548 preferred shares in October 1996, and received proceeds of $17,594,850;
and the Company issued 1,160,100 common shares and 63,032 preferred shares in
November 1996, and received proceeds of $15,021,674 (net of offering costs of
$59,653).
8. Leases
The Company leases office and industrial properties to tenants under
noncancelable operating leases that expire at various dates through 2006. The
lease agreements typically provide for a specific monthly payment plus
reimbursement of certain operating expenses. The following is a summary of
minimum future rental revenue under noncancelable operating leases:
Minimum future rentals do not include amounts which are received from tenants as
a reimbursement of property operating expenses.
9. Distributions/Dividends
108
<PAGE>
The Company declared periodic distributions/dividends of $4,435,554, $3,900,456,
$1,920,436 and $568,531 to stockholders of record during the nine months ended
September 30, 1996, and the calendar years 1995, 1994 and 1993, respectively.
Of the $3,900,456 and $1,920,436 of distributions/dividends for 1995 and 1994,
$504,564 and $127,319 were paid in January of the next calendar year,
respectively. The Company has determined the stockholders' treatment for Federal
income tax purposes to be as follows:
10. Property Acquisitions
The following properties were acquired in 1996, 1995 and 1994 and the results of
their operations are included in the statements of income from their respective
dates of acquisition.
<PAGE>
<PAGE>
11. Subsequent Events (unaudited)
As discussed in Note 7, the Company has completed several common and preferred
stock offerings in October and November 1996.
On November 1, 1996, the Company acquired two single story office/office service
center buildings in Downers Grove, Illinois for a contract price of $9,162,500.
On November 8, 1996, the Company acquired two three-story office buildings in
West Allis, Wisconsin for a contract price of $8,000,000.
On November 22, 1996, the Company acquired a three story office building in
Troy, Michigan for a contract price of $16,000,000.
On December 13, 1996, the Company acquired a four story office building in St.
Paul, Minnesota for a contract price of $14,300,000.
On December 18, 1996, the Company acquired a three story office building in
Southfield, Michigan for a contract price of $7,275,000.
On December 27, 1996, the Company acquired a thirteen story office building
located in Schaumburg, Illinois for a contract price of $24,000,000.
In October 1996, the Company sold its building located at 10 Oak Hollow,
Southfield, Michigan for a contract price of $9,300,000 resulting in a gain on
sale of approximately $2.2 million. The proceeds from the sale were invested in
another property via a tax free exchange.
In December 1996, the Company sold its property located at 830 West End Court in
Vernon Hills, Illinois for a contract price of $2,778,000 resulting in a gain on
sale of approximately $800,000. Long term debt in an amount of $930,000 was
retired concurrent with the sale. The proceeds from the sale were invested in
another property via a tax free exchange.
<PAGE>
Pro Forma Financial Statements
The unaudited Pro forma statements of income for the nine months ended September
30, 1996, and the year ended December 31, 1995, present the results of
operations as if the Merger and the 1996 and 1995 property acquisitions had
occurred at the beginning of 1995. The unaudited Pro forma balance sheet as of
September 30, 1996, gives effect to the property acquisitions and dispositions
<PAGE>
110
<PAGE>
and the issuance of common and preferred stock subsequent to that date. The
unaudited Pro forma financial staements are not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the above events would have been consummated as of the dates indicated
nor do they purport to project the Company's financial position or results of
operations at any future date or for any future period.
<PAGE>
See notes to Pro forma balance sheet.
GREAT LAKES REIT, INC.
Notes to Pro forma Balance Sheet
September 30, 1996
(unaudited)
1. Represents the historical financial position of the Company at September 30,
1996.
2. Represents the purchase prices paid for properties acquired subsequent to
September 30, 1996, net of any other assets acquired and liabilities assumed in
connection with such acquisitions. The purchases were funded from the dispositon
proceeds of properties sold subsequent to September 30, 1996, the net proceeds
from the 1996 Stock Offering received subsequent to September 30, 1996, and from
proceeds from the Company's bank line of credit.
3. Represents the historical assets and liabilities as of September 30, 1996, of
properties sold subsequent to September 30, 1996.
4. Represents the net proceeds from the 1996 Stock Offering received subsequent
to September 30, 1996. See note 7 to September 30, 1996 financial statements.
5. The Operating Partnership described elsewhere in this Registration Statement
will have no impact on the Pro forma balance sheet presented here.
Total property operating costs paid by the Company to Equity Partners for the
nine months ended September 30, 1996 and the year ended December 31, 1995
exceeded the actual costs incurred by Equity Partners for these periods.
6. Acquisition, construction, and certain other fees paid by the Company to
<PAGE>
Equity Partners were capitalized by the Company into buildings and improvements.
If the Merger had occurred January 1, 1995, these fees would not have been
incurred and depreciation and amortization expenses would have decreased by
$8,441 and $33,372 in 1996 and 1995 respectively. Costs incurred by Equity
Partners for acquisition and construction activites during 1996 and 1995 are
primarily salary costs and are reflected as general and administrative expenses
in the historical operations of Equity Partners.
Goodwill amortization is increased by $10,786 and $43,145 in 1996 and 1995,
117
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respectively, as the Merger is assumed to occur on January 1,1995 in these Pro
forma income statements.
7. Interest expense in 1996 and 1995 is increased by $4,048,786 in 1995 and
$1,939,761 in 1996 which represents the increased interest expense that would
have been incurred as the Company is assumed to have approximately $62.1 million
of bank loans payable outstanding during 1995 and 1996. The interest rate used
to calculate the Pro forma interest expense adjustment is 7.5% per annum, the
actual interest rate on the loan at September 30, 1996.
8. The Pro forma statements of income for 1996 and 1995 exclude the contract
termination expenses of $1,273,307 incurred in connection with the Merger. See
note 5 to the Notes to Financial Statements.
9. The establishment of the Operating Partnership described elsewhere in this
Registration Statement would have had no effect on these Pro forma income
statements.
Statement of Revenue and Certain Expenses
565 Lakeview Parkway
<PAGE>
November 30, 1995
with Report of Independent Auditors
118
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of 565 Lakeview
Parkway (the Property) as described in Note 2 for the year ended November 30,
1995. The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures made in the Statement of Revenue
and Certain Expenses. An audit also includes assessing the basis of accounting
used and the significant estimates made by management, as well as evaluating the
overall presentation of the Statement of Revenue and Certain Expenses. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
<PAGE>
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 2 for the year ended November 30, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
119
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July 3, 1996
Chicago, Illinois
<PAGE>
565 LAKEVIEW PARKWAY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
120
<PAGE>
565 LAKEVIEW PARKWAY
<PAGE>
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 565 Lakeview Parkway (the Property). The Property was acquired
on December 27, 1995, by Great Lakes REIT, Inc. (Great Lakes). The Property
was previously owned by Collin Equities, Inc.
As of November 30 1995, the Property was 64% leased with three tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes in
future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
121
<PAGE>
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share in
increases in operating expenses and real estate taxes in excess of base amounts,
as defined.
<PAGE>
Note 4 Management Agreement
During the year ended November 30, 1995, the Property was managed by a
third-party management company. The management agreement provided for an annual
fee of 3% of gross operating receipts.
Statement of Revenue and
Certain Expenses
Kensington Corporate Center
March 31, 1995
with Report of Independent Auditors
122
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
<PAGE>
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of Kensington
Corporate Center (the Property) as described in Note 2 for the year ended March
31, 1995. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures made in the Statement of Revenue
and Certain Expenses. An audit also includes assessing the basis of accounting
used and the significant estimates made by management, as well as evaluating the
overall presentation of the Statement of Revenue and Certain Expenses. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 2 for the year ended March 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
July 25, 1996
Chicago, Illinois
123
<PAGE>
<PAGE>
KENSINGTON CORPORATE CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
124
<PAGE>
KENSINGTON CORPORATE CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of Kensington Corporate Center (the Property). The Property was
acquired on August 22, 1995, by Great Lakes REIT, Inc. (Great Lakes). The
Property was previously owned by Opus North Corporation.
As of March 31, 1995, the Property was 85% leased with three tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes in
future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
<PAGE>
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
125
<PAGE>
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share in
increases in operating expenses and real estate taxes in excess of base amounts,
as defined.
Approximately 68% of the space at the Property is leased to a single tenant and
approximately 76% of the Property s total rental income recognized during the
year ended March 31, 1995, related to this tenant. The lease expires in 1998.
Note 4 Related Parties
During the year ended March 31, 1995, the Property was managed by a wholly owned
subsidiary of Opus North Corporation. The management agreement provided
for an annual fee of 5% of gross operating receipts.
<PAGE>
Combined Statement of Revenue and
Certain Expenses
10 Oak Hollow and
Oak Hollow Gateway
December 31, 1994 with Report of Independent Auditors
126
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Combined Statement of Revenue and Certain Expenses of 10 Oak
Hollow and Oak Hollow Gateway (the Properties) as described in Note 2 for the
year ended December 31, 1994.
The Combined Statement of Revenue and Certain Expenses is the responsibility
of the Properties management. Our responsibility is to express an opinion on the
Combined Statement of Revenue and Certain Expenses based on our audit.
<PAGE>
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Combined Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Combined
Statement of Revenue and Certain Expenses. An audit also includes assessing the
basis of accounting used and the significant estimates made by management, as
well as evaluating the overall presentation of the Combined Statement of Revenue
and Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
127
<PAGE>
ERNST & YOUNG LLP
<PAGE>
August 5, 1996
Chicago, Illinois
10 OAK HOLLOW AND
OAK HOLLOW GATEWAY
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
Year Ended January 1, 1995
128
<PAGE>
10 OAK HOLLOW AND
OAK HOLLOW GATEWAY
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Combined Statement of Revenue and Certain Expenses relates to
the operations of 10 Oak Hollow and Oak Hollow Gateway (the Properties). The
Properties were acquired on August 29, 1995, by Great Lakes REIT, Inc. ( Great
Lakes). The Properties were previously owned by Metropolitan Life Insurance
Company.
As of December 31, 1994, 10 Oak Hollow and Oak Hollow Gateway, respectively,
were 94% and 50% leased with nine tenants and six tenants.
Note 2 Summary of Significant Accounting Policies
<PAGE>
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission.
The statement is not representative of the actual operations of the Properties
for the period presented nor indicative of future operations as certain
expenses, primarily depreciation and amortization, which may not be comparable
to the expenses expected to be incurred by Great Lakes in future operations of
the Properties, have been excluded.
129
<PAGE>
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
<PAGE>
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period.
Actual results could differ from these estimates.
Note 3 Rentals
The Properties have entered into tenant leases that provide for tenants to share
in increases in operating expenses and real estate taxes in excess of base
amounts, as defined.
Approximately 45% and 23% of the base rent recognized during 1994 at 10 Oak
Hollow related to the Contract Interiors and Fireman's Fund Insurance Company
leases, respectively. Approximately 26% of the base rent recognized during 1994
at Oak Hollow Gateway related to the Tokai Rika lease.
Note 4 Management Agreement
During the year ended December 31, 1994, the Properties were managed by a
third-party management company. The management agreement provided for an annual
fee of 4% of gross operating receipts.
130
<PAGE>
<PAGE>
Statement of Revenue and
Certain Expenses
One Park Plaza
December 31, 1994 with Report of Independent Auditors
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of One Park Plaza
(the Property) as described in Note 2 for the year ended December 31, 1994.
The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free
from material misstatement.
<PAGE>
An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing the
basis of accounting used and the significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses.
We believe that our audit provides a reasonable basis for our opinion.
131
<PAGE>
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 2 for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
August 16, 1996
Chicago, Illinois
ONE PARK PLAZA
<PAGE>
STATEMENT OF REVENUE AND CERTAIN EXPENSES
132
<PAGE>
ONE PARK PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of One Park Plaza (the Property). The Property was acquired on
September 29, 1995, by Great Lakes REIT, Inc. (Great Lakes).
The Property was previously owned by Metropolitan Life Insurance Company.
As of December 31, 1994, the Property was 77% leased with twenty tenants.
<PAGE>
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
133
<PAGE>
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes in
future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned.
Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share in
increases in operating expenses and real estate taxes in excess of base amounts,
as defined.
<PAGE>
Approximately 24%, 26%, and 25% of the base rent recognized during 1994 related
to the Employers Insurance of Wausau, A.O. Smith Corporation, and Howard Needles
Tammen & Bergendoff leases, respectively.
Note 4 Management Agreement
During the year ended December 31, 1994, the Property was managed by a
third-party management company. The management agreement provided for an annual
fee of 3.5% of gross operating receipts.
134
<PAGE>
Statement of Revenue and
Certain Expenses
University Office Plaza
December 31, 1994
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of University
Office Plaza (the Property) as described in Note 2 for the year ended December
31, 1994. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenue and Certain Expenses
is free from material misstatement.
An audit includes examining, on
<PAGE>
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing the
basis of accounting used and the significant estimates made by management,
135
<PAGE>
as well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 2 for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
June 27, 1996
Chicago, Illinois
UNIVERSITY OFFICE PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
136
<PAGE>
<PAGE>
UNIVERISTY OFFICE PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of University Office Plaza (the Property). The Property was acquired
on May 4, 1995, by Great Lakes REIT, Inc. (Great Lakes). The Property was
previously owned by Health Association Center Limited Partnership.
As of December 31, 1994, the Property was 100% leased with ten tenants.
Note 2 Summary of Significant Accounting Policies
137
<PAGE>
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The
statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation, amortization and net
interest expense, which may not be comparable to the expenses expected to be
incurred by Great Lakes in future operations of the Property, have been
excluded.
<PAGE>
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share in
increases in operating expenses and real estate taxes in excess of base amounts,
as defined.
Note 4 Management Agreement
During the year
ended December 31, 1994, the Property was managed by a third-party management
company. The management agreement provided for an annual
<PAGE>
fee of 4% of base rental operating receipts.
Note 5 Related Parties
Approximately 78% of the space at the Property is leased to Health Partners, an
affiliate of the previous owner, and approximately 79% of the Property s total
rental income recognized during 1994 related to Health Partners.
The
Health Partners lease expires January 31, 2001.
138 <PAGE>
SCHEDULE III Real Estate and Accumulated Depreciation, December 31, 1995
(A) Depreciation of buildings is computed over a 40 year life on a straight line
basis. Tenant improvements are depreciated over the shorter of the estimated
useful life of the improvements or the term of the lease.
(B) These properties are pledged as security for the Company's line of credit
which totalled $24,253,148 at December 31, 1995.
(C) At December 31, 1995, the aggregate cost of land, buildings, and
improvements for Federal income tax purposes was approximately $94,266,000.
(D) Reconciliation of Real Estate Owned and Accumulated Depreciation
Real Estate Owned:
Consent of Independent
Auditors
<PAGE>
We consent to the use of our reports indicated below in this Registration
Statement (Form 10/A) of Great Lakes REIT, Inc.
Financial Statements Date of Auditors Report
Balance sheets of Great Lakes REIT, Inc.
<PAGE>
as of December
31, 1995 and 1994 and the related statements of
income, stockholders' equity and cash flows for each of the three
years in the period ended
December 31, 1995 April 24, 1996
Statement of Revenue and Certain Expenses of 565
Lakeview Parkway, Vernon Hills, Illinois, for the year
ended November 30, 1995 July 3, 1996
Statement of Revenue and Certain Expenses of One Park
Plaza, Milwaukee, Wisconsin, for the year ended December
31, 1994 August 16, 1996
Statement of Revenue and Certain Expenses of No. 10 Oak Hollow and Oak Hollow
Gateway, Southfield, Michigan, for the year ended December 31, 1994 August 5,
1996
Statement of Revenue and Certain Expenses of University
Office Plaza, Minneapolis, Minnesota, for the year ended
December 31, 1994 June 27, 1996
143
<PAGE>
Statement of Revenue and Certain Expenses of Kensington
Corporate Center, Mt. Prospect, Illinois, for the year ended
March 31, 1995 July 25, 1996
<PAGE>
Ernst & Young LLP
Chicago, Illinois
January 7, 1997
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
For the year ended December 31, 1995 , the Company selected Ernst & Young
LLP as its independent accountant.
For the years ended December 31, 1994 and 1993, the Company's independent
accountant had been Coopers & Lybrand L.L.P.. The change in independent
accountants was recommended by the Audit Committee of the Board of Directors of
the Company and approved by the Board of Directors of the Company on August 14,
1995.
The decision of the Board of Directors to dismiss Coopers & Lybrand L.L.P. was
made notwithstanding that there were no disagreements with the Company's former
independent accountant on any matter of accounting principles or practices,
financial statement disclosures, or auditing scope or procedure for the two most
recent fiscal years and the subsequent interim period preceding the dismissal.
The opinion on the Company's financial statements for the years ended December
31, 1994 and 1993 expressed by the former independent accountant was
unqualified. However, Coopers & Lybrand L.L.P. considered the reissuance and
inclusion of its reports on the Company's 1993 and 1994 financial statements in
this Form 10 as a new engagement, and has declined to accept this engagement.
Therefore, the Company engaged Ernst & Young LLP to
<PAGE>
conduct audits of its financial statements for the years ended December 31, 1993
and 1994. The reports of Ernst & Young LLP regarding those years are included
herein.
144
<PAGE>
ITEM 15.
FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
List of all financial statements included herein: see index at Item 13
Exhibits:
Note: the page numbers listed below conform to the Form 10 filed April 28, 1996.
Exhibit Description Page
No.
No.
2.1 Merger Agreement
dated January 26, 1996 between Great *
Lakes REIT, Inc.
and Equity Partners Ltd. 3.1 Great Lakes REIT, Inc. Articles of Incorporation
dated *
June 22, 1992
3.2 Articles of Merger Great Lakes REIT, Inc (survivor) and *
Equity Partners, Ltd.
<PAGE>
(merging out) dated April 1, 1996
3.3 By-Laws of Great Lakes REIT, Inc.
98
3.4 Articles Supplementary of Great Lakes REIT,
Inc. (Incorporated *
by reference from the Company's Current Report on Form 8-K
dated August 28, 1996 (the "8-K")
3.5 Amended and
restated bylaws of Great Lakes REIT, Inc.
dated *
December 5, 1996
4.1 Specimen of Certificate representing Shares of Common Stock
175
10.1 Advisory Agreement dated July 1, 1994 between Great *
Lakes REIT, Inc.
and Equity Partners Ltd. 10.2 Offering Services Agreement dated July 2, 1992
between
*
Great Lakes REIT, Inc. and Equity Partners Ltd. 10.3 Offering Services
Agreement dated July 1, 1994 between *
Great Lakes REIT, Inc. and Equity Partners Ltd.
<PAGE>
10.4 Offering Services Agreement dated August 15, 1995 *
between Great Lakes REIT, Inc. and Equity Partners Ltd. 10.5 Managing
Dealer & Wholesaling Agreement dated July 22, *
1994 between Great Lakes REIT, Inc.
and Chauner Securities, Inc. 10.6 Managing Dealer & Wholesaling Agreement dated
August 20, *
1995 between Great Lakes REIT, Inc.
and Chauner Securities, Inc. 10.7 Agreement dated August 24, 1995 between Great
Lakes *
REIT, Inc. and EVEREN
Securities, Inc. regarding
offering services
10.8 Indemnification Escrow Agreement dated April 1, 1996 *
between Great Lakes REIT, Inc., Richard A. May, Richard
L. Rasley, Tim A.
Grodrian, and American National Bank
145
<PAGE>
10.9(a) Restricted Stock Agreement dated April 1, 1996 between *
Great Lakes REIT and Richard L.
Rasley 10.9(b) Restricted Stock Agreement dated April 1, 1996 between *
Great Lakes REIT and James Hicks
10.9(c) Restricted Stock Agreement dated April 1, 1996 between *
Great Lakes REIT and Ray Braun
10.9(d) Restricted Stock Agreement dated April 1, 1996 between *
Great Lakes REIT and Edith M.
<PAGE>
Scurto
10.9(e) Restricted Stock Agreement dated April 1, 1996 between *
Great Lakes REIT and Brett R. Brown 10.10 Advisor Stock Option Plan of
Great Lakes REIT, Inc. *
dated July 2, 1992
10.11 Agreement dated August 24, 1995 between Great Lakes *
REIT, Inc.
and EVEREN Securities, Inc. regarding
fairness opinion
10.12 Stock Option Plan for Independent Directors and Brokers *
dated July 2, 1992 as amended July 15, 1994
10.13(a) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc.
to Jon K. Haahr 10.13(b) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc.
to Wayne M.
Janus
10.13(c) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc.
to Daniel E. Josephs
10.13(d) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc. to
<PAGE>
Donald E.
Phillips 10.13(e) Non-qualified Stock Option Certificate dated December
*
31, 1995 from Great Lakes REIT, Inc. to Walter H.
Teninga 10.13(f) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc. to Richard A.
May
10.13(g) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc. to
Richard L. Rasley
10.13(h) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc.
to Raymond M.
Braun
3(i) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc.
to James Hicks 10.13(j) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc. to Edith M.
<PAGE>
Scurto 10.13(k) Non-qualified Stock Option Certificate dated December *
31, 1995 from Great Lakes REIT, Inc. to Brett A. Brown 10.14 Contract
of Sale dated May 25, 1994 between Great Lakes *
REIT, Inc. and Metropolitan Life Insurance Company for
the purchase of 150, 175, 250 North Patrick,
Brookfield, Wisconsin
146
<PAGE>
10.15 Agreement of Purchase and Sale dated September 22, 1994 *
between Great Lakes REIT, Inc.
and Turner Development
Corporation for the purchase of 175 E. Hawthorn
Parkway, Vernon Hills, Illinois
10.16 Purchase Agreement dated January 23, 1995 between Great *
Lakes REIT, Inc.
and California State Teachers' Retirement System for the purchase of
2800 River Road,
Des Plaines, Illinois
10.17 Purchase Agreement dated March 27, 1995 between Great *
Lakes REIT, Inc. and Health Associations Limited
Partnership for the purchase of
2221 University Avenue
Southeast, Minneapolis, Minnesota
10.18 Purchase Agreement dated August 11, 1995 between Great *
Lakes REIT, Inc. and Opus North Corporation for the
purchase of 1660 Feehanville Drive, Mount Prospect,
Illinois
<PAGE>
10.19 Contract of Sale dated August 9, 1995 between Great *
Lakes REIT, Inc. and Metropolitan Life Insurance
Company for the purchase of 10 Oak Hollow, Southfield,
Michigan
10.20 Contract of Sale dated August 9, 1995 between Great *
Lakes REIT, Inc. and Metropolitan
Life Insurance
Company for the purchase of Oak Hollow Gateway,
Southfield, Michigan
10.21 Contract of Sale dated September 25, 1995 between Great *
Lakes REIT, Inc.
and Metropolitan Life Insurance Company for the purchase of 11270 W.
Park Place,
Milwaukee, Wisconsin
10.22 Real Estate Purchase and Sale Agreement dated November *
15, 1995 between Great Lakes REIT, Inc. and
Brauvin
Real Estate Fund II for the purchase of 823 Commerce
Drive, Oak Brook, Illinois
10.23 Option Agreement dated December 15, 1995 between Great *
Lakes REIT, Inc. and Collin
Equities, Inc.
for the
purchase of 565 Lakeview Parkway, Vernon Hills,
Illinois
10.24 Real Estate Purchase and Sale Agreement dated October 2, *
<PAGE>
1996 between Great Lakes REIT, Inc.
and S & S
Associates for the purchase of 1251 Plum Grove Road,
Schaumburg, Illinois
10.25 Real Estate Purchase and Sale Agreement dated February *
12, 1996 between Great Lakes REIT, Inc.
and Findlay
Properties, Inc. the
purchase of 30 Merchant Street,
Springdale, Ohio
147
<PAGE>
10.26 Amended and Restated Secured Revolving Loan Agreement *
dated September 28, 1994 between Great Lakes REIT, Inc.
and American National Bank and Trust Company
of Chicago
10.27 First Amendment to Amended and Restated Secured * Revolving Loan
Agreement dated September 29, 1995 between Great Lakes REIT, Inc. and
American National Bank and Trust Company
of Chicago
10.28 Second Amendment to Amended and Restated Secured *
Revolving Loan Agreement dated December 27, 1995 between Great Lakes
REIT, Inc.
and American National
Bank and Trust Company of Chicago 10.29 Revolving Note dated December
27, 1995 between Great *
Lakes REIT, Inc. and American National Bank and Trust
Company of Chicago for $25,000,000
10.30 Sample Mortgage Document: Mortgage, Assignment of *
Rents, Security Agreement and Fixture Financing
Statement dated December 27, 1995 between Great Lakes
REIT, Inc.
and American National Bank and Trust Company
regarding the financing of 565 Lakeview
Parkway, Vernon
Hills, Illinois
10.31 Mortgage, Assignment of Rents and Leases, Security *
Agreement and Fixture Financing Statement dated
<PAGE>
September 20, 1993 between Great Lakes REIT, Inc.
and
Great Northern Insured Annuity Corporation related to
11100 Hampshire Avenue, Bloomington, Minnesota
10.32 Promissory Note dated September 20, 1993 between Great *
Lakes REIT, Inc. and Great Northern Insured Annuity
Corporation in the amount of $940,000 relating to
Bloomington, Minnesota
10.33 Real Estate Mortgage dated August 18, 1993 between Great *
Lakes REIT, Inc. and Firstar Bank Milwaukee in the amount of
$1,260,000 relating to 11925 W. Lake Park Drive, Milwaukee,
Wisconsin Mortgage
10.34 Mortgage Note dated August 18, 1993 between Great Lakes *
REIT, Inc.
and Firstar Bank Milwaukee, NA in the amount of $1,260,000 relating to 11925 W.
Lake Park Drive, Milwaukee, Wisconsin
10.35 Mortgage and Security Agreement dated October 26, 1993 *
<PAGE>
between Great Lakes REIT, Inc. and Calumet
Federal
Savings and Loan Association of Chicago regarding
Arlington Ridge Service Center
10.36 Promissory Note dated October 26, 1993 between Great *
148
<PAGE>
Lakes REIT, Inc.
and Calumet Federal Savings and Loan
Association of Chicago regarding Arlington Ridge
Service Center
10.37 Mortgage dated May 2, 1994 between Great Lakes REIT, *
Inc. and General American Life Insurance Company
regarding 185 Hansen Court, Wood Dale, Illinois
10.38 First Mortgage Amortization Payment Note dated May 2, *
1994 between Great Lakes REIT, Inc.
and General
American Life Insurance Company in the amount of
$3,000,000 relating to 185 Hansen Court, Wood Dale,
Illinois
10.39 Mortgage dated May 10, 1994 between Great Lakes REIT, *
Inc. and General American Life Insurance Company
relating to 830 West End Court, Vernon Hills, Illinois
10.40 First Mortgage Amortization Payment Note dated May 10, *
1994 between Great Lakes REIT, Inc.
and General American Life Insurance Company in the amount of $1,025,000
relating to 830 West End Court,
Vernon
Hills, Illinois
10.41 Mortgage dated June 16, 1994 between Great Lakes REIT, *
Inc.
<PAGE>
and General American Life Insurance Company
relating to
1011 E. Touhy, Des Plaines, Illinois 10.42 First Mortgage Amortization Payment
Note dated June 16, *
1994 between Great Lakes REIT, Inc. and General
American Life Insurance Company in the
amount of
$2,675,000 relating to 1011 E.
Touhy, Des Plaines,
Illinois
10.43 Mortgage,
Security Agreement and Fixture Financing *
Statement dated October 13, 1994 between Great Lakes
REIT, Inc. and American Family Life Insurance Company
relating to Brookfield, Wisconsin
10.44 Promissory Note dated October 13, 1994 between Great *
Lakes REIT, Inc. American Family Life Insurance
Company in the amount of $3,500,000 relating to
Brookfield, Wisconsin
10.45 Heritage Bank Mortgage dated April 14, 1995 between *
Great Lakes REIT, Inc. and
Heritage Bank regarding 175
E. Hawthorn Parkway, Vernon Hills, Illinois in the
amount of $3,250,000
10.46 Promissory Note dated April 14, 1995 between Great Lakes *
REIT, Inc. and Heritage Bank in the amount of
<PAGE>
$3,250,000 relating to 175 E. Hawthorn Parkway, Vernon
Hills, Illinois
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10.47 Assignment and Assumption Agreement dated May 4, 1995 *
between Great Lakes REIT, Inc.
and Health Associations
Center Limited Partnership
10.48 Loan Agreement dated June 1, 1994 between City of * Minneapolis,
Minnesota and Health Associations Center Limited Partnership relating
to the issuance and sale of $5,590,000 Variable Rate Demand Commercial
Development Revenue Refunding Bonds
10.49 First Amendment to Letter of Credit and Reimbursement *
Agreement dated May 4, 1994
10.5 Letter of Credit and Reimbursement Agreement dated June *
1, 1994 between First Bank National Association and
Health Associations Center Limited Partnership
10.51 Indenture of Trust document dated June 1, 1994 by City *
of Minneapolis, Minnesota as Issuer and First Trust
National Association as Trustee relating to the
issuance and sale of $5,590,000 Variable Rate Demand
Commercial Development Revenue Refunding Bonds
10.52 Amendment to Irrevocable Direct Pay Letter of Credit *
dated May 4, 1995
10.53 Irrevocable Direct Pay Letter of Credit dated July 1, *
1994 regarding Health Associations Center Limited
Partnership
10.54 Combination Mortgage, Assignment of Leases and Rents, *
Security Agreement and Fixture Financing Statement
dated June 1, 1994 between First Bank National
Association and Health Associations Center Limited
Partnership
10.55 Master Revolving Credit Agreement dated April 12, 1996 *
between Great Lakes REIT, Inc. and The
First National
Bank of Boston
10.56 Bank of Boston Note dated April 12, 1996 for $35,000,000 *
10.57 Sample Mortgage Document:
<PAGE>
Mortgage and Security *
Agreement dated April 12, 1996 between Great Lakes REIT, Inc. and The
First National Bank of Boston relating to the premises at 2800 River
Road, Des Plaines, Illinois
10.58 Stock Purchase Agreement dated August 20, 1996
among *
Great Lakes REIT, Inc., Fortis Benefits Insurance Company
("Fortis"), Morgan Stanley Institutional Fund, Inc. - U.S.
Real Estate Portfolio ("MS Institutional Fund"), Morgan
Stanley SICAV Subsidiary SA ("MS SICAV"), Wellsford Karpf Zarrilli
Ventures, L.L.C. ("WKZV"),
Logan, Inc. ("NML"),
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and Pension Trust Account No.
104972 Held by Bankers Trust
Company as Trustee ("Fidelity")
(Incorporated by reference from the 8-K)
10.59 Registration Rights Agreement dated August 20, 1996 among *
Great Lakes REIT, Inc., Fortis, MS Institutional Fund,
MS SICAV, WKZV, NML and Fidelity (Incorporated by
reference from the 8-K)
10.60 Agreement between Great Lakes REIT, Inc. *
and
<PAGE>
Richard A. May, Richard L.
<PAGE>
Rasley, Raymond Braun, James Hicks,
Kim Mills,
10.61 Form of Change in Control Agreement between Great Lakes REIT, Inc. *
and Brett Brown and Edith Scurto
10.62 Great Lakes REIT, Inc. 1996 Incentive Stock Option Plan
10.63 Form of Incentive Stock Option Agreement
10.64 Great Lakes REIT, Inc. Limited Purposed Employee Loan Program
16.1 Letter regarding change in certifying accountant *
* Previously filed
Exhibit 3.3
Amended as of 12/5/96
BY-LAWS
OF GREAT LAKES REIT,
INC.
ARTICLE I - OFFICES
Section 1. The principal office of the corporation in the State of Maryland
shall be at c/o The Corporation Trust Incorporated, 32 South Street, Baltimore,
MD 21202 and the resident agent in charge thereof is The Corporation Trust
Incorporated.
Section 2. The corporation may have such other offices within or without
the state as the board of directors may designate or as the business of the
<PAGE>
corporation may require from time to time.
ARTICLE II - STOCKHOLDERS
Section 1. Annual Meeting: The annual meeting of the stockholders shall be
held at the corporation's offices or such other place as the board of directors
may designate on the 30th day in the month of May in each year, beginning with
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the year 1993 at the hour of 10:00 o'clock A.M., or at such other time on such
other day within such month as shall be fixed by the board of directors, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting shall be a
legal holiday in the State of Maryland, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the stockholders, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a special meeting of the stockholders as soon thereafter as conveniently may
be.
Section 2. Special Meetings: Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the president or by the board of directors, and shall be called by the president
at the request of the holders of not less than twenty-five percent of all
outstanding shares of the corporation entitled to vote at the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding twelve months.
Section 3. Place of Meeting: The board of directors may designate any
place, either within or without the State of Maryland, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by all stockholders entitled to vote at a
meeting may designate any place, either within or without the State of Maryland,
as the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
office of the corporation in the State of Maryland.
Section 4. Notice of Meeting: Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
<PAGE>
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten nor more than fifty days before the date of the
meeting either personally or by mail, by or at the direction of the president,
or the secretary, or the officer or other persons calling the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 5. Record Date and Closing of Transfer Books: The board of
directors may set a record date or direct that the stock transfer books be
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closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including, without limitation, which stockholders
are entitled to notice of a meeting, to vote at a meeting, to receive a
dividend, or to be allotted other rights. The record date set by the board of
directors may not be prior to the close of business on the day the record date
is fixed and, except as otherwise provided in Section 5, the record date shall
be not more than 90 days before the date on which the action requiring the
determination will be taken. The transfer of books may not be closed for a
period longer than 20 days and, in the case of a meeting of stockholders, the
record date or the closing of the transfer books shall be at least ten days
before the date of the meeting. If a record date is not set or the stock
transfer books are not closed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders.
Section 6. Voting List: The corporation shall maintain a stock ledger which
contains:
(1) The name and address of each stockholder.
(2) The number of shares of stock of each class which the stockholder
holds. The stock ledger shall be in written form and available for visual
inspection. The original or a duplicate of the stock ledger shall be kept at the
principal office of the corporation.
Section 7. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
<PAGE>
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 8. Proxies: At all meetings of stockholders, a stockholder may vote
in person or by proxy executed in writing by the stockholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. A proxy shall not be valid
after eleven months from the date of its execution, unless coupled with an
interest, but no proxy shall be valid after ten years from the date of its
execution, unless renewed or extended at any time before its expiration.
Notwithstanding that a valid proxy is outstanding the powers of the proxy holder
are suspended, except in the case of a proxy coupled with an interest which is
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designated as irrevocable, if the person executing the proxy is present at a
meeting and elects to vote in person.
Section 9. Voting of Shares: Each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to a vote at a meeting of
stockholders.
Section 10. Voting of Shares by Certain Holders: Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws or a resolution of the board of directors of such corporation may
prescribe, and a certified copy of the by-law or resolution is presented at the
meeting.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of shares into
his name.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the corporation, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
<PAGE>
Section 11. Voting Trusts: One or more stockholders of this corporation
may, for any proper business purpose, create a voting trust, revocable or
irrevocable, conferring upon a trustee or trustees the right to vote or
otherwise represent their shares, for a period of not to exceed ten years, by
entering into a written voting trust agreement specifying the terms and
conditions of the voting trust, by depositing an executed copy of the agreement
with the corporation at its registered office, and by transferring their shares
to such trustee or trustees for the purposes of the agreement. Trust
certificates shall be issued by the trustees for the shares so transferred. The
said copy of the voting trust agreement so deposited with the corporation shall
be subject to the absolute right of examination by any stockholder of the
corporation, in person or by agent or by any holder of a beneficial interest in
the voting trust, either in person or by agent, at any reasonable time.
The holder of a trust certificate shall be considered to be a stockholder
of the shares represented by his trust certificate with respect to his right to
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<PAGE>
inspect corporate books and records.
Section 12. Informal Action by Stockholders: Any action required or
permitted to be taken at a meeting of the stockholders may be taken without a
meeting if (a) a consent in writing, setting forth the action so taken, shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof, and (b) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote.
Section 13. Removal of Directors: At a meeting called expressly for that
purpose, directors may be removed in the manner provided in this section. The
entire board of directors, one or more of the directors, may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
ARTICLE III - DIRECTORS
Section 1. Board of Directors. The business and affairs of this corporation
shall be managed under the direction of its Board of Directors. There shall be 9
directors, except as provided in Section 2 of this Article III. The directors
need not be stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected to hold office until the next annual meeting of the
<PAGE>
stockholders, and until his successor is elected and qualifies.
Section 2. Number. The number of directors may be increased or decreased
from time to time by a vote of the directors; provided, however, if prior to the
closing of a Qualifying IPO or a Qualifying Non-IPO Liquidity Event, an Event of
Noncompliance, as such capitalized terms are defined in the Stock Purchase
Agreement dated as of August 20, 1996 ("Stock Purchase Agreement") between the
Company and certain investors named therein (together with their successors and
assigns, the "Investors"), occurs and is not waived in accordance with Sections
9.2 and 9.12 of the Stock Purchase Agreement, then the number of directors shall
become 15, without any additional action of the stockholders or the directors,
effective on the date of the Event of Noncompliance and, notwithstanding
anything else to the contrary herein, the Investors voting in accordance with
their ownership of the Shares (as defined in the Stock Purchase Agreement) shall
be entitled to appoint the persons to fill the vacancies caused by such
expansion.
Section 3. Regular Meetings: A regular meeting of the board of directors
shall be held without other notice than this by-law immediately after, and at
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<PAGE>
the same place as, the annual meeting of stockholders. The board of directors
may provide, by resolution, the time and place, either within or without this
state, for the holding of additional regular meetings without other notice than
such resolution.
Section 4. Special Meetings: Special meetings of the board of directors may
be called by or at the request of the president or any two directors. The person
or persons authorized to call special meetings of the board of directors may fix
any place, either within or without this state, as the place for holding any
special meeting of the board of directors called by them.
Section 5. Notice: Notice of any special meeting shall be given at least
five days previously thereto by written notice delivered personally or mailed to
each director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
<PAGE>
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 6. Quorum: A majority of the number of directors fixed by Section 1
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 7. Manner of Acting: The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 8. Informal or Irregular Action by Directors or Committees: (a)
Action taken by the required majority of the directors or members of a committee
without a meeting is nevertheless board or committee action if:
Written consent to the action in question is signed by all the directors or
members of the committee, as the case may be, and filed with the minutes of the
proceedings of the board or committee, whether done before or after the action
so taken.
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(b) Any one or more directors or members of a committee may participate in
a meeting of the board or committee by means of a conference telephone or
similar communications device which allows all persons participating in the
meeting to hear each other, and such participation in a meeting shall be deemed
presence in person at such meeting.
Section 9. Executive and Other Committees: (a) The board of directors, by
resolution adopted by a majority of the number of directors then in office, may
designate from among its members an executive committee and one or more other
committees, each consisting of two or more directors, and each of which, to the
extent provided in the resolution or in the charter or these by-laws shall have
and may exercise all of the authority of the board of directors except the power
to:
(i) Declare dividends or distributions on stock;
(ii) Issue stock other than as provided in subsection (b) of this section;
<PAGE>
(iii) Recommend to the stockholders any action which requires stockholder
approval;
(iv) Amend the by-laws; or
(v) Approve any merger or share exchange which does not require stockholder
approval.
(b) If the board of directors has given general authorization for the
issuance of stock, a committee of the board, in accordance with a general
formula or method specified by the board by resolution or by adoption of a stock
option or other plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the board of directors under Paragraphs 2-203 and 2-208 of the Maryland General
Corporation Law.
(c) The appointment of any committee, the delegation of authority to it or
action by it under that authority does not constitute of itself, compliance by
any director not a member of the committee, with the standard provided by
statute for the performance of duties of directors.
Section 10. Compensation: By resolution of the board of directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
board of directors, and may be paid a stated salary as director or a fixed sum
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for attendance at each meeting of the board of directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. In addition, the directors may
adopt a stock option plan under which directors may be granted options if such
grants of options are approved unanimously by those directors not eligible to
participate in such plans.
Section 11. Presumption of Assent: A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless he
shall announce his dissent at the meeting and his dissent is entered in the
minutes and he shall forward such dissent by registered mail to the secretary of
the corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Number: The officers of the corporation shall be a president, a
secretary, and a treasurer, each of whom shall be elected by the board of
directors. Such other officers and assistant officers as may be deemed necessary
may be elected or appointed by the board of directors. Any two or more offices
may be held by the same person, except that no officer may act in more than one
capacity where action of two or more officers is required and no person may hold
the office of president and vice president concurrently.
Section 2. Election and Term of Office: The officers of the corporation to
be elected by the board of directors shall be elected annually by the board of
directors at the first meeting of the board of directors held after each annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 3. Removal: Any officer or agent may be removed by the board of
directors whenever in its judgment, the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 4. Vacancies: A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
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of directors for the unexpired portion of the term.
Section 5. President: The president shall be a director of the corporation
and shall be the principal executive officer of the corporation, and subject to
the control of the board of directors, shall in general supervise and control
all of the business and affairs of the corporation. The president shall have
authority to institute or defend legal proceedings when the directors are
deadlocked. He shall, when present, preside at all meetings of the stockholders
and of the board of directors. He may sign, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
<PAGE>
thereof shall be expressly delegated by the board of directors or by these
by-laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.
Section 6. The Secretary: The secretary shall: (a) keep the minutes of the
proceedings of the stockholders and of the board of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the secretary by such stockholder; (e) sign with the president, certificates
for shares of the corporation, the issuance of which shall have been authorized
by resolution of the board of directors; (f) have general charge of the stock
transfer books of the corporation; (g) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
assigned to him by the president or by the board of directors.
Section 7. The Treasurer: The treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article VI of these By-Laws; and (c) in
general perform all of the duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the president or by
the board of directors. If required by the board of directors, the treasurer
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shall give a bond for the faithful discharge of his duties in such sum with such
surety or sureties as the board of directors shall determine.
Section 8. Salaries: The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V - INDEMNIFICATION OF OFFICERS,
<PAGE>
DIRECTORS, EMPLOYEES, AND AGENTS
Section 1. The corporation shall indemnify any person who was or is a party
or threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonable
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts: The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans: No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the board of directors. Such authority may be general or
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confined to specific instances.
Section 3. Checks, Drafts, etc.: All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be deter
mined by resolution of the board of directors.
<PAGE>
Section 4. Deposits: All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Issuance of Shares with or without Certificates: The board of
directors may issue shares with or without certificates, and if the board of
directors authorizes issuance of shares without certificates, the corporation
shall provide each stockholder with a written statement of all information
required by law on the certificates, and shall retain stock transfer books and
records of each stockholder's shares as if certificates had been issued.
Section 2. Certificates for Shares: If issued, certificates representing
shares of the corporation shall be in such form as shall be determined by the
board of directors. Such certificates shall be signed by the president, a
vice-president, or the chairman of the board and countersigned by the secretary,
an assistant secretary, the treasurer, or an assistant treasurer and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be manual or facsimile signatures. Each certificate for shares
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former
certificates for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of directors may prescribe.
Section 3. Transfer of Shares: Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
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attorney duly executed and filed with the secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
<PAGE>
ARTICLE VIII - FISCAL YEAR
Section 1. The fiscal year of the corporation shall begin on the first day
of January.
ARTICLE IX - DIVIDENDS
Section 1. The board of directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE X - CORPORATE SEAL
Section 1. The board of directors shall provide a corporate seal which
shall be circular in form and shall have inscribed thereon the name of the
corporation, the year of its incorporation and the words, "Corporate Seal,
Maryland".
ARTICLE XI - WAIVER OF NOTICE
Section 1. Whenever any notice is required to be given to any stockholder
or director of the corporation under the provisions of these By-Laws or under
the provisions of the by-laws or under the provisions of the Articles of
Incorporation or under the provisions of the General Corporation Law of the
State of Maryland, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XII - AMENDMENTS
Section 1. The board of directors shall have the power to make, alter and
repeal by-laws, but by-laws made by the board may be altered or repealed, and
new by-laws made, by the stockholders.
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Exhibit 10.60 Form of Change in Control Agreement between Great Lakes
REIT, Inc. and Richard A. May, Richard L. Rasley, Raymond M.
Braun, James Hicks, and Kim S. Mills
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Agreement between GREAT LAKES REIT INC., (the "Company") and
("Executive"), is made as of the 24th day of September, 1996:
RECITALS:
A. The Company wishes to attract and retain well-qualified executive and
key management personnel and to assure itself of the continuity of its
management.
B. Executive is an officer or other key executive of the Company with
significant management responsibilities in the conduct of the Company's
business.
C. The Company recognizes that Executive is a valuable resource of the
Company and the Company desires to be assured of the continued services of
Executive.
D. In the regular course of his employment by the Company, Executive
acquires significant confidential information about the suburban office building
market, including but not limited to leasing patterns and trends, acquisition
and disposition prospects, and sources of capital.
E. The Company is concerned that in a possible change in control of the
Company, Executive may have concerns about the continuation of employment status
and responsibilities and may be approached by others offering competing
employment; the Company therefore desires to provide Executive with assurances
as to the continuation of employment status and responsibilities in such event.
F. The Company further desires to assure that if a possible change in
control arises and Executive is involved in deliberations or negotiations in
connection with it, Executive will be in a secure position to consider and
participate in such a transaction as objectively as possible and in the best
interests of the Company; the Company therefore desires to protect Executive
from any direct or implied threat to his financial well-being.
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NOW, THEREFORE, it is hereby agreed by and between the parties as follows:
1. Operation of Agreement.
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(a) The "effective date of this Agreement" shall be the date on which a
change in control of the Company (as described in Section 3) occurs. Until there
is a change in control of the Company as defined in Section 3, the Company will
continue to employ Executive as an employee at will, and Executive hereby
acknowledges that he is an employee at will of the Company. The Company will
have no obligation hereunder, if the employment of Executive with the Company
terminates prior to a change in control of the Company. Executive will have no
right on account of this Agreement to be retained in the employ of the Company
or to be retained in any particular position in the Company, unless and until a
change in control of the Company has occurred.
(b) For the period commencing on the date of a change in control of the
Company and ending on the last day of the month in which occurs the second
anniversary of the change in control of the Company (the "Employment Period"),
the Company hereby agrees to continue to employ Executive. During the Employment
Period, Executive shall exercise such authority and perform such
responsibilities as are commensurate with the authority being exercised and
duties being performed by Executive immediately prior thereto, which services
shall be performed at the location where Executive was employed immediately
prior there or at such other location as the Company may reasonably require;
provided, however, that Executive shall not be required to accept any such other
location that Executive deems unreasonable in the light of his personal
circumstances. Executive agrees that during the Employment Period he shall
faithfully and efficiently devote his full business time exclusively to the
responsibilities and duties to the Company.
2. Non-competition, Confidentiality and Nonsolicitation Covenants.
(a) If there is a Termination (as defined in Section 5) of Executive's
employment with the Company, Executive shall not during the Employment Period,
without the written consent of the Company, engage, directly or indirectly, in
any business enterprise ("Competitor") which is (a) in the business (in whole or
in part) of investing in suburban office building (b) in any geographic
metropolitan market in which the Company was competing as of the date of the
termination of Executive's employment; provided, however, that Executive shall
be permitted to acquire a stock or other ownership interest in a Competitor
provided such stock or other ownership interest is publicly traded and the stock
or other ownership interest is not more than 1% of the outstanding shares or
other ownership interest of such Competitor. Executive agrees that this limited
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period of non-competition is reasonable and necessary to protect the Company's
legitimate business interests.
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(b) If there is a Termination of Executivess employment with the Company,
he will not during the Employment Period and thereafter divulge or appropriate
to his own use or the use of others any secret or confidential information
pertaining to the business of the Company or any of its subsidiaries obtained
during employment by the Company, it being understood that this obligation shall
not apply when and to the extent any of such information becomes publicly known
or available other than because of Executive's act or omission.
(c) If there is a Termination of Executivess employment with the Company,
Executive will not during the Employment Period, directly or indirectly, solicit
or hire any key employee of the Company, assist in the solicitation or hiring or
such a key employee by any other person, or encourage any such key employee to
terminate his employment with the Company.
3. Change in Control. A "change in control of the Company" shall mean a
change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 as in effect on the date of this
Agreement (the "Exchange Act") or, if Item 6(e) is no longer in effect, any
regulation issued by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 which serves similar purposes; provided,
however, that notwithstanding the foregoing and except as expressly provided in
the last unnumbered paragraph of this Section 3, a change in control of the
Company shall be deemed to have occurred if:
(a) any "Person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act), other than the Company or one or more trusts established by
the Company for the benefit of employees of the Company or a corporation
controlled by the Company or the Company's stockholders, shall become the
beneficial owner (within the meaning of rule 13d-3 under the Exchange Act) of
fifty percent (50%) or more of the Company's outstanding Common Stock (a "Fifty
Percent Beneficial Owner");
(b) during any period of twenty-four (24) consecutive months, individuals
who at the beginning of such period constitute the Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director during such
period whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
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of the Incumbent Board, but excluding for this purpose any such individual whose
initial assumption of office is in connection with an actual or threatened
contest for the election of directors (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or, if Rule 14a-11 is no
longer in effect, any regulation issued by the Securities and Exchange
Commission pursuant to the Exchange Act which serves similar purposes) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board;
(c) there shall be consummated a consolidation or merger of the Company, in
which the Company is not the continuing or surviving corporation or other
entity, other than a consolidation or merger of the Company in which immediately
after the transaction, (i) the holders of shares of the Company's Common Stock
immediately prior to the consolidation or merger have at least fifty percent
(50%) of the total voting power of the surviving corporation or other entity,
(ii) at least a majority of the Board of Directors of the resulting corporation
or other entity were members of the Incumbent Board, and (iii) no Person is a
Fifty Percent Beneficial Owner; or
(d) there shall be consummated a sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company other than a sale, lease,
exchange or other transfer to an entity in which the Company owns, directly or
indirectly, at least eighty percent (80%) of the outstanding voting securities
after such transfer, and in which immediately after such sale, lease, exchange
or other transfer, (i) at least a majority of the Board of Directors of the
transferee entity were members of the Incumbent Board, and (ii) no Person
(except the Company) is a Fifty Percent Beneficial Owner of the transferee
entity.
Provided, further, that notwithstanding any provision of this Agreement to
the contrary, under no circumstances shall a change in control of the Company be
deemed to have occurred if: (i) the Company's Board of Directors is expanded and
its composition changed pursuant to Section 7.2 of that Stock Purchase Agreement
dated August 20, 1996 between the Company and certain institutional investors;
or (ii) the Board of Directors decides to liquidate the Company because the
shares of the Company's common stock are not publicly traded by December 31,
2001.
4. Compensation and Benefits. During the Employment Period, Executive shall
receive the following compensation and benefits:
(a) Executive shall receive an annual base salary which is not less than
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the highest monthly base salary paid to Executive by the Company during the
twelve-month period immediately prior to the effective date of this Agreement,
with the opportunity for increases from time to time thereafter which are in
accordance with the Company's regular executive compensation practices.
(b) Executive shall be eligible to participate on a reasonable basis, and
to continue his existing participation in, annual incentive, stock option,
restricted stock, long-term incentives, and any other incentive compensation
plans which provide opportunities to receive compensation in addition to annual
base salary, to the extent of the opportunities provided by the Company for
executives with comparable duties or level of responsibility and authority.
(c) Executive shall be entitled to receive and participate in salaried
employee benefits and perquisites (including, but not limited to, medical, life,
accident insurance, disability benefits, savings plan, welfare benefit, and
retirement plan participation), which are the greater of: (i) the employee
benefits and perquisites provided by the Company to executives with comparable
duties, or (ii) the employee benefits and perquisites to which Executive was
entitled or in which Executive participated at any time during the 120-day
period immediately prior to the effective date of this Agreement.
5. Termination. The term "Termination" shall mean termination of the
employment of Executive with the Company after a change in control of the
Company and prior to the expiration of the Employment Period, for any reason
other than death, disability (as defined below), cause (as defined below), or
voluntary resignation (as defined below).
(a) The term "disability" means physical or mental incapacity qualifying
Executive for long-term disability under the Company's long term disability
plan.
(b) The term "cause" means: (i) the willful and continued failure of
Executive to substantially perform his duties with the Company (other than any
failure due to physical or mental incapacity) after a demand for substantial
performance is delivered to him by the Board of Directors which specifically
identifies the manner in which the Board believes he has not substantially
performed his duties, or (ii) willful misconduct or willful illegal conduct
which is materially injurious to the Company. No act or failure to act by
Executive shall be considered "willful" unless done or omitted to be done not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Company. The unwillingness of Executive to accept any or
all of a change in the nature or scope of duties or level of responsibility and
authority, a reduction in total compensation or benefits, a relocation Executive
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deems unreasonable in light of his personal circumstances, or other action by or
at the request of the Company in respect of Executive's position, authority, or
responsibility that he reasonably deems to be contrary to this Agreement, may
not be considered by the Board of Directors to be a failure to perform,
misconduct or illegal conduct by Executive. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for cause for purposes of
this Agreement unless and until there shall have been delivered to Executive a
copy of a resolution, duly adopted by a vote of three-quarters of the entire
Board of Directors of the Company at a meeting of the Board called and held
(after reasonable notice to Executive and an opportunity for Executive and his
counsel to be heard before the Board) for the purpose of considering whether
Executive has been guilty of such a willful failure to perform, or such willful
misconduct or illegal conduct, as justifies termination for cause hereunder,
finding that in the good faith opinion of the Board, Executive has been guilty
thereof and specifying the particulars thereof.
(c) The resignation of Executive shall be deemed "voluntary" if it is for
any reason other than one or more of the following, each a "good reason":
(i) Executive's resignation or retirement is requested by the Company other
than for cause;
(ii) any significant change in the nature or scope of Executive's duties or
level of authority and responsibility from those described in Section 3;
provided, however, that a change in job title or in the name of the office or
position held shall not be deemed a "significant change", nor shall it be deemed
a factor in any determination of whether there has been a "significant change",
within the meaning of this Section 5(c)(ii);
(iii) any reduction in Executive's total compensation or benefits from that
provided in Section 4, if that reduction in compensation or benefits is unique
to Executive and is not part of a reduction in compensation or benefits
applicable to substantially all of the Company's employees;
(iv) a breach by the Company of any other material provision of this
Agreement; or
(v) a reasonable determination by Executive that, as a result of a change
in control of the Company and a change in circumstances thereafter significantly
affecting his position, Executive is unable to exercise the authority and
responsibility described in Section 3; provided, however, that a change in job
title or in the name of the office or position held shall not be deemed to be a
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change in circumstances "significantly affecting" his position, nor shall it be
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deemed a factor in any determination of either whether the Executive's position
has been significantly effected, or whether he is unable to exercise the
authority and responsibility described in Section 3.
(d) Termination that entitles Executive to the payments and benefits
provided in Section 6 shall not be deemed or treated by the Company as the
termination of Executive's employment or the forfeiture of his participation,
award, or eligibility for the purpose of any plan, practice or agreement of the
Company referred to in Section 4.
6. Termination Payments and Benefits. In the event of a Termination, the
Company shall pay to Executive the following cash payments when such payments
would otherwise have been paid in the regular course of business as if the
Termination did not occur:
(a) base salary and all other benefits due Executive as if he had remained
an employee pursuant to this Agreement through the remainder of the month in
which Termination occurs, less applicable withholding taxes and other authorized
payroll deductions;
(b) the amount equal to the target cash bonus and other incentive awards
for Executive under the Company's annual incentive compensation plan for the
fiscal year in which Termination occurs, reduced pro rata for that portion of
the fiscal year not completed as of the end of the month in which Termination
occurs; provided, however, that if Executive has deferred his award for such
year under the plan, the payment due Executive under this paragraph (b) shall be
paid in accordance with the terms of the deferral;
(c) other unpaid compensation and vacation pay; and
(d) a severance allowance equal to the sum of the following:
(i) an amount equivalent to twice his annual base salary at the rate in
effect immediately prior to Termination, less any sums paid to Executive by the
Company as base salary for the Employment Period through the end of month in
which the Termination occurred; plus
(ii) an amount equivalent to twice the average annual incentive
compensation received by Executive for the three fiscal years immediately prior
to the fiscal year in which Termination occurs, less any sums paid to the
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Executive by the Company as incentive compensation for the Employment Period
through the end of the month in which the termination occurred.
In addition to the foregoing, the Company shall pay or otherwise provide to
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Executive all of the following:
(e) During the remainder of the Employment Period, Executive shall continue
to be deemed and treated as an eligible employee under the provisions of all
stock option, restricted stock, and other incentive compensation plans of the
Company under which Executive held options or awards or in which Executive
participated at the time of Termination, and he may exercise options and rights,
and shall receive payments and distributions accordingly.
(f) During the remainder of the Employment Period, Executive shall continue
to participate in and be entitled to all benefits and credited service for
benefits under the benefit plans, programs and arrangements described in Section
4(c) as if he remained employed by the Company at the compensation levels
referred to in this Section 6 during such period, exclusive, however, of
disability benefits.
(g) Section 4 shall be applicable in determining the payments and benefits
due Executive under this Section 6, and if Termination occurs after a reduction
in all or any part of Executive's total compensation or benefits, the severance
allowance and other compensation and benefits payable to Executive pursuant to
this Section 6 shall be based upon compensation and benefits before the
reduction.
(h) If any provision of this Section 6 cannot, in whole or in part, be
implemented and carried out under the terms of the applicable compensation,
benefit, or other plan or arrangement of the Company because Executive has
ceased to be an actual employee of the Company, because he has insufficient or
reduced credited service based upon actual employment by the Company, because
the plan or arrangement has been terminated or amended after the effective date
of this Agreement, or for any other reason, the Company itself shall pay or
otherwise provide the equivalent of such rights, benefits, and credits for such
benefits to Executive, his dependents, beneficiaries and estate.
(i) The Company's obligation under this Section 6 to continue to pay or
provide health care and life and accident insurance to Executive during the
remainder of the Employment Period shall be reduced when and to the extent any
<PAGE>
of such benefits are paid or provided to Executive by another employer, provided
that Executive shall have all rights afforded to retirees to convert group
insurance coverage to individual coverage as, to the extent of, and whenever
Executive's group insurance coverage under this Section 6 is reduced or expires.
(j) The Company shall deduct applicable withholding taxes in performing its
obligations under this Section 6.
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(k) Except for Section 6(i) above, Executive shall have no obligation to
mitigate damages, but if Executive obtains other employment during the
Employment Period after Termination, the Company's obligations under this
Section 6 shall be limited to the difference between what the Company would have
been obligated to pay Executive and the compensation Executive receives from
such other employment.
Nothing in this Section 6 is intended, or shall be deemed or interpreted,
to be an amendment to any compensation, benefit, or other plan of the Company.
To the extent the Company's performance under this Section 6 includes the
performance of the Company's obligations to Executive under any such plan or
under another agreement between the Company and Executive, the rights of
Executive under such plan or other agreement, as well as under this Agreement,
are discharged, surrendered, or released pro tanto.
7. Parachute Payment Limitation. Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Executive, whether payable pursuant to this
Agreement or otherwise, shall be one dollar less than three (3) times
Executive's base amount and, to the extent necessary, payments under this
Agreement and any parachute payments payable under any other agreement between
Executive and the Company shall be reduced in order that this limitation not be
exceeded. The terms "parachute payment," "base amount" and "present value" shall
have the meanings assigned thereto under Section 280G of the Code. It is the
intention of this Section 7 to avoid excise taxes on Executive under Section
4999 of the Code and the disallowance of a deduction to the Company pursuant to
Section 280G of the Code. The determination of whether any reduction in the
amount of parachute payments is required under this Section 7 shall be made by
the Company's independent accountants, and Executive shall be entitled to select
the parachute payments that will remain payable after the application of this
Section 7. The fact that Executive has payments under this Agreement reduced as
a result of the limitations set forth in this Section 7 will not of itself limit
or otherwise affect any rights of Executive arising other than pursuant to this
<PAGE>
Agreement.
8. Arrangements Not Exclusive or Limiting. The specific arrangements
referred to herein are not intended to exclude or limit Executive's
participation in other benefits available to executive personnel generally, or
to preclude or limit other compensation or benefits as may be authorized by the
Board of Directors of the Company at any time, or to limit or reduce any
compensation or benefit to which Executive would be entitled but for this
Agreement.
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9. Enforcement Costs. The Company is aware that upon the occurrence of a
change in control of the Company, the Board of Directors or a stockholder of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute, litigation, seeking to have this
Agreement declared unenforceable, or may take, or attempt to take, other action
to deny Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the parties that Executive not be required to incur the legal fees and
expenses associated with the protection or enforcement of rights under this
Agreement by litigation or other legal action because such costs would
substantially detract from the benefits intended for Executive hereunder, nor be
bound to negotiate any settlement of rights hereunder under threat of incurring
such costs. Accordingly, if at any time after a change in control of the
Company, it should appear to Executive that the Company is or has acted contrary
to or is failing or has failed to comply with any of its obligations under this
Agreement for the reason that it regards this Agreement to be void or
unenforceable or for any other reason, or that the Company has purported to
terminate his employment for cause or is in the course of doing so, in either
case contrary to this Agreement, or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable or
institutes any litigation or other legal action designed to deny, diminish or to
recover the benefits provided or intended to be provided to Executive hereunder,
and Executive has acted in good faith to perform his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice at the expense of the Company to represent
Executive in connection with the protection and enforcement of his rights
hereunder, including without limitation representation in connection with
termination of employment contrary to this Agreement or with the initiation of
defense of any litigation or other legal action, whether by or against Executive
<PAGE>
or the Company or any director, officer, stockholder, or other person affiliated
with Company, in any jurisdiction. The reasonable fees and expenses of counsel
selected from time to time by Executive as hereinabove provided shall be paid or
reimbursed to Executive by the Company on a regular, periodic basis upon
presentation by Executive of a statement or statements prepared by such counsel
in accordance with its customary practices, up to a maximum aggregate amount of
$100,000. Counsel so retained by Executive may be counsel representing other
officers or key executives of the Company in connection with the protection and
enforcement of their rights under similar agreements between them and the
Company and, unless in Executive's sole judgment use of common counsel could be
prejudicial to him would not be likely to reduce the fees and expenses
chargeable hereunder to the Company, Executive agrees to use his best efforts to
agree with such other officers or executives to retain common counsel.
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10. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and personally delivered by
hand or sent by registered or certified mail, if to Executive, at the last
address Executive has filed in writing with the Company, and if to the Company,
to its corporate secretary at its principal executive offices.
11. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate, or in any way create a lien upon any amounts provided
under this Agreement, and no payments or benefits due hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary acts or
by operation of law. So long as Executive lives, no person, other than the
parties hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties in respect of the subject matter hereof. No provision
of this Agreement may be amended, waived, or discharged except by the mutual
written agreement of the parties. The consent of any other person to any such
amendment, waiver, or discharge shall not be required.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Company, its successors and assigns, by operation of law
or otherwise, including without limitation any corporation or other entity or
person which shall succeed (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and
assets of the Company, and the Company shall require any successor, by agreement
in form and substance satisfactory to Executive, to expressly assume and agree
<PAGE>
to perform the Agreement. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of Executive and his legal
representatives, heirs, and assigns; provided, however, that in the event of
Executive's death prior to payment or distribution of all amounts,
distributions, and benefits due him hereunder, each unpaid amount and
distribution shall be paid in accordance with this Agreement to the person or
persons designated by Executive to the Company to receive such payment or
distribution and if Executive has made no applicable designation, to the person
or persons designated by Executive as beneficiary or beneficiaries of proceeds
of life insurance payable in the event of Executive's death under the Company's
group life insurance plan.
14. Governing Law. Except to the extent required to be governed by the law
of the State of Maryland because the Company is incorporated under the laws of
that State, the validity, interpretation, and enforcement of this Agreement
shall be governed by the law of the State of Illinois, excepting its choice of
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law provisions.
15. Severabililty. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be original but all of which
together constitute one and the same instrument.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed.
Great Lakes REIT, Inc.
By: __________________________________
Its:
Exhibit 10.61 Form of Change in Control Agreement between Great Lakes REIT,
Inc. and Brett A. Brown and Edith M. Scurto
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Agreement between GREAT LAKES REIT INC., (the "Company") and
("Executive"), is made as of the 24th day of September, 1996:
RECITALS:
A. The Company wishes to attract and retain well-qualified executive
and key management personnel and to assure itself of the continuity of its
management.
B. Executive is an officer or other key executive of the Company
with significant management responsibilities in the conduct of the Company's
business.
C. The Company recognizes that Executive is a valuable resource of
the Company and the Company desires to be assured of the continued services
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of Executive.
D. In the regular course of his employment by the Company, Executive
acquires significant confidential information about the suburban office building
market, including but not limited to leasing patterns and trends, acquisition
and disposition prospects, and sources of capital.
E. The Company is concerned that in a possible change in control of the
Company, Executive may have concerns about the continuation of employment status
and responsibilities and may be approached by others offering competing
employment; the Company therefore desires to provide Executive with assurances
as to the continuation of employment status and responsibilities in such event.
F. The Company further desires to assure that if a possible change in
control arises and Executive is involved in deliberations or negotiations in
connection with it, Executive will be in a secure position to consider and
participate in such a transaction as objectively as possible and in the best
interests of the Company; the Company therefore desires to protect Executive
from any direct or implied threat to his financial well-being.
G. Executive is willing to continue to serve as an Executive of the
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Company and to make certain covenants with the Company, but Executive desires
assurance that in the event of a change in control he will continue to have the
employment compensation, benefits, and responsibilities he could reasonably
expect absent such event, and that, in the event such is not possible, he will
have fair and reasonable severance protection.
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NOW, THEREFORE, it is hereby agreed by and between the parties as follows:
1. Operation of Agreement.
(a) The "effective date of this Agreement" shall be the date on
which a change in control of the Company (as described in Section 3) occurs.
Until there is a change in control of the Company as defined in Section 3, the
Company will continue to employ Executive as an employee at will, and Executive
hereby acknowledges that he is an employee at will of the Company. The Company
will have no obligation hereunder, if the employment of Executive with the
Company terminates prior to a change in control of the Company. Executive will
have no right on account of this Agreement to be retained in the employ of the
Company or to be retained in any particular position in the Company, unless and
until a change in control of the Company has occurred.
(b) For the period commencing on the date of a change in control of
the Company and ending on the last day of the month in which occurs the first
anniversary of the change in control of the Company (the "Employment Period"),
the Company hereby agrees to continue to employ Executive. During the Employment
Period, Executive shall exercise such authority and perform such
responsibilities as are commensurate with the authority being exercised and
duties being performed by Executive immediately prior thereto, which services
shall be performed at the location where Executive was employed immediately
prior there or at such other location as the Company may reasonably require;
provided, however, that Executive shall not be required to accept any such other
location that Executive deems unreasonable in the light of his personal
circumstances. Executive agrees that during the Employment Period he shall
faithfully and efficiently devote his full business time exclusively to the
responsibilities and duties to the Company.
<PAGE>
2. Non-competition, Confidentiality and Nonsolicitation Covenants.
(a) If there is a Termination (as defined in Section 5) of
Executive's employment with the Company, Executive shall not during the
Employment Period, without the written consent of the Company, engage, directly
or indirectly, in any business enterprise ("Competitor") which is (a) in the
business (in whole or in part) of investing in suburban office building (b) in
any geographic metropolitan market in which the Company was competing as of the
date of the termination of Executive's employment; provided, however, that
Executive shall be permitted to acquire a stock or
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other ownership interest in a Competitor provided such stock or other ownership
interest is publicly traded and the stock or other ownership interest is not
more than 1% of the outstanding shares or other ownership interest of such
Competitor. Executive agrees that this limited period of non-competition is
reasonable and necessary to protect the Company's legitimate business interests.
(b) If there is a Termination of Executive's employment with the
Company, he will not during the Employment Period and thereafter divulge or
appropriate to his own use or the use of others any secret or confidential
information pertaining to the business of the Company or any of its subsidiaries
obtained during employment by the Company, it being understood that this
obligation shall not apply when and to the extent any of such information
becomes publicly known or available other than because of Executive's act or
omission.
(c) If there is a Termination of Executive's employment with the
Company, Executive will not during the Employment Period, directly or
indirectly, solicit or hire any key employee of the Company, assist in the
solicitation or hiring or such a key employee by any other person, or encourage
any such key employee to terminate his employment with the Company.
3. Change in Control. A "change in control of the Company" shall mean a
change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 as in effect on the date of this
Agreement (the "Exchange Act") or, if Item 6(e) is no longer in effect, any
regulation issued by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 which serves similar purposes; provided,
however, that notwithstanding the foregoing and except as
<PAGE>
expressly provided in the last unnumbered paragraph of this Section 3, a change
in control of the Company shall be deemed to have occurred if:
(a) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Company or one or more trusts
established by the Company for the benefit of employees of the Company or a
corporation controlled by the Company or the Company's stockholders, shall
become the beneficial owner (within the meaning of rule 13d-3 under the Exchange
Act) of fifty percent (50%) or more of the Company's outstanding Common Stock (a
"Fifty Percent Beneficial Owner");
(b) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constitute the Board of
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Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director during such period whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding for this purpose
any such individual whose initial assumption of office is in connection with an
actual or threatened contest for the election of directors (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or, if
Rule 14a-11 is no longer in effect, any regulation issued by the Securities and
Exchange Commission pursuant to the Exchange Act which serves similar purposes)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;
(c) there shall be consummated a consolidation or merger of the
Company, in which the Company is not the continuing or surviving corporation or
other entity, other than a consolidation or merger of the Company in which
immediately after the transaction, (i) the holders of shares of the Company's
Common Stock immediately prior to the consolidation or merger have at least
fifty percent (50%) of the total voting power of the surviving corporation or
other entity, (ii) at least a majority of the Board of Directors of the
resulting corporation or other entity were members of the Incumbent Board, and
(iii) no Person is a Fifty Percent Beneficial Owner; or
(d) there shall be consummated a sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company other than a sale, lease,
<PAGE>
exchange or other transfer to an entity in which the Company owns, directly or
indirectly, at least eighty percent (80%) of the outstanding voting securities
after such transfer, and in which immediately after such sale, lease, exchange
or other transfer, (i) at least a majority of the Board of Directors of the
transferee entity were members of the Incumbent Board, and (ii) no Person
(except the Company) is a Fifty Percent Beneficial Owner of the transferee
entity.
Provided, further, that notwithstanding any provision of this Agreement to
the contrary, under no circumstances shall a change in control of the Company be
deemed to have occurred if: (i) the Company's Board of Directors is expanded and
its composition changed pursuant to Section 7.2 of that Stock Purchase Agreement
dated August 20, 1996 between the Company and certain institutional investors;
or (ii) the Board of Directors decides to liquidate the Company because the
shares of the Company's common stock are not publicly traded by December 31,
2001.
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4. Compensation and Benefits. During the Employment Period,
Executive shall receive the following compensation and benefits:
(a) Executive shall receive an annual base salary which is not less
than the highest monthly base salary paid to Executive by the Company during the
twelve-month period immediately prior to the effective date of this Agreement,
with the opportunity for increases from time to time thereafter which are in
accordance with the Company's regular executive compensation practices.
(b) Executive shall be eligible to participate on a reasonable
basis, and to continue his existing participation in, annual incentive, stock
option, restricted stock, long-term incentives, and any other incentive
compensation plans which provide opportunities to receive compensation in
addition to annual base salary, to the extent of the opportunities provided by
the Company for executives with comparable duties or level of responsibility and
authority.
(c) Executive shall be entitled to receive and participate in
salaried employee benefits and perquisites (including, but not limited to,
medical, life, accident insurance, disability benefits, savings plan, welfare
benefit, and retirement plan participation), which are the greater of: (i) the
employee benefits and perquisites provided by the Company to executives with
comparable duties, or (ii) the employee benefits and perquisites to
<PAGE>
which Executive was entitled or in which Executive participated at any time
during the 120-day period immediately prior to the effective date of this
Agreement.
5. Termination. The term "Termination" shall mean termination of the
employment of Executive with the Company after a change in control of the
Company and prior to the expiration of the Employment Period, for any reason
other than death, disability (as defined below), cause (as defined below), or
voluntary resignation (as defined below).
(a) The term "disability" means physical or mental incapacity
qualifying Executive for long-term disability under the Company's long term
disability plan.
(b) The term "cause" means: (i) the willful and continued failure of
Executive to substantially perform his duties with the Company (other than any
failure due to physical or mental incapacity) after a demand for substantial
performance is delivered to him by the Board of Directors which specifically
identifies the manner in which the Board believes he has
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not substantially performed his duties, or (ii) willful misconduct or willful
illegal conduct which is materially injurious to the Company. No act or failure
to act by Executive shall be considered "willful" unless done or omitted to be
done not in good faith and without reasonable belief that the action or omission
was in the best interests of the Company. The unwillingness of Executive to
accept any or all of a change in the nature or scope of duties or level of
responsibility and authority, a reduction in total compensation or benefits, a
relocation Executive deems unreasonable in light of his personal circumstances,
or other action by or at the request of the Company in respect of Executive's
position, authority, or responsibility that he reasonably deems to be contrary
to this Agreement, may not be considered by the Board of Directors to be a
failure to perform, misconduct or illegal conduct by Executive. Notwithstanding
the foregoing, Executive shall not be deemed to have been terminated for cause
for purposes of this Agreement unless and until there shall have been delivered
to Executive a copy of a resolution, duly adopted by a vote of three-quarters of
the entire Board of Directors of the Company at a meeting of the Board called
and held (after reasonable notice to Executive and an opportunity for Executive
and his counsel to be heard before the Board) for the purpose of considering
whether Executive has been guilty of such a willful failure to perform, or such
willful misconduct or illegal conduct, as justifies termination for
<PAGE>
cause hereunder, finding that in the good faith opinion of the Board, Executive
has been guilty thereof and specifying the particulars thereof.
(c) The resignation of Executive shall be deemed "voluntary" if it
is for any reason other than one or more of the following, each a "good reason":
(i) Executive's resignation or retirement is requested by
the Company other than for cause;
(ii) any significant change in the nature or scope of
Executive's duties or level of authority and responsibility from those described
in Section 3; provided, however, that a change in job title or in the name of
the office or position held shall not be deemed a "significant change", nor
shall it be deemed a factor in any determination of whether there has been a
"significant change", within the meaning of this Section 5(c)(ii);
(iii) any reduction in Executive's total compensation or
benefits from that provided in Section 4, if that reduction in compensation or
benefits is unique to Executive and is not part of a reduction in compensation
or benefits applicable to substantially all of the Company's
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employees;
(iv) a breach by the Company of any other material
provision of this Agreement; or
(v) a reasonable determination by Executive that, as a result
of a change in control of the Company and a change in circumstances thereafter
significantly affecting his position, Executive is unable to exercise the
authority and responsibility described in Section 3; provided, however, that a
change in job title or in the name of the office or position held shall not be
deemed to be a change in circumstances "significantly affecting" his position,
nor shall it be deemed a factor in any determination of either whether the
Executive's position has been significantly effected, or whether he is unable to
exercise the authority and responsibility described in Section 3.
(d) Termination that entitles Executive to the payments and
benefits provided in Section 6 shall not be deemed or treated by the Company
<PAGE>
as the termination of Executive's employment or the forfeiture of his
participation, award, or eligibility for the purpose of any plan, practice or
agreement of the Company referred to in Section 4.
6. Termination Payments and Benefits. In the event of a Termination, the
Company shall pay to Executive the following cash payments when such payments
would otherwise have been paid in the regular course of business as if the
Termination did not occur:
(a) base salary and all other benefits due Executive as if he had
remained an employee pursuant to this Agreement through the remainder of the
month in which Termination occurs, less applicable withholding taxes and other
authorized payroll deductions;
(b) the amount equal to the target cash bonus and other incentive
awards for Executive under the Company's annual incentive compensation plan for
the fiscal year in which Termination occurs, reduced pro rata for that portion
of the fiscal year not completed as of the end of the month in which Termination
occurs; provided, however, that if Executive has deferred his award for such
year under the plan, the payment due Executive under this paragraph (b) shall be
paid in accordance with the terms of the deferral;
(c) other unpaid compensation and vacation pay; and
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(d) a severance allowance equal to the sum of the following:
(i) an amount equivalent to his annual base salary at the rate
in effect immediately prior to Termination, less any sums paid to Executive by
the Company as base salary for the Employment Period through the end of month in
which the Termination occurred; plus
(ii) an amount equivalent to the average annual incentive
compensation received by Executive for the three fiscal years immediately prior
to the fiscal year in which Termination occurs, less any sums paid to the
Executive by the Company as incentive compensation for the Employment Period
through the end of the month in which the termination occurred.
In addition to the foregoing, the Company shall pay or otherwise provide to
Executive all of the following:
<PAGE>
(e) During the remainder of the Employment Period, Executive shall
continue to be deemed and treated as an eligible employee under the provisions
of all stock option, restricted stock, and other incentive compensation plans of
the Company under which Executive held options or awards or in which Executive
participated at the time of Termination, and he may exercise options and rights,
and shall receive payments and distributions accordingly.
(f) During the remainder of the Employment Period, Executive shall
continue to participate in and be entitled to all benefits and credited service
for benefits under the benefit plans, programs and arrangements described in
Section 4(c) as if he remained employed by the Company at the compensation
levels referred to in this Section 6 during such period, exclusive, however, of
disability benefits.
(g) Section 4 shall be applicable in determining the payments and
benefits due Executive under this Section 6, and if Termination occurs after a
reduction in all or any part of Executive's total compensation or benefits, the
severance allowance and other compensation and benefits payable to Executive
pursuant to this Section 6 shall be based upon compensation and benefits before
the reduction.
(h) If any provision of this Section 6 cannot, in whole or in part,
be implemented and carried out under the terms of the applicable compensation,
benefit, or other plan or arrangement of the Company because Executive has
ceased to be an actual employee of the Company, because he has insufficient or
reduced credited service based upon actual employment by the
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Company, because the plan or arrangement has been terminated or amended after
the effective date of this Agreement, or for any other reason, the Company
itself shall pay or otherwise provide the equivalent of such rights, benefits,
and credits for such benefits to Executive, his dependents, beneficiaries and
estate.
(i) The Company's obligation under this Section 6 to continue to pay
or provide health care and life and accident insurance to Executive during the
remainder of the Employment Period shall be reduced when and to the extent any
of such benefits are paid or provided to Executive by another employer, provided
that Executive shall have all rights afforded to retirees to convert group
insurance coverage to individual coverage as, to the extent of, and whenever
Executive's group insurance coverage under this Section 6 is
<PAGE>
reduced or expires.
(j) The Company shall deduct applicable withholding taxes in
performing its obligations under this Section 6.
(k) Except for Section 6(i) above, Executive shall have no
obligation to mitigate damages, but if Executive obtains other employment during
the Employment Period after Termination, the Company's obligations under this
Section 6 shall be limited to the difference between what the Company would have
been obligated to pay Executive and the compensation Executive receives from
such other employment.
Nothing in this Section 6 is intended, or shall be deemed or interpreted,
to be an amendment to any compensation, benefit, or other plan of the Company.
To the extent the Company's performance under this Section 6 includes the
performance of the Company's obligations to Executive under any such plan or
under another agreement between the Company and Executive, the rights of
Executive under such plan or other agreement, as well as under this Agreement,
are discharged, surrendered, or released pro tanto.
7. Parachute Payment Limitation. Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Executive, whether payable pursuant to this
Agreement or otherwise, shall be one dollar less than three (3) times
Executive's base amount and, to the extent necessary, payments under this
Agreement and any parachute payments payable under any other agreement between
Executive and the Company shall be reduced in order that this limitation not be
exceeded. The terms "parachute payment," "base amount" and "present value" shall
have the meanings assigned thereto under Section 280G of the Code. It is the
intention of this Section 7 to avoid excise taxes on
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Executive under Section 4999 of the Code and the disallowance of a deduction to
the Company pursuant to Section 280G of the Code. The determination of whether
any reduction in the amount of parachute payments is required under this Section
7 shall be made by the Company's independent accountants, and Executive shall be
entitled to select the parachute payments that will remain payable after the
application of this Section 7. The fact that Executive has payments under this
Agreement reduced as a result of the limitations set forth in this Section 7
will not of itself limit or otherwise affect any rights of Executive arising
other than pursuant to this Agreement.
<PAGE>
8. Arrangements Not Exclusive or Limiting. The specific arrangements
referred to herein are not intended to exclude or limit Executive's
participation in other benefits available to executive personnel generally, or
to preclude or limit other compensation or benefits as may be authorized by the
Board of Directors of the Company at any time, or to limit or reduce any
compensation or benefit to which Executive would be entitled but for this
Agreement.
9. Enforcement Costs. The Company is aware that upon the occurrence of a
change in control of the Company, the Board of Directors or a stockholder of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute, litigation, seeking to have this
Agreement declared unenforceable, or may take, or attempt to take, other action
to deny Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the parties that Executive not be required to incur the legal fees and
expenses associated with the protection or enforcement of rights under this
Agreement by litigation or other legal action because such costs would
substantially detract from the benefits intended for Executive hereunder, nor be
bound to negotiate any settlement of rights hereunder under threat of incurring
such costs. Accordingly, if at any time after a change in control of the
Company, it should appear to Executive that the Company is or has acted contrary
to or is failing or has failed to comply with any of its obligations under this
Agreement for the reason that it regards this Agreement to be void or
unenforceable or for any other reason, or that the Company has purported to
terminate his employment for cause or is in the course of doing so, in either
case contrary to this Agreement, or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable or
institutes any litigation or other legal action designed to deny, diminish or to
recover the benefits provided or intended to be provided to Executive hereunder,
and Executive has acted in good faith to perform his obligations under this
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Agreement, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice at the expense of the Company to represent
Executive in connection with the protection and enforcement of his rights
hereunder, including without limitation representation in connection with
termination of employment contrary to this Agreement or with the initiation of
defense of any litigation or other legal action, whether by or against Executive
or the Company or any director, officer, stockholder, or other
<PAGE>
person affiliated with Company, in any jurisdiction. The reasonable fees and
expenses of counsel selected from time to time by Executive as hereinabove
provided shall be paid or reimbursed to Executive by the Company on a regular,
periodic basis upon presentation by Executive of a statement or statements
prepared by such counsel in accordance with its customary practices, up to a
maximum aggregate amount of $100,000. Counsel so retained by Executive may be
counsel representing other officers or key executives of the Company in
connection with the protection and enforcement of their rights under similar
agreements between them and the Company and, unless in Executive's sole judgment
use of common counsel could be prejudicial to him would not be likely to reduce
the fees and expenses chargeable hereunder to the Company, Executive agrees to
use his best efforts to agree with such other officers or executives to retain
common counsel.
10. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and personally delivered by
hand or sent by registered or certified mail, if to Executive, at the last
address Executive has filed in writing with the Company, and if to the Company,
to its corporate secretary at its principal executive offices.
11. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate, or in any way create a lien upon any amounts provided
under this Agreement, and no payments or benefits due hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary acts or
by operation of law. So long as Executive lives, no person, other than the
parties hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties in respect of the subject matter hereof. No provision
of this Agreement may be amended, waived, or discharged except by the mutual
written agreement of the parties. The consent of any other person to any such
amendment, waiver, or discharge shall not be required.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, by operation
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of law or otherwise, including without limitation any corporation or other
entity or person which shall succeed (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of the business
and assets of the Company, and the Company shall require any
<PAGE>
successor, by agreement in form and substance satisfactory to Executive, to
expressly assume and agree to perform the Agreement. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of Executive and his legal representatives, heirs, and assigns; provided,
however, that in the event of Executive's death prior to payment or distribution
of all amounts, distributions, and benefits due him hereunder, each unpaid
amount and distribution shall be paid in accordance with this Agreement to the
person or persons designated by Executive to the Company to receive such payment
or distribution and if Executive has made no applicable designation, to the
person or persons designated by Executive as beneficiary or beneficiaries of
proceeds of life insurance payable in the event of Executive's death under the
Company's group life insurance plan.
14. Governing Law. Except to the extent required to be governed by the law
of the State of Maryland because the Company is incorporated under the laws of
that State, the validity, interpretation, and enforcement of this Agreement
shall be governed by the law of the State of Illinois, excepting its choice of
law provisions.
15. Severabililty. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be original but all of which
together constitute one and the same instrument.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed.
Great Lakes REIT, Inc.
By: __________________________________
Its:
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Exhibit 10.62 Great Lakes REIT, Inc. 1996 Stock Option Plan
GREAT LAKES REIT, INC.
<PAGE>
1996 INCENTIVE STOCK OPTION PLAN
1. NAME AND PURPOSE.
(a) Name. The name of this Plan shall be the Great Lakes REIT, Inc.
1996 Incentive Stock Option Plan ("Plan").
(b) Purpose. The purpose of the Plan is to provide favorable opportunities
for certain, select key employees of Great Lakes REIT, Inc. ("Company") to
purchase shares of the Company's Common Stock, thereby encouraging them to
acquire proprietary interests in the Company's Common Stock. Further, on account
of the Plan, such key employees should have an increased incentive to contribute
to the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of its shareholders. The availability and offering of
stock options under the Plan supports and increases the Company's possibility to
attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depends.
(c) Stock Options to be Granted. Options granted under this Plan are
intended to be Incentive Stock Options within the meaning of Code Section 422(b)
(as hereinafter defined); however, Nonqualified Stock Options (as hereinafter
defined) may also be granted within the limitations of the Plan as described
herein.
2. DEFINITIONS.
For Plan purposes, except where the context indicates otherwise, the
following terms shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
(c) "Committee" shall mean a committee designated by the Board to
administer the Plan, which shall consist of not less than two members of the
Board who shall be appointed by and serve at the pleasure of the Board, and
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each of whom shall be a disinterested person within the meaning of Rule 16b-3
<PAGE>
of the Securities Exchange Act of 1934, as amended and an outside director
within the meaning of the rules and regulations promulgated under Section 162(m)
of the Code. The Compensation Committee of the Board of Directors shall be
deemed the "Committee" for purposes of this Plan, until such time as the Board
designates a different committee to perform these responsibilities.
(d) "Common Stock" shall mean the Common Stock, $0.01 par value, of
the Company.
(e) "Company" shall mean and include Great Lakes REIT, Inc. a Maryland
Company, and any parent or subsidiary of Great Lakes REIT, Inc., as defined in
Code Sections 425(e) and (f).
(f) "Incentive Stock Option" or "ISO" shall mean a stock option granted or
exercised under the Plan that is intended to meet and comply with the terms and
conditions for an incentive stock option as set forth in Code Section 422.
(g) "Fair Market Value" shall mean the fair market value of a share of the
Common Stock as of any applicable date, the most recent determination by the
Board of Directors of the per share Net Asset Value of the Company's Stock or,
if the Company shall then be a publicly traded company (when shares of its Stock
are actively traded on a national or regional securities exchange or the NASDAQ
system), the current per share market price of the Company's Stock based on
(i) if the Company's Stock is actively traded on either a national
or regional securities exchange, then the average of the closing prices of the
Company's Stock over the 30 day period ending three days before the day the fair
market value of the Company's Stock is being determined; or
(ii) if the Company's Stock is actively traded over-the-counter, the
average of the closing bid and asked prices of the Company's Stock quoted on the
NASDAQ system (or similar system) over the 30 day period ending three days
before the day the fair market value of the Company's Stock is being determined.
The Fair Market Value per share shall be computed on the basis of the
total number of outstanding shares.
(h) "Net Asset Value" means the fair market value of the Company, as
determined by the Board of Directors from time to time. In determining Net
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<PAGE>
Asset Value, the Board of Directors may (but is not obligated) (i) to consider
the financial statements of the Company for prior years, cash flow projections
for current and future property operations, interest rate trends, the
availability of financing, and the return available on alternative investments
(including but not limited to public real estate investment trusts), appraisals
of the Company's real properties, and various other appropriate factors, and
(ii) to obtain the opinion of a valuation firm regarding the Board of Directors'
Net Asset Value determination. The Net Asset Value per share shall be computed
on the basis of the total number of outstanding shares.
(i) "Nonqualified Stock Option or "NQSO" shall mean a stock option other
than an Incentive Stock Option.
(j) "Optionee" shall mean an employee of the Company who has been granted
one or more ISOs under the Plan.
(k) "Options" shall mean the ISOs and NQSOs granted under the Plan.
(l) "Ten Percent Share Owner" shall mean an employee who owns more than
ten percent (10%) of the Common Stock of the Company as such amount is
calculated under Code Section 422(b)(6).
3. ADMINISTRATION.
(a) The Committee. The Committee shall be vested with full authority to
make such rules and regulations as it deems necessary or desirable to administer
the Plan and to interpret the provisions of the Plan, unless otherwise
determined by the Board. Accordingly, the Committee shall have full power to
grant ISOs and NQSOs, to delegate administrative responsibilities and to perform
all other acts it believes to be reasonable and proper.
(b) Discretion of the Committee. Subject to the provisions of the Plan,
the determination of those eligible to receive ISOs and/or NQSOs, and the
amount, type and timing of each ISO and NQSO and the terms and conditions of the
respective Option Documents (as hereinafter defined) shall rest in the sole
discretion of the Committee.
(c) Interpretation of the Plan. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Plan, or in any
granted ISO or NQSO, in the manner and to the extent it shall deem necessary to
carry the Plan into effect.
<PAGE>
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(d) Decisions of the Committee. The Committee shall act by vote or written
consent of a majority of its members. Any decision made, or action taken, by the
Committee arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive and binding on all
participants in this Plan and on their legal representatives, heirs and
beneficiaries, unless otherwise determined by the Board.
(e) Exchange of Option. The Committee may, in its sole discretion, grant
an ISO or NQSO (the "Replacement Option") to an Optionee in exchange for
surrender and cancellation of an outstanding ISO or NQSO providing for the
purchase of not more than the number of shares of Common Stock so surrendered
and canceled and having an exercise price equal to at least the Fair Market
Value of the shares on the date of grant of the Replacement Option and
containing such other terms and conditions as the Committee may prescribe.
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4. SHARES SUBJECT TO THE PLAN.
The total number of shares of Common Stock available for grants of ISOs
and/or NQSOs under the Plan shall be five hundred thousand (500,000), subject to
adjustment in accordance with Section 7 of the Plan, which shares may be either
authorized but unissued or reacquired shares of Common Stock. If an ISO or an
NQSO or any portion thereof shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares covered by such ISO or
NQSO shall be available for future grant under the Plan, unless the Plan has
been terminated.
5. ELIGIBILITY.
Consistent with the Plan's purpose, ISOs and/or NQSOs may be granted to
the Company's employees who are performing or have been engaged to perform
services relating to the management, operation or development of the Company,
including those officers who are also members of the Board.
<PAGE>
6. STOCK OPTION TERMS AND CONDITIONS.
All ISOs and NQSOs granted under the Plan shall be evidenced by written
documents (the "Option Documents") in such forms as the Committee shall from
time to time approve. The Option Documents and each ISO and/or NQSO shall comply
with and be subject to the following terms and conditions and such other terms
and conditions which the Committee shall from time to time require that are not
inconsistent with the terms of the Plan including, but not limited to, the
following provisions:
(a) Price. Each Option Document shall state the price at which ISOs and/or
NQSOs may be purchased (the "Option Price"). The Option Price shall be
established in the sole discretion of the Committee; provided (i) the Option
Price per share for any Optionee other than a Ten Percent Share Owner in the
case of an ISO shall not be less than one hundred percent (100%) of the Fair
Market Value of a share of Common Stock on the date of grant and (ii) the Option
Price per share for an Optionee who is a Ten Percent Share Owner in the case of
an ISO shall not be less than one hundred ten percent (110%) of the Fair Market
Value of a share of Common Stock on the date of grant. Notwithstanding the
foregoing, an ISO may be granted with an Option Price lower than the minimum
Option Price set forth above if such ISO is granted pursuant to an assumption or
substitution for another option in a manner qualifying with the provisions of
Section 424(a) of the Code. The Option Price shall be subject to adjustment only
as provided in Section 7
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below.
(b) Period of the Grant. Each Option Document shall state the period for
which each ISO and/or NQSO is granted; provided that neither an ISO or an NQSO
shall be granted for a period longer than ten (10) years from the date of grant;
and provided further that an ISO granted to a Ten Percent Share Owner shall be
granted for a period no longer than five (5) years from the date of grant.
(c) Time of Exercise. Each Option Document shall state the date on which
each ISO and/or NQSO may be exercised, except that no ISO or NQSO may be
exercised prior to the three hundred sixty-sixth (366th) day after such ISO or
NQSO was granted. The Committee may establish installment exercise terms for an
ISO such that the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the exercise time of any ISO. An
NQSO shall be exercisable upon such terms as the Committee
<PAGE>
shall determine.
(d) Exercise.
(i) An ISO or NQSO, or any portion thereof, shall be exercised by
delivery of a written notice of exercise to the Company and payment of the full
price of the shares being acquired pursuant to such exercise. Until the shares
of Common Stock subject to an ISO or NQSO are issued to an Optionee, he or she
shall have none of the rights of a stockholder;
(ii) Unless the shares to be purchased under an ISO or NQSO are
covered by a then current registration statement under the Securities Act of
1933, as amended (the "Securities Act"), each written notice of exercise shall
contain the Optionee's acknowledgment in such form and substance satisfactory to
the Company that:
(A) such shares are being purchased for investment and not
distribution or resale (other than a distribution or resale which in the opinion
of counsel satisfactory to the Company, may be made without violating the
registration provisions of the Securities Act), and
(B) the Optionee has been advised and understands that the
shares purchased pursuant to such ISO or NQSO have not been registered under the
Act, are "restricted securities" within the meaning of Rule 144 under the
Securities Act and are subject to restrictions on transfer, and that the Company
is under no obligation to register the shares purchased pursuant to an ISO or
NQSO under the Securities Act or to take any action
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which would make available to the Optionee any exemption from such
registration.
(e) Payment. The price of an exercised ISO or NQSO, or portion
thereof, may be paid:
(i) in United States dollars in cash or by check, bank draft
or money order payable to the order of the Company;
(ii) at the discretion of the Committee, through the delivery of
shares of Common Stock, with an aggregate Fair Market Value equal to the Option
Price, provided such tendered shares have been owned by the Optionee for at
least one (1) year prior to such exercise; or
<PAGE>
(iii) by combination of both (i) and (ii) above.
In addition at the request of an Optionee and to the extent permitted by
applicable law, the Company may, in its sole discretion, selectively approve
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Optionee, shall pay to the Company the Option Price of the ISOs and/or NQSOs
being exercised, and the Company, pursuant to an irrevocable notice from the
Optionee, shall promptly deliver the shares of Common Stock being purchased to
such brokerage firm.
(f) Termination of Employment.
(i) If Optionee's employment with the Company is terminated by
reason of death, the employee's personal representative, heirs or devisees shall
be entitled to exercise all vested Options for one (1) year after the date of
death.
(ii) If Optionee's employment with the Company is terminated by
reason of disability the Employee shall be entitled to exercise all vested
Options for one (1) year after the date of disability. For purposes of the Plan,
unless otherwise defined in the Option Documents, the Committee shall determine
whether an Optionee has incurred a disability on the basis of medical evidence
acceptable to the Committee. Upon making a determination of disability, the
Committee shall, for purposes of the Plan, determine the date of an Optionee's
termination of employment or contractual relationship.
(iii) If Optionee's employment by the Company is terminated,
voluntarily or involuntarily, for any reason other than death or disability as
provided above, the Optionee shall be entitled to exercise all
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Options which are vested on the date of termination for a period of three (3)
months after such date of termination.
(iv) All Options not exercised during the periods prescribed in
Section 6(f) herein, shall terminate. Unvested Options shall terminate
immediately upon termination of employment of the Optionee by the Company for
any reason whatsoever, including death or disability.
(g) Aggregate Fair Market Value Limitation. Each Option Document
shall state the number of shares to which each ISO or NQSO pertains. With
respect to ISOs, the aggregate Fair Market Value (determined at the time the
<PAGE>
ISO is granted) of shares of Common Stock with respect to which ISOs under this
Plan are exercisable for the first time by an Optionee during any calendar year
(under all incentive stock option plans of the Company) shall not exceed one
hundred thousand dollars ($100,000).
(h) Premature Disposition. The Option Documents shall provide that
any Optionee who disposes of shares of Common Stock acquired on the exercise
of an ISO by sale or exchange either:
(i) within two (2) years after the date of the grant of the
ISO under which the stock was acquired; or
(ii) within one (1) year after the acquisition of such shares, shall
notify the Company of such disposition and of the amount realized upon such
disposition.
(i) Other Provisions. The Option Documents shall contain such other
provisions, including without limitation restrictions upon the exercise of the
ISO, as the Committee shall deem advisable or shall be necessary for such ISOs
to constitute an Incentive Stock Option (within the meaning of Code Section
422). The Committee shall have the right, subject to the consent of the
Optionee, to amend the Option Documents to the extent necessary to maintain the
ISOs as Incentive Stock Options (within the meaning of Code Section 422). In
addition, the Option Documents may contain such other provisions relative to
NQSOs as the Committee shall determine is necessary to effect the purposes of
this Plan.
7. ADJUSTMENTS.
(a) Share Adjustments.
(i) In the event that the shares of Common Stock of the
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Company, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another Company (whether by reason of merger, consolidation,
recapitalization, reclassification, split up, combination of shares or
otherwise) or if the number of such shares of Common Stock shall be increased
through the payment of a stock dividend, then, subject to the provisions of
Section 7(c) below, there shall be substituted for or added to each share of
Common Stock of the Company which was theretofore appropriated, or which
thereafter may become subject to either an ISO or NQSO under the Plan, the
<PAGE>
number and kind of shares of stock or other securities into which each
outstanding share of the Common Stock of the Company shall be so changed or for
which each such share shall be exchanged or to which each such share shall be
entitled, as the case may be. Outstanding ISOs and NQSOs shall also be
appropriately amended as to price and other terms, as may be necessary to
reflect the foregoing events.
(ii) If there shall be any other change in the number or kind of the
outstanding shares of the Common Stock of the Company, or of any stock or other
securities in which such stock shall have been changed, or for which it shall
have been exchanged, and if a majority of the disinterested members of the Board
shall, in their sole discretion, determine that such change equitably requires
an adjustment in any ISO or NQSO which was theretofore granted or which may
thereafter be granted under the Plan, then such adjustment shall be made in
accordance with such determination.
(iii) The grant of an ISO or NQSO pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
(b) Corporate Changes.
(i) A dissolution or liquidation of the Company shall cause each
outstanding ISO or NQSO to terminate.
(ii) In the event of a merger or consolidation in which the Company
is not the surviving Company, each outstanding ISO and NQSO shall be exchanged
for and converted into an ISO or NQSO to acquire stock of the surviving Company,
subject to such adjustments as the Board may determine is reasonable under the
circumstances.
(c) Fractional Shares. Fractional shares resulting from any
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adjustment pursuant to this Section 7 may be settled as the Board or the
Committee (as the case may be) shall determine.
(d) Binding Determination. To the extent that the foregoing
adjustments relate to Common Stock or securities of the Company, such
adjustments shall be made by the Board, whose determination in that respect
<PAGE>
shall be final, binding and conclusive. Notice of any adjustment shall be given
by the Company to each holder of an ISO or NQSO which shall have been so
adjusted.
8. LISTING AND REGISTRATION OF SHARES.
(a) Restriction on Exercise of Options. No ISO or NQSO granted pursuant to
the Plan shall be exercisable in whole or in part if at any time the Board shall
determine in its discretion that the listing, registration or qualification of
the shares of Common Stock subject to such ISO or NQSO on any securities
exchange or under any applicable law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such ISO or NQSO or the issue of shares
thereunder, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board.
(b) Legend. If a registration statement under the Securities Act with
respect to the shares issuable upon exercise of any ISO or NQSO granted under
the Plan is not in effect at the time of exercise, as a condition of the
issuance of the shares, the person exercising such ISO or NQSO shall give the
Committee a written statement, satisfactory in form and substance to the
Committee, that such person is acquiring the shares for such person's own
account for investment and not with a view to distribution. The Company may
place upon any stock certificate for shares issuable upon exercise of such ISO
or NQSO the following legend or such other legend as the Committee may prescribe
to prevent disposition of the shares in violation of the Act or other applicable
law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT
TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR THE
COMPANY THAT REGISTRATION IS NOT REQUIRED.
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9. AMENDMENT AND TERMINATION OF PLAN.
(a) Amendment, Etc. The Board, without further approval of the
<PAGE>
stockholders, may at any time, and from time to time, suspend or terminate the
Plan, in whole or in part, or amend if from time to time, in such respects as
the Board may deem appropriate and in the best interests of the Company;
provided, however, that no such amendment shall be made, that would, without
approval of the majority of the stockholders:
(i) materially increase the benefits accruing to an Optionee
under the Plan;
(ii) except as is provided for in accordance with Section 7 under
the Plan, materially increase the number of shares of Common Stock that may be
issued under the Plan;
(iii) materially modify the requirements as to eligibility for
participation in the Plan;
(iv) reduce the minimum Option Price per share;
(v) extend the period of granting ISOs; or
(vi) otherwise require the approval of shareholders in order to
maintain the exemption available under Rule 16b-3 (or any similar rule) under
the Securities Exchange Act of 1934.
(b) Anti-Cutback. No amendment, suspension or termination of this Plan
shall in any manner affect any ISO or NQSO heretofore granted under the Plan,
without the consent of the Optionee or any person or entity validly claiming
under or through the Optionee.
(c) Required Changes. The Board may amend the Plan, subject to the
limitations cited above, in such manner that it deems necessary to permit the
granting of ISOs meeting the requirements of future amendments or issued
regulations, if any, to the Code.
10. MISCELLANEOUS PROVISIONS.
(a) No Right to Continued Employment. No person shall have any
claim or right to be granted an ISO or NQSO under the Plan, and neither the
grant of an ISO nor an NQSO hereunder shall be construed as giving an
Optionee the right to be retained in the employ of the Company. Further, the
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<PAGE>
Company expressly reserves the right at any time to dismiss an Optionee with or
without cause, free from any liability, or any claim under the Plan, except as
specifically provided under the Plan or in an ISO or NQSO granted prior to the
termination of employment which right to exercise such ISO or NQSO, if any,
shall be limited in accordance with the terms of the Plan and the applicable
Option Documents.
(b) Government And Other Regulations. The obligation of the Company to
issue, or transfer and deliver shares of Common Stock to Optionees pursuant to
the exercise of ISOs or NQSOs granted under the Plan shall be subject to all
applicable laws, regulations, rules, orders and approval that shall then be in
effect and required by governmental entities and securities exchanges, if any,
on which the Company's Common Stock is traded.
(c) Tax Withholding. The Company shall have the power to withhold, or
require an Optionee or other person or entity receiving Common Stock under the
Plan to remit to the Company, an amount sufficient to satisfy federal, state,
and local withholding tax requirements on any Common Stock issued under the
Plan, and the Company may defer issuance of Common Stock until such requirements
are satisfied. The Committee may, in its discretion, permit an Optionee to
elect, subject to such conditions as the Committee shall impose, (i) to have
shares of Common Stock otherwise issuable under the Plan withheld by the Company
or (ii) to deliver to the Company previously acquired shares of Common Stock, in
each case having a Fair Market Value sufficient to satisfy all or part of the
Optionee's (or other Common Stock recipient's) estimated total federal, state
and local tax obligation associated with the transaction.
(d) Rule 16b-3 Compliance. The Company intends that the Plan comply in all
respects with Rule 16b-3 under the Securities and Exchange Act, as amended, and
any ambiguities or inconsistencies in the construction of the Plan shall be
interpreted to give effect to such intention.
(e) Non-transferability. No right or interest , or any part thereof, in
any ISO or NQSO may be sold, pledged, assigned, transferred or disposed in any
manner other than by will or the laws of descent and distribution, and during an
Optionee's lifetime shall only be exerciseable by such Optionee.
(f) Plan Expenses. Any expenses of administering the Plan shall be
borne by the Company by the Company.
(g) Use of Exercise Proceeds. The payment received from Optionees
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<PAGE>
from the exercise of ISOs and NQSOs under the Plan shall be used for the general
corporate purposes of the Company.
(h) Construction of Plan. The place of administration of the Plan shall be
in the State of Maryland, and the validity, construction, interpretation,
administration and effect of the Plan and its rules and regulations, and rights
relating to the Plan shall be determined solely in accordance with the laws of
the State of Maryland, when otherwise governed by applicable federal law.
(i) Interpretation. As may be appropriates pronouns used in the Plan shall
be read and construed to the masculine, feminine or neuter. Likewise, words in
the singular shall be read and construed to refer to the plural.
(j) Indemnification. In addition to such rights of indemnification as they
may have as members of the Board or the Committee, and only to the extent that
costs and expenses are not recovered under an insurance contract protecting them
with respect to any legal action described in this Section 10(j), the members of
the Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be a party by reason of any action take or failure
to act under or in connection with the Plan or any ISO granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of gross negligence, recklessness,
fraudulent or criminal acts, willful misconduct or bad faith; provided that upon
the institution of any such action, suit or proceeding, a Committee member
shall, in writing, give the Company notice thereof and an opportunity, at its
own expense, to handle and defend such action before such Committee member
undertakes to handle and defend it on his/her own behalf.
11. STOCKHOLDERS' APPROVAL AND EFFECTIVE DATE.
This Plan was adopted by the Board on August 13, 1996 and upon approval by
the stockholders of the Company, this Plan shall become unconditionally
effective. If the stockholders shall not approve the Plan, the Plan shall not
become effective, and any and all action taken prior thereto shall be null and
void or shall, if necessary, be deemed to have been fully rescinded. In the
event stockholders shall not approve the Plan within twelve (12) months from the
date of the adoption of this Plan, no ISOs may be
<PAGE>
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granted under this Plan and no ISO granted under this Plan may be exercised; all
such actions taken within such twelve (12) month period shall be null and void
or shall, if necessary, be deemed to have been fully rescinded.
12. TERM OF PLAN.
Unless terminated earlier by the Board, no Option shall be granted under
the Plan after August 12, 2006, except that the foregoing shall not apply to or
prevent any amendment, modification or suspension at any time of any Option or
the waiver at any time of any terms or conditions thereof by the Committee under
the provisions of the Plan or the amendment or modification by the Board of the
Plan under Section 9(a).
Exhibit 10.63 Form of Incentive Stock Option Agreement
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is entered into this
day of _______________, 1996 between Great Lakes REIT, Inc. ("GLR"), a Maryland
corporation whose principal place of business is Oak Brook, Illinois, and
___________________, of __________________ ("Employee").
W I T N E S S E T H:
WHEREAS, on August 13, 1996 the Board of Directors of GLR adopted a new
stock option plan for its employees known as the "1996 Incentive Stock Option
Plan" (the "Incentive Plan"), and the stockholders of GLR approved the adoption
of the Incentive Plan on September 24, 1996; and
WHEREAS, stock options granted pursuant to the Incentive Plan are intended
to qualify as "Incentive Stock Options"; and
WHEREAS, GLR desires to compensate Employee by granting an option under the
Incentive Plan to purchase certain shares of GLR's common stock in order to
provide Employee with an added incentive to increase the financial well being of
GLR; and
WHEREAS, Employee is a key employee of GLR or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
<PAGE>
hereinafter contained, the parties agree as follows:
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1. Grant of Option. GLR hereby grants to Employee an option ("Option") to
purchase up to ______________ shares of GLR common stock, $.01 par value (the
"Stock"), to be issued as fully paid and non-assessable upon the exercise hereof
and payment therefor, during the following periods and subject to the following
conditions:
(a) During the period commencing ___________, 1997 (one year from the date
hereof) and terminating __________, 2006 (ten years from the date hereof),
Employee may exercise the Option to purchase up to ________(one third) shares of
the aggregate number of shares of Stock covered by the Option;
(b) During the period commencing _______, 1998 (two years from the date
hereof) and terminating ___________, 2006 (ten years from the date hereof),
Employee may exercise the Option to purchase up to an additional ________ (one
third) shares of the aggregate number of shares of Stock covered by the Option;
and
(c) During the period commencing ________, 1999 (three years from the date
hereof) and terminating ________________, 2006 (ten years from the date hereof),
Employee may exercise the Option to purchase an additional ________ (one third)
shares of the aggregate number of shares of Stock covered by the Option.
Notwithstanding anything herein to the contrary, and except as provided in
paragraph 4 hereof, the Option and all rights granted herein shall terminate and
become null and void upon the expiration of ten years from the date hereof (such
period is hereinafter referred to as the "Term").
2. Exercise of Option. The Option may be exercised by written notice
delivered to the Secretary of GLR at the GLR principal offices, stating that
Employee desires to exercise the Option and stating further the number of shares
with respect to which the Option is being exercised. In no case may the Option
be exercised for a fraction of a share of Stock. The purchase price of the Stock
with respect to which the Option is being exercised shall be paid (i) in cash,
or (ii) at the discretion of GLR, by delivering GLR stock already owned by
Employee, or (iii) a combination of (i) and (ii), and shall be paid in full
within three (3) business days after delivery of the Notice of Exercise.
Promptly after receipt of the Notice of Exercise and payment, GLR shall deliver
to Employee a certificate representing the shares of Stock purchased. If any law
<PAGE>
or regulation requires GLR to take any action with respect to the shares of
Stock, then the date for the delivery of such Stock shall be extended for the
period necessary to take such action.
3. Option Price. The option price of the Stock shall be $13.00 per share,
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which price is not less than 100% of the fair market value of the Stock on the
date of this Agreement.
4. Conditions Upon Right to Exercise.
(a) Employment at Time of Exercise. Except as provided in paragraph 4(b),
below, at the time of any exercise of the Option, Employee must be an employee
of GLR or its subsidiary.
(b) Termination of Employment.
(i) General. All of the unexercised rights of Employee under the Option
shall lapse if Employee's employment with GLR or a subsidiary is terminated for
any reason, except for leaves of absence approved in writing by the President of
GLR, or if such employment is terminated by reason of Employee's permanent total
disability, retirement or death, as described below. If Employee's employment is
terminated for any reason other than Employee's permanent total disability,
retirement or death, the vested portion of the Option which may be exercised
pursuant to Section 1 hereof may be exercised by Employee at any time or times
in whole or in part during the three-month period after such termination to the
extent such three-month period is included in the remainder of the Term.
(ii) Disability. If the employment of Employee with GLR or a subsidiary is
terminated by reason of Employee's permanent total disability and Employee has
been in the employ of either GLR or a subsidiary continuously from the date
hereof until such termination (except for leaves of absence approved in writing
by the President of GLR), the vested portion of the Option pursuant to Section 1
hereof may be exercised by Employee at any time or times in whole or in part
during the one year period after such termination, to the extent such one year
period is included in the remainder of the Term.
(iii) Retirement. If the employment of Employee with GLR or a subsidiary is
terminated by reason of Employee's retirement and Employee has been in the
employ of either GLR or a subsidiary continuously from the date hereof until
such retirement (except for leaves of absence approved in writing by the
<PAGE>
President of GLR), the vested portion of the Option pursuant to Section 1 hereof
may be exercised by Employee at any time or times in whole or in part during the
three-month period after such retirement to the extent that such three-month
period is included in the remainder of the Term.
(iv) Death. If the employment of Employee with GLR or a subsidiary is
terminated by reason of Employee's death and Employee has been in the employ of
either GLR or a subsidiary continuously from the date hereof until Employee's
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death (except for leaves of absence approved in writing by the President of
GLR), the vested portion of the Option pursuant to Section 1 hereof may be
exercised by the legal representative of Employee, or by such of his heirs,
legatees or beneficiaries to whom the Option devolves, at any time or times in
whole or in part during the one year period from the date of death of Employee,
to the extent that such one year period is included in the remainder of the
Term.
5. Additional Limits on Right to Exercise. If at any time the Board of
Directors of GLR shall determine, in its discretion, that the listing,
registration or qualification of the Option or the Stock issuable or
transferable upon exercise of the Option upon any securities exchange or under
any state or federal law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the granting of the Option or in connection with the issuance or transfer
of Stock thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors of GLR. Unless at the time of any exercise of the Option there is, in
the opinion of GLR's counsel, a valid and effective registration statement under
the Securities Act of 1933, as amended, and an appropriate qualification and
registration under applicable state securities law, relating to the Stock,
Employee hereby agrees, upon exercise of the Option, to give a representation
that he is acquiring the Stock for his own account for investment and not with a
view to, or for sale in connection with, the resale or distribution of any such
Stock and shall give such other representations and covenants to GLR as may, in
the opinion of its counsel, be required. In the event that any Stock issued is
not registered, then Employee hereby agrees that stop transfer instructions
shall be issued to GLR's transfer agents until such time as the Stock is
registered and that the certificate representing the Stock shall bear the
following restrictive legend:
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR
OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION
OF COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
6. Non-Transferability of Option. The Option shall not be transferable by
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Employee other than by will or by the laws of descent and distribution, and
during the lifetime of Employee the Option may be exercised only by Employee or
his legal representative if the Employee is disabled.
7. Stockholder Rights and Adjustments to Stock. Employee shall have no
rights as a stockholder with respect to any Stock issuable or transferable upon
exercise of the Option until the date of issuance of a stock certificate to him
for such shares of Stock. Except as hereinafter provided, no adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued and all adjustments to the
Stock by reason of a stock dividend, merger, consolidation or otherwise, shall
be made in accordance with the terms of the Incentive Plan.
This Agreement shall not affect in any way the right or power of GLR to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.
8. Tax Withholding. GLR shall have the power to withhold, or require an
Employee or other person or entity receiving Stock under this Agreement to remit
to GLR an amount sufficient to satisfy federal, state, and local withholding tax
requirements on any Stock issued under this Agreement, and GLR may defer
issuance of Stock until such requirements are satisfied. The Employee may elect
(i) to have shares of Stock otherwise issuable under this Agreement withheld by
GLR, or (ii) to deliver to GLR previously acquired shares of Stock, in each case
have a Fair Market Value sufficient to satisfy all or part of the Employee's (or
other Stock recipient's) estimated total federal, state and local tax obligation
associated with the transaction.
<PAGE>
9. Premature Disposition. If Employee disposes of shares of Stock acquired
on the exercise of the Option by sale or exchange either within two (2) years
after the date of this Agreement, or within one (1) year after the acquisition
of such shares of Stock, Employee shall notify GLR of such disposition and of
the amount realized upon such disposition.
10. Order of Exercise. This Option may be exercised in whole or in part
only if there are no stock options outstanding that have been granted to
Employee at an earlier time that qualify as "Incentive Stock Options." For
purposes of this paragraph, an option shall be considered to be "outstanding"
until it is exercised in full or expires by reason of time.
11. Successors and Assigns. The Option shall be binding in accordance with
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its terms upon any successors of GLR and upon the heirs, executors,
administrators and successors of Employee.
12. Governing Law. This Agreement and the Option shall be governed by and
construed in accordance with the laws of the State of Illinois relating to
contracts made and to be performed in that State.
IN WITNESS WHEREOF, GLR and Employee have executed this Agreement as of the
day and year first above written.
GREAT LAKES REIT, INC.
By:
Its:
ATTEST:
EMPLOYEE
Exhibit 10.64
<PAGE>
GREAT LAKES REIT, INC.
LIMITED PURPOSE EMPLOYEE LOAN PROGRAM
THE PROGRAM. Great Lakes REIT, Inc., a Maryland corporation (the
"Company"), hereby establishes the Great Lakes REIT, Inc. Limited Purpose
Employee Loan Program (the "Program") as set forth herein and as may from time
to time be amended (the "Program"), effective August 13, 1996.
1. PURPOSE. The Company wishes to encourage selected employees of the
Company who are capable of having an impact on the performance of the Company to
acquire a long term proprietary interest in the growth and performance of the
Company, to generate an increased incentive to contribute to the Company's
future success and prosperity (thus enhancing the value of the Company for the
benefit of its stockholders), and to enhance the ability of the Company to
attract and retain qualified individuals upon whom the sustained progress,
growth, and profitability of the Company depend. In furtherance of this
objective, certain employees of the Company have options to purchase shares of
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the Company's common stock ("Stock Options"); the Company anticipates that it
will continue to grant Stock Options to its employees under one or more stock
option or other stock ownership incentive plans. The purpose of the Program is
to facilitate the ability of selected employees to exercise Stock Options by
making loans to, or loan guarantees for the benefit of, such persons.
2. DEFINITIONS. As used in the Program, terms defined immediately after
their use shall have the respective meanings provided by such definitions and
the terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended. References
to a particular section of the Code shall include references to successor
provisions.
(c) "Compensation Committee" means the Compensation Committee of the Board.
(d) "Eligible Employee" has the meaning specified in Section 4.
<PAGE>
(e) "Fair Market Value" of the Company's Stock means, as of any applicable
date, the most recent determination by the Board of Directors of the per share
Net Asset Value of the Company's Stock or, if the Company shall then be a
publicly traded company (when shares of its Stock are actively traded on a
national or regional securities exchange or the NASDAQ system), the current per
share market price of the Company's Stock based on
(i) if the Company's Stock is actively traded on either a national or
regional securities exchange, then the average of the closing prices of the
Company's Stock over the 30 day period ending three days before the day the fair
market value of the Company's Stock is being determined; or
(ii) if the Company's Stock is actively traded over-the-counter, the
average of the closing bid and asked prices of the Company's Stock quoted on the
NASDAQ system (or similar system) over the 30 day period ending three days
before the day the fair market value of the Company's Stock is being determined.
The Fair Market Value per share shall be computed on the basis of the total
number of outstanding shares.
(f) "ISO" means an Incentive Stock Option satisfying the requirements of
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Section 422 of the Code.
(g) "Loan Agreement" has the meaning specified in Section 3(c).
(h) "Net Asset Value" means the fair market value of the Company, as
determined by the Board of Directors from time to time. In determining Net Asset
Value, the Board of Directors may (but is not obligated) (i) to consider the
financial statements of the Company for prior years, cash flow projections for
current and future property operations, interest rate trends, the availability
of financing, and the return available on alternative investments (including but
not limited to public real estate investment trusts), appraisals of the
Company's real properties, and various other appropriate factors, and (ii) to
obtain the opinion of a valuation firm regarding the Board of Directors' Net
Asset Value determination. The Net Asset Value per share shall be computed on
the basis of the total number of outstanding shares.
(i) "SEC" means the Securities and Exchange Commission.
(j) "Stock" means shares of the common stock of the Company, $0.01 par
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value.
(k) "Stock Option" means an option granted by the Company for the purchase
of the Company's Stock at a specified exercise price.
3. ADMINISTRATION. (a) Subject to Section 3(b), the Program shall be
administered by the Compensation Committee.
(b) The Board may, in its discretion, reserve to itself or delegate to
another committee of the Board, any or all of the authority and responsibility
of the Compensation Committee with respect to loans and loan guarantees under
the Program. Such other committee may consist of two or more directors who may,
but need not be, officers or employees of the Company. To the extent that the
Board has reserved to itself or delegated to such other committee the authority
and responsibility of the Compensation Committee, all references to the
Compensation Committee in the Program shall be to the Board or such other
committee.
(c) The Compensation Committee shall have full and final authority, in its
discretion, but subject to the express provisions of the Program (including
without limitation, the limitations and restrictions set forth in Sections 5 and
6), as follows:
(i) to make loans to and to arrange or guarantee loans for Eligible
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Employees in connection with their exercise of Stock Options;
(ii) to determine the terms and conditions, including any restrictions and
limitations, to be included in the written agreements by which all loans and
guarantees made under the Program shall be evidenced ("Loan Agreements"), which
terms and conditions need not be identical, and, with the consent of the
employee where required by contract law, to modify any such Loan Agreement at
any time;
(iii) to impose, incidental to a loan or guarantee, conditions with respect
to competitive employment or other activities of the loan recipient;
(iv) to extend the time during which any loan may be repaid;
(v) to impose such additional terms, conditions, restrictions, and
limitations upon the loans or guarantees, as the case may be, as the
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Compensation Committee may deem appropriate; and
(vi) except as otherwise specifically prohibited herein, to vary the terms
and conditions of any loan and to make such other provisions concerning the
unpaid balance of any loan in the case of hardship, subsequent termination of
employment, absence on military or government service, or subsequent death of
the loan recipient, as in its discretion are necessary or advisable in order to
protect the Company, promote the purposes of the Program, and comply with
regulations of the Board of Governors of the Federal Reserve System.
The determination of the Compensation Committee on all matters relating to
the Program or any Loan Agreement shall be conclusive and final. No member of
the Compensation Committee shall be liable for any action or determination made
in good faith with respect to the Program or any Loan Agreement.
4. ELIGIBILITY. Loans and loan guarantees may be made to, or for the
benefit of, any employees of the Company (including without limitation any
executive officer) to whom Stock Options have been granted (an "Eligible
Employee").
5. DIRECT LOANS. (a) Authority to Make Loans. The Compensation Committee
may authorize the Company to make loans to Eligible Employees with respect to
the exercise of any Stock Option, and any taxes arising therefrom. All such
loans shall be full recourse loans and contain the terms, conditions and
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restrictions set forth in this Section 5, and such other terms, conditions and
restrictions as the Compensation Committee may determine; provided, however,
that such terms, conditions, and restrictions may not be inconsistent with the
stock option, long-term stock ownership, or other compensation or benefit plan
of the Company pursuant to which the Stock Options were granted.
(i) the interest rate to be charged as determined by the Compensation
Committee from time to time;
(ii) the security for the loan; and
(iii) the terms on which the loan is to be repaid.
(c) Restrictions on Employee Loans. Notwithstanding the general authority
granted under Sections 3, 5(a) and 5(b) above, the Compensation Committee shall
have no discretion to authorize the making of any loan to an Eligible Employee
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under the Program:
(i) for more than 90% of the exercise price of a Stock Option (together
with the amount of any taxes arising therefrom) over the par value of any shares
of Stock to be received upon exercise;
(ii) if the possession of such discretion or the making or arranging of
such a loan would result in a "modification" (as defined in Section 424(h) of
the Code) of any ISO;
(iii) for an initial term of more than 5 years; provided, however, that any
such loan may be renewed or renewable at the discretion of the Compensation
Committee;
(iv) that does not comply with all applicable laws, regulations, and rules
of the Federal Reserve Board and any other governmental agency having
jurisdiction over the Company; and
(v) with a rate of interest less than the greater of (A) the most favorable
rate applicable to funds borrowed by the Company plus one-half point, and (B)
not less than the applicable federal rate ("AFR"), as defined in Section 1274 of
the Code, in effect at the time the loan is made, or any other minimum rate
required to avoid the imputation of income or an original issue document, or to
avoid characterization as a below-market-rate loan, pursuant to Sections 483,
1274, or 7872 of the Code.
6. RIGHTS AS A STOCKHOLDER. The holder of a Stock Option shall not have any
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right as a stockholder of the Company with respect to the shares of Stock which
may be deliverable upon exercise and payment of such exercise price until such
shares have been issued in the name of the Eligible Employee exercising the
Stock Option. Shares of Stock held by the Secretary of the Company, for the
Company as pledgee, shall confer on the loan recipient in whose name the shares
have been issued all rights of a stockholder of the Company, including the right
to dividends or other corporate distributions and the right to vote the pledged
shares, so long as the loan recipient is not in default under the Loan Agreement
and except as otherwise provided in the Program or in the stock option,
long-term ownership, or other compensation or benefit plan of the Company
pursuant to which the Stock Options were granted.
7. NON-UNIFORM DETERMINATIONS. Neither the Compensation Committee's nor the
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Board's determinations under the Program need be uniform and may be made by the
Compensation Committee (or the Board) selectively among Eligible Employees,
whether or not such persons are similarly situated. Without limiting the
generality of the foregoing, the Compensation Committee shall be entitled, among
other things, to make non-uniform and selective determinations and to enter into
non-uniform and selective Loan Agreements. Notwithstanding the foregoing, the
Compensation Committee's interpretation of Program provisions shall be uniform
as to similarly situated Eligible Employees.
8. AMENDMENT OF THE PROGRAM. The Board may from time to time in its
discretion amend or modify the Program without the approval of the stockholders
of the Company, except as such stockholder approval may be required (a) to
permit the grant of Stock Options, the exercise of which is facilitated by the
Program, to be exempt from liability under Section 16(b) of the Securities
Exchange Act of 1934, (b) under the listing requirements of any national
securities exchange on which are listed any of the Company's equity securities,
or (c) to permit the continued grant of options which qualify as ISOs.
9. TERMINATION OF THE PROGRAM. The Program shall continue in full force and
effect until such time as the Board determines to terminate the Program. Any
termination, whether in whole or in part, shall not affect any Loan Agreement
then outstanding under the Program.
10. NO ILLEGAL TRANSACTIONS. The Program and all loans and guarantees
entered into by the Company pursuant to it are subject to all laws and
regulations of any governmental authority which may be applicable thereto.
11. CONTROLLING LAW. The law of the State of Illinois, except its law with
respect to choice of law and except as to matters relating to corporate law (in
which case the corporate law of the State of Maryland shall control), shall be
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controlling in all matters relating to the Program.
12. TAX LITIGATION. The Company shall have the right to contest, at its
expense, any tax ruling or decision, administrative or judicial, on any issue
that is related to the Program and that the Company believes to be important to
its employees, and to conduct any such contest or any litigation arising
therefrom to a final decision.
13. SEVERABILITY. If all or any part of the Program is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
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invalidity shall not serve to invalidate any portion of the Program not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner in which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
14. EXPENSES. The Company shall bear all expenses of administering the
Program.
15. TITLES AND HEADINGS. The titles and headings of the sections in the
Program are for convenience of reference only, and in the event of any conflict,
the text of the Program, rather than such titles or headings, shall control.
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SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Great Lakes REIT, Inc.
Date: January 8, 1997
By: /s/ Richard L. Rasley
Richard L. Rasley, Secretary
