SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-28354
---------
GREAT LAKES REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland 36-3844714
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
823 Commerce Drive
Suite 300
Oak Brook, Illinois 60523
(630) 368-2900
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, $.01 par value
(Title of class)
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 2, 1998, the aggregate market value of common stock held by
non-affiliates of the registrant was $267,619,543.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of March 2, 1998 was 15,841,027.
Documents Incorporated by Reference:
None
<PAGE>
GREAT LAKES REIT, INC.
Form 10-K Annual Report -- 1997
Table of Contents
PART I Page
Item 1. Business............................................... 4
Item 2. Properties.............................................10
Item 3. Legal Proceedings......................................13
Item 4. Submission of Matters to a Vote of Security Holders....13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................13
Item 6. Selected Financial Data................................14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.......15
Item 8. Financial Statements and Supplementary Data............18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................18
PART III
Item 10. Directors and Executive Officers of the Registrant.....19
Item 11. Executive Compensation.................................22
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................................26
Item 13. Certain Relationships and Related Transactions.........27
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................29
Signatures...................................................................32
Index to Financial Statements................................................F-1
<PAGE>
PART I
ITEM 1--BUSINESS
General
Great Lakes REIT, Inc., a Maryland corporation (the "Company") formed
in 1992, is a fully integrated, self-administered and self-managed real estate
company focused primarily on acquiring, renovating, owning and operating
suburban office properties. Currently all of the Properties (as defined herein)
are located within an approximate 500-mile radius of metropolitan Chicago (the
"Midwest Region"). The Company acquired six, three, seven, ten and nine
properties in 1993, 1994, 1995, 1996 and 1997, respectively. As of March 20,
1998, the Company owned and operated 34 properties (the "Properties") in
suburban Chicago, Milwaukee, Minneapolis, Detroit, Columbus and Cincinnati (the
"Current Markets"). The Properties contain approximately 4.1 million rentable
square feet leased to approximately 500 tenants. As of December 31, 1997, the
Properties had a weighted average occupancy rate of approximately 92.9%. The
Company has elected to be treated for federal income tax purposes as a real
estate investment trust ("REIT").
In 1996, the Company organized Great Lakes REIT, L.P., a Delaware
limited partnership (the "Operating Partnership") and transferred 33 of the
Properties to the Operating Partnership. As the sole general partner of the
Operating Partnership, the Company has exclusive power to manage and conduct the
business of the Operating Partnership, subject to certain limited exceptions.
Although the Company and the Operating Partnership are separate entities, unless
the context otherwise requires, all references in this Report on Form 10-K to
the "Company" refer to the Company and the Operating Partnership, collectively.
Effective April 1, 1996, the Company became a self-administered and
self-managed REIT upon the consummation of the merger (the "Merger") of the
Company with Equity Partners, Ltd. (the "Advisor"). Prior to the Merger, the
Advisor provided services to the Company relating to the selection, purchase,
financing and operation of the Company's properties. Certain executive officers
and other employees of the Company were previously employed by the Advisor and
owned a substantial interest in the Advisor. See "Certain Relationships and
Related Transactions".
The Company's primary business strategy is to acquire well-located,
under performing suburban office properties in the Midwest Region at attractive
yields and to increase cash flow and property value by implementing a
comprehensive operating strategy. The Company's operating strategy includes: (i)
investment in value-enhancing renovation and refurbishment programs; (ii)
aggressive leasing efforts; (iii) reduction and containment of operating costs;
and (iv) a strong emphasis on tenant services and satisfaction. This value-added
operating strategy is intended to establish the Company as one of the suburban
office property owner/operators of choice in the markets it serves and to
maximize tenant retention. The Company's commitment to tenant satisfaction and
retention is evidenced by its retention rate of approximately 67% (based on
square feet renewed) from January 1, 1993 to December 31, 1997. In addition, the
Company believes it has been successful in implementing its operating strategy
as evidenced by its achievement of increased occupancy rates and rental income
at the Properties during its period of ownership.
The Company focuses primarily on acquiring properties in the Midwest
Region (i) with less than 300,000 rentable square feet and (ii) that are
available at purchase prices below $25 million. Management believes that assets
of this size are generally too small to be efficiently acquired on a stand-alone
basis by other institutional and larger public sector buyers; as a result,
competition for these properties is more limited than the competition for larger
properties. The Company's recent acquisition activities during the last 12
months demonstrate the Company's ability to make acquisitions consistent with
its strategy for growth. During 1997, the Company acquired nine Properties at an
aggregate cost of $112 million (including $9 million in future capital
commitments).
The Company continues to evaluate certain markets outside the Midwest
Region. In the event an appropriate acquisition opportunity is identified that
is consistent with the Company's other specified criteria and operating
strategies, the Company may acquire properties in markets outside the Midwest
Region. In addition, the Company may from time to time consider opportunities
with respect to office properties located in selected urban or central business
district areas.
The Company believes that the economic fundamentals in the Current Markets
and certain other markets in and outside the Midwest Region provide attractive
environments for owning, acquiring and operating suburban office properties.
Since 1990, there has been a broad expansion of the Midwest Region's economy
while there has been limited construction of suburban office properties in the
region. These trends have reduced office vacancy rates in all of the Current
Markets and resulted in generally increasing rental rates. The Company believes
that continued strong demand for office space caused by the continuing growth of
the Midwest Region's economy, together with the limited supply of new suburban
office properties in most of the Current Markets, will continue to result in
increased occupancies and rental rates for suburban office space in the Midwest
Region generally and the Company's properties specifically.
Competitive Advantages
The Company believes it enjoys certain competitive advantages in
pursuing its business and growth strategies.
Experienced Management Team. The Company's seven senior executive
officers have an average of 17 years of real estate experience, primarily in
suburban office properties located in the Midwest Region. Management's market
knowledge and long-standing relationships with tenants, brokers and institutions
lead to numerous investment and leasing opportunities.
Focus on Suburban Office Properties in the Midwest Region. The
Company's geographic and property-specific focus enables the Company to create
acquisition opportunities, rapidly review and respond to acquisition
opportunities as they arise, and to anticipate and efficiently address the needs
of existing and prospective tenants, resulting in favorable lease renewals,
tenant expansions and new lease opportunities.
Fully Integrated Organization. The Company utilizes an integrated approach
to acquisition, management, leasing and renovation activities. This approach
allows the Company to offer a full range of alternatives (including expansions
and redevelopment of existing facilities, acquisitions and build-to-suit
projects) to satisfy the space needs of existing and prospective tenants.
Access to Capital. As a public company, the Company has access to certain
equity and debt financing options that are not available to many of its
competitors. In addition, because it is organized as an umbrella partnership
REIT ("UPREIT"), the Company has the ability to acquire properties on a basis
that offers tax advantages to certain sellers. Accordingly, the Company may be
able to finance and take advantage of certain acquisition or operating
opportunities that certain of its competitors cannot.
Organization
The Company is a Maryland corporation, its principal executive offices
are located at 823 Commerce Drive, Oak Brook, Illinois 60523 and its telephone
number is (630) 368-2900.
Business and Growth Strategies
The Company's primary business objectives are to maximize growth in
cash flow per share and to enhance the value of its portfolio in order to
maximize total return to its stockholders. The Company believes it can achieve
these objectives by continuing to implement its business strategies and
capitalizing on the internal and external growth opportunities described below.
The Company also believes, based on its evaluation of market conditions, that a
number of factors will enhance its ability to achieve its business objectives,
including opportunities to make favorable acquisitions, increase occupancy
rates, rental rates and overall portfolio value. These factors include the
continuing economic expansion in the Midwest Region as well as the limited
construction of new suburban office properties in most of the Midwest Region.
Business Strategies
The Company's primary business strategy is to acquire well-located,
underperforming suburban office properties in the Midwest Region at attractive
yields and to increase cash flow and property value by implementing a
comprehensive value-added operating strategy. This operating strategy includes:
(i) investment in value-enhancing renovation and refurbishment programs; (ii)
aggressive leasing efforts; (iii) reduction and containment of operating costs;
and (iv) a strong emphasis on tenant services and satisfaction. This operating
strategy is intended to establish the Company as one of the suburban office
property owner/operators of choice in the markets it serves and to maximize
tenant retention.
Based on its historical activities and its knowledge of various local
marketplaces, the Company believes that the Midwest Region and certain markets
outside the Midwest Region offer acquisition and operating opportunities for
companies that are well-capitalized experienced owners of real estate with
extensive local market expertise. In addition, based on its experience and
knowledge, the Company believes the existence of a public market for its common
stock, par value $.01 per share ("Common Stock"), has enhanced the Company's
access to capital, thereby allowing it to take advantage of opportunities to
acquire additional suburban office properties at attractive prices and to pursue
opportunities to develop office properties, when feasible, at attractive
returns.
The Company implements its business strategies by (i) utilizing an
integrated approach to acquisition, management, leasing and renovation
activities that is designed to coordinate decision-making and enhance
responsiveness to market opportunities and tenant needs; (ii) emphasizing tenant
satisfaction and retention and employing intensive property marketing programs;
and (iii) implementing cost control management and systems that capitalize on
economies of scale arising from the size and location of the Company's
portfolio. The Company believes that the implementation of these operating
practices has contributed to the increased occupancy rates and rental revenue of
the Properties.
Integrated Decision-making and Responsiveness. In addition to the
location and quality of the Properties, management generally credits its ability
to maintain the Properties at above-average market occupancy levels to the
coordination of its decision-making team. Acquisition, leasing and property
management activities are coordinated to enhance responsiveness to market
opportunities and tenant needs. The acquisition, leasing and property management
teams work closely together from the initial meeting with prospective sellers or
tenants through the acquisition or lease negotiation process. With respect to
acquisitions, the Company can therefore quickly analyze the cash flow and
leasing potential of a proposed acquisition and the costs of proposed property
upgrades. Following acquisition, the integrated approach permits the Company to
analyze the economic terms and costs (including tenant build-out and
retrofitting costs) for each lease on a timely and efficient basis throughout
lease negotiations. As a result, the Company is able to commit to lease terms
quickly, facilitating timely transaction execution, and minimizing lost income.
Aggressive Leasing. The Company implements an aggressive leasing
strategy based on its knowledge of the Current Markets and its tenants' needs.
The Company's relationships with the tenant and brokerage communities provide
the Company with information to enhance its leasing and marketing efforts. The
Company's policies of maintaining communications with existing tenants,
delivering a high level of service and offering leasing flexibility provide
existing tenants greater control over space management and serve to enhance
tenant retention.
As part of this leasing strategy, property-specific marketing plans are
prepared at the time of acquisition and are constantly monitored and updated to
pro-actively position each Property within its respective market. The Company
enhances its leasing efforts by utilizing employee representatives for certain
lease renewal activities and by retaining third-party leasing brokers that are
specifically selected for their market knowledge, tenant relationships and
historic ability to generate leases. This strategy enables the Company to
promote relationships with its existing tenants and attract and lease office
space to a greater number of tenants by improving the Company's visibility in
the tenant community. The Company believes its broad-based market presence in
certain Current Markets provides a wide variety of Class A and Class B space
alternatives for prospective tenants and existing tenants whose facility
requirements evolve as their businesses grow.
As part of its leasing strategy, the Company reviews the financial
statements and other financial information on prospective tenants to assess the
creditworthiness of tenants as compared to the rents required to be paid under
the tenants' leases and the aggregate dollar investment required by the Company
for tenant improvements and leasing commissions. The Company may require credit
enhancements from tenants in the form of security deposits, letters of credit
and personal or corporate guarantees of lease obligations.
Active Property Management. The Company believes that active property
management is a critical aspect of the Company's activities, and it is the
objective of management to intensively manage the Company's Properties to
provide a high level of service and flexibility to the Company's tenants. The
Company currently employs 36 individuals in its property management division.
Economies of Scale and Leasing Flexibilities. The Company seeks to
enhance portfolio value by lowering total operating costs and expenses compared
to single-site ownership and management and by capitalizing on its ability to
offer a range of leasing options in certain markets. The Company also strives to
minimize overhead by controlling corporate general and administrative expenses.
Growth Strategies
Internal Growth. The Company believes that opportunities exist to increase
cash flow from the Properties as a result of general improvements in the
suburban office markets in the Midwest Region and the improvement of individual
property operations by the Company. The Company intends to pursue internal
growth by (i) realizing fixed contractual base rental increases; (ii) re-leasing
expiring leases at increasing market rents that may result from increased demand
for and decreased supply of available space in the areas in which the Company
owns properties; (iii) continuing to maintain and improve occupancy rates
through active management and aggressive leasing; and (iv) controlling operating
expenses through the implementation of cost control management and systems.
Contractual base rental increases. The Company expects to achieve
internal growth in cash flow through leases which contain provisions for fixed
contractual rental increases.
Re-leasing expiring leases at increasing market rents. Many of the
Company's tenants entered into leases at favorable rental rates, compared to the
current prevailing market rates. As a result, as those leases expire, the
Company believes that it will be able to re-lease the space at higher effective
rental rates.
Maintaining and improving occupancy rates. The Company believes that it
has been successful in attracting, expanding and retaining a diverse tenant base
by actively managing its Properties with an emphasis on tenant retention and
satisfaction. The Company strives to be responsive to the needs of individual
tenants through its on-site professional management staff and by providing
tenants with leasing alternatives within the Company's portfolio to accommodate
their changing space requirements. The Company's success in maintaining and
improving occupancy rates is demonstrated, in part, by the number of existing
tenants which have renewed or released their space, leased additional space to
support their expansion needs or moved to other space within the Company's
portfolio. The Company has achieved a tenant retention rate of approximately 67%
(based on square feet renewed) from January 1, 1993 through December 31, 1997.
The Company also seeks to improve occupancies by aggressively marketing
available space within its portfolio.
As of December 31, 1997, the Properties had a weighted average occupancy
rate of 92.9% compared to 92.3% as of December 31, 1996 (or, for Properties
acquired during 1997, the date of acquisition).
External Growth. Based on its historical activities and its knowledge of
the Midwest Region, the Company believes that opportunities continue to exist to
acquire additional office properties that (i) provide attractive initial yields
with potential for growth in cash flow; (ii) are in desirable locations within
submarkets that exhibit strong growth characteristics; (iii) have purchase
prices that represent a significant discount to replacement cost; and (iv) are
under performing or need renovation, thereby providing opportunities for the
Company to increase the cash flow and value of such properties through active
management, rehabilitation and aggressive leasing.
The Company continues to evaluate certain markets outside the Midwest
Region. In the event an appropriate acquisition opportunity is identified that
is consistent with the Company's other specified criteria and operating
strategies, the Company may acquire properties in markets outside the Midwest
Region. In addition, the Company may from time to time consider opportunities
with respect to office properties located in selected urban or central business
district areas.
Acquisition Strategy. The Company's primary acquisition strategy is to
acquire well-located, well-constructed suburban office properties that generally
contain 300,000 square feet or less, are less than 15 years old and have
purchase prices of less than $25 million. The Company believes that most
institutional and public-sector buyers have tended to focus their acquisition
activities on substantially larger properties in terms of square footage and
purchase price. As a result of the purchasing bias of these institutional and
public-sector buyers, the Company has encountered fewer well-capitalized
competitors for the Company's target properties in its target markets. The
Company believes it has been able to achieve more favorable pricing because it
has been able to contract for the purchase of properties without financing and
other contingencies that are generally required by less well-capitalized local
buyers of these property types. In addition, the Company has established a long
and successful track record and reputation for closing on properties it has
contracted to purchase.
The Company believes that attractive opportunities continue to exist to
acquire well-located suburban office properties in the Current Markets, in the
Midwest Region and in certain other markets, at a discount to replacement cost.
Each acquisition opportunity is reviewed to evaluate whether it meets one or
more of the following criteria: (i) potential for higher occupancy levels and/or
rents as well as for lower turnover and/or operating expenses; (ii) 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 property rehabilitation; and (iii) availability for purchase at a price at
or below estimated replacement cost. The Company intends to focus its investment
activities on properties that are in one or more of the following categories:
* Under-managed properties: properties that have below market rents
and/or occupancies.
* Yield-oriented acquisitions: properties purchased below estimated
replacement cost at attractive yields.
* Redevelopment or renovation opportunities: well located and
fundamentally sound properties that may require physical renovation or
cosmetic improvement to achieve their full potential performance.
* Opportunistic investments: opportunities to acquire under-valued
assets using the Company's local market knowledge and expertise.
The Company believes that it possesses a competitive advantage in
identifying and capitalizing on acquisition opportunities for targeted office
properties due to (i) its broad-based market presence in certain of the Current
Markets, (ii) the experience of its management team; (iii) its conservative
capital structure and its available liquidity, including amounts available under
its $100 million senior unsecured bank credit facility (the "Credit Facility");
and (iv) its strong relationships with certain of the region's institutional
property owners and investment real estate brokers.
Development. Although the Company will continue to focus on
acquisitions to provide the bulk of the Company's external growth opportunities,
the Company intends to pursue limited new property development opportunities in
the event they are consistent with the overall business strategy of the Company.
The Company recently announced its intention to pursue the development of a
96,000 square foot building in Pewaukee, Wisconsin, a suburb of Milwaukee, under
an agreement to purchase the to-be-built property for approximately $11
million. The Company intends to enhance its leasing flexibility by offering
build-to-suit development options to current and prospective tenants requiring
space that is otherwise unavailable in the marketplace. The Company will also
continue its redevelopment activities of older buildings which have desirable
locations such as 777 Eisenhower in Ann Arbor, Michigan.
Disposition Strategy. The Company also seeks to enhance stockholder
value through the strategic disposition of its Properties. The Company will
consider disposing of Properties on a tax-deferred basis and re-deploying any
proceeds from sales into properties with higher yield potential. The Company may
seek to dispose of Properties when one or more of the following conditions
apply: (i) market prices are at or near replacement cost; (ii) occupancy is high
and the potential to increase cash flow and property value within a reasonable
period is limited; (iii) the Company believes the capital received can be more
efficiently redeployed; or (iv) ownership of the Property is no longer
consistent with the Company's operating strategies.
In 1996, the Company sold two properties, 830 West End Court, Vernon
Hills, Illinois, and 10 Oak Hollow, Southfield, Michigan, aggregating
approximately 110,000 square feet. The Company's weighted average holding period
for the two properties was approximately 19 months. As a result of the Company's
value-added operating strategy during the time the Company owned the Vernon
Hills and the 10 Oak Hollow properties, the weighted average occupancy rate
increased from 90.4% to 99.4%. The total sale price of $12.1 million reflected a
36% increase over the Company's aggregate cost of these properties (including
leasing commissions). Both properties were sold on a tax-deferred basis using
like-kind exchanges.
Financing Strategy
The Company seeks to maintain a well-balanced, conservative and flexible
capital structure by (i) targeting a total debt to total market capitalization
ratio of no greater than 50%; and (ii) limiting the use of the Company's bank
credit facility to short-term financing of acquisitions and working capital
requirements.
Competition
As a result of the continued expansion of the number of public REITs
and a general increase in the amount of public and private debt and equity
capital available to real estate companies and for real estate projects, the
Company may be competing with other owners and developers that have greater
resources and more experience than the Company. In addition, an increase in the
quality and number of competitive properties in any particular market in which
the Properties are located could have a material adverse effect on (i) the
Company's ability to lease space at the Properties or any newly-acquired
property and (ii) the rents charged at the Properties.
Insurance
The Company carries comprehensive liability, fire, extended coverage
and rental loss insurance covering all of the Properties, with policy
specifications and insured limits that the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
that are not generally insured because they are either uninsurable or not
economically feasible to insure. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in any of the
Properties, as well as the anticipated future revenues from such Property and,
in the case of recourse debt, the Company would remain obligated for any
mortgage debt or other financial obligations related to such Property. Any such
loss would adversely affect the Company. Moreover, as a general partner of the
Operating Partnership, the Company will generally be liable for any of the
Operating Partnership's unsatisfied obligations other than non-recourse
obligations. The Company believes that the Properties are adequately insured;
however, no assurance can be given that material losses in excess of insurance
proceeds will not occur in the future.
Environmental Regulations
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws typically impose clean-up responsibility and liability without regard
to whether the owner knew of or caused the presence of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility.
The costs of investigation, remediation or removal of such substances may
be substantial, and the presence of such substances, or the failure to properly
remediate the contamination on such property, may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs incurred
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such site.
During the last two years, independent environmental consultants have
conducted or updated Phase I Environmental Assessments ("Phase I Assessments")
at each of the Properties. In addition, a limited-scope Phase II Assessment
("Phase II Assessment") has been conducted at the University Office Plaza
property (the Phase I Assessments and the Phase II Assessment are collectively
referred to as the "Environmental Assessments"). The Phase I Assessments have
included, among other things, a visual inspection of the Properties and the
surrounding area and a review of relevant state, federal and historical
documents. Except for the Phase II Assessment and certain limited sampling in
connection with underground tank and/or piping removals at the Arlington Ridge
Service Center and One Park Plaza properties, no invasive techniques such as
soil or groundwater sampling were performed at any of the Properties. The
Company's Environmental Assessments of the Properties have not revealed any
condition giving rise to an environmental liability that the Company believes
would have a material adverse effect on the Company's business, assets or
results of operations, taken as a whole, nor is the Company otherwise aware of
any such condition. There can be no assurance, however, that the Company's
Environmental Assessments would reveal all conditions giving rise to
environmental liabilities. Moreover, there can be no assurance that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Properties will not
be affected by tenants, by the condition of land or operations in the vicinity
of the Properties (such as the presence of underground storage tanks), or by
third parties unrelated to the Company.
Employees
As of December 31, 1997, the Company had 55 employees, none of whom is
represented by a collective bargaining unit.
<PAGE>
ITEM 2--PROPERTIES
General
As of March 20, 1998, the Company owned 34 Properties containing
approximately 4.1 million square feet. The Properties consist primarily of Class
A and Class B suburban office properties, which range in size from approximately
15,000 to 273,000 rentable square feet. The Properties consist of 28 suburban
office properties, 1 light industrial distribution facility and 5 office/service
centers (generally single-story buildings with both finished office and
unfinished storage area). The 34 Properties are located in the suburban areas of
Chicago (17), Milwaukee (5), Minneapolis (2), Detroit (5), Columbus (4) and
Cincinnati (1). Many of the Properties offer amenities, including indoor and
outdoor parking, loading dock facilities, on-site property management, in-house
conference facilities and lounge areas with food and beverage service.
Management believes that the location and quality of construction of
the Properties, as well as the Company's reputation for providing superior
tenant service, enable the Company to attract and retain a diverse tenant base.
As of December 31, 1997, the Properties were leased to approximately 500
tenants, no single tenant accounted for more than 5% of the aggregate annualized
base rent of the Company's portfolio and only 14 tenants individually
represented more than 1% of such aggregate annualized base rent.
The Company holds fee simple title to each of the Properties. The
following table sets forth certain of the information as of January 1, 1998
regarding the Properties.
<TABLE>
<CAPTION>
Property Ownership Company Land Area Occupancy
Property location Type Interest Ownership % Year Built Date Acquired in Acres Square footage 31-Dec-97 Encumbrance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBURBAN CHICAGO
1900 East Golf Road Multi-story Fee 100% 1980 Dec-96 12.9 259,730 96% (1)
Schaumburg, IL Office
1750 East Golf Road Multi-story Fee 100% 1985 Sep-97 7.7 213,346 95% -
Schaumburg, IL Office
160-185 Hansen Court Single story Fee 100% 1986 Jan-94 10.6 113,911 85% -
Wood Dale, IL Office/Office service
3455, 3550, 3555 Salt Creek Single story Fee 100% 1984 Oct-97 8.7 97,910 100% -
Arlington Heights, IL Office/Office service
601 Campus Drive Single story Fee 100% 1987 May-93 6.0 96,219 98% -
Arlington Heights, IL Office/Office service
1251 Plum Grove Road Single story Fee 100% 1986 Jan-96 3.2 43,301 46% -
Schaumburg, IL Office
1011 Touhy Avenue Multi-story Fee 100% 1978 Dec-93 5.3 155,657 90% -
Des Plaines, IL Office
2800 River Road Multi-story Fee 100% 1983 Feb-95 2.0 100,527 93% (1)
Des Plaines, IL Office
1660 Feehanville Drive Multi-story Fee 100% 1989 Aug-95 7.3 85,874 100% (1)
Mount Prospect, IL Office
565 Lakeview Parkway Single story Fee 100% 1991 Dec-95 7.1 84,808 50% (1)
Vernon Hills, IL Office
175 E. Hawthorn Parkway Multi-story Fee 100% 1986 Sep-94 4.6 84,065 94% -
Vernon Hills, IL Office
Two Marriott Drive Single story Fee 100% 1985 Jul-96 3.4 41,500 100% (1)
Lincolnshire, IL Office
3400 Dundee Road Multi-story Fee 100% 1986 Oct-93 2.6 74,884 100% -
Northbrook, IL Office
3010 & 3020 Woodcreek Dr Single story Fee 100% 1986 Nov-96 8.8 127,713 96% (1)
Downers Grove, IL Office/Office service
823 Commerce Drive Multi-story Fee 100% 1969 Nov-95 2.6 45,162 100% (1)
Oak Brook, IL Office
1675 Holmes Road Industrial Fee 100% 1990 Feb-97 5.5 101,286 100% $2,173,457
Elgin, IL
16601 S. Kedzie Avenue Single story Fee 100% 1984 Feb-97 1.5 15,000 55% -
Markham, IL Office
SUBURBAN MILWAUKEE
11270 W. Park Place Multi-story Fee 100% 1984 Sep-95 7.9 197,122 100% (1)
Milwaukee, WI Office
11925 W. Lake Park Drive Single story Fee 100% 1989 Jun-93 3.4 36,069 100% -
Milwaukee, WI Office
2514 S. 102nd Street & Multi-story Fee 100% 1987 Nov-96 6.8 121,508 97% (1)
10150 W. National Avenue Office
West Allis, WI
150, 175, 250 Patrick Blvd. Single story Fee 100% 1987 Jun-94 12.0 117,615 100% $3,269,300
Brookfield, WI Office/Office service
375 Bishop's Way Multi-story Fee 100% 1987 Apr-97 4.1 53,353 100% -
Brookfield, WI Office
SUBURBAN MINNEAPOLIS / ST. PAUL
2550 University Avenue W Multi-story Fee 100% 1985 Dec-96 4.4 199,670 98% (1)
St. Paul, MN Office
2221 University Avenue SE Multi-story Fee 100% 1979 May-95 2.8 97,658 97% $5,030,000
Minneapolis, MN Office
11100 Hampshire Avenue Industrial Fee 100% 1980 Jan-93 4.0 50,625 0% -
Bloomington, MN
SUBURBAN DETROIT
777 East Eisenhower Parkway Multi-story Fee 100% 1975 Dec-97 23.6 273,355 88% -
Ann Arbor, MI Office
32255 Northwestern Highway Multi-story Fee 100% 1986 Dec-97 12.9 230,314 97% $12,125,000
Farmington Hills, MI Office
1301 W. Long Lake Road Multi-story Fee 100% 1988 Nov-96 11.5 169,959 96% (1)
Troy, MI Office
No. 40 OakHollow Multi-story Fee 100% 1989 Dec-96 5.7 80,281 98% (1)
Southfield, MI Office
24800 Denso Drive Multi-story Fee 100% 1986 Aug-95 10.5 79,546 99% (1)
Southfield, MI Office
SUBURBAN COLUMBUS
655 Metro Place South Multi-story Fee 100% 1986 Sep-97 15.0 218,377 90% -
Dublin, OH Office
4860-5000 Blazer Mem Pky Single story Fee 100% 1986 Sep-96 13.7 124,929 100% (1)
Dublin, OH Office
425 Metro Place North Multi-story Fee 100% 1982 Sep-97 6.3 101,302 94% -
Dublin, OH Office
SUBURBAN CINCINNATI
30 Merchant Street Multi-story Fee 100% 1988 Apr-96 5.9 95,910 100% (1)
Springdale, OH Office
------------- --------------
Totals 3,988,486 $22,597,757
============= ==============
</TABLE>
(1) These properties are pledged as security for the Company's line of credit
which totalled $72,500,000 at December 31, 1997.
(1) Weighted average calculation based on aggregate leased square footage for
each tenant.
Leases
The Company's leases are typically structured for terms of five years.
The Company's leases are a mixture of net leases (whereby tenants pay their pro
rata share of real estate tax and operating expenses) and full service, gross
leases under which tenants typically pay for all real estate tax and operating
expenses above those for an established base year or expense stop. Leases on a
significant portion of the rentable square feet in the Company's portfolio are
net leases that were in existence upon the Company's acquisition of the
Properties. However, whether structured as net leases or gross leases with base
year or expense stop expense reimbursement clauses, virtually all leases entered
into by the Company require tenants to reimburse the Company for the tenant's
pro-rata share of real estate tax and operating expense increases.
Leases often contain provisions permitting tenants to renew at
prevailing market rates. Under the Company's leases, the Company is generally
responsible for structural repairs. Certain leases contain provisions which
permit the tenant to terminate its lease upon written notice to the Company,
subject to the tenant's obligation to pay a termination penalty. Such
termination penalties are generally negotiated with a tenant when a lease is
executed and are usually calculated to compensate the Company for unamortized
tenant improvements and leasing commissions at the termination date, and, in
certain instances, for rent on the space for a period of months after the
termination date.
Lease Distributions. The following table sets forth information
relating to the distribution of the Company's leases based on rentable square
feet under lease, as of February 2, 1998.
Percentage Percentage
Of Of
Aggregate Aggregate
Portfolio Annualized Portfolio
Square Feet Leased Base Rent Annualized
Under Lease Square Feet (000s) Base Rent
----------- ----------- ------ ---------
2,500 or Less 6.93% 3,943 7.83%
2,501 - 5,000 11.47% 6,150 12.21%
5,001 - 7,500 11.91% 6,037 11.99%
7,501 - 10,000 8.38% 3,933 7.81%
10,001 - 20,000 20.59% 10,419 20.69%
20,001 - 40,000 18.77% 9,864 19.59%
40,001 + 21.95% 10,001 19.86%
-------------------------------------------------
Totals 100.00% $50,347 100.00%
=================================================
Lease Expirations -- Portfolio Total. The following table sets forth a
summary schedule of the lease expirations for the Properties for leases in place
as of February 2, 1998, assuming that none of the tenants exercise renewal
options or termination rights, if any, at or prior to the scheduled expirations.
<TABLE>
<CAPTION>
Annualized
Square Percentage of Base Rent Percentage
Year of Footage Total Leased Of Expiring Of Total
Lease Of Expiring Square Leases (000s) Annualized
Expriration Leases Footage at 02/02/98 Base Rent
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 442,721 11.82% 5,786 11.49%
1999 480,199 12.82% 6,089 12.09%
2000 593,574 15.84% 7,719 15.33%
2001 701,724 18.73% 10,001 19.87%
2002 759,611 20.28% 9,689 19.24%
2003 196,491 5.24% 3,339 6.63%
2004 131,857 3.52% 2,048 4.07%
2005 88,446 2.36% 886 1.76%
2006 117,317 3.13% 1,267 2.52%
2007 119,596 3.19% 1,658 3.29%
2008 115,146 3.07% 1,866 3.71%
-------------------------------------------------------------------------------------------
Total 3,746,682 100.00% 50,347 100.00%
==========================================================================
</TABLE>
<PAGE>
Historic Lease Renewals
The following table sets forth certain historical information regarding tenants
at the Properties who renewed an existing lease at or prior to the expiration of
the existing lease:
<TABLE>
<CAPTION>
Average
1993 1994 1995 1996 1997 1993 - 1997
<S> <C> <C> <C> <C> <C> <C>
Number of leases expired during calander year (1) 3 7 25 34 85 154
Number of leases renewed 3 4 18 26 53 104
Percentage of leases renewed 100% 57% 72% 76% 62% 68%
Aggregate rentable square footage of expiring leases (1) 54,157 26,716 92,205 139,615 347,150 659,843
Aggregate rentable square footage of lease renewals 54,157 19,645 72,586 118,142 175,247 439,777
Percentage of expiring rentable square footage renewed 100% 74% 79% 85% 50% 67%
</TABLE>
(1) The Aggregate rentable square footage of expiring leases excludes those
leases for tenants moving out where the Company believes the tenants decision to
vacate was made prior to the Company's acquisition of the property.
ITEM 3--LEGAL PROCEEDINGS
As of March 2, 1998, the Company was not a party to any material legal
proceedings.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of
the fiscal year ended December 31, 1997.
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock and Dividend Policy
The Company's common stock (the "Common Stock") is listed on the New
York Stock Exchange (the " NYSE") under the symbol "GL."
As of March 2, 1998, there were approximately 600 holders of record of
the Common Stock, which excludes beneficial owners of shares registered in
nominee or street name.
The table below sets forth for the periods indicated, the reported high
and low sale prices of the Common Stock on the NYSE Composite Tape and the
quarterly dividends per share paid by the Company on such shares. May 8, 1997
was the first day the Common Stock was listed on the NYSE. Prior to May 8, 1997,
there was no established trading market for the Common Stock.
<TABLE>
<CAPTION>
1997 1Q 2Q 3Q 4Q 1996 1Q 2Q 3Q 4Q
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High n/a 16 7/16 19 7/16 19 15/16 High n/a n/a n/a n/a
Low n/a 15 3/8 16 18 1/8 Low n/a n/a n/a n/a
Dividend $.30 $.30 $.30 $.30 Dividend $.30 $.30 $.30 $.30
</TABLE>
The Company, in order to qualify as a REIT under the Code, is required
to make distributions (other than capital gain distributions) to its
stockholders with respect to each taxable year in amounts at least equal to (i)
the sum of (A) 95% of its "REIT taxable income" (computed without regard to the
dividends paid deduction and its net capital gain) and (B) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of non-cash income. The Company's distribution strategy is to distribute
what it believes is a conservative percentage of its cash flow, permitting the
Company to retain funds for capital improvements and other investments while
funding its distributions.
For federal income tax purposes, distributions may consist of ordinary
income dividends, nontaxable return of capital, capital gains or a combination
thereof. Distributions in excess of the Company's current and accumulated
earnings and profits (calculated for tax purposes) will constitute a nontaxable
return of capital rather than a dividend and will reduce the stockholder's basis
in his or her shares of Common Stock for tax purposes. To the extent that a
distribution exceeds both the Company's current and accumulated earnings and
profits and the stockholder's basis in his or her shares, the amount of such
excess will generally be treated as gain from the sale or exchange of that
stockholder's shares. The Company annually notifies stockholders of the
taxability of distributions paid during the preceding year. The following table
sets forth the taxability of distributions paid in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Ordinary income..................... 88.4% 88.3% 87.4%
Non-taxable return of capital....... 11.6% 11.7% 12.6%
----- ----- -----
Total............................... 100.0% 100.0% 100.0%
====== ====== ======
Recent Sales of Unregistered Securities
On February 10, 1997, the Company issued 118,134 shares of Common Stock and
24,050 units in the Operating Partnership ("OP Units) in with the acquisition by
the Company of all of the partnership interests not already owned by the Company
in the partnerships that previously owned two of the Properties for aggregate
consideration of $1,848,397. Each OP Unit is convertible into one share of
Common Stock at the option of the holders of such OP Units. The Company sold
such securities pursuant to the exemption from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), provided by
Section 4(2) thereof, including in reliance upon the exemption provided by
Regulation D thereunder to "accredited investors" in those states in which it
was authorized to do so. There was no underwriter involved in such sale of
securities.
During the quarter ended December 31, 1997, the Company issued 165,070
shares of Common Stock pursuant to the exercise of outstanding stock options
with an aggregate exercise price of $1,855,352. These shares were issued to the
optionholders pursuant to exemptions from the registration requirements of the
Securities Act provided by Section 4(2) thereof or Rule 701 thereunder.
ITEM 6--SELECTED FINANCIAL DATA
The following sets forth selected financial and operating information
for the Company for each of the periods and dates indicated. The following
information should be read in conjunction with the financial statements and
notes thereto of the Company included elsewhere in this report. The selected
historical financial and operating information for the Company at December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997 has been derived from the Company's financial statements audited by Ernst &
Young LLP, independent auditors, whose report with respect thereto is included
elsewhere in this report. The selected financial and operating information for
the Company at December 31, 1995, 1994, and 1993 and for the years ended
December 31, 1994, and 1993 has been derived from the Company's audited
financial statements.
(1) EBITDA is defined as net income before interest, gain on sale of properties,
taxes, depreciation and amortization expenses. Because of the Company's REIT
status, the Company does not pay income taxes. EBITDA 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.
(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.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings Per
Share. For further discussion of earnings per share and the impact of Statement
No. 128, see the Note 1 to the Company's Consolidated Financial Statements.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will not
be required to modify or replace significant portions of its financial software
so that its computer systems will function properly with respect to dates in the
year 2000 and thereafter.
The Company has initiated formal communications with all of its
significant suppliers (including operators of heating and air conditioning
control systems, building security systems, elevator operating software and
alarm monitoring systems) and large customers to determine the extent to which
the Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 Issues. (The Company's total Year 2000 project
cost and estimates to complete include the estimated costs and time associated
with the impact of third party Year 2000 Issues based on presently available
information.) However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted on a timely
basis and would not have an adverse effect on the Company's systems. Based on
information received to date, the Company estimates that it will not incur any
material costs related to Year 2000 Issues. However, there can be no guarantee
that these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Results of Operations
1997 compared to 1996.
The changes in the income statement items in 1997 compared to 1996 are
as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C>
Rental and reimbursements $21,856,000
Interest and other 576,000
----------
Total revenues 22,432,000
----------
Real estate taxes 3,748,000
Other property operating 5,421,000
General and administrative 1,138,000
Interest 530,000
Depreciation and amortization 4,199,000
----------
Total expenses 15,036,000
----------
Income before gain on sale of properties 7,396,000
Gain on sale (3,140,000)
----------
Net income $4,256,000
=========
</TABLE>
During 1997, the Company acquired nine properties. The operating results of
these properties have been included in the Company's financial statements from
the dates of their respective acquisitions. In 1996, the Company acquired ten
properties, and in 1997 a full year of operations of these properties has been
included in the Company's financial statements. In analyzing the 1997 operating
results of the Company, the changes in rental income, real estate taxes, and
other property operating expenses from 1996 are due principally to: (i) the
addition of operating results from properties acquired in 1997 from the dates of
their respective acquisitions, (ii) the addition of a full year's operating
results in 1997 of properties acquired in 1996 compared to the partial year's
operating results from the dates of their respective acquisitions in 1996 and
(iii) improved operations of properties during 1997 compared to 1996. A summary
of these changes as they impact rental income, real estate taxes and other
property operating expenses for 1997 follows:
<TABLE>
<CAPTION>
Rental and Other Property
Reimbursement Real Estate Operating
Income Taxes Expenses
------ ------ ------
<S> <C> <C> <C>
Increase due to 1997 acquisitions $4,315,000 $743,000 $1,032,000
Increase due to inclusion of full year of
properties acquired in 1996 17,717,000 2,957,000 4,291,000
Property dispositions in 1996 (1,695,000) (160,000) (446,000)
Improved operations in 1997 compared
to 1996 1,519,000 208,000 544,000
-------------- ------------- --------------
21,856,000 3,748,000 5,421,000
======== ======= ========
</TABLE>
Interest expense increased by $530,000 in 1997 compared to 1996 as the
Company increased amounts of outstanding short-term indebtedness during 1997
compared with 1996. This indebtedness was incurred to finance the acquisition of
properties acquired in 1997.
General and administrative expenses increased by $1,138,000 due to an
increase in compensation costs as the Company hired additional employees in 1997
($735,000), one-time costs associated with the hiring of the Company's president
($191,000), increased franchise taxes ($80,000), and increased administrative
costs related to the increase in employees ($131,000).
Depreciation and amortization increased in 1997 by $4,199,000 as the
Company incurred these expenses on 34 properties as of December 31, 1997 as
compared to 25 properties as of December 31, 1996.
Gain on sale decreased by $3,140,000 as the Company did not sell any
properties in 1997 as compared to two dispositions in 1996.
1996 compared to 1995.
The changes in the income statement items in 1996 compared to 1995 are
as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C>
Rental and reimbursements $10,299,000
Interest and other (33,000)
----------
Total revenues 10,266,000
----------
Real estate taxes 1,330,000
Other property operating 2,581,000
General and administrative 1,319,000
Interest 1,482,000
Depreciation and amortization 2,045,000
----------
Total expenses 8,757,000
----------
Income before gain on sale of properties 1,509,000
Gain on sale of properties 3,140,000
----------
Net income $4,649,000
==========
</TABLE>
In analyzing the operating results for 1996, the increases in rental
income, real estate taxes and other property operating expenses compared to 1995
are due principally to three factors: (i) the addition of operating results from
properties acquired in 1996 from the dates of their respective acquisitions,
(ii) a complete year's operating results attributable to properties acquired in
1995 compared to the partial period of operating results from the dates of their
respective acquisitions in 1995 and (iii) improved operations of properties
during 1996 compared to 1995.
During 1996, the Company acquired 10 properties. The operating results
of these properties have been included in the Company's financial statements
from the dates of their respective acquisitions. In 1995, the Company acquired
seven properties, and in 1996 a full year 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 for 1996 follows:
<TABLE>
<CAPTION>
Rental and Other Property
Reimbursement Real Estate Operating
Income Taxes Expenses
------ ----- --------
<S> <C> <C> <C> <C>
Increase due to 1996 acquisitions $ 3,392,000 $ 462,000 $ 940,000
Increase due to full year of results of 5,413,000 1,040,000 1,220,000
properties acquired during 1995
Increase due to operations of 801,000 58,000 239,000
properties sold in 1996
1996 operations compared to 1995 for 693,000 (230,000) 182,000
properties owned at 12/31/95 ------------- ------------- -------------
Total increase in 1996 $ 10,299,000 $ 1,330,000 $ 2,581,000
========== ========= ==========
</TABLE>
Interest expense during 1996 increased by $1,482,000 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 $1,319,000 due to the
increase in the size of the Company ($875,000), increased audit and legal fees
($174,000), increased directors fees ($41,000), and the increase in amortization
of deferred compensation ($229,000).
Depreciation and amortization increased in 1996 by $2,045,000 as the
Company incurred these expenses on 25 properties in 1996 compared to 16
properties in 1995.
Forward-Looking Statements
Certain statements in this document constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange 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 that may cause the actual results
of the Company to be materially different from any future results expressed or
implied by such forward-looking statements. Examples of such uncertainties
include, but are not limited to, changes in interest rates, increased
competition for acquisition of new properties, unanticipated expenses and delays
in acquiring properties or increasing occupancy rates and regional economic and
business conditions.
Liquidity and Capital Resources
The Company's Credit Facility was $75 million. In March 1998, the Company
accepted a commitment for a new $100 million unsecured credit facility (the
"Unsecured Facility"). The Company anticipates that the Unsecured Facility will
be used primarily to acquire additional properties and for general working
capital purposes. The Unsecured Facility contains financial covenants including
requirements for a minimum tangible net worth, interest and fixed charge
coverage and overall Company leverage (all calculated in accordance with the
Unsecured Facility). The Unsecured Facility also contains restrictions on, among
other things, indebtedness, investments, distributions, liens, mergers and
development activities of the Company.
The Company expects to meet its short-term liquidity requirements
generally through its available working capital and net cash provided by
operations. The Company believes that its net cash provided by operations will
be sufficient to allow the Company to make any distributions necessary to enable
the Company to continue to qualify as a REIT under the Code. The Company also
believes that the foregoing sources of liquidity will be sufficient to fund its
short-term liquidity needs for the foreseeable future, including capital
expenditures, tenant improvements and leasing commissions.
The Company expects to meet certain long-term liquidity requirements
such as property acquisitions, scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness and the issuance of additional equity
securities. The Company also expects to use funds available under the Unsecured
Facility to fund acquisitions, development activities and capital improvements
on an interim basis. At December 31, 1997, the Company had committed to fund
$6.5 million of improvements at its Ann Arbor, Michigan property. In February
1998, the Company committed to acquire a to-be-constructed office building in
Pewaukee, Wisconsin, for a contract price of $11 million. This purchase is
expected to close in June, 1999. The Company intends to use the Unsecured
Facility, in part, to fund these commitments.
Statements of Cash Flows
1997 compared to 1996
Cash provided by operating activities increased by $8.6 million as the
Company owned 34 properties during 1997 compared to 25 properties during 1996.
Cash used by investing activities primarily increased by $12.4 million
as the Company had property sales proceeds of $11.7 million in 1996 compared to
none in 1997.
Cash provided by financing activities increased by $3.2 million as net
proceeds from stock sales increased by $44.0 million, proceeds from loans
increased by $60.9 million, repayments of loans increased by $92.7 million,
distributions paid increased by $9.9 million, and payment of deferred financing
costs decreased by $0.7 million.
1996 compared to 1995.
Cash flows from operating activities increased by $7.2 million as the
Company owned 25 properties during 1996 compared to 16 properties during 1995.
Cash used by investing activities increased by $39.6 million in 1996
compared to 1995 as the Company acquired 10 properties during 1996 compared to
seven properties in 1995.
Cash provided by financing activities increased by $34.1 million as
proceeds from equity offerings increased by $28.6 million, proceeds from bank
and mortgage loans increased by $12.0 million, dividends paid increased by $3.4
million, dividends reinvested decreased by $2.6 million and cash provided by
other items declined by $0.5 million.
ITEM 8--FINANCIAL STATEMENTS
The financial statements and supplementary data required by Regulation
S-X are included in this Report on Form 10-K commencing on Page F-1.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
The Board of Directors consists of seven directors, all of whom are
elected for one-year terms at each annual meeting of stockholders. The Company's
bylaws (the "Bylaws") require that a majority of the Board of Directors be
comprised of persons who are not officers or employees of the Company (each such
director is referred to herein as an "Independent Director"). Holders of shares
of Common Stock have no right to cumulative voting in the election of directors.
Consequently, at each annual meeting, a majority of the stockholders will be
able to elect all of the directors. The Company's executive officers are elected
annually by the Board of Directors; however, they may be removed at any time by
the Board of Directors.
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- --- ---- --------
<S> <C> <C>
Richard A. May 53 Chairman of the Board and Chief
Executive Officer
Patrick R. Hunt 44 President and Chief Operating Officer
Richard L. Rasley 41 Executive Vice President, Secretary, Co-
General Counsel and Director
James Hicks 42 Senior Vice President - Finance, Chief
Financial Officer and Treasurer
Raymond M. Braun 38 Senior Vice President - Acquisitions
Kim S. Mills 49 Senior Vice President - Asset Management
and Leasing
Edith M. Scurto 32 Senior Vice President - Property
Management
James J. Brinkerhoff 47 Director
Daniel E. Josephs 66 Director
Edward Lowenthal 53 Director
Donald E. Phillips 65 Director
Walter H. Teninga 70 Director
</TABLE>
Richard A. May. Mr. May co-founded the Company in 1992 and has served as
principal executive officer and as Chairman of the Board of Directors of the
Company since its inception. Mr. May is currently the Chairman of the Board and
Chief Executive Officer of the Company. In 1986, Mr. May co-founded the Advisor
and from 1987 until April 1, 1996, Mr. May was an officer and shareholder of the
Advisor. Mr. May is a licensed real estate broker in the States of Illinois and
Indiana and holds several inactive National Association of Securities Dealers,
Inc. ("NASD") licenses. He is also a member of National Association of Real
Estate Investment Trusts ("NAREIT"). Mr. May received his Bachelor's Degree in
mechanical engineering from the University of Illinois and received his M.B.A.
degree from The University of Chicago.
Patrick R. Hunt. Mr. Hunt, President and Chief Operating Officer, joined
the Company in August 1997 and has general supervisory responsibility for
Company operating activities. From 1983 until August 1997, Mr. Hunt was employed
by LaSalle Partners Incorporated ("LaSalle Partners"), a Chicago-based provider
of international real estate services. Mr. Hunt served as a managing director of
LaSalle Partners from 1996 until August 1997. Mr. Hunt is a member of the
Pension Real Estate Association and NAREIT. He received his Bachelor's Degree
from Northwestern University and his M.B.A. degree from The University of
Chicago.
Richard L. Rasley. Mr. Rasley co-founded the Company in 1992 and has served
as Secretary of the Company and a member of the Board of Directors since its
inception. Mr. Rasley is currently the Executive Vice President, Co-General
Counsel and Secretary of the Company and has general supervisory responsibility
for administrative and legal matters. From 1987 until April l, 1996, Mr. Rasley
was an officer and shareholder of the Advisor. Mr. Rasley is a Certified Public
Accountant, holds several inactive NASD licenses, and is a member of the
Illinois Bar and NAREIT. Mr. Rasley received his Bachelor's Degree from the
University of Iowa and received his M.B.A. and J.D. degrees from the University
of Illinois.
James Hicks. Mr. Hicks, Senior Vice President-Finance, Chief Financial
Officer and Treasurer of the Company, joined the Advisor in 1994 and currently
has general supervisory responsibility for the finance and accounting activities
of the Company. From 1989 to 1993, Mr. Hicks was employed by JMB Institutional
Realty Corporation, which was a real estate adviser to pension funds and other
institutional investors, as a vice president of portfolio management with
responsibility for overall asset management of a portfolio of international and
domestic commercial real estate properties. He received his Bachelor's Degree in
Accounting and Mathematics from Augustana College and his M.B.A. degree from
Northwestern University. Mr. Hicks is a Certified Public Accountant and is a
member of the Illinois CPA Society and American Institute of Certified Public
Accountants.
Raymond M. Braun. Mr. Braun, Senior Vice President-Acquisitions, joined the
Advisor in May 1990 and currently has primary responsibility for all of the
Company's real estate acquisition activities. Prior to joining the Advisor, Mr.
Braun was employed from 1986 to 1990 by The Balcor Company, a major real estate
investment company involved in all aspects of real estate including development,
management, syndication and mortgage lending. Mr. Braun received his Bachelor's
Degree from the University of Illinois. Mr. Braun is a member of the National
Association of Industrial and Office Park Realtors.
Kim S. Mills. Mr. Mills, Senior Vice President-Leasing, joined the Advisor
in January 1996. Mr. Mills has primary responsibility for all of the Company's
leasing activities. Prior to joining the Advisor, Mr. Mills was employed by
Simon Property Group REIT, a commercial property REIT, from 1992 to 1995 as a
regional manager with responsibility for overall portfolio management of high
rise office buildings totaling over four million square feet. Mr. Mills received
his Bachelor's Degree from Ohio Northern University and has a Real Property
Administrator designation from the Building Owners and Managers Association.
Edith M. Scurto. Ms. Scurto, Senior Vice President-Property Management,
joined the Advisor in December 1984. In August 1987, she was given
responsibility for the Advisor's property management activities. Since that date
she has individually managed or overseen the management of all of the Advisor's
and the Company's properties, and has been involved with virtually every aspect
of property management, reporting, improvement and maintenance. In December
1997, Ms. Scurto became the Company's Senior Vice President-Property Management.
Ms. Scurto currently oversees the management of all of the Company's properties.
Ms. Scurto is a current member of the Institute of Real Estate Management,
maintains an Illinois Real Estate Sales Person License and is a Certified
Property Manager.
James J. Brinkerhoff. Mr. Brinkerhoff has served as a member of the Board
of Directors since August 1996. Mr. Brinkerhoff was nominated to the Board of
Directors pursuant to Fortis Benefits Insurance Company's right to nominate one
director under the Stock Purchase Agreement dated as of August 20, 1996 (the
"Stock Purchase Agreement") by and among the Company, Fortis Benefits Insurance
Company; Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio;
Morgan Stanley SICAV Subsidiary S.A., Wellsford Karpf Zarrilli Ventures, L.L.C.;
Logan, Inc.; and Pension Trust Account No. 104972 Held by Bankers Trust Company
as Trustee. Mr. Brinkerhoff is Senior Vice President, Real Estate, of Fortis
Advisers, Inc. ("Fortis Advisers"), the New York-based investment management
affiliate of Fortis, Inc. Prior to joining Fortis Advisers in 1994, he was
Senior Vice President and Portfolio Manager with Aldrich, Eastman & Waltch,
responsible for managing the United States Real Estate Portfolio of the Church
Commissioners for England. From 1983 to 1993, he was an officer and partner of
Chesterton International, a London- based real estate adviser, where he was
responsible for the creation and management of the Church Commissioners' United
States Real Estate Portfolio. Mr. Brinkerhoff received his M.B.A. degree from
the Wharton School, University of Pennsylvania, and his Bachelor's Degree from
Boston University. He is a full member of the Urban Land Institute.
Daniel E. Josephs. Mr. Josephs has served as a member of the Board of
Directors since March 1993. Mr. Josephs is currently an independent business
consultant. From 1985 through 1995, Mr. Josephs served as the President, Chief
Operating Officer and Director of Dominick's Finer Foods of Northlake, Illinois,
a major Chicago-area retail grocery company. Mr. Josephs currently serves on the
Boards of Directors of Grand Union Company, a regional grocery firm, and Options
for People, Inc., a Chicago-area non-profit concern. Mr. Josephs received his
Bachelor's Degree from Northwestern University and received his M.B.A. degree
from The University of Chicago.
Edward Lowenthal. Mr. Lowenthal has served as a member of the Board of
Directors since August 1996. Mr. Lowenthal was nominated to the Board of
Directors pursuant to Wellsford Karpf Zarrilli Ventures, L.L.C.'s right to
nominate one director under the Stock Purchase Agreement. Mr. Lowenthal was a
Founder, Trustee and President of Wellsford Residential Property Trust ("WRP"),
a NYSE-listed multi-family REIT that was acquired by Equity Residential
Properties Trust ("Equity Residential"), a publicly-traded apartment properties
REIT, on May 30, 1997. Upon completion of Equity Residential's acquisition of
WRP, Mr. Lowenthal (i) joined the Board of Trustees of Equity Residential and
(ii) became President of Wellsford Real Properties Inc., a real estate company
that is listed on the American Stock Exchange. Mr. Lowenthal is a member of the
Executive Committee of NAREIT and was Co-chair of its 1993 Annual Meeting. Mr.
Lowenthal currently serves as a member of the Boards of Directors of Omega
Healthcare Investors, Inc., a health-care REIT, and Corporate Renaissance
Partners, a securities mutual fund. Mr. Lowenthal is also a member of the Board
of Trustees of Corporate Realty Income Trust, a REIT that invests in triple-net
leased commercial and industrial properties. He received his Bachelor's Degree
from Case Western Reserve University and received his J.D. degree from
Georgetown University Law Center.
Donald E. Phillips. Mr. Phillips has served as a member of the Board of
Directors since September 1992. Mr. Phillips is currently retired. From 1960
until 1980, Mr. Phillips served as a corporate executive in a variety of
capacities for International Minerals & Chemicals Corporation of Northbrook,
Illinois and, from 1976 to 1980, he was Group President & CEO of IMC Industry
Group, Inc. ("IMC"), a chemical and minerals firm. From 1980 until 1988, he
served as Group President and CEO of Pitman Moore, Inc., then a wholly owned
subsidiary of IMC. Mr. Phillips currently serves as Chairman of the Board of
Directors of Synbiotics Corporation of Rancho Bernardo, California, a
manufacturer and distributor of veterinary devices and products. Mr. Phillips is
also a member of the Board of Directors of Potash Corporation of Saskatchewan,
Canada, a miner and distributer of minerals for agricultural application. Mr.
Phillips received his Bachelor's Degree from Mississippi College and received
his M.B.A. degree from the University of Mississippi. He is also a graduate of
the Executive Program in Business Administration in the Graduate School of
Business, Columbia University and he is a recipient of an Honorary Doctor of
Laws degree from Mississippi College.
Walter H. Teninga. Mr. Teninga has served as a member of the Board of
Directors since September 1992. From 1991 to 1993, Mr. Teninga served as the
President and Chief Executive Officer of American Club Stores, Inc., a wholly
owned subsidiary of American Stores Company, a grocery and food distribution
business. Prior to 1991, Mr. Teninga served as Chairman, Chief Executive Officer
and Director of the Warehouse Club, a wholesale cash-and-carry warehouse
business that he founded in 1982. Mr. Teninga is currently a member of the Board
of Directors of Developers Diversified Realty Corporation, a NYSE-listed REIT
and Solo Serve Corporation, an off-price apparel retailer. Mr. Teninga received
his Bachelor's Degree from the University of Michigan and his M.B.A. degree from
Michigan State University.
Committees of the Board of Directors
Audit Committee. The Audit Committee was established by the Board of
Directors in 1993 and is responsible for making recommendations concerning the
engagement of independent public accountants, reviewing with the independent
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants,
considering the range of audit and non-audit professional fees and reviewing
with the independent accountants and management the adequacy of the Company's
internal accounting controls. The Audit Committee is required to be comprised of
two or more Independent Directors. The current members of the Audit Committee
are Messrs. Phillips (Chairman), Brinkerhoff and Teninga.
Compensation Committee. The Compensation Committee was established by the
Board of Directors in 1995 and is responsible for establishing remuneration
levels for executive officers of the Company and administering the Company's
Stock Incentive Plan and any other incentive programs. The Compensation
Committee is required to be comprised of three or more Independent Directors.
The Compensation Committee currently consists of Messrs. Josephs (Chairman),
Phillips, and Lowenthal.
Nominating Committee. The Nominating Committee was established by the
Board of Directors in 1997 and is responsible for: recommending criteria for
membership on the Board; soliciting potential Board candidates when there is a
need to fill a current or future Board position; propose to the full Board
recommendations to fill vacant positions on the Board; considering and
recommending to the full Board the types and functions of Board committees. The
Nominating Committee is required to be comprised of three or more independent
Directors. The Nominating Committee currently consists of Messrs. Brinkerhoff
(Chairman), Josephs, and Lowenthal. In the year ended December 31, 1997, the
Nominating Committee held two meetings, in-person or by teleconference. The
Committee has adopted the policy that it will consider nominees recommended by
security holders. Any such nominations should be submitted to the Committee
through a written recommendation addressed to the Secretary of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's Directors and executive officers, and holders of 10% or more of the
outstanding Common Stock to file an initial report of ownership (Form 3) and
reports of changes of ownership (Forms 4 and 5) of Common Stock with the
Securities and Exchange Commission. Such persons are required to furnish the
Company with copies of all Section 16(a) forms that they file. Based upon a
review of these filings and written representations from the Company's directors
and executive officers that no other reports were required, the Company notes
that the following Section 16(a) reports related to 1997 were delinquent: Mr.
Braun reported on a Form 5 two transactions that should have been reported on an
earlier Form 4.
ITEM 11--EXECUTIVE COMPENSATION
Compensation of Directors
Members of the Board of Directors and committees thereof who are not
also officers of the Company receive an annual retainer fee of $12,000 plus fees
of $1,000 for each day on which they attend an in-person meeting of the Board of
Directors, $500 for each day on which they attend an in-person meeting of a
committee of the Board of Directors and $250 for each day on which they
participate telephonically in a meeting of the Board of Directors or a committee
thereof. The Company reimburses each Director for expenses incurred in attending
meetings. In addition, Directors who are not also officers of the Company are
currently eligible to be granted options to acquire up to 5,000 shares of Common
Stock under the Company's Stock Option Plan for Independent Directors (the
"Directors Plan") at a price equal to the fair market value of the Company's
Common Stock as determined by the Board of Directors as of the end of each
fiscal year. As compensation for services performed during 1997, each of Messrs.
Brinkerhoff, Josephs, Lowenthal, and Phillips received an option to purchase
5,000 shares of Common Stock at an exercise price of $19.45 per share. Such
options were exercisable when granted and will expire on the earlier of December
31, 2007 or six months after a Director is removed by the stockholders for cause
pursuant to the Bylaws. Mr. Brinkerhoff assigned his stock option to Fortis
Benefits Insurance Company ("FBIC"), the parent company of his employer.
During the period of 30 days after any "change in control," a person
entitled to exercise an option granted under the Directors Plan may elect to
require the Company to purchase all or any portion of such option at a purchase
price equal to the difference between the fair market value and the option
exercise price. For purposes of the Directors Plan, a "change in control" means
(i) certain consolidations or mergers of the Company, (ii) certain sales of all
or substantially all of the assets of the Company; (iii) the filing of a
Schedule 13D or Schedule 14D-1 under the Exchange Act disclosing that any person
had become the beneficial owner of 20% or more of the issued and outstanding
shares of voting securities of the Company or (iv) during any period of two
consecutive years, individuals who at the beginning of any such period
constitute the Board of Directors cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new member of the Board of Directors was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office at the beginning of any such period.
As cash compensation for their services in 1997 the Independent Directors
earned the following: Mr. Brinkerhoff $17,000; Mr. Josephs, $19,500; Mr.
Lowenthal $19,250; and Mr. Phillips, $20,750. Mr. Brinkerhoff assigned the cash
compensation earned for his service on the Board to FBIC.
Compensation of Executive Officers.
Until April 1, 1996, the Company had no employees and all services were
provided by the Advisor pursuant to various fee-for-service agreements. The
table below sets forth the summary compensation of the Chief Executive Officer
and the four other most highly paid executive officers of the Company (the
"Named Executive Officers") based on the aggregate compensation paid to such
officers in 1997. All of the 1995 options to purchase Common Stock and a portion
of the 1996 options to purchase Common Stock held by the Named Executive
Officers were originally granted to the Advisor pursuant to various services
agreements and the Advisor subsequently transferred such options to its
employees as permitted by the Advisor's stock option plan.
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
Restricted Securities
Stock Awards Underlying Options All Other Compensation
Name & Principal Position Year Salary ($)(1) Bonus ($) ($)(2) (#)(3) ($)(4)
- ------------------------------ ---- ------------- ------------- -------------- -------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. May 1997 225,000 112,500 320,000 4,152
Chief Executive Officer 1996 180,000 72,000 49,578 4,038
1995 150,000 15,000 229,568 4,432
Richard L. Rasley 1997 125,000 50,000 172,000 4,090
Executive Vice President 1996 115,000 34,500 102,852 20,785 4,007
1995 100,000 10,000 86,310 4,438
Raymond M. Braun 1997 125,000 62,500 149,000 4,328
Senior Vice President- 1996 105,000 36,750 222,852 18,800 4,224
Acquisitions 1995 86,875 9,000 36,300 4,421
James Hicks 1997 125,000 43,750 149,000 4,340
Senior Vice President, 1996 100,000 30,000 51,432 14,800 4,213
Chief Financial Officer 1995 86,875 9,000 18,200 4,421
Kim S. Mills 1997 120,000 48,000 88,000 552
Senior Vice President- 1996 100,000 30,000 12,000 255
Asset Management (5)
</TABLE>
(1) The salary information represents the individual's salary compensation paid
(i) by the Company in 1997 and in 1996 for the period beginning on April 1, 1996
and ending December 31, 1996 and (ii) by the Advisor for the period from January
1, 1996 to April 1, 1996 and for the year ended December 31, 1995.
(2) Effective April 1, 1996 and in connection with the Merger, Messrs. Rasley,
Braun and Hicks received 8,571, 8,571 and 4,286 restricted shares of Common
Stock ("Restricted Stock"), respectively, as an inducement to accept employment
with the Company. Effective May 1, 1996, Mr. Braun received an additional 10,000
shares of Restricted Stock as an inducement to remain employed with the Company.
Such shares of Restricted Stock were valued at prices equal to the fair market
value on the dates of grant, which in all cases was deemed to be $12.00. On
April 1, 1997, the restrictions lapsed with respect to 4,285 shares of
Restricted Stock held by Messrs. Rasley and Braun and with respect to 2,143
shares of Restricted Stock held by Mr. Hicks. On May 13, 1997, upon the closing
of the Company's initial public offering of Common Stock, the restrictions
lapsed with respect to the remaining shares of Restricted Stock held by Messrs.
Rasley and Hicks and with respect to 4,286 shares of Restricted Stock held by
Mr. Braun. As of December 31, 1997, the number of shares of Restricted Stock
held by Mr. Braun was 10,000. As of December 31, 1997, the value of the shares
of Restricted Stock held by Mr. Braun was $194,400, based upon the closing price
of the Common Stock on the NYSE Composite Tape on December 31, 1997 ($19.44).
Dividends are paid on all shares of Restricted Stock held by Mr. Braun.
(3) Options granted during 1997 and 1996 were issued at exercise prices greater
than or equal to the fair market value of Common Stock on the dates of grant.
Since May 8, 1997, the first day the Common Stock was listed on the NYSE, fair
market value has been determined by reference to the closing price of the Common
Stock on the NYSE Composite Tape on the last trading day prior to the effective
date of the grant. Prior to May 8, 1997, fair market value of the Company's
Common Stock was determined by the Board of Directors. Options granted during
1995 and options to purchase 17,578, 6,785, 2,800 and 2,800 shares of Common
Stock deemed to have been granted to Messrs. May, Rasley, Braun and Hicks,
respectively, in 1996 represent Advisor Options (as defined herein) that were
assigned to such individuals by the Advisor during 1995 from a pool of options
that had been granted to the Advisor by the Company pursuant to service
agreements during the period from the Company's incorporation through December
31, 1995. Advisor Options were exercisable on the date of grant. Options granted
in 1996 under the Company's 1996 Stock Option Plan (the "1996 Option Plan") and
in 1997 under the 1997 Incentive Plan (as defined herein) expire upon the
earliest of (i) ten years following the date of grant, (ii) one year after the
termination of the optionee's employment due to death or disability or (iii)
three months after the termination of the optionee's employment for any other
reason. One-third of the options granted in 1996 under the 1996 Option Plan
became exercisable on September 24, 1997 and the balance of such options become
exercisable at the rate of one-third of the shares covered thereby on September
24 in each of 1998 and 1999. One-half of the options granted on February 27,
1997 became exercisable on September 11, 1997 and the balance of such options
will become exercisable August 27, 1998. The options granted on December 31,
1997 become exercisable at the rate of one-third of the shares covered thereby
on December 31, in each of 1998, 1999 and 2000. All such options become
exercisable in full upon a "change in control" of the Company (defined
substantially the same as under "-Change in Control Agreements" herein).
(4) These amounts represent group life and health insurance premiums paid by the
Advisor (for 1995), the Advisor and the Company (for 1996) and by the Company
(for 1997).
(5) Mr. Mills became an employee of the Advisor in January 1996; therefore,
no information is presented for 1995.
The following tables set forth certain information regarding stock
options granted to and exercised by the Named Executive Officers during 1997 and
the stock options held by them as of December 31, 1997:
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants
<CAPTION>
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted To Exercise Price Stock Price Appreciation for
Options Employees in ($/sh) Expiration Date Option Term
Name Granted Fiscal Year
5%($)(3) 10%($)(3)
- ----------------- --------------- ------------------- ------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. May 295,000(1) 22.72% 16.00 2/27/07 2,968,383 7,522,464
25,000(2) 1.93% 19.63 12/31/07 308,551 781,930
Richard L. Rasley 158,000(1) 12.17% 16.00 2/27/07 1,589,845 4,028,981
14,000(2) 1.08% 19.63 12/31/07 172,789 437,881
Raymond M. Braun 135,000(1) 10.40% 16.00 2/27/07 1,358,412 3,442,483
14,000(2) 1.08% 19.63 12/31/07 172,788 437,880
James Hicks 135,000(1) 10.40% 16.00 2/27/07 1,358,412 3,442,483
14,000(2) 1.08% 19.63 12/31/07 172,788 437,880
Kim S. Mills 75,000(1) 5.78% 16.00 2/27/07 754,673 1,912,490
13,000(2) 1.00% 19.63 12/31/07 160,447 406,603
</TABLE>
(1) Such options were granted on February 27, 1997, under the 1997 Incentive
Plan. One-half of the shares covered thereby became exercisable on September 11,
1997 and such options become exercisable in full on August 27, 1998. Such
options expire upon the earliest of: (i) February 27, 2007, (ii) one year after
the termination of the optionee's employment due to death or disability or (iii)
three months after the termination of the optionee's employment for any other
reason.
(2) Such options were granted on December 31, 1997, under the 1997 Incentive
Plan and become exercisable at the rate of one-third of the shares covered
thereby on December 31 in each of 1998, 1999 and 2000. Such options expire upon
the earliest of: (i) December 31, 2007, (ii) one year after the termination of
the optionee's employment due to death or disability or (iii) three months after
the termination of the optionee's employment for any other reason. All such
options become exercisable in full upon a "change in control" of the Company
(defined substantially the same as under "-Change in Control Agreements"
herein).
(3) Assumed annual rates of stock price appreciation for illustrative purposes
only as required by the rules of the Securities and Exchange Commission. The
actual price of Common Stock will vary from time to time based upon market
factors and the Company's financial performance. No assurance can be given that
such rates will be achieved.
<PAGE>
<TABLE>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal The-Money Options at
Acquired on Value Year-End (#) Year-End ($)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
(1)
- --------------------------- --------------------- -------------- ----------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Richard A. May 64,196 $446,535 147,500/193,833 $507,031/639,675
Richard L. Rasley 97,761 $802,947 79,000/102,334 $271,563/329,025
Raymond M. Braun 12,025 $110,411 91,833/92,167 $266,362/298,075
James Hicks 11,600 $78,450 67,500/89,500 $232,031/280,906
Kim S. Mills 4,000 $25,750 37,500/58,500 $128,906/177,969
</TABLE>
(1) Value is calculated by multiplying the number of shares of Common Stock
underlying the options by the difference between the exercise price of the
options and the closing sale price of the Common Stock on the NYSE Composite
Tape on December 31, 1997($19.44).
Change in Control Agreements
The Company has entered into change in control agreements with Messrs. May,
Rasley, Braun, Hicks, and Mills providing for the payment of specified benefits
under the circumstances described below after a "change in control." If a
"change in control" occurs, the executive will receive an amount equal to two
times the sum of his base salary plus two times the amount that would otherwise
be earned under certain existing executive compensation plans and arrangements
if within the period commencing on the date of a "change in control" and ending
on the last day of the month in which occurs the second anniversary of the
"change in control" of the Company (the "Employment Period"), the executive's
employment with the Company is terminated (a "Termination") other than for
death, disability or "cause" or termination by the executive for "good reason,"
defined as (i) the executive's resignation or retirement is requested by the
Company other than for cause; (ii) any significant change in the nature or scope
of the executive's duties or level of authority and responsibility; (iii) any
reduction in the executive's applicable total compensation or benefits other
than a reduction in compensation or benefits applicable to substantially all of
the Company's employees; (iv) a breach by the Company of any other material
provision of the change in control agreement; or (v) a reasonable determination
by the executive that, as a result of a change in control of the Company and a
change in circumstances thereafter significantly affecting the executive's
position, the executive is unable to exercise the prior level of the executive
authority and responsibility. A "change in control" is deemed to occur under the
change in control agreements if (i) any person other than certain "excluded
persons" becomes the beneficial owner of 20% or more of the Company's
outstanding Common Stock (a "20% Beneficial Owner"), (ii) during any 24- month
period, individuals who at the beginning of such period constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director during such period whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding for this purpose any such individual whose initial assumption of
office is in connection with an actual or threatened contest for the election of
directors (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act, or any successor rule) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board of Directors, (iii) certain consolidations or mergers of the Company or
(iv) certain sales, leases, exchanges or other transfers of all, or
substantially all, of the assets of the Company. An executive subject to a
Termination will be subject to a non-competition agreement for the Employment
Period.
Limited Purpose Employee Loan Program
The Company has established the Limited Purpose Employee Loan Program (the
"Employee Loan Program") for the purpose of attracting and retaining certain key
employees by facilitating their ability to implement the Company's long term
incentive programs. Under the Employee Loan Program, the Compensation Committee
has authorized the Company to make loans and loan guarantees to, or for the
benefit of any employee of the Company to facilitate the implementation of the
Company's long term incentive plans. Under the Employee Loan Program, employees
may borrow to fund up to 100% of (i) the cost of exercising stock options held
by the employee or (ii) individual income tax obligations which may arise as a
result of aspects of the implementation of the Company's long term incentive
plans. Such loans bear interest payable quarterly at the interest rate for
borrowings under the Company's bank credit facility, are recourse to the
employees and are secured by a pledge of the stock acquired by the employee
through this program. Such loans expire on the earlier of the fifth anniversary
of the loan date and the date sixty days following the date such employee's
employment with the Company ends. As of December 31, 1997, employees had
acquired an aggregate of 356,231 shares of Common Stock through this program
with aggregate outstanding loan amounts of $4,654,176 due the Company. Such
amount is reflected as a reduction of stockholders' equity until the loans are
repaid. Mr. May has borrowed $801,275 in 1997 under the Employee Loan Program,
all of which was outstanding at December 31, 1997. The proceeds of Mr. May's
loan were used to pay the purchase price for options covering 64,196 shares of
Common Stock. Mr. Rasley borrowed $1,100,934 in 1997, all of which was
outstanding at December 31, 1997. The proceeds of Mr. Rasley's loan were used
together with other funds supplied by Mr. Rasley to pay the exercise price for
options covering 97,761 shares of Common Stock and withholding taxes related to
the lapse of restrictions in May 1997 on Restricted Stock that he received in
1996. Mr. Braun borrowed $136,952 in 1997 all of which was outstanding at
December 31, 1997. The proceeds of Mr. Braun's loan were used together with
other funds supplied by Mr. Braun to pay the exercise price for options covering
12,025 shares of Common Stock and withholding taxes related to the lapse of
restrictions in May 1997 on Restricted Stock that he received in 1996. Mr. Hicks
borrowed $97,279 in 1997, $85,500 of which was outstanding at December 31, 1997.
The proceeds of Mr. Hick's loan were used to pay the exercise price for options
covering 11,600 shares of Common Stock and withholding taxes related to the
lapse of restrictions in May 1997 on Restricted Stock that he received in 1996.
Mr. Mills borrowed $46,800 in 1997, all of which was outstanding at December 31,
1997. The proceeds of Mr. Mills' loan were used together with other funds
supplied by Mr. Mills to pay the exercise price for options covering 4,000
shares of Common Stock.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Josephs
(Chairman), Phillips and Lowenthal. None of the members of the Compensation
Committee is or has ever been an officer or employee of the Company or had any
other relationship with the Company, except as a member of the Board of
Directors and as a stockholder.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 2, 1998 by (i) each director, (ii) each of
the Named Executive Officers, (iii) all directors and executive officers of the
Company as a group and (iv) each other person who is known by the Company to be
the beneficial owner of 5% or more of the outstanding shares of Common Stock.
Unless otherwise indicated in a footnote, all such shares of Common Stock are
owned directly, and the indicated person has sole voting and investment power.
<TABLE>
<CAPTION>
Number of Shares of Percentage
Name and Address of Beneficial Owner Common Stock Beneficially
Beneficially Owned (1) Owned
- -------------------------------------------------------- --------------------------------- --------------------
<S> <C> <C>
Fortis Benefits Insurance Company (2) 1,010,000 6.37%
One Chase Manhattan Plaza, 41st Floor
New York, New York 10005
Morgan Stanley Asset Management Inc. (3) 1,005,000 6.34%
1221 Avenue of the Americas, 21st Floor
New York, New York 10020
Raymond M. Braun (4) 130,504 *
James J. Brinkerhoff -- *
James Hicks (5) 97,786 *
Raymond M. Braun (4) 130,504 *
Daniel E. Josephs (6) 67,356 *
Edward Lowenthal (7) 97,553 *
Richard A. May (8) 479,469 3.00%
Kim S. Mills (9) 42,821 *
Donald E. Phillips (10) 48,980 *
Richard L. Rasley (13) 198,679 1.25%
Walter E. Teninga (12) 49,424 *
All directors and executive officers as a 1,212,572 7.43%
group (10 persons) (13)
</TABLE>
* Less than 1%
(1) All share amounts reflect beneficial ownership determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934.
(2) Based on the most recent Schedule 13D on file with the SEC. Includes options
exercisable within 60 days of March 2, 1998 to purchase 10,000 shares of Common
Stock, which options were granted to Mr. Brinkerhoff as director compensation
and assigned by Mr. Brinkerhoff to FBIC.
(3) As reported in Amendment No. 3 to a Schedule 13D filed by MSAM on March 11,
1997, (i) MSAM has shared voting power as to 1,059,339 shares of Common Stock
and shared dispositive power as to 1,059,339 shares of Common Stock, (ii) Morgan
Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio ("MSIF") has
shared voting power as to 646,200 shares of Common Stock and shared dispositive
power as to 646,200 shares of Common Stock, (iii) Morgan Stanley SICAV
Subsidiary S.A. (the "SICAV Subsidiary") has shared voting power as to 413,139
shares of Common Stock and shared dispositive power as to 413,139 shares of
Common Stock, (iv) Morgan Stanley - SICAV U.S. Real Estate Securities Fund has
shared voting ower as to 413,139 share of Common Stock and shared disposition
power as to 413,139 shares of Common Stock. (v) Morgan Stanley Group Inc. has
shared voting power as to 1,059,339 shares of Common Stock and shared
dispositive power as to 1,059,339 shares of Common Stock. Such 13D included an
aggregate of 54,399 shares of Common Stock that were issuable pursuant to the
conversion of outstanding shares of Preferred Stock. Such shares of Preferred
Stock were cancelled upon the consumation of the initial public offering of the
Common Stock. MSAM acts as investment adviser to MSIF and the SICAV Subsidiary.
Includes options exercisable within 60 days of March 25, 1998 to purchase 5,000
shares of Common Stock, which options were granted to a former director of the
Company, as director compensation and assigned to MSIF and the SICAV subsidiary
in accordance with each entity's prorata investments in the Company.
(4) Includes options exercisable within 60 days of March 2, 1998 to purchase
91,833 shares of Common Stock.
(5) Includes options exercisable within 60 days of March 2, 1998 to purchase
67,500 shares of Common Stock.
(6) Includes options exercisable within 60 days of March 2, 1998 to purchase
19,000 shares of Common Stock.
(7) Includes 76,293 shares of Common Stock that are beneficially owned by
Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV"). Mr. Lowenthal is a member of
and may be deemed to beneficially own the 76,923 shares of Common Stock that are
beneficially owned by WKZ., Mr. Lowenthal disclaims beneficial ownership of all
such shares. Includes options exercisable within 60 days to purchase 10,000
shares of Common Stock.
(8) Includes options exercisable within 60 days to purchase 147,500 shares of
Common Stock and Indemnification Shares (as Defined herein under the caption
"Certain Relationships and Related Transactions Advisor Relationship") held in
escrow pursuant to the terms of the Merger.
(9) Includes options exercisable within 60 days of March 2, 1998 to purchase
37,500 shares of Common Stock.
(10) Includes options exercisable within 60 days of March 2, 1998 to purchase
13,000 shares of Common Stock.
(11) Includes options exercisable within 60 days of March 2, 1998 to purchase
79,000 shares of Common Stock and Indemnification Shares held in escrow pursuant
to the terms of the Merger.
(12) Includes options exercisable within 60 days of March 2, 1998 to purchase
20,000 shares of Common Stock. Also includes 13,952 shares owned by Mr.
Teninga's spouse.
(13) Includes options exercisable within 60 days of March 2, 1998 to purchase
an aggregate of 570,333 shares of Common Stock.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advisor Relationship
From the Company's incorporation until the completion of the Merger on May
1, the Advisor provided various services to the Company pursuant to an Advisory
Agreement dated July 2, 1992 as restated July 1, 1994, relating to the
selection, purchase, financing and operation of the Company's properties (the
"Advisory Agreement"), and pursuant to other agreements regarding property
management and offering administration activities.
In connection with the Merger, the shareholders of the Advisor received
100,000 shares of Common Stock, 15,000 of which were placed in escrow to secure
the indemnification obligations of the shareholders of the Advisor (the
"Indemnification Shares"). Indemnification Shares that are not applied to
indemnifiable damages will be distributed to the shareholders of the Advisor
upon the later of (a) April 1, 2001 or (b) the expiration of the last applicable
statute of limitations within which tax-based claims can be made. In addition,
certain employees of the Advisor received restricted shares of Common Stock as
an inducement to accept employment with the Company, including 8,571, 8,571 and
4,286 shares of Restricted Stock issued to Messrs. Rasley, Braun and Hicks,
respectively. The restrictions on one-half of the shares of Restricted Stock
lapsed on April 1, 1997 and May 13, 1997 (the closing date of the Company's
public offering of Common Stock), respectively. In addition, effective May 1,
1996, Mr. Braun received an additional 10,000 shares of Restricted Stock that
vest in equal annual installments on May 1 of each of the years 1999 through
2002 provided that Mr. Braun is then employed by the Company.
Consultant Arrangement
Beginning in December 1996, the Company retained Karpf, Zarrilli & Co.
Incorporated ("Karpf Zarrilli") as a consultant in connection with certain
matters. In its capacity as consultant, the Company paid Karpf Zarrilli $118,750
plus expenses of $10,884 through the closing of the public offering, May 13,
1997. Steven A. Karpf and Frederick P. Zarrilli are (i) Principals of Karpf
Zarrilli and (ii) members of WKZV. WKZV is the beneficial owner of 76,923 shares
of Common Stock and has certain registration rights with respect to such shares
of Common Stock. In 1996, WKZV nominated Mr. Lowenthal, a member of WKZV, as a
member of the Board of Directors. (See "Directors and Executive Officers of the
Registrant").
Registration Rights
Pursuant to the Registration Rights Agreement dated as of August 20, 1996
(the "Registration Rights Agreement") by and among the Company and Fortis
Benefits Insurance Company ("FBIC"); Morgan Stanley Institutional Fund, Inc. -
U.S. Real Estate Portfolio ("MSIF"); Morgan Stanley SICAV Subsidiary S.A.
("MSSICAV"); Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV"); Logan, Inc.
("Logan"); and Pension Trust Account No. 104972 Held by Bankers Trust Company as
Trustee ("Pension Trust Account No. 104972;" FBIC, MSIF, MS SICAV, WKZV, Logan
and Pension Trust Account No. 104972 are collectively referred to herein as the
"Institutional Investors") the Company granted the Institutional Investors
certain registration rights with respect to the 3,867,000 shares of Common Stock
(the "Registrable Shares") acquired by them pursuant to the Stock Purchase
Agreement. Certain of the Institutional Investors are principal stockholders of
the Company. On December 5, 1997, a Registration Statement on Form S-3 covering
the Registrable Shares became effective under the Securities Act of 1933. See
"Security Ownership of Certain Beneficial Owners and Management."
Management Loans
Pursuant to the Employee Loan Program, an aggregate of $4,654,176 in
aggregate principal amount of loans made to certain executive officers by the
Company was outstanding at December 31, 1997. Such loans bear interest at the
interest rate of borrowings under the Credit Facility and are payable quarterly.
See "Executive Compensation of Directors and Executive Officers--Limited Purpose
Employee Loan Program" for a description of such loans.
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) 1. See Index to Financial Statements.
2. See Index to Financial Statements.
All other schedules are not submitted because the required criterias
not been met, or because the required information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
During the fourth quarter ended December 31, 1997, the Company filed
the following reports on Form 8-K.
Report on Form 8-K dated October 14, 1997 reporting the following item:
Item 2. Acquisition or Disposition of Assets
Report on Form 8-K/A dated November 14, 1997 reporting the following
item:
Item 2. Acquisition or Disposition of Assets
Report on Form 8-K/A dated December 12, 1997:
Item 2. Acquisition on Disposition of Assets
Report on Form 8-K dated December 23, 1997
Item 2. Acquisition on Disposition of Assets
Report on Form 8-K dated December 30, 1997
Item 2. Acquisition on Disposition of Assets
(c) Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
3.1 Articles of Amendment and Restatement of the Company
filed with the Maryland State Department of
Assessments and Taxation September 23, 1997
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the
period end June 30, 1997
3.2 Amended and restated bylaws of the Company dated
September 11, 1997 (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement
on Form S-3 dated November 13, 1997) (No. 333-40129)
4.1 Registration Rights Agreement dated as of August 20,
1996 by and among the Company, Fortis Benefits
Insurance Company, Morgan Stanley Institutional Fund,
Inc. - U.S. Real Estate Portfolio, Morgan Stanley
SICAV Subsidiary SA, Wellsford Karpf Zarrilli
Ventures, L.L.C., Logan, Inc.; and Pension Trust
Account 104972 Held by Bankers Trust Company as
Trustee (incorporated by reference to Exhibit 2 to
the Company's Current Report on Form 8-K dated August
28, 1996)
10.1 Form of Unsecured Revolving Credit Agreement dated as
of January 6, 1998 among Great Lakes REIT, L.P., and
Bank of America National Trust Savings Association.
10.2 Amended and Restated Agreement of Limited Partnership
of Great Lakes REIT, L.P., dated December 27, 1996
(Incorporated by reference to Exhibit 5 to the
Company's Current Report on Form 8-K dated January
14, 1997 (the "January 1997 8-K"))
10.3 First Amendment to the Amended and Restated Agreement
of Limited Partnership of Great Lakes REIT, L.P.,
dated February 6, 1997 (incorporated by reference
to Exhibit 10.31 in the Company's Registration
Statement on Form S-11) (No. 333-22619)
* 10.4 The Company's 1997 Equity and Performance Incentive
Plan
10.5 Indemnification Escrow Agreement dated April 1, 1996
between the Company, Richard A. May, Richard L.
Rasley, Tim A. Grodrian, and American National Bank
and Trust Company of Chicago (incorporated by
reference to Exhibit 10.8 from the Company's Form 10
Registration Statement (the "Form 10"))(Commission
File No. 0-28354)
* 10.6 Restricted Stock Agreement dated May 1, 1996 between
the Company and Raymond Braun (Incorporated by
reference to Exhibit 10.8.6 to the S-11)
* 10.7 Stock Option Plan for Independent Directors and
Brokers (the "Directors Plan") dated July 2, 1992 as
amended November 18, 1997
* 10.8 Form of Non-Qualified Stock Option Certificate
dated December 31, 1997, between the Company and Jay
Brinkerhoff (assigned to Fortis Benefits Insurance
Company), Daniel E. Josephs, Edward Lowenthal, Donald
E. Phillips, and Walter Teninga for 5,000 shares of
Common Stock for use in connection with options
granted pursuant to the Directors Plan (incorporated
by reference to Exhibit 10.11.12 to the S-11)
10.9 Form of Change in Control Agreement between
the Company and Messrs. May, Hunt, Rasley,
Braun, Hicks, Mills and Scurto
* 10.10 Form of Stock Option Agreement for use in connection
with incentive stock option, and pursuant to the
Company's 1997 Equity and Performance Incentive Plan;
Richard A. May, Patrick R. Hunt, Richard L. Rasley,
James Hicks, Raymond Braun, Kim S. Mills and Edith M.
M. Scurto entered into agreements in 1997 that
evidenced 320,000, 174,000, 172,000, 149,000,
149,000, 88,000 and 86,000 options to purchase Common
Stock, respectively under the Company's 1997 Equity
and Performance Incentive Plan
* 10.11 Limited Purpose Employee Loan Program of the Company
(incorporated by reference to Exhibit 10.61 of the
Form 10/A filed with the SEC on January 9, 1997)
10.12 Form of Limited Purpose Employee Loan
Program Promissory Note for use in
connection with limited purpose employee
loans
10.13 Amended and Restated Revolving Credit Agreement (the
"Amended and Restated Revolving Credit Agreement")
Dated as of December 27, 1996 among the Operating
Partnership and the Company and The First National
Bank of Boston and Bank of America Illinois and First
Bank National Association and Other Banks Which May
Become Parties to the Agreement and The First
National Bank of Boston as Agent (incorporated by
reference to Exhibit 3 of the January 1997 8-K)
10.14 Form of Amendment to the Amended and Restated
Revolving Credit Agreement dated as of March 1, 1997
(incorporated by reference to Exhibit 10.25 to the
S-11)
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule for year ended December 31,
1997
27.2 Restated Financial Data Schedule for Nine Months
ended September 30, 1997
27.3 Restated Financial Data Schedule for Six Months ended
June 30, 1997
27.4 Restated Financial Data Schedule for Three Months
ended March 31, 1997
27.5 Restated Financial Data Schedules for year ended
December 31, 1996
27.6 Restated Financial Data Schedule for Nine Months
ended September 30, 1996
27.7 Restated Financial Data Schedule for Six Months ended
June 30, 1996
27.8 Restated Financial Data Schedule for Three Months
ended March 31, 1996
* Management contract or compensation plan or arrangement.
- -------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois on the 27th day of March, 1998.
GREAT LAKES REIT, INC.
By: /s/ Richard A. May
-----------------------------------
Richard A. May
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the 27th day of March, 1998.
Title
/s/ Richard A. May Chairman of the Board of Directors and Chief
- ---------------- Executive Officer (Principal Executive
Richard A. May Officer)
/s/ Richard L. Rasley Executive Vice President,
- ----------------- Secretary, Co-General Counsel and Director
Richard L. Rasley
/s/ James Hicks Senior Vice President-Finance,
- ------------------ Chief Financial Officer and Treasurer
James Hicks (Principal Financial Officer and
Principal Accounting Officer)
* Director
- ---------------------
James J. Brinkerhoff
* Director
- ---------------------
Daniel E. Josephs
* Director
- ---------------------
Edward Lowenthal
* Director
- ---------------------
Donald E. Phillips
* Director
- ---------------------
Walter H. Teninga
*The undersigned by signing his name hereunto has hereby signed this Annual
Report Form 10-K on behalf of the above-named directors, on March 31, 1998,
pursuant to a power of attorney executed on behalf of each such director and
filed with the Securities and Exchange Commission.
By: /s/ James Hicks
- ---------------------
James Hicks
By: /s/ Richard A. May
- ---------------------
Richard A. May
<PAGE>
Great Lakes REIT, Inc.
Index to Financial Statements
(Item 14(a))
Financial Statements
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1996
and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1997 S-1
Schedules, other than as listed above, are omitted for the reason that they are
not applicable or equivalent information has been included elsewhere herein.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Great Lakes REIT, Inc.
We have audited the accompanying consolidated balance sheets of Great
Lakes REIT, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. Our audit also
included the financial statement schedule listed in the Index at Item 14(a).
These 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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Great
Lakes REIT, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 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 January 29, 1998, except for Note 14, as to which the date is
March 13, 1998
F-2
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Consolidated Balance Sheets
<CAPTION>
December 31,
------------------------------------
<S> <C> <C>
1997 1996
Assets
Properties:
Land $46,044,153 $31,529,000
Buildings, improvements and equipment 251,352,961 157,902,629
------------------ ------------------
297,397,114 189,431,629
Less accumulated depreciation 11,456,297 5,309,666
------------------ ------------------
285,940,817 184,121,963
Cash and cash equivalents 1,436,542 1,688,173
Real estate tax escrows 331,597 1,065,182
Rents receivable 3,279,354 2,130,935
Deferred financing and leasing costs, 3,444,404 2,976,902
net of accumulated amortization
Goodwill, net of accumulated amortization 1,358,742 1,433,194
Other assets 1,345,098 732,533
------------------------------------
Total assets $297,136,554 $194,148,882
====================================
Liabilities and Stockholders' Equity
Bank loan payable $72,500,000 $63,802,368
Mortgage loans payable 17,567,757 17,073,979
Bonds payable 5,030,000 5,235,000
Accounts payable and accrued liabilities 3,464,500 4,153,800
Accrued real estate taxes 7,776,804 5,423,160
Prepaid rent 2,780,816 1,170,101
Security deposits 924,938 695,570
------------------------------------
Total liabilities 110,044,815 97,553,978
------------------------------------
Preferred stock ($0.01 par value, 10,000,000 authorized; 2,101
none issued in 1997 and 210,128 issued in 1996)
Common stock ($0.01 par value, 60,000,000 authorized; 158,628 88,323
15,862,811 and 8,832,268 shares issued in 1997 and
1996 respectively)
Paid-in-capital 196,430,927 98,096,085
Retained earnings (deficit) (4,500,901) 177,320
Employee stock loans (4,654,176) (1,247,351)
Deferred compensation (72,500) (251,335)
Treasury stock, at cost (21,784 shares) (270,239) (270,239)
------------------------------------
Total stockholders' equity 187,091,739 96,594,904
------------------------------------
Total liabilities and stockholders' equity $297,136,554 $194,148,882
====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Income
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues
Rental $36,231,301 $20,249,565 $12,410,510
Reimbursements 10,688,046 4,814,005 2,354,598
Interest and other 744,514 168,739 200,818
-----------------------------------------------------------
Total revenues 47,663,861 25,232,309 14,965,926
-----------------------------------------------------------
Expenses
Real estate taxes 7,702,203 3,954,144 2,624,588
Other property operating 11,969,092 6,548,057 3,967,543
General and administrative 3,379,121 2,242,165 922,652
Interest 4,308,173 3,778,065 2,296,457
Depreciation and amortization 8,199,846 4,000,736 1,954,885
-----------------------------------------------------------
Total expenses 35,558,435 20,523,167 11,766,125
-----------------------------------------------------------
Income before gain on sale of properties 12,105,426 4,709,142 3,199,801
Gain on sale of properties 3,139,892
-----------------------------------------------------------
Net income $12,105,426 $7,849,034 $3,199,801
===========================================================
Earnings per common share $0.92 $1.33 $0.89
===========================================================
Weighted average common shares outstanding 13,140,124 5,884,708 3,605,450
===========================================================
Diluted earnings per common share $0.91 $1.32 $0.88
===========================================================
Weighted average common shares outstanding - diluted 13,304,540 5,927,208 3,650,133
===========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996, and 1995
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Paid in
Outstanding Outstanding Capital
<S> <C> <C> <C> <C> <C>
Balance at 1/1/95 2,561,418 $25,614 $24,121,806
Net proceeds from the sale
of common stock 1,698,610 16,986 18,810,244
Exercise of stock options 32,410 324 322,571
Net income
Distributions/ dividends
($1.13 per share)
Distributions/ dividends
reinvested 228,458 2,285 2,606,731
Purchase of treasury stock (12,951)
--------------------------------------------------------------------------------------------
Balance at 12/31/95 4,507,945 45,209 45,861,352
Net proceeds from the sale
of stock 210,128 2,101 3,867,000 38,670 47,378,490
Exercise of stock options 304,372 3,044 3,247,071
Net income
Distributions/ dividends
($1.20 per share)
Issuance of shares in
acquisition of Advisor, 100,000 1,000 1,129,572
net of issuance costs of $219,428
Restricted stock awards 40,000 400 479,600
Purchase of treasury stock (8,833)
--------------------------------------------------------------------------------------------
Balance at 12/31/96 210,128 2,101 8,810,484 88,323 98,096,085
Net proceeds from the sale
of common stock (210,128) (2,101) 6,555,000 65,550 92,939,810
Exercise of stock options 357,409 3,574 3,860,465
Net income
Distributions / dividends
($1.20 per share)
Issuance of shares for
property acquisitions 118,134 1,181 1,534,567
--------------------------------------------------------------------------------------------
Balance at 12/31/97 15,841,027 $158,628 $196,430,927
============================================================================================
F-5
<PAGE>
<CAPTION>
Retained Total
Earnings Employee Deferred Treasury Stockholders'
(Deficit) Stock Loans Compensation Stock Equity
Balance at 1/1/95 ($85,298) $24,062,122
<S> <C> <C> <C> <C> <C>
Net proceeds from the sale
of common stock 0
Exercise of stock options 0
Net income 3,199,801 3,199,801
Distributions/ dividends
($1.13 per share) (3,900,456) (3,900,456)
Distributions/ dividends
reinvested 0
Purchase of treasury stock (155,411) (155,411)
--------------------------------------------------------------------------------------------
Balance at 12/31/95 (785,953) (155,411) 23,206,056
Net proceeds from the sale
of stock 0
Exercise of stock options (1,247,351) (1,247,351)
Net income 7,849,034 7,849,034
Distributions/ dividends
($1.20 per share) (6,885,761) (6,885,761)
Issuance of shares in
acquisition of Advisor, 0
net of issuance costs of $219,428
Restricted stock awards (480,000) (480,000)
Purchase of treasury stock (114,828) (114,828)
Amortization of deferred 228,665 228,665
compensation
--------------------------------------------------------------------------------------------
Balance at 12/31/96 177,320 (1,247,351) (251,335) (270,239) 22,555,815
Net proceeds from the sale
of common stock 0
Exercise of stock options (3,406,825) (3,406,825)
Net income 12,105,426 12,105,426
Distributions / dividends
($1.20 per share) (16,783,647) (16,783,647)
Issuance of shares for
property acquisitions 0
Amortization of deferred
compensation 178,835 178,835
--------------------------------------------------------------------------------------------
Balance at 12/31/97 ($4,500,901) ($4,654,176) ($72,500) ($270,239) $14,649,604
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $12,105,426 $7,849,034 $3,199,801
Adjustments to reconcile net income to cash
flows from operating activities
Depreciation and amortization 8,378,681 4,229,401 1,954,885
Gain on sale of properties (3,139,892)
Net changes in assets and liabilities
Rents receivable (1,148,419) (846,619) (714,156)
Real estate tax escrows and other assets 421,020 293,536 (1,053,270)
Accounts payable, accrued expenses and other liabilities 1,150,783 3,513,972 1,124,108
Accrued real estate taxes 2,353,644 2,222,590 1,699,512
Payment of deferred leasing costs (1,832,010) (1,293,616) (561,373)
-----------------------------------------------------
Net cash provided by operating activities 21,429,125 12,828,406 5,649,507
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of properties (97,757,922) (97,563,034) (47,838,629)
Additions to buildings, improvements and equipment (5,999,111) (6,305,673) (2,861,135)
Proceeds from property sales, net 11,707,438
Other investing activities (300,000) 514,846 (950,000)
-----------------------------------------------------
Net cash used by investing activities (104,057,033) (91,646,423) (51,649,764)
-----------------------------------------------------
Proceeds from sale of common and preferred stock 101,602,500 50,271,000 20,628,232
Payment of stock offering costs (8,599,241) (2,851,739) (1,801,002)
Proceeds from exercise of stock options 457,214 2,002,764 322,895
Proceeds from bank and mortgage loans payable 100,425,000 39,549,220 27,503,148
Distributions/ dividends (16,783,647) (6,885,761) (3,523,211)
Distributions/ dividends reinvested 2,609,016
Purchase of treasury stock (114,828) (155,411)
Payment of bank and mortgage loans and bonds (94,428,005) (1,745,043) (740,996)
Payment of deferred financing costs (297,544) (1,022,151) (216,280)
-----------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 82,376,277 79,203,462 44,626,391
-----------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (251,631) 385,445 (1,373,866)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,688,173 1,302,728 2,676,594
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,436,542 $1,688,173 $1,302,728
=====================================================
Supplemental disclosure of cash flow
Interest paid $4,136,198 $3,542,064 $2,311,568
=====================================================
Non cash financing transactions
Issuance of shares to acquire Advisor $1,350,000
=====================================================
Restricted stock awards $480,000
=====================================================
Employee stock loans $3,406,825 $1,247,351
=====================================================
Issuance of shares to acquire properties $1,535,748
=====================================================
Mortgages and bonds assumed to acquire properties $2,989,415 $5,590,000
=====================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
GREAT LAKES REIT, INC.
NOTES TO CONSOLIDATED 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 December 31, 1997, the Company owned and operated 34
properties located in suburban areas of Chicago, Detroit, Milwaukee,
Cincinnati, Columbus and Minneapolis. The Company leases office and industrial
space to over 500 tenants in a variety of businesses.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and partnership, each of which was
formed in 1996. Significant intercompany accounts and transactions have been
eliminated in consolidation.
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 expense 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 years ended December 31, 1997,
1996 and 1995, depreciation expense amounted to $6,463,342, $3,169,182, and
$1,665,730, respectively.
Properties are carried at cost, which is not in excess of net
realizable value. The Company recognizes 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.
Deferred Costs
Deferred costs consist principally of financing fees and leasing
commissions that 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 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 a
maturity of three months or less to be cash equivalents. At December 31, 1997
and 1996, the Company had $1,411,796 and $418,528, respectively, in a money
market fund.
Income Taxes
The Company has elected to be treated as a real estate investment trust
("REIT") under the applicable provisions of the Internal Revenue Code of 1986,
as amended. In order to qualify as a REIT, 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.
F-8
<PAGE>
As of December 31, 1997, properties, rents receivable, goodwill and
prepaid rent have a federal income tax basis of approximately $284,250,000,
$1,018,000, $-0- and $-0-, respectively.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
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 or exceeds the
market price of the underlying stock at the date of grant.
Fair Value of Financial Instruments
The Company discloses information concerning the fair value of financial
instruments for which it is practical to estimate such fair values. The carrying
amounts reported for cash and cash equivalents in the accompanying consolidated
balance sheets approximate its fair value. The carrying amount of the Company's
long-term debt approximates its fair value at December 31, 1997 and 1996 based
upon (a) the fixed interest rates on mortgage loans payable are comparable to
interest rates offered in the market as of the respective balance sheet dates
and (b) the variable interest rates on other long-term debt.
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.
2. Deferred Costs
Deferred costs consisted of the following at December 31, 1997 and
1996:
1997 1996
Deferred financing costs $1,439,491 $1,526,503
Deferred leasing costs 4,072,356 2,345,455
---------------- ----------------
5,511,847 3,871,958
Less accumulated amortization 2,067,443 895,056
---------------- ----------------
$3,444,404 $2,976,902
================ ================
During the years ended December 31, 1997, 1996 and 1995, amortization
of financing costs was $1,098,829, $427,375, and $130,500, respectively, and
amortization of leasing costs was $563,223, $348,340, and $158,655,
respectively.
3. Long-Term Debt
Mortgage loans payable aggregated $17,567,757 and $17,073,979 at
December 31, 1997 and 1996, respectively. The mortgage loans payable require
monthly payments of principal and interest. Interest rates at December 31, 1997,
ranged from 7.08% to 8.95%.
The Company has obtained a bank letter of credit to secure repayment of
the bonds payable in an amount of approximately $5.3 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 (4.25% per annum at December 31, 1997) is reset weekly by the bond
placement agent.
F-9
<PAGE>
On March 13, 1998, the Company accepted a commitment for a new $100 million
unsecured credit facility (the "Unsecured Facility") (see Note 14) which is
expected to be funded upon closing of the transaction. The terms of the
Unsecured Facility include maturity in March 2001 and interest at a rate of
LIBOR plus 1% to 1.3% depending on overall Company leverage, as defined. The
borrowings under the Unsecured Facility would be limited by certain
loan-to-value covenants related to the Company's properties. The Unsecured
Facility will replace the Company's prior facility under which $72,500,000 was
outstanding at December 31, 1997. This prior facility provided for interest at
LIBOR plus 1.5% (7.5% at December 31, 1997).
The following is a summary of principal maturities of mortgage loans
and bonds payable after giving consideration to the Unsecured Facility described
above:
Year Ending December 31, Amount
1998 $553,978
1999 615,975
2000 675,506
2001 73,237,448
2002 801,999
Thereafter 19,212,851
----------
$95,097,757
===========
At December 31, 1997, properties with a carrying amount of
approximately $181.1 million were pledged as collateral under the various debt
agreements.
4. Related Parties
On April 1, 1996, the Company acquired all the outstanding shares of
Equity Partners Ltd. (the "Advisor") in exchange for 100,000 shares of its
common stock (the "Merger"). The Merger has been accounted for as a purchase. Of
the total purchase price of $1,565,726, $1,489,033 was assigned to goodwill and
$76,693 to the net tangible assets of the Advisor acquired by the Company.
Goodwill amortization is computed on a straight-line basis over a 20-year
period. 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 have
received 40,000 restricted shares of common stock. Certain restricted shares
(30,000 shares) vested to the recipients in 1997. 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 the dates of grant ($480,000) was
deferred and is being recognized as compensation expense over the vesting
periods.
Pursuant to various advisory and management agreements, the following
fees were incurred with respect to the Advisor, or affiliates prior to the
Merger. Two directors of the Company were shareholders of the Advisor.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property acquisition fees $ 15,750 $787,256
Stock offering fees -- 131,747
Stock selling commissions (a) -- 217,046
Advisory fees (b) 203,697 608,612
Property management fees (b) 217,971 564,369
Construction management fees 107,717 73,549
Other, primarily legal fees 17,712 30,703
</TABLE>
(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 that would have expired April 1, 1999.
Semi-annual 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.
F-10
<PAGE>
5. Stock Options
Prior to 1996, the Company had a stock option plan that provides for
the granting of options to non-employee directors. At December 31, 1997, options
on 130,590 shares were available for future grant.
In 1996, the Company adopted the 1996 Incentive Stock Option Plan (the
"1996 Plan") which authorized the issuance of 500,000 shares of common stock to
key employees. The 1996 Plan was superseded by the 1997 Equity and Performance
Incentive Plan (the "1997 Plan").
In 1997, the Company adopted the 1997 Plan whereby 2,250,000 shares of
common stock were reserved for issue to key employees. In connection with the
1997 Plan, options on shares issued pursuant to the 1996 Plan (94,000) are now
covered by the 1997 Plan. At December 31, 1997, 838,000 shares were available
for future grant under the 1997 Plan.
For options granted in 1997, 1996 and 1995, the exercise prices at the
dates of grant were equal to or greater than the fair value of the Company's
stock. Accordingly, no compensation expense was recognized in these years.
A summary of the Company's stock option activity and related
information for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Options Weighted Options Weighted Options Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C>
Balance 1/1 601,628 $11.69 735,576 $11.02 451,129 $10.10
1,343,000 16.52 170,424 12.76 316,857 12.24
Exercised 370,725 11.30 304,372 10.68 32,410 9.96
--------------- ------------------ -------------- ------------------ -------------- ---------------
Balance 12/31 1,573,903 $15.91 601,628 $11.69 735,576 $11.02
=============== ================== ============== ================== ============== ===============
Exercisable 779,847 $15.29 507,628 $11.45 735,576 $11.02
=============== ================== ============== ================== ============== ===============
</TABLE>
The weighted average fair value of the options granted in 1997 where
the stock price equals the exercise price is $3.18. The weighted average fair
value of options granted where the stock price is less than the exercise price
is $1.43. 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 December 31, 1997, was 8.96 years.
Pro forma information regarding net income and earnings per share is
required by FASB Statement 123 "Accounting for Stock-Based Compensation," and
has been 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 1997: risk-free
interest rate of 5.75%; dividend yields of 6.17% to 7.5%; volatility factors of
the expected market price of the Common Stock of 0.341%; and a weighted-average
expected life of the options of three years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that 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.
F-11
<PAGE>
The effects on 1997 and 1996 pro forma net income and pro forma
earnings per common share, both basic and diluted, of amortizing to expense the
estimated fair value of stock options are not necessarily representative of the
effects on net income to be reported in future years due to such things as the
vesting period of the stock options, and the potential for issuance of
additional stock options in future years.
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
unaudited pro forma information follows for the years ended December 31, 1997
and 1996:
1997 1996
Pro forma net income $10,567,711 $7,838,767
Pro forma basic earnings per
common share $0.80 $1.33
Pro forma diluted earnings
per common share $0.79 $1.32
The Company has a limited purpose employee loan program whereby
employees may borrow up to 100% of the cost of exercising stock options held by
the employee. Such loans bear interest at the Company's cost of funds 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
common stock acquired by the employee through this program. As of December 31,
1997, employees had acquired 356,231 shares through this program with
outstanding loan amounts of $4,654,176 due the Company. Such amount is reflected
as a reduction of stockholders' equity until the loans are repaid.
6. Stock Offerings
In 1996, the Company sold 3,867,000 shares of common stock at $13 per
share and issued 210,128 shares of Class A Convertible Preferred Stock (the
"Preferred Shares"). The Company received proceeds of $47.4 million (net of
offering costs of $2,851,739) from the sale of these shares. The Preferred
Shares were canceled in 1997.
In February 1997, the Company issued 118,134 shares of common stock
with a total value at issuance of $1,535,748 in connection with the acquisition
of the Markham, Illinois and Elgin, Illinois properties.
In May 1997, the Company closed the initial public offering of its
common shares. The Company sold 6.55 million shares of common stock at the price
of $15.50 per share including shares issued upon exercise of the underwriter's
over allotment option. Net proceeds to the Company were approximately $93
million, substantially all of which was used to repay its bank lines of credit
and other indebtedness including certain mortgage debt on the Company's
properties. With the completion of the initial public offering, the Preferred
Shares were canceled.
7. Leases
The Company leases office and industrial properties to tenants under
noncancellable operating leases that expire at various dates through 2008. 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 noncancellable
operating leases:
Year ending December 31, Amount
1998 $44,166,562
1999 38,827,645
2000 31,993,193
2001 22,409,580
2002 14,463,867
Thereafter 24,688,289
---------------------
$176,549,136
=====================
Minimum future rentals do not include amounts that are received from
tenants as a reimbursement of property operating expenses.
F-12
<PAGE>
8. Distributions
The Company declared periodic distributions of $16,783,647, $6,885,761,
and $3,900,456 to stockholders of record during the calendar years 1997, 1996
and 1995, respectively. Of the $3,900,456 of distributions for 1995, $504,564
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:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Ordinary income $14,848,493 $6,078,061 $3,410,249
Return of capital 1,935,154 807,700 490,207
----------------------------- ----------------------------- -----------------------------
Total $16,783,647 $6,885,761 $3,900,456
============================= ============================= =============================
</TABLE>
9. Property Acquisitions
The following properties were acquired in 1997 and 1996 and the results
of their operations are included in the statements of income from their
respective dates of acquisition.
<TABLE>
Total Acquisition Price
<CAPTION>
Location Date 1997 1996
Acquired
<S> <C> <C> <C>
Markham, IL 2/10/97 $1,262,887
Elgin, IL 2/10/97 3,816,230
375 Bishop's Way
Brookfield, WI 4/18/97 4,961,434
1750 East Golf Road
Schaumburg, IL 9/01/97 19,831,768
425 Metro Place North
Dublin, OH 9/30/97 7,158,772
655 Metro Place South
Dublin, OH 9/30/97 19,639,612
3455, 3550, 3555 Salt Creek Lane
Arlington Heights, IL 10/10/97 5,176,641
Farmington Hills, MI 12/10/97 23,828,038
Ann Arbor, MI 12/17/97 16,607,703
1251 Plum Grove Rd.
Schaumburg, IL 1/01/96 $1,080,911
Springdale, OH 4/17/96 6,145,650
Lincolnshire, IL 7/24/96 2,840,378
4860-5000 Blazer Memorial Parkway
Dublin, OH 9/25/96 8,382,268
Downers Grove, IL 11/01/96 9,373,393
West Allis, WI 11/08/96 7,994,581
Troy, MI 11/22/96 16,100,416
St. Paul, MN 12/13/96 14,327,418
40 Oak Hollow
Southfield, MI 12/18/96 7,306,200
Centennial Center
Schaumburg, IL 12/27/96 24,011,819
</TABLE>
10. Property Dispositions
In October 1996, the Company sold for cash its property located at 10
Oak Hollow, Southfield, Michigan, for a contract price of $9,300,000 (less
selling costs of approximately $278,771) resulting in a gain on sale of
$2,273,800. The proceeds from the sale were invested in the Downers Grove,
Illinois property (see Note 9) via a tax-deferred exchange.
F-13
<PAGE>
In December 1996, the Company sold for cash its property located at 830
West End Court in Vernon Hills, Illinois, for a contract price of $2,778,000
(less selling costs of approximately $91,791) resulting in a gain on sale of
$866,092. Long term debt in an amount of $926,051 was retired concurrent with
the sale. The proceeds from the sale were invested in the St. Paul, Minnesota
property (see Note 9) via a tax-deferred exchange.
11. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
Numerator:
<S> <C> <C> <C>
Net income $12,105,426 $7,849,034 $3,199,801
Numerator for basic and fully diluted earnings
per share 12,105,426 7,849,034 3,199,801
Denominator:
Denominator for basic earnings per share
Weighted average shares 13,140,124 5,884,708 3,605,450
Effect of dilutive securities
Employee stock options 164,416 42,500 44,683
-------------------- ---------------- ----------------
Denominator for fully diluted earnings per share 13,304,540 5,927,208 3,650,133
==================== ================ ================
Basic earnings per share $0.92 $1.33 $0.89
==================== ================ ================
Diluted earnings per share $0.91 $1.32 $0.88
==================== ================ ================
</TABLE>
12. Quarterly Financial Data (Unaudited)
The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting Standards
No. 128, Earnings per Share.
<TABLE>
<CAPTION>
3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C>
Revenues $10,643,218 $11,074,050 $11,817,223 $14,129,370
Net income $1,808,634 $2,303,731 $4,115,734 $3,877,327
Basic earnings
per share $0.20 $0.19 $0.26 $0.25
Diluted earnings
per share $0.20 $0.18 $0.26 $0.24
<CAPTION>
3/31/96 6/30/96 9/30/96 12/31/96
Revenues $5,543,783 $5,927,282 $6,141,521 $7,619,723
Net income $971,412 $939,374 $1,001,779 $4,936,469
Basic earnings
per share $0.21 $0.20 $0.17 $0.59
Diluted earnings
per share $0.21 $0.19 $0.17 $0.58
</TABLE>
F-14
<PAGE>
13. Pro Forma Information (unaudited)
The following unaudited pro forma summary presents information as if
the Company's property acquisitions, property dispositions, and sales of common
stock through December 31, 1997 had occurred at the beginning of each year. The
pro forma information is provided for informational purposes only. It is based
on historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operations of the Company.
1997 1996
Total revenue $63,195,000 $57,792,000
Net income $16,674,000 $14,564,000
Basic earnings per share $1.05 $0.92
Diluted earnings per share $1.04 $0.92
14. Subsequent Events
On January 6, 1998, the Company entered into a $35 million unsecured
revolving loan agreement with a commercial bank. Amounts due under this
agreement mature July 6, 1998.
On January 7, 1998, the Company bought the Star Bank Building in
Columbus, Ohio, for a contract price of $22 million.
In February, 1998, the Company entered into a contract to purchase a
96,000 square foot to-be-constructed office building located in Pewaukee,
Wisconsin, for a contract price of approximately $11 million. The Company
expects to complete this purchase in June 1999 subject to the seller meeting the
terms and conditions of the purchase contract.
In February 1998, the Company sold its Bloomington, Minnesota property
for a contract price of $1.4 million which approximated the net book value of
the property.
On March 13, 1998, the Company accepted a commitment for a new $100
million unsecured credit facility (Note 3).
F-15
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost to the Company Subsequent to Acquisition
--------------------------- -------------------------
Buildings & Buildings &
Encumbrance Land Improvements Land Improvements
<S> <C> <C> <C> <C> <C>
1900 East Golf Road (B) $3,800,000 $20,211,819 - $951,707
Schaumburg, IL
1750 East Golf Road - $2,300,000 $17,531,768 - $26,155
Schaumburg, IL
160-185 Hansen Court - $2,100,000 $3,210,289 - $870,371
Wood Dale, IL
3455, 3550, 3555 Salt Creek Lane - $850,000 $4,326,641 - $0
Arlington Heights, IL
601 Campus Drive - $900,000 $2,263,967 - $1,059,986
Arlington Heights, IL
1251 Plum Grove Road - $372,750 $708,161 - $257,651
Schaumburg, IL
1011 Touhy Avenue - $720,000 $3,932,248 - $2,095,378
Des Plaines, IL
2800 River Road (B) $1,300,000 $3,461,053 - $655,665
Des Plaines, IL
1660 Feehanville Drive (B) $1,100,000 $4,302,526 - $285,166
Mount Prospect, IL
565 Lakeview Parkway (B) $1,300,000 $3,581,675 - $372,175
Vernon Hills, IL
175 E. Hawthorn Parkway - $1,600,000 $4,721,338 - $936,899
Vernon Hills, IL
Two Marriott Drive (B) $610,000 $2,230,378 - $27,526
Lincolnshire, IL
3400 Dundee Road - $607,500 $3,475,922 - $676,689
Northbrook, IL
3010 & 3020 Wood Creek Drive (B) $2,385,000 $6,988,393 - $39,364
Downers Grove, IL
823 Commerce Drive (B) $500,000 $1,260,930 - $3,198,566
Oak Brook, IL
1675 Holmes Road $2,173,457 $842,609 $2,973,621 - $0
Elgin, IL
16601 S. Kedzie Avenue - $132,544 $1,130,342 - $31,152
Markham, IL
11270 W. Park Place (B) $940,000 $14,735,908 - $573,226
Milwaukee, WI
11925 W. Lake Park Drive - $318,750 $1,819,058 - $286,834
Milwaukee, WI
2514 S. 102nd Street & 10150 (B) $975,000 $7,019,581 - $219,226
W. National Avenue
West Allis, WI
150, 175, 250 Patrick Blvd. $3,269,300 $2,600,000 $3,964,742 - $822,923
Brookfield, WI
S-1
<PAGE>
375 Bishop's Way - $600,000 $4,361,434 - $19,665
Brookfield, WI
2550 University Avenue West (B) $850,000 $13,477,418 - $272,905
St. Paul, MN
2221 University Avenue SE $5,030,000 $1,100,000 $7,090,374 - $198,655
Minneapolis, MN
11100 Hampshire Avenue - $310,000 $1,123,932 - $24,353
Bloomington, MN
777 East Eisenhower Parkway - $4,000,000 $12,607,703 - $32,782
Ann Arbor, MI
32255 Northwestern Highway $12,125,000 $3,700,000 $20,128,038 - $0
Farmington Hill, MI
1301 W. Long Lake Road (B) $2,500,000 $13,600,416 - $418,091
Troy, MI
No. 40 OakHollow (B) $1,250,000 $6,056,200 - $244,804
Southfield, MI
24800 Denso Drive (B) $1,400,000 $4,546,304 - $784,726
Southfield, MI
655 Metro Place South - $1,470,000 $18,169,612 - $7,635
Dublin, OH
4860-5000 Blazer Memorial Pkwy (B) $1,340,000 $7,042,268 - $348,215
Dublin, OH
425 Metro Place North - $620,000 $6,538,772 - $6,202
Dublin, OH
30 Merchant Street (B) $650,000 $5,495,650 - $1,133,088
Springdale, OH
---------------------------------------------------------------
Totals $22,597,757 $46,044,153 $234,088,482 $0 $16,877,782
===============================================================
S-2
<PAGE>
<CAPTION>
Gross Amount at which
Carried at December 31, 1997
Buildings & Accumulated Date Method of
Land Improvements Total Depreciation Acquired Depreciation
<S> <C> <C> <C> <C> <C> <C>
1900 East Golf Road $3,800,000 $21,163,526 $24,963,526 $577,620 Dec-96 (A)
Schaumburg, IL
1750 East Golf Road $2,300,000 $17,557,923 $19,857,923 $130,334 Sep-97 (A)
Schaumburg, IL
160-185 Hansen Court $2,100,000 $4,080,660 $6,180,660 $659,930 Jan-94 (A)
Wood Dale, IL
3455, 3550, 3555 Salt Creek Ln $850,000 $4,326,641 $5,176,641 $22,535 Oct-97 (A)
Arlington Heights, IL
601 Campus Drive $900,000 $3,323,953 $4,223,953 $630,631 May-93 (A)
Arlington Heights, IL
1251 Plum Grove Road $372,750 $965,812 $1,338,562 $96,947 Jan-96 (A)
Schaumburg, IL
1011 Touhy Avenue $720,000 $6,027,626 $6,747,626 $774,402 Dec-93 (A)
Des Plaines, IL
2800 River Road $1,300,000 $4,116,718 $5,416,718 $446,943 Feb-95 (A)
Des Plaines, IL
1660 Feehanville Drive $1,100,000 $4,587,692 $5,687,692 $264,829 Aug-95 (A)
Mount Prospect, IL
565 Lakeview Parkway $1,300,000 $3,953,850 $5,253,850 $227,522 Dec-95 (A)
Vernon Hills, IL
175 E. Hawthorn Parkway $1,600,000 $5,658,237 $7,258,237 $735,025 Sep-94 (A)
Vernon Hills, IL
Two Marriott Drive $610,000 $2,257,904 $2,867,904 $82,056 Jul-96 (A)
Lincolnshire, IL
3400 Dundee Road $607,500 $4,152,611 $4,760,111 $714,468 Oct-93 (A)
Northbrook, IL
3010 & 3020 Wood Creek Drive $2,385,000 $7,027,757 $9,412,757 $199,124 Nov-96 (A)
Downers Grove, IL
823 Commerce Drive $500,000 $4,459,496 $4,959,496 $299,479 Nov-95 (A)
Oak Brook, IL
1675 Holmes Road $842,609 $2,973,621 $3,816,230 $65,048 Feb-97 (A)
Elgin, IL
16601 S. Kedzie Avenue $132,544 $1,161,494 $1,294,038 $67,362 Feb-97 (A)
Markham, IL
11270 W. Park Place $940,000 $15,309,134 $16,249,134 $966,942 Sep-95 (A)
Milwaukee, WI
11925 W. Lake Park Drive $318,750 $2,105,892 $2,424,642 $310,205 Jun-93 (A)
Milwaukee, WI
2514 S. 102nd Street & 10150 $975,000 $7,238,807 $8,213,807 $210,865 Nov-96 (A)
W. National Avenue
West Allis, WI
150, 175, 250 Patrick Blvd. $2,600,000 $4,787,665 $7,387,665 $731,286 Jun-94 (A)
Brookfield, WI
375 Bishop's Way $600,000 $4,381,099 $4,981,099 $77,921 Apr-97 (A)
Brookfield, WI
2550 University Avenue West $850,000 $13,750,323 $14,600,323 $388,665 Dec-96 (A)
St. Paul, MN
S-3
<PAGE>
2221 University Avenue SE $1,100,000 $7,289,029 $8,389,029 $482,305 May-95 (A)
Minneapolis, MN
11100 Hampshire Avenue $310,000 $1,148,285 $1,458,285 $143,679 Jan-93 (A)
Bloomington, MN
777 East Eisenhower Parkway $4,000,000 $12,640,485 $16,640,485 $13,133 Dec-97 (A)
Ann Arbor, MI
32255 Northwestern Highway $3,700,000 $20,128,038 $23,828,038 $21,649 Dec-97 (A)
Farmington Hill, MI
1301 W. Long Lake Road $2,500,000 $14,018,507 $16,518,507 $416,943 Nov-96 (A)
Troy, MI
No. 40 OakHollow $1,250,000 $6,301,004 $7,551,004 $166,384 Dec-96 (A)
Southfield, MI
24800 Denso Drive $1,400,000 $5,331,030 $6,731,030 $501,044 Aug-95 (A)
Southfield, MI
655 Metro Place South $1,470,000 $18,177,247 $19,647,247 $132,547 Sep-97 (A)
Dublin, OH
4860-5000 Blazer Memorial Pkwy$1,340,000 $7,390,483 $8,730,483 $231,902 Sep-96 (A)
Dublin, OH
425 Metro Place North $620,000 $6,544,974 $7,164,974 $48,541 Sep-97 (A)
Dublin, OH
30 Merchant Street $650,000 $6,628,738 $7,278,738 $475,300 Apr-96 (A)
Springdale, OH
----------------------------------------------------
Totals $46,044,153 $250,966,264 $297,010,417 $11,313,566
====================================================
<FN>
(A) Depreciation of buildings is computed over a 15 to 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 $72,500,000 at December 31, 1997.
(C) At December 31, 1997, the aggregate cost of land, buildings, & improvements
for Federal income tax purposes was approximately $295,417,000.
(D) Reconciliation of Real Estate Owned and Accumulated Depreciation
Real Estate Owned: Accumulated Depreciation:
1997 1996 1995 1997 1996 1995
Balance beginning of year $189,113,668 $94,265,979 $37,976,215 Balance beginning of year $5,239,656 $2,462,187 $817,114
Property acquisitions $102,283,086 $97,563,034 $53,428,629 Depreciation expenses $6,073,910 $3,119,829 $1,645,073
Additions $5,613,663 $6,136,428 $2,861,135 Retirements - - -
Disposals - $8,851,773 - Disposals - $342,360 -
--------------------------------------- ----------------------------------
Balance end of year $297,010,417 $189,113,668 $94,265,979 Balance end of year $11,313,566 $5,239,656 $2,462,187
======================================= ==================================
</FN>
</TABLE>
S-4
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
-----------------------------
EXHIBITS
To
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1997
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
3.1 Articles of Amendment and Restatement of the Company
filed with the Maryland State Department of
Assessments and Taxation September 23, 1997
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the
period end June 30, 1997
3.2 Amended and restated bylaws of the Company dated
September 11, 1997 (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement
on Form S-3 dated November 13, 1997) (No. 333-40129)
4.1 Registration Rights Agreement dated as of August 20,
1996 by and among the Company, Fortis Benefits
Insurance Company, Morgan Stanley Institutional Fund,
Inc. - U.S. Real Estate Portfolio, Morgan Stanley
SICAV Subsidiary SA, Wellsford Karpf Zarrilli
Ventures, L.L.C., Logan, Inc.; and Pension Trust
Account 104972 Held by Bankers Trust Company as
Trustee (incorporated by reference to Exhibit 2 to
the Company's Current Report on Form 8-K dated August
28, 1996)
10.1 Form of Unsecured Revolving Credit Agreement dated as
of January 6, 1998 among Great Lakes REIT, L.P., and
Bank of America National Trust Savings Association.
10.2 Amended and Restated Agreement of Limited Partnership
of Great Lakes REIT, L.P., dated December 27, 1996
(Incorporated by reference to Exhibit 5 to the
Company's Current Report on Form 8-K dated January
14, 1997 (the "January 1997 8-K"))
10.3 First Amendment to the Amended and Restated Agreement
of Limited Partnership of Great Lakes REIT, L.P.,
dated February 6, 1997 (incorporated by reference
to Exhibit 10.31 in the Company's Registration
Statement on Form S-11) (No. 333-22619)
* 10.4 The Company's 1997 Equity and Performance Incentive
Plan
10.5 Indemnification Escrow Agreement dated April 1, 1996
between the Company, Richard A. May, Richard L.
Rasley, Tim A. Grodrian, and American National Bank
and Trust Company of Chicago (incorporated by
reference to Exhibit 10.8 from the Company's Form 10
Registration Statement (the "Form 10"))(Commission
File No. 0-28354)
* 10.6 Restricted Stock Agreement dated May 1, 1996 between
the Company and Raymond Braun (incorporated by
reference to Exhibit 10.8.6 to the S-11)
* 10.7 Stock Option Plan for Independent Directors and
Brokers (the "Directors Plan") dated July 2, 1992 as
amended November 18, 1997
* 10.8 Form of Non-Qualified Stock Option Certificate
dated December 31, 1997, between the Company and Jay
Brinkerhoff (assigned to Fortis Benefits Insurance
Company), Daniel E. Josephs, Edward Lowenthal, Donald
E. Phillips, and Walter Teninga for 5,000 shares of
Common Stock for use in connection with options
granted pursuant to the Directors Plan (incorporated
by reference to Exhibit 10.11.12 to the S-11)
10.9 Form of Change in Control Agreement between
the Company and Messrs. May, Hunt, Rasley,
Braun, Hicks, Mills and Scurto
* 10.10 Form of Stock Option Agreement for use in connection
with incentive stock option, and pursuant to the
Company's 1997 Equity and Performance Incentive Plan;
Richard A. May, Patrick R. Hunt, Richard L. Rasley,
James Hicks, Raymond Braun, Kim S. Mills and Edith M.
M. Scurto entered into agreements in 1997 that
evidenced 320,000, 174,000, 172,000, 149,000,
149,000, 88,000 and 86,000 options to purchase Common
Stock, respectively, under the Company's 1997 Equity
and Performance Incentive Plan
* 10.11 Limited Purpose Employee Loan Program of the Company
(incorporated by reference to Exhibit 10.61 of the
Form 10/A filed with the SEC on January 9, 1997)
10.12 Form of Limited Purpose Employee Loan
Program Promissory Note for use in
connection with limited purpose employee
loans
10.13 Amended and Restated Revolving Credit Agreement (the
"Amended and Restated Revolving Credit Agreement")
Dated as of December 27, 1996 among the Operating
Partnership and the Company and The First National
Bank of Boston and Bank of America Illinois and First
Bank National Association and Other Banks Which May
Become Parties to the Agreement and The First
National Bank of Boston as Agent (incorporated by
reference to Exhibit 3 of the January 1997 8-K)
10.14 Form of Amendment to the Amended and Restated
Revolving Credit Agreement dated as of March 1, 1997
(incorporated by reference to Exhibit 10.25 to the
S-11)
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule for year ended December 31,
1997
27.2 Restated Financial Data Schedule for Nine Months
ended September 30, 1997
27.3 Restated Financial Data Schedule for Six Months ended
June 30, 1997
27.4 Restated Financial Data Schedule for Three Months
ended March 31, 1997
27.5 Restated Financial Data Schedules for year ended
December 31, 1996
27.6 Restated Financial Data Schedule for Nine Months
ended September 30, 1996
27.7 Restated Financial Data Schedule for Six Months ended
June 30, 1996
27.8 Restated Financial Data Schedule for Three Months
ended March 31, 1996
<PAGE>
Exhibit 10.1
UNSECURED REVOLVING CREDIT AGREEMENT
DATED AS OF JANUARY 6, 1998
AMONG
GREAT LAKES REIT, L.P., AS BORROWER
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
AND
THE FIRST NATIONAL BANK OF CHICAGO
AS LENDERS
AND
THE FIRST NATIONAL BANK OF CHICAGO
AS DOCUMENTATION AGENT
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS..................................1
1.1 Definitions.....................................................1
1.2 Financial Standards.............................................5
ARTICLE II THE FACILITY.....................................................5
2.1 The Facility....................................................5
2.2 Principal Payments..............................................5
2.3 Requests for Advances: Responsibility for Advances..............5
2.4 Evidence of Credit Extensions...................................5
2.5 Ratable Loans...................................................5
2.6 Unused Commitment Fee...........................................5
2.7 Other Fees......................................................5
2.8 Minimum Amount of Each Advance..................................5
2.9 Interest........................................................5
2.10 Selection of Rate Options and LIBOR Interest Periods...........5
2.11 Method of Payment..............................................5
2.12 Default........................................................5
2.13 Lending Installations..........................................5
2.14 Non-Receipt of Funds by Administrative Agent...................5
2.15 Application of Moneys Received.................................5
2.16Voluntary Reduction of Aggregate Commitment Amount..............5
ARTICLE III INTENTIONALLY DELETED...........................................5
ARTICLE IV CHANGE IN CIRCUMSTANCES..........................................5
4.1 Yield Protection................................................5
4.2 Changes in Capital Adequacy Regulations.........................5
4.3 Availability of LIBOR Advances..................................5
4.4 Funding Indemnification.........................................5
4.5 Lender Statements; Survival of Indemnity........................5
ARTICLE V CONDITIONS PRECEDENT..............................................5
5.1 Conditions Precedent to Closing.................................5
5.2 Conditions Precedent to Subsequent Advances.....................5
ARTICLE VI REPRESENTATIONS AND WARRANTIES...................................5
6.1 Existence.......................................................5
6.2 Corporate/Partnership Powers....................................5
6.3 Power of Officers...............................................5
6.4 Government and Other Approvals..................................5
6.5 Solvency........................................................5
6.6 Compliance With Laws and Agreements.............................5
6.7 Enforceability of Agreement.....................................5
6.8 Title to Property...............................................5
6.9 Litigation......................................................5
6.10 Events of Default..............................................5
6.11 Investment Company Act of 1940.................................5
<PAGE>
6.12 Public Utility Holding Company Act.............................5
6.13 Regulation U...................................................5
6.14 No Material Adverse Financial Change...........................5
6.15 Financial Information..........................................5
6.16 Factual Information............................................5
6.17 ERISA..........................................................5
6.18 Taxes..........................................................5
6.19 Environmental Matters..........................................5
6.20 Insurance......................................................5
6.21 No Brokers.....................................................5
6.22 No Violation of Usury Laws.....................................5
6.23 Not a Foreign Person...........................................5
6.24 No Trade Name..................................................5
6.25 Subsidiaries...................................................5
6.26 Properties.....................................................5
6.27 Relationship of the Borrower...................................5
6.28 No Side Deals..................................................5
ARTICLE VII FINANCIAL COVENANTS.............................................5
7.1 Minimum Consolidated Net Worth..................................5
7.2 Maximum Consolidated Leverage Ratio.............................5
7.3 Minimum Consolidated Interest Coverage Ratio....................5
7.4 Minimum Fixed Charge Coverage Ratio.............................5
7.5 Maximum Unencumbered Asset Coverage Ratio.......................5
7.6 Minimum Unencumbered Asset NOI to Unsecured Interest............5
7.7 Maximum Secured Debt to Gross Asset Value.......................5
7.8 Maximum Dividend Payout Ratio...................................5
ARTICLE VIII AFFIRMATIVE COVENANTS..........................................5
8.1 Notices.........................................................5
8.2 Financial Statements, Reports. Etc..............................5
8.3 Existence and Conduct of Operations.............................5
8.4 Maintenance of Properties.......................................5
8.5 Insurance.......................................................5
8.6 Payment of Obligations..........................................5
8.7 Compliance with Laws............................................5
8.8 Adequate Books..................................................5
8.9 ERISA...........................................................5
8.10 Maintenance of Status..........................................5
8.11 Use of Proceeds................................................5
8.12 Pre-Acquisition Environmental Investigations...................5
8.13 New Subsidiaries...............................................5
8.14 Distributions..................................................5
ARTICLE IX NEGATIVE COVENANTS...............................................5
9.1 Change in Business..............................................5
9.3 Change of Borrower Ownership....................................5
9.4 Use of Proceeds.................................................5
9.5 Transfers of Unencumbered Assets................................5
9.6 Liens...........................................................5
9.7 Regulation U....................................................5
<PAGE>
9.8 Mergers and Dispositions........................................5
9.9 Negative Pledge.................................................5
9.10 Consolidated Secured Recourse Debt.............................5
ARTICLE X DEFAULTS..........................................................5
10.1 Nonpayment of Principal........................................5
10.2 Certain Covenants..............................................5
10.3 Nonpayment of Interest and Other Obligations...................5
10.4 Cross Default..................................................5
10.5 Loan Documents.................................................5
10.6 Representation or Warranty.....................................5
10.7 Covenants, Agreements and Other Conditions.....................5
10.8 No Longer General Partner......................................5
10.9 Material Adverse Financial Change..............................5
10.10 Bankruptcy....................................................5
10.11 Legal Proceedings.............................................5
10.12 ERISA.........................................................5
10.13 Failure to Satisfy Judgments..................................5
10.14 Environmental Remediation.....................................5
ARTICLE XI ACCELERATION, WAIVERS AMENDMENTS AND REMEDIES....................5
11.1 Acceleration...................................................5
11.2 Preservation of Rights; Amendments.............................5
ARTICLE XII THE ADMINISTRATIVE AGENT........................................5
12.1 Appointment....................................................5
12.2 Powers.........................................................5
12.3 General Immunity...............................................5
12.4 No Responsibility for Loans, Recitals, etc.....................5
12.5 Action on Instructions of Lenders..............................5
12.6 Employment of Administrative Agents and Counsel................5
12.7 Reliance on Documents..........................................5
12.8 Administrative Agent's Reimbursement and Indemnification.......5
12.9 Rights as a Lender.............................................5
12.10 Commitment as a Lender........................................5
12.11 Lender Credit Decision........................................5
12.12 Successor Administrative Agent................................5
12.13 Notice of Defaults............................................5
12.14 Requests for Approval.........................................5
12.15 Copies of Documents...........................................5
12.16 Defaulting Lenders............................................5
12.17 Withholding Tax...............................................5
12.18 Borrower's Default; Enforcement...............................5
12.19 Workout.......................................................5
12.20 Bankruptcy of Borrower........................................5
12.21 Relationship of Parties.......................................5
12.22 Counsel.......................................................5
ARTICLE XIII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS..............5
13.1 Successors and Assigns.........................................5
13.2 Participations.................................................5
<PAGE>
13.3 Assignments....................................................5
13.4 Dissemination of Information...................................5
13.5 Tax Treatment..................................................5
ARTICLE XIV GENERAL PROVISIONS..............................................5
14.1 Survival of Representations....................................5
14.2 Governmental Regulation........................................5
14.3 Taxes..........................................................5
14.4 Headings.......................................................5
14.5 No Third Party Beneficiaries...................................5
14.6 Expenses: Indemnification......................................5
14.7 Severability of Provisions.....................................5
14.8 Nonliability of the Lenders....................................5
14.9 Choice of Law..................................................5
14.10 Consent to Jurisdiction.......................................5
14.11 Waiver of Jury Trial..........................................5
14.12 Successors and Assigns........................................5
14.13 Entire Agreement; Modification of Agreement...................5
14.14 Dealings with the Borrower....................................5
14.16 Counterparts..................................................5
14.17 Discretion....................................................5
ARTICLE XV NOTICES..........................................................5
15.1 Giving Notice..................................................5
15.2 Change of Address..............................................5
<PAGE>
UNSECURED REVOLVING CREDIT AGREEMENT
THIS UNSECURED REVOLVING CREDIT AGREEMENT is entered into as of January 6,
1998, by and among the following:
GREAT LAKES REIT, L.P., a Delaware limited partnership having its principal
place of business at 823 Commerce Drive, Suite 300, Oak Brook, Illinois 60521
("Borrower"), the sole general partner of which is Great Lakes REIT, Inc., a
Maryland corporation;
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOFA"), a national
banking association organized under the laws of the United States of America,
having its principal place of business at 231 South LaSalle Street, Chicago,
Illinois 60697;
THE FIRST NATIONAL BANK OF CHICAGO ("First Chicago"), a national bank
organized under the laws of the United States of America, having its principal
place of business at One First National Plaza, Chicago, Illinois 60670;
First Chicago, as documentation agent ("Documentation Agent");
BOFA, as administrative agent (the "Agent") for the Lenders (as defined
below).
RECITALS
A. Borrower is primarily engaged in the business of acquiring,
developing, owning and operating suburban office and light industrial
properties.
B. The Borrower has requested that the Lenders make loans available to the
Borrower in the maximum aggregate principal amount of $35,000,000 outstanding
from time to time pursuant to the terms of this Agreement (the "Facility"), and
that the Administrative Agent act as administrative agent for the Lenders and
that the Documentation Agent act as documentation agent for the Lenders. The
Agent and the Lenders have agreed to do so.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. As used in this Agreement, the following terms
have the respective meanings set forth below:
"Adjusted Base Rate" means a floating interest rate equal to the Base Rate
changing when and as the Base Rate changes.
"Adjusted EBITDA" means, for any quarter, the sum of (i) EBITDA (calculated
by annualizing actual EBITDA for such quarter), reduced by a capital reserve
equal to the product of $1.25 and the aggregate amount of Leased Space at the
Projects for such period, plus (ii) EBITDA for any Projects acquired or sold
during such quarter (calculated on an annualized basis), reduced by a capital
reserve
<PAGE>
equal to the product of $1.25 and the weighted average amount of Leased Space at
the Projects during such quarter.
"Adjusted LIBOR Rate" means, with respect to a LIBOR Advance for the
relevant LIBOR Interest Period, the sum of (i) the quotient of (a) the LIBOR
Rate applicable to such LIBOR Interest Period, divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to such LIBOR Interest
Period, plus (ii) one and one tenths percent (1.10%).
"Administrative Agent" means BOFA, acting as administrative agent for the
Lenders in connection with the transactions contemplated by this Agreement, and
its successors in such capacity.
"Advance" means a Loan to the Borrower hereunder by one or more of the
Lenders pursuant to Section 2.l(a) hereof, including the initial Advance and all
subsequent Advances, whether such Advances are, from time to time, Base Rate
Advances or LIBOR Advances.
"Affiliate" means any Person directly or indirectly controlling, controlled
by or under direct or indirect common control with any other Person. A Person
shall be deemed to control another Person if the controlling Person owns ten
percent (10%) or more of any class of voting securities of the controlled Person
or possesses, directly or indirectly, the power to direct or cause the direction
of the management or policies of the controlled Person, whether through
ownership of stock, by contract or otherwise.
"Aggregate Commitment" means, as of any date, the sum of all of the
Lenders' then-current Commitments, provided that the Aggregate Commitment shall
not at any time exceed an amount equal to the lesser of (i) $35,000,000 and (ii)
the maximum amount that permits compliance with Article VII hereof.
"Agreement" means this Unsecured Revolving Credit Agreement and all
amendments, modifications and supplements hereto.
"Agreement Execution Date" shall mean January 6, 1998, the date on which
all of the parties hereto have executed and delivered this Agreement.
"Allocated Facility Amount" means, at any time, the sum of all then
outstanding Advances.
"Applicable Laws" is defined in Section 6.26(b) hereof.
"Base Rate" means a rate per annum equal to the rate of interest announced
by BOFA from time to time as its reference rate, changing when and as such
reference rate changes.
"Base Rate Advance" means an Advance that bears interest at the Adjusted
Base Rate.
"BOFA" means Bank of America National Trust and Savings Association.
"Borrower" means Great Lakes REIT, L.P., together with its permitted
successors and assigns.
"Borrowing Date" means a Business Day on which an Advance is made to the
Borrower.
"Borrowing Notice" is defined in Section 2.10(a) hereof.
<PAGE>
"Business Day" means a day, other than a Saturday, Sunday or holiday, on
which banks are open for business in Chicago, Illinois and, where such term is
used in reference to the selection or determination of the Adjusted LIBOR Rate,
in London, England.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent equity ownership interests in a Person which is not a
corporation and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents" shall mean (i) short-term obligations of, or fully
guaranteed by, the United States of America, (ii) commercial paper rated A-1 or
better by S&P's or P-1 or better by Moody's, (iii) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000, or (iv) shares of any
money market mutual fund rated at least AAA or the equivalent by S&P or at least
Aaa or the equivalent by Moody's.
"Code" means the Internal Revenue Code of 1986 as amended from time to
time, or any replacement or successor statute, and the regulations promulgated
thereunder from time to time.
"Commitment" means the obligation of each Lender, subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties herein, to make Advances not exceeding in the aggregate the amount
set forth opposite its signature below, or the amount stated in any subsequent
amendment hereto.
"Consolidated Operating Partnership" means the Borrower, the General
Partner and any other subsidiary partnerships or entities of either of them
which are required under GAAP to be consolidated with the Borrower and the
General Partner for financial reporting purposes.
"Consolidated Secured Debt" means, as of any date of determination, (i) the
aggregate principal amount of all Indebtedness of the Consolidated Operating
Partnership, plus the allocable percentage of all Indebtedness of any Investment
Affiliate, whether recourse or non-recourse, equal to the applicable economic
interest in such Investment Affiliate held by any entity in the Consolidated
Operating Partnership, all of which Indebtedness is outstanding at such date and
secured by a Lien on any asset or Capital Stock, including without limitation
loans secured by mortgages, stock, or partnership interests, plus (ii) the
aggregate principal amount of all Indebtedness of any Investment Affiliate which
Indebtedness is outstanding at such date and not secured by a Lien or any asset
or Capital Stock but only to the extent same is recourse to the Borrower or any
other entity in the Consolidated Operating Partnership.
"Consolidated Net Worth" means, as of any date of determination, the
stockholders' equity as shown on the balance sheet of the General Partner as of
that date.
"Consolidated Total Indebtedness" means, as of any date of determination,
(i) all Indebtedness of the Consolidated Operating Partnership outstanding at
such date, determined in accordance with GAAP, after eliminating intercompany
items, plus (ii) the allocable percentage of any Indebtedness of any Investment
Affiliate outstanding at such date, equal to the applicable economic interest in
such Investment Affiliate held by any entity in the Consolidated Operating
Partnership, in the aggregate, without duplication.
<PAGE>
"Consolidated Unsecured Debt" means, as of any date of determination, the
aggregate principal amount of all Indebtedness of the Consolidated Operating
Partnership, plus the allocable percentage of all Indebtedness of any Investment
Affiliate equal to the applicable economic interest in such Investment Affiliate
held by any entity in the Consolidated Operating Partnership, all of which
Indebtedness is outstanding at such date, but excluding that portion of the
Consolidated Secured Debt described under clause (i) of such definition.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with all or any of the entities in the Consolidated Operating
Partnership, are treated as a single employer under Sections 414(b) or 414(c) of
the Code.
"Credit Parties" means, collectively, Borrower and each Guarantor.
"Debt Service" means for any period, (a) Interest Expense for such period
plus (b) the aggregate amount of regularly scheduled principal payments of
Indebtedness (excluding optional prepayments and balloon principal payments due
on maturity in respect of any Indebtedness) required to be made during such
period by the Borrower, or any entity in the Consolidated Operating Partnership
(and, if such period is less than a full fiscal year, annualized by calculating
all of the payments required to be made during the entire fiscal year in which
such period falls), plus (c) a percentage of all such regularly scheduled
principal payments required to be made during such period by any Investment
Affiliate on Indebtedness (excluding optional prepayments and balloon principal
payments due on maturity in respect of any Indebtedness) taken into account in
calculating Interest Expense, equal to the allocable economic interest in such
Investment Affiliate held by the Borrower and any entity in the Consolidated
Operating Partnership, in the aggregate, without duplication (and, if such
period is less than a full fiscal year, annualized by calculating all of the
payments required to be made during the entire fiscal year in which such period
falls), plus (d) Senior Preferred Stock Expense for such period.
"Default" means an event which, with notice or lapse of time or both, would
become an Event of Default.
"Default Rate" means with respect to any Advance, a rate equal to the
interest rate applicable to such Advance plus three percent (3%) per annum.
"Defaulting Lender" means any Lender which fails or refuses to perform its
obligations under this Agreement within the time period specified for
performance of such obligation, or, if no time frame is specified, if such
failure or refusal continues for a period of five Business Days after written
notice from the Administrative Agent; provided that if such Lender cures such
failure or refusal, such Lender shall cease to be a Defaulting Lender.
"Documentation Agent" means First Chicago, acting as documentation agent
for the Lenders in connection with the transactions contemplated by this
Agreement, and its successors in such capacity.
"Dollars" and "$" mean United States Dollars.
"EBITDA" means, as to any period, net income, adjusted by excluding gains
and losses from property sales, debt restructurings and property write-downs
(and reduced to eliminate any income from Investment Affiliates), as reported by
the Consolidated Operating Partnership in accordance
<PAGE>
with GAAP, plus Interest Expense, depreciation, amortization and income tax (if
any) expense plus a percentage of such income (adjusted as described above) of
any Investment Affiliate equal to the allocable economic interest in such
Investment Affiliate held by any entity in the Consolidated Operating
Partnership, in the aggregate (provided that no item of income or expense shall
be included more than once in such calculation even if it falls within more than
one of the foregoing categories). For purposes of this definition, items of
income and expense from any Properties acquired or sold during the period in
question shall be excluded.
"Effective Date" means each Borrowing Date and, if no Borrowing Date has
occurred in the preceding calendar month, the first Business Day of each
calendar month.
"Eligible Joint Ventures" means those joint ventures (i) in which any
entity in the Consolidated Operating Partnership either is the managing or
co-managing general partner or equivalent, or has an equity interest equal or
greater than fifty percent (50%), and (ii) in which such entity has the ability,
in its sole discretion, to sell, encumber or otherwise transfer any interest in
the assets of such joint venture, and (iii) for which no restrictions exist on
the upstreaming of Net Operating Income, and (iv) which have agreed to maintain
no Indebtedness.
"Eligible Land" means any Land for which all permits and other approvals
required of any applicable governmental authority or otherwise for the
development thereof have been received.
"Environmental Laws" means any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority having jurisdiction over the
Borrower, its Subsidiaries or Investment Affiliates, or their respective assets,
and regulating or imposing liability or standards of conduct concerning
protection of human health or the environment, as now or may at any time
hereafter be in effect, in each case to the extent the foregoing are applicable
to the operations of the Borrower, any Investment Affiliate, or any Subsidiary
or any of their respective Properties or other Assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and regulations promulgated thereunder from time to time.
"Event of Default" means any event set forth in Article X hereof.
"Existing Facility" means that certain existing credit facility in the
maximum principal amount of $75,000,000 from Bank of Boston and certain other
lenders to Borrower, as same may be amended or supplemented from time to time.
"Facility" means the unsecured revolving credit facility described in
Section 2.1.
"Facility Fee" and "Facility Fee Rate" are defined in Section 2.7(b).
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
<PAGE>
"Fixed Charges" means, for any quarter, the sum of dividends payable on any
preferred stock of the General Partner and any Subsidiary of the Borrower,
calculated on an annualized basis, and Debt Service.
"Funded Percentage" means, with respect to any Lender at any time, a
percentage equal to a fraction the numerator of which is the amount of the
Aggregate Commitment actually disbursed and outstanding to Borrower by such
Lender at such time, and the denominator of which is the total amount of the
Aggregate Commitment disbursed and outstanding to Borrower by all of the Lenders
at such time.
"Funds From Operations" shall mean GAAP net income of the Consolidated
Operating Partnership, plus a percentage of GAAP net income of any Investment
Affiliate equal to the allocable economic interest in such Investment Affiliate
held by any entity in the Consolidated Operating Partnership, in the aggregate,
all of which income shall be adjusted by (i) excluding gains and losses from
property sales, debt restructurings and property write-downs and adjusted for
the non-cash effect of straight-lining of rents, (ii) straight-lining various
ordinary operating expenses which are payable less frequently than monthly
(e.g., real estate taxes) and (iii) adding back depreciation, amortization and
all non-cash items. In calculating Funds From Operations, no deduction shall be
made from net income for closing costs and other one-time charges associated
with the formation and capitalization of such Person.
"GAAP" means generally accepted accounting principles in the United States
of America consistent with those utilized in preparing the audited financial
statements of the Borrower required hereunder and applied consistently from
period to period.
"General Partner" means Great Lakes REIT, Inc., a Maryland corporation
whose common stock is listed on the New York Stock Exchange and is qualified as
a real estate investment trust. General Partner is the sole general partner of
Borrower;
"Gross Asset Value" means, for any Person for any quarter, the sum of (i)
total unrestricted cash and Cash Equivalents, provided that in no event shall
the amounts be added to Gross Asset Value in violation of the restrictions set
forth in Section 8.3 hereof, plus (ii) Real Estate Asset Value, plus (iii)
Eligible Land, valued at the lesser of cost or market value, provided that in no
event shall the aggregate amount added to Gross Asset Value pursuant to this
clause (iii) exceed ten percent (10%) of the Gross Asset Value, plus (iv) an
amount equal to fifty percent (50%) of the cost of all 50% Preleased Assets
Under Development and one hundred percent (100%) of the cost of all 75%
Preleased Assets Under Development, provided, however, that in no event shall
the aggregate amount added to Gross Asset Value pursuant to this clause (iv)
exceed fifteen percent (15%) of the Gross Asset Value, and further provided that
the aggregate amount added to Gross Asset Value pursuant to clauses (iii) and
(iv) shall in no event exceed $50,000,000.
"Gross Revenues" means total revenues, calculated in accordance with GAAP.
"Guarantee Obligation" means as to any Person (the "guaranteeing person"),
any obligation (determined without duplication) of the guaranteeing person (or
any other Person [including, without limitation, any bank under any letter of
credit] if the guaranteeing person has issued a reimbursement, counter indemnity
or similar obligation in favor of such other Person) guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other third Person (the "primary obligor") in any
manner, whether directly or
<PAGE>
indirectly, including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
in respect thereof; provided, however, that the term Guarantee Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the maximum stated amount of the
primary obligation relating to such Guarantee Obligation (or, if less, the
maximum stated liability set forth in the instrument embodying such Guarantee
Obligation), provided, that in the absence of any such stated amount or stated
liability, the amount of such Guarantee Obligation shall be such guaranteeing
person's maximum reasonably anticipated liability in respect thereof as
reasonably determined by the Borrower in good faith, subject to the
Administrative Agent's approval, which approval shall not be unreasonably
withheld.
"Guarantor" means, collectively, the General Partner, each Subsidiary
listed on Schedule 1 attached hereto, and each other Person that executes and
delivers the Guaranty.
"Guaranty" means the Guaranty executed and delivered in the form attached
hereto as Exhibit A.
"Hedging Agreements" means interest rate protection agreements, foreign
currency exchange agreements, commodity purchase or option agreements or other
interest, exchange rate or commodity price hedging agreements.
"Indebtedness" of any Person at any date means without duplication (i)
all indebtedness of such Person for borrowed money, (ii) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade liabilities and other accounts payable, and accrued expenses
incurred in the ordinary course of business and payable in accordance with
customary practices), to the extent such obligations constitute indebtedness for
the purposes of GAAP, (iii) any other indebtedness of such Person which is
evidenced by a note, bond, debenture or similar instrument, (iv) all obligations
of such Person under financing leases and capital leases, (v) all obligations of
such Person in respect of acceptances issued or created for the account of such
Person, (vi) all Guarantee Obligations of such Person (excluding in any
calculation of consolidated indebtedness of the Borrower, Guarantee Obligations
of the Borrower in respect of primary obligations of any Subsidiary), (vii) all
reimbursement obligations of such Person for letters of credit and other
contingent liabilities, (viii) all liabilities secured by any Lien (other than
Liens for taxes not yet due and payable) on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof, (ix) any repurchase obligation or liability of such Person or
any of its Subsidiaries with respect to accounts or notes receivable sold by
such Person or any of its Subsidiaries, (x) Senior Preferred Stock, (xi) such
Person's allocable percentage of debt of any Investment Affiliates equal to the
greater of (a) the percentages of the principal amount of such debt(s) for which
such Person is liable and (b) the applicable economic interest in such
Investment Affiliate(s) held by such Person, in the aggregate, (xii) all
obligations to make advances and contributions to Investment Affiliates, and
(xiii) to the extent not included in Interest Expense all obligations to make
payments under any Hedging Agreements.
<PAGE>
"Insolvency" means insolvency as defined in the United States Bankruptcy
Code, as amended. "Insolvent" when used with respect to a Person, shall refer to
a Person who satisfies the definition of Insolvency.
"Interest Expense" means, for any period, the sum (calculated on an
annualized basis) of (i) all interest expense of the Consolidated Operating
Partnership determined in accordance with GAAP, plus (ii) capitalized interest
not covered by an interest reserve from a loan facility, plus (iii) the
allocable portion (based on liability) of any accrued or paid interest incurred
on any obligation for which any entity in the Consolidated Operating Partnership
is wholly or partially liable under repayment, interest carry, or performance
guarantees, or other relevant liabilities, plus (iv) the allocable percentage of
any accrued or paid interest incurred on any Indebtedness of any Investment
Affiliate, whether recourse or non-recourse, equal to the applicable economic
interest in such Investment Affiliate held by any entity in the Consolidated
Operating Partnership, in the aggregate, provided that no expense shall be
included more than once in such calculation even if it falls within more than
one of the foregoing categories.
"Interest Period" means a LIBOR Interest Period.
"Investment Affiliate" means any Person in which any entity in the
Consolidated Operating Partnership, directly or indirectly, has an ownership
interest but which is not a member of the Consolidated Operating Partnership.
"Land" means any parcel of real property wholly-owned in fee simple of
record by any entity in the Consolidated Operating Partnership or any Investment
Affiliate (provided, however, that any such parcel of an Investment Affiliate
shall be included only to the extent of the allocable economic interest in such
Investment Affiliate held by any entity in the Consolidated Operating
Partnership, in the aggregate), which parcel is not improved.
"Leased Space" means, as of any date of determination, the total rentable
area, then leased, subleased, licensed or otherwise occupied under any written
agreement at market rates (determined as of the time such agreement was entered
into), in all of the Projects.
"Lenders" means, collectively, BOFA and the other Persons executing this
Agreement in such capacity, or any Person which subsequently executes and
delivers any amendment hereto in such capacity and each of their respective
permitted successors and assigns. Where reference is made to "the Lenders" in
any Loan Document it shall be read to mean "all of the Lenders"
"Lending Installation" means any U.S. office of any Lender authorized to
make loans similar to the Advances described herein.
"LIBOR Advance" means an Advance that bears interest at the Adjusted LIBOR
Rate.
"LIBOR Interest Period" means, with respect to a LIBOR Advance, a period of
30, 60, 90 or 180 days (to the extent that periods in excess of three months are
generally available from the Lenders), as selected in advance by the Borrower.
"LIBOR Rate" means, with respect to a LIBOR Advance for the relevant LIBOR
Interest Period, the per annum rate of interest, rounded upward, if necessary,
to the nearest 1/16th of one percent (0.0625%), determined by the Administrative
Agent to be the rate at which deposits in immediately available funds in U.S.
Dollars would be offered by BOFA's London branch to first-class banks in
<PAGE>
the London interbank eurodollar market at approximately 11:00 a.m. London time
two Business Days prior to the first day of such LIBOR Interest Period, in the
approximate amount of the relevant LIBOR Advance and having a maturity
approximately equal to such LIBOR Interest Period.
"Lien" means any mortgage, pledge, hypothecation, deposit arrangement,
preference, priority, security interest, collateral assignment, statutory or
consensual lien, charge, restriction or encumbrance of any kind (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code on any property leased to
any Person under a lease which is not in the nature of a conditional sale or
title retention agreement, or any subordination agreement in favor of another
Person). For purposes of this Agreement, a Lien on the Capital Stock of any
Person shall be deemed to constitute a Lien on the assets of said Person.
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement, the Notes, the Guaranty and any and
all other agreements or instruments required and/or provided to Lenders
hereunder or thereunder, as any of the foregoing may be amended from time to
time.
"Majority Lenders" means Lenders in the aggregate having in excess of 50%
of the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding in excess of 50% of the aggregate unpaid
principal amount of the outstanding Advances.
"Margin Stock" has the meaning ascribed to it in Regulation U of the Board
of Governors of the Federal Reserve System.
"Material Adverse Effect" means, with respect to any matter, that such
matter constitutes a Material Adverse Financial Change or (x) materially and
adversely affects the business, properties, condition or results of operations
of the Consolidated Operating Partnership taken as a whole, or (y) constitutes a
nonfrivolous challenge to the validity or enforceability of any material
provision of any Loan Document against any obligor party thereto.
"Material Adverse Financial Change" shall be deemed to have occurred if a
material adverse financial change has occurred which could reasonably be
expected to materially impair Borrower's or any Guarantor's ability to perform
its obligations under any of the Loan Documents.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
radon, polychlorinated biphenyls and urea-formaldehyde insulation.
"Maturity Date" means July 6, 1998 or such earlier date on which the
principal balance of the Facility and all other sums due in connection with the
Facility shall be due as a result of the acceleration of the Facility.
"Monetary Default" means any Default involving Borrower's failure to pay
any of the Obligations when due.
"Moody's" means Moody's Investors Service, Inc. and its successors.
<PAGE>
"Net Operating Income" means, as to any Property for any fiscal period, an
amount equal to (a) rents and other revenues received in the ordinary course
from such Property (including proceeds of rent loss insurance), less (b) all
expenses paid or accrued related to the ownership, operation or maintenance of
such Property, excluding capital expenditures, but including, without
limitation, taxes, assessments and the like, insurance, utilities, payroll
costs, maintenance, repair and landscaping expenses, management fees, leasing
commissions and on-site marketing expenses.
"Non-Use Fee" is defined in Section 2.7 hereof.
"Note" means the promissory note payable to the order of each Lender in the
amount of such Lender's maximum Commitment in the form attached hereto as
Exhibit B (collectively, the "Notes").
"Obligations" means the Advances and all accrued and unpaid fees and all
other obligations of Borrower to the Administrative Agent or any or all of the
Lenders arising under this Agreement or any of the other Loan Documents.
"Partial Advance" is defined in Section 2.3 hereof.
"Participants" is defined in Section 13.2.1 hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Percentage" means, with respect to each Lender, the applicable percentage
of the then-current Aggregate Commitment represented by such Lender's
then-current Commitment.
"Permitted Liens" are defined in Section 9.6 hereof.
"Person" means an individual, a corporation, a limited or general
partnership, an association, a joint venture or any other entity or
organization, including a governmental or political subdivision or an agent or
instrumentality thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA,
whether or not terminated, as to which the Borrower or any member of the
Controlled Group may have any liability.
"Preleased Assets Under Development" means as of any date of determination,
any Project which (i) is under construction and then treated as an asset under
development under GAAP, and (ii) has, as of such date, at least fifty percent
(50%) of its projected total rentable area leased at market rates to third party
tenants similar to those at Borrower's other properties, both such land and
improvements under construction to be valued for purposes of this Agreement at
then-current book value, as determined in accordance with GAAP; provided,
however, in no event shall Preleased Assets Under Development include any
Project after the date on which a certificate of occupancy or comparable
authorization has been issued for such Project by the applicable governmental
authority. Preleased Assets Under Development shall be comprised of two groups:
"75% Preleased Assets Under Development" which shall mean, collectively, any
Preleased Assets Under Development that has, as of such date, at least seventy
five percent (75%) of its projected total rentable area so leased; and "50%
Preleased Assets Under Development" which shall mean, collectively, any
Preleased Asset Under Development that has, as of such date, less than seventy
five
<PAGE>
percent (75%) but at least fifty percent (50%) of its projected total rentable
area so leased.
"Project" means any parcel of real property wholly-owned in fee simple of
record by any entity in the Consolidated Operating Partnership or any Investment
Affiliate (provided, however, that any such parcel of an Investment Affiliate
shall be included only to the extent of the allocable economic interest in such
Investment Affiliate held by any entity in the Consolidated Operating
Partnership, in the aggregate), together with all improvements thereon, which is
fully improved for use and operated as a office or light industrial property,
and with respect to which a certificate of occupancy or comparable authorization
has been issued by the applicable governmental authority.
"Property" means each parcel of real property wholly-owned in fee simple of
record by any entity in the Consolidated Operating Partnership or any Investment
Affiliate, together with all improvements, if any, thereon, provided, however,
that any such parcel of an Investment Affiliate shall be included only to the
extent of the allocable economic interest in such Investment Affiliate held by
any entity in the Consolidated Operating Partnership, in the aggregate.
"Purchasers" is defined in Section 13.3.1 hereof.
"Qualified Officer" means, with respect to any entity, the chief financial
officer, chief accounting officer or controller of such entity if it is a
corporation or of such entity's general partner if it is a partnership or such
other appropriate individual approved by the Bank.
"Rate Option" means the Adjusted Base Rate or the Adjusted LIBOR Rate. The
Rate Option in effect on any date shall always be the Adjusted Corporate Base
Rate unless the Borrower has properly selected the Adjusted LIBOR Rate pursuant
to Section 2.10 hereof.
"Real Estate Asset Value" means, for any Person for any quarter, the sum of
(i) the quotient of (x) EBITDA for such Person during such quarter (which EBITDA
shall be calculated by annualizing actual EBITDA for such quarter, but shall
exclude EBITDA, if any, attributable to Preleased Assets Under Development),
divided by (y) a capitalization rate equal to 10.25%, plus (ii) the gross
acquisition cost paid for any Property acquired during such quarter, less
customary brokerage fees and other closing costs incurred by such Person in
connection with such acquisition.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Reserve Requirement" means, with respect to a LIBOR Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
<PAGE>
"S&P" means Standard & Poor's Ratings Group and its successors.
"Senior Preferred Stock" means the stated value of any preferred stock
issued by the General Partner which is not typical preferred stock but instead
is both (i) redeemable by the holders thereof on any fixed date or upon the
occurrence of any event and (ii) as to payment of dividends or amounts on
liquidation, either guaranteed by any direct or indirect Subsidiary of the
General Partner or secured by any property of the General Partner or any direct
or indirect Subsidiary of the General Partner.
"Senior Preferred Stock Expense" means, for any period for any Person, the
aggregate dividend payments due to the holders of Senior Preferred Stock of such
Person, whether payable in cash or in kind, and whether or not actually paid
during such period, in each case on an annualized basis (if such period is less
than a full fiscal year).
"Solvent" means, as to any Person on a particular date, that such Person
(a) has capital sufficient to carry on its existing business and transactions
and all business and transactions in which it is about to engage, (b) owns
property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay its probable liabilities
(including, without limitation, contingencies), (c) does not intend to or
believe that it will incur debts or liabilities beyond its ability to pay the
same as they mature and (d) is not Insolvent.
"Subordinated Debt" means Indebtedness of the Consolidated Operating
Partnership is contractually subordinated in right of payment and otherwise to
the Indebtedness under the Loan Documents, on terms acceptable to the Majority
Lenders.
"Subsidiary" means as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person, and provided such corporation, partnership or other entity is
consolidated with such Person for financial reporting purposes under GAAP.
"Transferee" is defined in Section 13.4 hereof.
"Unencumbered Asset" means those Properties held by any entity in the
Consolidated Operating Partnership or any Eligible Joint Venture which, as of
any date of determination, (a) is not subject to any Liens other than Permitted
Liens (excluding Liens described in Schedule 9.6 attached hereto), (b) is not
subject to any agreement (including any agreement governing Indebtedness
incurred in order to finance or refinance the acquisition of such asset) which
prohibits or limits the ability of any entity in the Consolidated Operating
Partnership or Eligible Joint Venture, as the case may be, to create, incur,
assume or suffer to exist any Lien upon any assets or Capital Stock of such
entity in the Consolidated Operating Partnership or Eligible Joint Venture, (c)
is not subject to any agreement (including any agreement governing Indebtedness
incurred in order to finance or refinance the acquisition of such asset) which
(i) entitles any Person to the benefit of any Lien (other than Permitted Liens
excluding Liens described in Schedule 9.6 attached hereto) on any assets or
Capital Stock of any entity in the Consolidated Operating Partnership or
Eligible Joint Venture or (ii) would entitle any Person to the benefit of any
Lien (other than Permitted Liens excluding Liens described in Schedule 9.6
attached hereto) on such assets or Capital Stock upon the occurrence of
<PAGE>
any contingency (including, without limitation, pursuant to an "equal and
ratable" clause), (d) is not the subject of any material
architectural/engineering issue or any material Environmental Law issue, as
evidenced by a certification of Borrower, and (e) is in material compliance with
the applicable representations and warranties in Article VI below; provided that
any Property which would, as of the date of determination, individually account
for more than fifteen percent (15%) of the Value of Unencumbered Assets shall be
excluded herefrom. Notwithstanding anything to the contrary contained in this
Agreement, if the Administrative Agent reasonably determines that any Property
theretofore identified by Borrower as an Unencumbered Asset may be the subject
of a material architectural/engineering issue or a material Environmental Law
issue, the Administrative Agent may (i) require Borrower to furnish a current
detailed environmental assessment or architectural/engineering assessment, as
the case may be, and, if applicable, a written estimate of any remediation costs
from a qualified architect, engineer or contractor acceptable to the
Administrative Agent, in which event Borrower shall promptly obtain and furnish
the same at its own expense, and (ii) exclude any such Property from the
Unencumbered Asset at its election. No Property of any entity in the
Consolidated Operating Partnership or any Investment Affiliate shall be deemed
to be unencumbered unless both such Property and all Capital Stock of such
entity or Investment Affiliate, as the case may be, is unencumbered and such
entity (and any other intervening Subsidiary between the Borrower and such
entity) or Investment Affiliate, as the case may be, has no Indebtedness for
borrowed money (other than Indebtedness due to the Borrower). As of the
Agreement Execution Date, the parties hereto agree that those Properties
described on Schedule 2 attached hereto shall constitute all of the Unencumbered
Assets as of such date.
"Unencumbered NOI" means, for any period, Net Operating Income for all
Unencumbered Assets during such period.
"Value of Unencumbered Assets" means, as of any date, the sum of (i) the
quotient of (a) the Unencumbered NOI for the immediately preceding full fiscal
quarter from each Property which is an Unencumbered Asset as of such date (as
such Unencumbered NOI is annualized), divided by (b) a capitalization rate of
10.25%, plus (ii) the gross acquisition cost paid for any Property that is an
Unencumbered Asset and is acquired during such quarter, less customary brokerage
fees and other closing costs incurred by the Consolidated Operating Partnership
in connection with such acquisition; provided, however, that in no event shall
the aggregate amount added to the Value of Unencumbered Assets on account of
Eligible Joint Ventures exceed ten percent (10%) of the Value of Unencumbered
Assets. For purposes of this definition, Net Operating Income from any
Unencumbered Assets acquired or sold during the period in question shall be
excluded.
The foregoing definitions shall be equally applicable to both the singular
and the plural forms of the defined terms.
1.2 Financial Standards. All financial and accounting terms used and
not otherwise defined herein shall be construed in accordance with GAAP. All
financial and accounting computations and determinations required of a Person
under this Agreement shall be made, and all financial information required under
this Agreement shall be prepared, in accordance with GAAP, except as otherwise
expressly provided herein.
<PAGE>
ARTICLE II
THE FACILITY
2.1 The Facility.
(a) Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower contained
herein, Lenders agree to make Advances through the Administrative Agent to
Borrower from time to time prior to the Maturity Date, provided that the making
of any such Advance will not cause the then Allocated Facility Amount to exceed
the then-current Aggregate Commitment. The Advances may be ratable Base Rate
Advances or ratable LIBOR Advances. Except as provided in Section 12.16 hereof,
each Lender shall be required to fund only its Percentage of each such Advance
and no Lender will be required to fund any amounts which when aggregated with
such Lender's Percentage of all other Advances then outstanding would exceed
such Lender's then-current Commitment. This facility ("Facility") is a revolving
credit facility and, subject to the provisions of this Agreement, Borrower may
request Advances hereunder, repay such Advances and reborrow Advances at any
time prior to the Maturity Date.
(b) The Facility created by this Agreement, and that
Commitment of each Lender to lend hereunder, shall terminate on the Maturity
Date, unless sooner terminated in accordance with the terms of this Agreement.
(c) In no event shall the Aggregate Commitment exceed Thirty Five Million
Dollars ($35,000,000).
2.2 Principal Payments. Any outstanding Advances and all other unpaid
Obligations shall be paid in full by the Borrower on the Maturity Date.
2.3 Requests for Advances: Responsibility for Advances. Ratable
Advances funded by the Lenders shall be made available to Borrower by
Administrative Agent in accordance with Section 2.1(a) and Section 2.10(a)
hereof. The obligation of each Lender to fund its Percentage of each ratable
Advance shall be several, and not joint or joint and several.
2.4 Evidence of Credit Extensions. The Advances of each Lender
outstanding at any time shall be evidenced by the Notes. Each Note executed by
the Borrower shall be in a maximum principal amount equal to each Lender's
Percentage of the Aggregate Commitment. Each Lender shall record Advances and
principal payments thereof on the schedule attached to its Note or, at its
option, in its records, and each Lender's record thereof shall be conclusive
absent Borrower furnishing to such Lender conclusive and irrefutable evidence of
an error made by such Lender with respect to that Lender's records.
Notwithstanding the foregoing, the failure to make, or an error in making, a
notation with respect to any Advance shall not limit or otherwise affect the
obligations of Borrower hereunder or under the Notes to pay the amount actually
owed by Borrower to Lenders.
2.5 Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to their Percentages. The ratable
Advances may be Base Rate Advances, LIBOR Advances or a combination thereof
selected by the Borrower in accordance with Sections 2.9 and 2.10.
2.6 Unused Commitment Fee. The Borrower agrees to pay to the
Administrative Agent
<PAGE>
for the account of each Lender a commitment fee (the "Non-Use Fee"), payable
quarterly in arrears on the first day of each calendar quarter hereafter
beginning on January 1, 1998, calculated for each calendar quarter from the
Agreement Execution Date to and including the Maturity Date, on the weighted
average during such quarter of the daily unborrowed portion of such Lender's
Commitment (which is equal to the difference between (a) such Lender's
Commitment on such day and (b) the then outstanding Loans owed to such Lender).
If such weighted average is less than or equal to 33% of such Lender's portion
of the Aggregate Commitment, the Non-Use Fee for such quarter shall be
calculated at the rate of 0.15% per annum of such average. If such weighted
average is greater than 33% but not more than 66% of such Lender's portion of
the Aggregate Commitment, the Non-Use Fee for such quarter shall be calculated
at the increased rate of 0.20% per annum on such average, and if such weighted
average is greater than 66% of such Lender's portion of the Aggregate
Commitment, the Non-Use Fee for such quarter shall be calculated at the
increased rate of 0.25% per annum on such average. Notwithstanding the
foregoing, all Non-Use Fees shall be calculated and payable on the effective
date of any termination of the obligations of the Lenders to make Loans
hereunder with respect to any partial calendar quarter. The Non-Use Fee shall be
calculated for actual days elapsed on the basis of a 360-day year. [For purposes
of illustration only and not in limitation of the foregoing: If, during the
entire month of April, 1998, the unborrowed portion of the Loan is 70%, and on
May 1 through May 20, such unborrowed portion is 50% and on May 21 through June
30, such unborrowed portion is 30%, then the quarterly Non-Use Fee payable on
July 1, 1998 would be calculated as follows: [.0025 x (30)360) x (.7 x
$35,000,000)] + [.0020 x (20)360) x (.5 x $35,000,000)] + [.0015 x (41)360) x
(.3 x $35,000,000)] = $8,842.35.
2.7 Other Fees.
(a) The Borrower shall pay all fees payable to the
Administrative Agent pursuant to the Borrower's letter agreement with the
Administrative Agent and Documentation Agent.
(b) The Borrower shall pay to the Administrative Agent for the
account of the Lenders (i) a one-time arrangement fee ("Facility Fee") in the
amount of $17,500, to be shared among the Lenders based on their respective
Percentages; and (ii) a one-time agency fee ("Agency Fee") in the amount of
$5,000 to be retained in full by Administrative Agent. The Facility Fee and
Agency Fee shall each be paid by Borrower on the Agreement Execution Date.
2.8 Minimum Amount of Each Advance. Each LIBOR Advance shall be in the
minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Base Rate Advance shall be in the minimum amount of $250,000
(and in multiples of $100,000 if in excess thereof), provided, however, that any
Base Rate Advance may be in the amount of the unused Aggregate Commitment.
2.9 Interest.
(a) The outstanding principal balance under the Notes shall
bear interest from time to time at a rate per annum equal to:
(i) the Adjusted Base Rate; or
(ii) at the election of Borrower with respect to
all or portions of the Obligations, the Adjusted LIBOR Rate.
<PAGE>
(b) All interest shall be calculated for actual days elapsed
on the basis of a 360 day year. Interest accrued on each Advance shall be
payable in arrears on the first day of each calendar month, commencing with the
first such date to occur after the date hereof, and the Maturity Date. Interest
shall not be payable for the day of any payment on the amount paid if payment is
received by Administrative Agent prior to noon (Chicago time). If any payment of
principal or interest under the Notes shall become due on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a payment of principal, such extension of time shall be
included in computing interest due in connection with such payment.
2.10 Selection of Rate Options and LIBOR Interest Periods.
(a) Borrower, from time to time, may select the Rate Option
and, in the case of each LIBOR Advance, the commencement date (which shall be a
Business Day) and the length of the LIBOR Interest Period applicable to each
LIBOR Advance. Borrower shall give Administrative Agent irrevocable notice (a
"Borrowing Notice") not later than 11:00 a.m. (Chicago time) (i) at least one
Business Day prior to a Base Rate Advance, and (ii) at least three (3) Business
Days prior to a ratable LIBOR Advance, specifying:
(i) the Borrowing Date, which shall be a
Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the type of Advance selected, and
(iv) in the case of each LIBOR Advance, the LIBOR
Interest Period applicable thereto.
The Borrower shall also deliver together with each Borrowing Notice the
compliance certificate required in Section 5.2, if required, and otherwise
comply with the conditions set forth in Section 5.2 for Advances. Administrative
Agent shall use reasonable efforts to provide each Lender by facsimile with a
copy of each Borrowing Notice and compliance certificate on the same Business
Day it is received.
Not later than noon (Chicago time) on each Borrowing Date, each Lender
shall make available its Loan or Loans, in funds immediately available in
Chicago to the Administrative Agent. Administrative Agent will promptly make the
funds so received from the Lenders available to the Borrower.
(b) Administrative Agent shall, as soon as practicable after
receipt of a Borrowing Notice requesting a LIBOR Advance, determine the Adjusted
LIBOR Rate applicable to the requested ratable LIBOR Advance and inform Borrower
and Lenders of the same. Each determination of the Adjusted LIBOR Rate by
Administrative Agent shall be conclusive and binding upon Borrower in the
absence of manifest error.
(c) If Borrower shall prepay a LIBOR Advance other than on the
last day of the LIBOR Interest Period applicable thereto, Borrower shall be
responsible to pay all amounts due to Lenders as required by Section 4.4 hereof.
(d) As of the end of each LIBOR Interest Period selected for a
ratable LIBOR Advance, the interest rate on the LIBOR Advance will become the
Adjusted Base Rate, unless
<PAGE>
Borrower has once again selected a LIBOR Interest Period in accordance with the
timing and procedures set forth in Section 2.10(g).
(e) The right of Borrower to select the Adjusted LIBOR Rate
for an Advance pursuant to this Agreement is subject to the availability to
Lenders of a similar option. If Administrative Agent determines that (i)
deposits of Dollars in an amount approximately equal to the LIBOR Advance for
which the Borrower wishes to select the Adjusted LIBOR Rate are not generally
available at such time in the London interbank eurodollar market, or (ii) the
rate at which the deposits described in subsection (i) herein are being offered
will not adequately and fairly reflect the costs to Lenders of maintaining an
Adjusted LIBOR Rate on an Advance or of funding the same in such market for such
LIBOR Interest Period, or (iii) reasonable means do not exist for determining an
Adjusted LIBOR Rate, or (iv) the Adjusted LIBOR Rate would be in excess of the
maximum interest rate which Borrower may by law pay, then in any of such events,
Administrative Agent shall so notify Borrower and Lenders and such Advance shall
bear interest at the Adjusted Base Rate.
(f) In no event may Borrower elect a LIBOR Interest Period
which would extend beyond the Maturity Date. In no event may Borrower have more
than five (5) different LIBOR Interest Periods for LIBOR Advances outstanding at
any one time.
(g) Conversion and Continuation.
(i) Borrower may elect from time to time, subject to
the other provisions of this Section 2.10, to convert all or
any part of a ratable Advance into any other type of Advance;
provided that any conversion of a ratable LIBOR Advance shall
be made on, and only on, the last day of the LIBOR Interest
Period applicable thereto.
(ii) Base Rate Advances shall continue as Base Rate
Advances unless and until such Base Rate Advances are
converted into ratable LIBOR Advances pursuant to a
Conversion/Continuation Notice from Borrower in accordance
with Section 2.10(g)(iv). Ratable LIBOR Advances shall
continue until the end of the then applicable LIBOR Interest
Period therefor, at which time each such Advance shall be
automatically converted into a Base Rate Advance unless the
Borrower shall have given the Administrative Agent a
Conversion/Continuation Notice in accordance with Section
2.10(g)(iv) requesting that, at the end of such LIBOR Interest
Period, such Advance either continue as an Advance of such
type for an additional LIBOR Interest Period of the same or
different duration.
(iii) Notwithstanding anything to the contrary
contained in this Section 2, no Advance may be converted into
a LIBOR Advance or continued (following the end of a LIBOR
Interest Period) as a LIBOR Advance when any Monetary Default
or Event of Default has occurred and is continuing.
(iv) The Borrower shall give the Administrative Agent
irrevocable notice (a "Conversion/Continuation Notice") of
each conversion of an Advance or continuation of a LIBOR
Advance not later than 11:00 a.m. (Chicago time) on the
Business Day immediately preceding the date of the requested
conversion, in the case of a conversion into a Base Rate
Advance, or 11:00 a.m. (Chicago time) at least three (3)
Business Days prior to the date of the requested conversion or
continuation,
<PAGE>
in the case of a conversion into or continuation of a ratable
LIBOR Advance, specifying: (1) the requested date (which shall
be a Business Day) of such conversion or continuation; (2) the
amount and type of the Advance to be converted or continued;
and (3) the amounts and type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a
conversion into or continuation of a ratable LIBOR Advance,
the duration of the LIBOR Interest Period applicable thereto.
2.11 Method of Payment. All payments of the Obligations hereunder shall
be made, without set-off, deduction, or counterclaim, by wire transfer to
Administrative Agent's account designated in writing from time to time by notice
to Borrower or, in the absence of such notice, to Administrative Agent at its
address specified herein, or at any other Lending Installation specified in
writing by Administrative Agent to Borrower, by noon (local time) on the date
when due and shall be applied ratably by Administrative Agent among the Lenders,
except as otherwise provided herein. Each payment delivered to Administrative
Agent for the account of any Lender shall be delivered promptly by
Administrative Agent to such Lender in the same type of funds that
Administrative Agent received at its address specified herein or at any Lending
Installation specified in a notice received by Administrative Agent from such
Lender. Administrative Agent is hereby authorized to charge any accounts of
Borrower maintained with BOFA for each payment of principal, interest and fees
as it becomes due hereunder.
2.12 Default. Notwithstanding the foregoing, during the continuance of
a Monetary Default, any other material Default, or any Event of Default,
Borrower shall not have the right to request a LIBOR Advance, continue or select
a new LIBOR Interest Period for an existing ratable LIBOR Advance or convert any
Base Rate Advance to a ratable LIBOR Advance. During the continuance of a
Monetary Default or any Event of Default, outstanding Advances shall bear
interest at the applicable Default Rates until such Monetary Default or Event of
Default ceases to exist or the Obligations are paid in full.
2.13 Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written notice to
the Administrative Agent and Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account payments are to be made.
2.14 Non-Receipt of Funds by Administrative Agent. Unless Borrower or a
Lender, as the case may be, has notified Administrative Agent prior to the date
on which it is scheduled to make payment to Administrative Agent of (i) in the
case of a Lender, an Advance, or (ii) in the case of Borrower, a payment of
principal, interest or fees to the Administrative Agent for the account of the
Administrative Agent or any or all of the Lenders, that it does not intend to
make such payment (which notice shall not affect the obligations of Borrower or
any Lender, as the case may be, hereunder), and such notice has been received by
Administrative Agent, Administrative Agent may assume that such payment will be
made when due. Administrative Agent may, but shall not be obligated to, make the
amount of such payment available to the intended recipient in reliance upon such
assumption. If such Lender or Borrower, as the case may be, has not in fact made
such payment to Administrative Agent, the recipient of such payment shall, on
demand by Administrative Agent, repay to Administrative Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by
Administrative Agent until the date Administrative Agent recovers such amount at
a
<PAGE>
rate per annum equal to (i) in the case of payment by a Lender, the Federal
Funds Effective Rate (as determined by Administrative Agent) for such day or
(ii) in the case of payment by Borrower, the interest rate applicable to the
relevant Advance.
2.15 Application of Moneys Received. All moneys collected or received by
the Administrative Agent on account of the Facility directly or indirectly,
shall be applied in the following order of priority:
(i) to the payment of all expenses then due and payable by Borrower
hereunder, including, without limitation, costs incurred in the collection of
such moneys;
(ii) to the reimbursement of any yield protection due to any of the Lenders
in accordance with Section 4.1;
(iii) to the payment of all indemnity obligations then due and payable by
Borrower hereunder;
(iv) to payment of all fees then due to the Administrative Agent;
(v) to the payment of any Non-Use Fee and Facility Fee, if then due, and to
the payment of all fees due hereunder;
(vi) first to interest until paid in full and then to principal for all
Lenders (other than Defaulting Lenders), in accordance with the respective
Funded Percentages of the Lenders;
(vii) any other sums due to the Administrative Agent or any Lender under
any of the Loan Documents; and
(viii) to the payment of any sums due to each Defaulting Lender as their
respective Percentages appear (provided that Administrative Agent shall have the
right to set-off against such sums any amounts due from such Defaulting Lender).
2.16 Voluntary Reduction of Aggregate Commitment Amount. Upon at least
five (5) days prior irrevocable written notice (or telephone notice promptly
confirmed in writing) to the Administrative Agent, Borrower shall have the
right, without premium or penalty, to terminate the Aggregate Commitment in
whole or in part provided that (a) Borrower may not reduce the Aggregate
Commitment below the Allocated Facility Amount at the time of such requested
reduction, and (b) any such partial termination shall be in the minimum
aggregate amount of Five Million Dollars ($5,000,000.00) or any integral
multiple of Five Million Dollars ($5,000,000.00) in excess thereof. Any partial
termination of the Aggregate Commitment shall be applied pro rata to each
Lender's Commitment.
<PAGE>
ARTICLE III
INTENTIONALLY DELETED
ARTICLE IV
CHANGE IN CIRCUMSTANCES
4.1 Yield Protection. If the adoption of or change in any law or any
governmental or quasi-governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any interpretation
thereof, or the compliance of any Lender therewith,
(i) subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or
from payments due from Borrower (excluding federal and state
taxation of the overall net income of any Lender or applicable
Lending Installation), or changes the basis of such taxation
of payments to any Lender in respect of its Loans or other
amounts due it hereunder, or
(ii) imposes or increases or deems applicable any
reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender or any
applicable Lending Installation (including reserves and
assessments relating to LIBOR Advances), or
(iii) imposes any other condition, and the result is
to increase the cost of any Lender or any applicable Lending
Installation of making, funding or maintaining Loans or
reduces any amount receivable by any Lender or any applicable
Lending Installation in connection with Loans, or requires any
Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans held,
or interest received by it, by an amount deemed material by
such Lender,
then, within fifteen (15) days after written demand by such Lender describing
the basis for such demand, Borrower shall pay such Lender that portion of such
increased expense incurred or reduction in an amount received which such Lender
determines is attributable to making, funding and maintaining its Loans and its
Commitment.
4.2 Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporate entity controlling such
Lender is increased as a result of a Change (as defined below), then, within
fifteen (15) days after written demand by such Lender, Borrower shall pay such
Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, or its obligation to make Loans
hereunder (after taking into account such Lender's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines (as defined below) or (ii) any adoption of or
change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending Installation
<PAGE>
or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means
(i) the risk-based capital guidelines in effect in the United States on the date
of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards", including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
Without in any way affecting the Borrower's obligation to pay compensation
actually claimed by a Lender under this Section 4.2, the Borrower shall have the
right to replace any Lender which has demanded such compensation with a
replacement Lender acceptable to Administrative Agent; provided, however, that
no Monetary Default, other material Default or any Event of Default shall then
exist, and that Borrower notifies such Lender that it has elected to replace
such Lender and notifies such Lender and the Administrative Agent of the
identity of the proposed replacement Lender not more than sixty (60) days after
the date of such Lender's most recent demand for compensation under this Section
4.2. The Lender being replaced shall assign its Percentage of the Aggregate
Commitment and its rights and obligations under this Facility to the replacement
Lender in accordance with the requirements of Section 13.3 hereof and the
replacement Lender shall assume such Percentage of the Aggregate Commitment and
the related obligations under this Facility, all pursuant to an assignment
agreement substantially in the form of Exhibit H hereto. The purchase by the
replacement Lender shall be at par (plus all accrued and unpaid interest and any
other sums owed to such Lender being replaced hereunder) which shall be paid to
the Lender being replaced upon the execution and delivery of the assignment.
4.3 Availability of LIBOR Advances. If any Lender determines that
maintenance of any of its Loans bearing interest at the Adjusted LIBOR Rate at a
suitable Lending Installation would violate any applicable law, rule, regulation
or directive of any Governmental Authority having jurisdiction, the
Administrative Agent shall suspend by written notice to Borrower the
availability of outstanding LIBOR Advances and require any outstanding LIBOR
Advances to be repaid. If the Majority Lenders determine that deposits of a type
or maturity appropriate to match fund LIBOR Advances are not available, the
Administrative Agent shall suspend by written notice to Borrower the
availability of LIBOR Advances from and after the date of any such
determination. If the Majority Lenders determine that an interest rate
applicable to a LIBOR Advance does not accurately reflect the cost of making a
LIBOR Advance, and, if for any reason whatsoever the provisions of Section 4.1
are inapplicable, the Administrative Agent shall suspend by written notice to
Borrower the availability of LIBOR Advances from and after the date of any such
determination.
4.4 Funding Indemnification. If any payment of a LIBOR Advance occurs
on a date which is not the last day of the LIBOR Interest Period, whether
because of acceleration, prepayment or otherwise, or a LIBOR Advance is not made
on the date specified by Borrower for any reason other than default by one or
more of the Lenders, Borrower will indemnify and hold harmless each Lender from
and against any loss, damage, expense or cost incurred by such Lender resulting
therefrom, including, without limitation, any loss, damage, expense or cost in
liquidating or employing deposits acquired to fund or maintain the LIBOR
Advance.
4.5 Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its LIBOR Advances to reduce any liability of Borrower to such Lender
under Sections 4.1 and 4.2 or to avoid the unavailability of a LIBOR Advance, so
long as such designation is not disadvantageous to such Lender. Each Lender
shall deliver a written statement of such Lender as to the amount due, if any,
under Sections 4.1, 4.2 or 4.4 hereof. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be final, conclusive and
<PAGE>
binding on Borrower in the absence of manifest error. Determination of amounts
payable under such Sections in connection with a LIBOR Advance shall be
calculated as though each Lender funded its LIBOR Advance through the purchase
of a deposit of the type and maturity corresponding to the deposit used as a
reference in determining the Adjusted LIBOR Rate applicable to such Advance,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the written statement shall be payable on demand after
receipt by Borrower of the written statement. The obligations of Borrower under
Sections 4.1, 4.2 and 4.4 hereof shall survive payment of the Obligations and
termination of this Agreement.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Closing. The Lenders shall not be required
to make the initial Advance hereunder unless (i) the Borrower shall have paid
all fees then due and payable to the Lenders and the Administrative Agent
hereunder, (ii) all of the conditions set forth in Section 5.2 are satisfied,
and (iii) the Borrower shall have furnished to the Administrative Agent, in form
and substance satisfactory to the Lenders and their counsel and with sufficient
copies for the Lenders, the following:
(a) Certificates of Limited Partnership/Incorporation. A copy
of the Certificate of Limited Partnership for the Borrower and a copy of the
articles of incorporation or other applicable organizational documents of each
of General Partner and the other Guarantors, each certified by the appropriate
Secretary of State or equivalent state official.
(b) Agreements of Limited Partnership/Bylaws. A copy of the
Agreement of Limited Partnership for the Borrower and a copy of the bylaws,
partnership agreement, operating agreement or other applicable governing
instrument of each of the General Partner and the other Guarantors, including
all amendments thereto, each certified by the Secretary or other appropriate
officer of the Person in question as being in full force and effect on the
Agreement Execution Date.
(c) Good Standing Certificates. A certified copy of a
certificate from the Secretary of State or equivalent state official of the
states where each of the Borrower, General Partner and each other Guarantor are
organized, dated as of the most recent practicable date, showing the good
standing or partnership qualification (if issued) of each of Borrower, General
Partner and each other Guarantor.
(d) Foreign Qualification Certificates. A certified copy of a
certificate from the Secretary of State or equivalent state official of the
state where each of the Borrower, General Partner and the other Guarantors
maintain its principal place of business, dated as of the most recent
practicable date, showing the qualification to transact business in such state
as a foreign entity, for each of Borrower, General Partner and the other
Guarantors.
(e) Resolutions. A copy of a resolution or resolutions adopted
by the Board of Directors or other applicable governing body of each of the
General Partner and the other Guarantors, certified by the Secretary or other
appropriate officer of the Person in question as being in full force and effect
on the Agreement Execution Date, authorizing the execution, delivery and
performance of the Loan Documents to which such Person is a party and the
consummation of the transactions provided for therein.
<PAGE>
(f) Incumbency Certificate. A certificate for each of the
General Partner and the other Guarantors, signed by the Secretary or other
appropriate officer of the Person in question and dated the Agreement Execution
Date, as to the incumbency, and containing the specimen signature or signatures,
of the Persons authorized to execute and deliver the Loan Documents to be
executed and delivered by such entity.
(g) Loan Documents. Originals of the Loan Documents (in such quantities as
the Lenders may reasonably request), duly executed by authorized officers of the
appropriate entity.
(h) Opinion of Borrower's Counsel. A written opinion, dated
the Agreement Execution Date, from outside counsel for the Borrower which
counsel is reasonably satisfactory to Administrative Agent, substantially in the
form attached hereto as Exhibit C.
(i) Opinion of Guarantor's Counsel. A written opinion, dated
the Agreement Execution Date, from outside counsel for the Guarantors which
counsel is reasonably satisfactory to Administrative Agent, substantially in the
form attached hereto as Exhibit D.
(j) Compliance Certificate. An original compliance certificate in the form
attached hereto as Exhibit F, duly executed by a Qualified Officer of Borrower.
(k) Financial and Related Information. The following information:
(i) A certificate, signed by an executive officer of
the Borrower, stating that on the Agreement Execution Date no
Default or Event of Default has occurred and is continuing and
that all representations and warranties of the Borrower
contained herein are true and correct as of the Agreement
Execution Date as and to the extent set forth herein;
(ii) The most recent consolidated annual and
quarterly financial statements of the Borrower and a
certificate from a Qualified Officer of the Borrower that no
change in the Borrower's financial condition that could have a
Material Adverse Effect has occurred since September 30, 1997;
(iii) Evidence of sufficient Unencumbered Assets
[which evidence may include pay-off letters (together with
evidence of payment or a direction of Borrower to use a
portion of the proceeds of the Advances to repay such
Indebtedness), mortgage releases and/or title policies] to
assist the Administrative Agent in determining the Borrower's
compliance with the covenants set forth in Article VII and
Article IX herein;
(iv) Written money transfer instructions, in
substantially the form of Exhibit E hereto, addressed to the
Administrative Agent and signed by a Qualified Officer of
Borrower, together with such other related money transfer
authorizations as the Administrative Agent may have reasonably
requested; and
(v) Operating statements for the Unencumbered Assets
and other evidence of income and expenses to assist the
Administrative Agent in determining Borrower's compliance with
the covenants set forth in Articles VII, VIII and IX herein.
<PAGE>
(l) Other Evidence as any Lender May Require. Such other
documents and evidence as the Administrative Agent and any Lender may reasonably
request to fully effectuate and establish the consummation of the transactions
contemplated hereby, the taking of all necessary actions in any proceedings in
connection herewith and compliance with the conditions set forth in this
Agreement.
5.2 Conditions Precedent to Subsequent Advances. Advances after the
initial Advance shall be made from time to time as requested by Borrower, and
the obligation of each Lender to make any Loan for any such Advance are subject
to the following terms and conditions:
(a) prior to and at the time of each such Advance or issuance,
no Default or Event of Default shall have occurred and be continuing under this
Agreement or any of the Loan Documents and, if required by Administrative Agent,
Borrower shall deliver a certificate of Borrower to such effect; and
(b) The representations and warranties contained in Article VI
are true and correct as of such Borrowing Date or date of conversion and/or
continuation as and to the extent set forth therein, except to the extent any
such representation or warranty is stated to relate solely to an earlier date,
in which case such representation or warranty shall be true and correct on and
as of such earlier date.
(c) As to each Subsidiary that executes and delivers a
Guaranty after the Agreement Execution Date (or that is required to do so), the
Borrower has delivered to the Administrative Agent the items described in
subsections (a) through (g) of Section 5.1 hereof.
Each Borrowing Notice and Conversion/Continuation Notice shall
constitute a representation and warranty by the Borrower that the conditions
contained in Sections 5.2(a) through (c) have been satisfied.
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants that:
6.1 Existence. Attached hereto as Schedule 6.1 (as updated from time to
time in accordance with this Agreement) is a table showing, for each Credit
Party, its organizational form (e.g., corporation, partnership, limited
liability company, etc.), state of organization, state in which its principal
place of business is located, owner(s) of its Capital Stock and percentage
ownership interest. Each Credit Party is an entity of the type indicated for
such Credit Party on Schedule 6.1 (as updated from time to time) duly organized
and validly existing under the laws of the state of its organization as
indicated on Schedule 6.1 (as updated from time to time), with its principal
place of business in the state indicated for such Credit Party on Schedule 6.1
(as updated from time to time), and is duly qualified as a foreign entity,
properly licensed (if required), in good standing and has all requisite
authority to conduct its business in each jurisdiction in which it owns any
Property and, except where the failure to be so qualified or to obtain such
authority would not have a Material Adverse Effect, in each other jurisdiction
in which the nature of its business or activities requires such qualification or
authority. Each Subsidiary of each Credit Party is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has all requisite authority to conduct its business in each jurisdiction in
which it owns any Property, and except where the failure to be so qualified or
to obtain such authority would not have a Material Adverse Effect, in each other
jurisdiction in which the nature of its business or activities requires such
qualification.
6.2 Corporate/Partnership Powers. The execution, delivery and
performance of the Loan Documents required to be delivered by each Credit Party
hereunder are within the authority of such entity and the powers of the Borrower
under its partnership agent have been duly authorized by all requisite action,
and are not in conflict with the terms of any organizational instruments of such
entity, or any instrument or agreement to which such Credit Party is a party or
by which such Credit Party or any of its respective assets may be bound or
affected.
6.3 Power of Officers. The officers of each Credit Party executing the
Loan Documents required to be delivered by such entities or by the Borrower
hereunder have been duly elected or appointed and were fully authorized to
execute the same at the time each such agreement, certificate or instrument was
executed.
6.4 Government and Other Approvals. No approval, consent, exemption or
other action by, or notice to or filing with, any governmental authority is
necessary in connection with the execution, delivery or performance of any of
the Loan Documents by any of the Credit Parties. No other consent to or approval
of the transactions contemplated hereunder is required from any ground lessor,
mortgagee, beneficiary under a deed of trust or any other Person, except as has
been delivered to the Lenders on or before the Agreement Execution Date.
6.5 Solvency. Immediately after the Agreement Execution Date and
immediately following the making of each Advance and after giving effect to the
application of the proceeds of such Advance, each of the Credit Parties will be
Solvent.
6.6 Compliance With Laws and Agreements. There is no judgment, decree or
order or any law, rule or regulation of any court or governmental authority
binding on any of the Credit
<PAGE>
Parties or any of their respective assets which would be violated or contravened
by the execution, delivery or performance of the Loan Documents. The Credit
Parties and their respective Property and other assets are in substantial
compliance with applicable laws, and with all material leases, licenses and
other agreements to which any Credit Party is a party or by which such Credit
Party or any of its assets is bound. No other party to any such lease, license
or other agreement is in default thereunder in any material respect.
6.7 Enforceability of Agreement. This Agreement and each of the other
Loan Documents is (or, when fully executed and delivered, will be) the legal,
valid and binding agreement of each of the Credit Parties thereto, enforceable
against each such Credit Party in accordance with its respective terms, except
to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the rights of
creditors generally.
6.8 Title to Property. Borrower or its Subsidiaries has fee simple
title (subject only to Permitted Liens) to the Property and assets reflected in
Borrower's consolidated financial statements most recently delivered to the
Administrative Agent as owned by it or any such Subsidiary, free and clear of
Liens except for the Permitted Liens. Neither the execution, delivery nor
performance of the Loan Documents required by the Credit Parties will result in
the creation of any Lien on the Property or such assets. Borrower and its
Subsidiaries either own, or have entered into valid leases, licenses and other
agreements for, all assets, services and facilities necessary for the conduct of
their respective businesses and the operation of their respective assets.
6.9 Litigation. There are no suits, arbitrations, claims, disputes or
other proceedings (including, without limitation, any civil, criminal,
administrative or environmental proceedings), pending or, to the best of
Borrower's knowledge after due inquiry, threatened against or affecting the
Borrower, any of the other Credit Parties or any of the Property, the adverse
determination of which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect, except as disclosed on Schedule 6.9
hereto.
6.10 Events of Default. No Default or Event of Default has occurred and
is continuing or would result from the incurring of obligations by any of the
Credit Parties under any of the Loan Documents or any other document to which
any of the Credit Parties is a party.
6.11 Investment Company Act of 1940. None of the Credit Parties is an
investment company within the meaning of the Investment Company Act of 1940 and
none of the Credit Parties will become such an investment company.
6.12 Public Utility Holding Company Act. None of the Credit Parties is
a "holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company," or of a "subsidiary company" of a "holding
company," within the definitions of the Public Utility Holding Company Act of
1935, as amended.
6.13 Regulation U. The proceeds of the Advances will not be used,
directly or indirectly, to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
6.14 No Material Adverse Financial Change. There has been no Material
Adverse Financial Change since the date of the financial and/or operating
statements most recently submitted to the Lenders.
<PAGE>
6.15 Financial Information. All financial statements and operating
statements furnished to the Lenders by or at the direction of any of the Credit
Parties and all other financial information and data furnished by any of the
Credit Parties to the Lenders are complete and correct in all material respects
as of the date thereof, and such statements have been prepared in accordance
with GAAP and fairly present the consolidated financial condition and results of
operations of the Credit Parties and the Property as of such date. None of the
Credit Parties has any contingent obligations, liabilities for taxes or other
outstanding financial obligations which are material in the aggregate, except as
disclosed in such statements, information and data.
6.16 Factual Information. All factual information heretofore or
contemporaneously furnished by or on behalf of any of the Credit Parties to the
Lenders for purposes of or in connection with this Agreement and the other Loan
Documents and the transactions contemplated therein is, and all other such
factual information hereafter furnished by or on behalf of any of the Credit
Parties to the Lenders will be, true and accurate in all material respects on
the date as of which such information is dated or certified and not incomplete
by omitting to state any material fact necessary to make such information not
misleading at such time.
6.17 ERISA. (i) None of the Credit Parties is an entity deemed to hold
"plan assets" within the meaning of ERISA or any regulations promulgated
thereunder of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan within the meaning of Section
4975 of the Code, and (ii) the execution of this Agreement and the other Loan
Documents and the transactions contemplated hereunder and thereunder do not give
rise to a prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code.
6.18 Taxes. All required tax returns have been filed by each of the
Credit Parties with the appropriate authorities except to the extent that
extensions of time to file have been requested, granted and have not expired or
except to the extent such taxes are being contested in good faith by appropriate
proceedings and for which adequate reserves, in accordance with GAAP, are being
maintained.
6.19 Environmental Matters. Except as disclosed in Schedule 6.19:
(i) The Property does not contain any Materials of
Environmental Concern in amounts or concentrations which
constitute a violation of, or could reasonably be expected to
give rise to liability under, Environmental Laws.
(ii) None of Borrower, its Subsidiaries or Investment
Affiliates has received any written notice alleging that any
or all of the Property or any or all of the operations at the
Property are not in compliance with all applicable
Environmental Laws, or alleging the existence of any
contamination at or under such Property in amounts or
concentrations which constitute a violation of any
Environmental Law.
(iii) To the best of Borrowers knowledge after due
inquiry, no notice, violation, non-compliance or liability
referred to in Section 6.19(ii) above is threatened, and no
condition, fact or circumstance exists that could reasonably
be expected to result in such notice, violation,
non-compliance or liability.
(iv) During the ownership of the Property by any
or all of Borrower,its Subsidiaries and Investment Affiliates,
no materials defined as hazardous or toxic
<PAGE>
by, or otherwise regulated under, any Environmental Laws
("Materials") have been released, transported or disposed of,
or otherwise migrated, from the Property in violation of, or
in a manner or to a location which could reasonably be
excepted to give rise to liability under any applicable
Environmental Laws, nor during the ownership of the Property
by any or all of Borrower, its Subsidiaries and Investment
Affiliates have any Materials been generated, treated, stored,
abandoned or disposed of at, on or under any of such Property
in violation of, or in a manner that could reasonably be
expected to give rise to liability under any applicable
Environmental Laws. To the best knowledge of Borrower after
due inquiry, no such release, transport, disposal, migration,
generation, treatment, abandonment or storage from, at, on or
under any of the Property occurred, prior to ownership thereof
by Borrower, its Subsidiaries and Investment Affiliates, in
violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability under, any
applicable Environmental Laws.
(v) No judicial proceedings or governmental or
administrative action is pending, or, to the best knowledge of
Borrower after due inquiry, threatened, under any
Environmental Law to which Borrower, any of its Subsidiaries
or any Investment Affiliate is named as a party with respect
to any of the Property, nor are there any consent or other
decrees, orders, or other administrative or judicial decisions
or requirements outstanding under any Environmental Law with
respect to such Property.
6.20 Insurance. Borrower has obtained, and fully paid all premiums due
on, the following policies or binders of insurance on the Properties, all of
which shall be issued by companies with a Best Insurance Reports (1992)
Policyholder's and Financial Size Rating of "A-1X" or better:
(i) Property insurance (including coverage for flood
and other water damage for any Properties located within a
100-year flood plain) in the amount of 100 percent of the
replacement cost of the improvements at the Propertie;
(ii) Loss of rental income insurance in the
amount not less than one year's Gross Revenues from the
Properties; and
(iii) Commercial general liability insurance in
the amount of at least $5,000,000 per occurrence.
All insurance must be carried by companies with a
Best Insurance Reports (1992) Policyholder's and Financial
Size Rating of "A-IX" or better.
6.21 No Brokers. None of the Credit Parties has dealt with any brokers,
finders or other intermediaries in connection with this Facility, and no fees,
commissions or other compensation are payable by or to any such Person in
connection with this Agreement or the Advances. Lenders shall not be responsible
for the payment of any fees or commissions to any brokers, finders or other
intermediaries and Borrower shall indemnify, defend and hold Lenders harmless
from and against any claims, liabilities, obligations, damages, costs and
expenses (including attorneys' fees and disbursements) made against or incurred
by Lenders as a result of claims made or actions instituted by any brokers,
finders or other intermediaries claiming by, through or under any of the Credit
Parties in connection with the Facility.
<PAGE>
6.22 No Violation of Usury Laws. No aspect of any of the transactions
contemplated herein or in any of the other Loan Documents violates or will
violate any applicable usury laws or laws regarding the validity of agreements
to pay interest.
6.23 Not a Foreign Person. None of the Credit Parties is a "foreign person"
within the meaning of Section 1445 or Section 7701 of the Code.
6.24 No Trade Name. Except as otherwise set forth on Schedule 6.24
attached hereto, none of the Credit Parties uses any trade name and has not and
does not do business under any name other than their actual names set forth
herein.
6.25 Subsidiaries. Schedule 6.25 (as updated from time to time in
accordance with this Agreement) hereto contains an accurate list of all of the
Subsidiaries of each of the Credit Parties, which Subsidiaries are not
themselves Credit Parties, and of all of the Investment Affiliates of each of
the Credit Parties, setting forth their respective jurisdictions of formation,
the percentage of their respective Capital Stock owned by each Credit Party and
the Property owned by them. All of the issued and outstanding shares of Capital
Stock of all of the direct and indirect Subsidiaries and Investment Affiliates
of Borrower have been duly authorized and issued and are fully paid and non
assessable. All of such Capital Stock owned directly or indirectly by Borrower
is free and clear of Liens, except as otherwise specifically noted on Schedule
6.25 (as updated from time to time).
6.26 Properties. Schedule 6.26 hereto (as updated from time to time in
accordance with the terms of this Agreement) contains a complete and accurate
description, as of the Agreement Execution Date and the date of each update of
Schedule 6.26 submitted by Borrower from time to time in accordance with the
terms of this Agreement, of each Property, including the name of the entity that
owns each such Property, and whether such Property is Eligible Land, Land, a
Project, and/or an Unencumbered Asset. With respect to each Property, Borrower
hereby represents and warrants as follows:
(a) Except as set forth on Schedule 6.26, no portion of any
improvement on any such Property is located in an area identified by the
Secretary of Housing and Urban Development or any successor thereto as an area
having special flood hazards pursuant to the National Flood Insurance Act of
1968 or the Flood Disaster Protection Act of 1973, as amended, or any successor
law, or, if located within any such area, Borrower has obtained and will
maintain the insurance prescribed in Section 6.20 hereof.
(b) To the Borrower's knowledge, except as set forth on
Schedule 6.26, each such Property and the development, use and occupancy thereof
are in material compliance with all applicable zoning ordinances (without
reliance upon adjoining or other properties), building codes, land use and
Environmental Laws, and other laws regulating the development, use and occupancy
of real property ("Applicable Laws").
(c) Except as set forth on Schedule 6.26, each such Property
is served by all utilities required for the current and contemplated uses
thereof. All utility service is provided by public utilities and the such
Property has accepted or is equipped to accept such utility service.
(d) Except as set forth on Schedule 6.26, all public roads and
streets necessary for service of and access to each such Property for the
current or contemplated use thereof have been completed, are serviceable and
all-weather and are physically and legally open for use by the public.
<PAGE>
(e) Except as set forth on Schedule 6.26, each such Property is served by
public water and sewer systems.
(f) Except as set forth on Schedule 6.26, each such Property
is free of any patent or, to the best knowledge of Borrower and its
Subsidiaries, latent structural or other material defect or deficiency. Each
such Property is free of damage and waste that would materially and adversely
affect its value, is in good repair and there is no deferred maintenance other
than ordinary wear and tear. Each such Property is free from damage caused by
fire or other casualty. There is no pending or, to the best knowledge of
Borrower after due inquiry, threatened condemnation proceedings affecting any
such Property, or any material part thereof.
(g) Except as set forth on Schedule 6.26, all liquid and solid
waste disposal, septic and sewer systems located on each such Property are in a
good and safe condition and repair and are in compliance with all Applicable
Laws with respect to such systems.
(h) Except as set forth on Schedule 6.26, all improvements on
each such Property lie within the boundaries and building restrictions of the
legal description of record of such Property no such improvements encroach upon
any adjoining property, and no improvements on adjoining properties encroach
upon such Property or easements benefiting such Property. All amenities, access
routes or other items that benefit such Property are under direct control of
Borrower or one of its Subsidiaries, constitute permanent easements that benefit
all or part of such Property or are public property, and such Property by virtue
of such easements or otherwise, is contiguous to a physically open, dedicated
all weather public street, and has the necessary permits for ingress and egress.
(i) Except as set forth on Schedule 6.26, there are no
delinquent taxes, ground rents, water charges, sewer rents, assessments,
insurance premiums, leasehold payments, or other outstanding charges affecting
any such Property except to the extent such items are being contested in good
faith by appropriate proceedings and as to which adequate reserves have been
provided.
Except as set forth on Schedule 6.26, with respect to each
parcel of Eligible Land, each required performance bond,
surety or other security has been issued to and in favor
of and unconditionally accepted by each relevant
governmental authority, all plans, specifications and
drawings for improvements have been approved by all
relevant governmental authorities, and all necessary
easements, licenses, permits and other authorizations have
been granted for the development thereof (including,
without limitation, demolition, grading and construction
permits).
Any breach of the representations or warranties in this Section 6.26
shall disqualify such Property from being an Unencumbered Asset but shall not
per se constitute an Event of Default or Default under this Agreement.
6.27 Relationship of the Borrower. The Credit Parties are engaged as an
integrated group in the business of owning, developing operating and selling
real estate. The Credit Parties require financing on such a basis that funds can
be made available from time to time to such entities, to the extent required for
the continued successful operation of their integrated operations. The Advances
to be made to the Borrower under this Agreement are for the purpose of financing
the integrated operations of the Credit Parties, and each of the Credit Parties
expects to derive benefit, directly or indirectly, from the Advances, both
individually and as a member of the integrated group, since the
<PAGE>
financial success of the operations of Borrower and each Guarantor is dependent
upon the continued successful performance of the integrated group as a whole.
6.28 No Side Deals. None of the Borrower or its Subsidiaries or
Affiliates have entered into any written or oral agreements, arrangements or
understandings with any Lender or any Affiliate of any Lender relating to the
Facility or the Loan Documents, except as otherwise disclosed in this Agreement.
ARTICLE VII
FINANCIAL COVENANTS
The Borrower covenants and agrees that, so long as the Commitment shall
remain in effect and until full and final payment of all Obligations, without
the prior written consent of the Majority Lenders, it shall not, and shall cause
the other Credit Parties not to:
7.1 Minimum Consolidated Net Worth. As of the end of any fiscal
quarter, permit Consolidated Net Worth to be less than the sum of (i)
$150,000,000, plus (ii) an amount equal to ninety percent (90%) of the aggregate
proceeds received by Borrower (net of customary related fees and expenses) in
connection with any equity offering (including the issuance of shares in the
General Partner or units in the Borrower) after the Agreement Execution Date.
7.2 Maximum Consolidated Leverage Ratio. As of the end of any fiscal
quarter, permit the ratio of Consolidated Total Indebtedness to exceed 50% of
the Gross Asset Value.
7.3 Minimum Consolidated Interest Coverage Ratio. As of the end of any
fiscal quarter, permit the ratio of Adjusted EBITDA to Interest Expense to be
less than 2.00:1.
7.4 Minimum Fixed Charge Coverage Ratio. As of the end of any fiscal
quarter, permit the ratio of Adjusted EBITDA to Fixed Charges to be less than
1.75:1.
7.5 Maximum Unencumbered Asset Coverage Ratio. As of the end of any fiscal
quarter, Consolidated Unsecured Debt to exceed 50% of the Value of Unencumbered
Assets.
7.6 Minimum Unencumbered Asset NOI to Unsecured Interest. As of the end
of any fiscal quarter, permit the ratio obtained by dividing (A) "Total
Unencumbered NOI" (as hereinafter defined) for such quarter by (B) "Unencumbered
Interest Expense" (as hereafter defined) on all Consolidated Unsecured Debt for
such quarter to be less than 2.00 to 1. For purposes of this Section 7.6, (1)
"Unencumbered Interest Expense" shall have the same meaning as Interest Expense
except that clause (iv) of such definition shall include only Indebtedness of
those Investment Affiliates that are also Eligible Joint Ventures, and (2)
"Total Unencumbered NOI" shall mean the sum of (i) Unencumbered NOI qualifying
for inclusion in the calculation of the Value of Unencumbered Assets for such
quarter (as such Unencumbered NOI is annualized); less a capital reserve equal
to the product of (a) $1.25, multiplied by (b) the aggregate amount of Leased
Space at those Projects constituting Unencumbered Assets for such period, plus
(ii) Unencumbered NOI for any Unencumbered Assets acquired or sold during such
quarter (as such Unencumbered NOI is annualized), less a capital reserve equal
to (a) $1.25, multiplied by (b) the weighted average of Leased Space at those
Projects constituting Unencumbered Assets for such period.
7.7 Maximum Secured Debt to Gross Asset Value. As of the end of any fiscal
quarter,
<PAGE>
(i) prior to the earlier of (1) March 25, 1998 or (2) the repayment in full of
the Existing Facility permit Consolidated Secured Debt to exceed 45% of Gross
Asset Value, and (ii) thereafter, permit Consolidated Secured Debt to exceed 35%
of Gross Asset Value;
7.8 Maximum Dividend Payout Ratio. Pay out, in any fiscal quarter,
aggregate dividends to the shareholders of the General Partner in excess of 90%
of its Funds From Operations from such quarter.
Compliance with each of the foregoing financial covenants shall be measured and
certified as of September 30, 1997 and on the last day of each fiscal quarter in
accordance with Section 8.2 hereof.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as the Commitment of any
Lender shall remain available and until the full and final payment of all
Obligations incurred under the Loan Documents they will:
8.1 Notices. Promptly give written notice to Administrative Agent
of:
(a) all litigation or arbitration proceedings affecting the Borrower or any
of the other Credit Parties where the amount claimed is $5,000,000 or more;
(b) any Default or Event of Default, specifying the nature and
the period of existence thereof and what action has been taken or been proposed
to be taken with respect thereto;
(c) all claims filed against any of the Property which, if adversely
determined, could have a Material Adverse Effect;
(d) the occurrence of any other event which might have a Material Adverse
Effect;
(e) any Reportable Event or any "prohibited transaction" (as such term is
defined in Section 4975 of the Code) in connection with any Plan or any trust
created thereunder, which may, singly or in the aggregate materially impair the
ability of any of the Credit Parties to repay any of its obligations under the
Loan Documents, describing the nature of each such event and the action, if any,
such Credit Party proposes to take with respect thereto;
(f) any notice from any federal, state, local or foreign authority
regarding any Hazardous Material, asbestos, or other environmental condition,
proceeding, order, claim or violation affecting any of the Properties.
8.2 Financial Statements, Reports. Etc. The Borrower shall maintain, for
itself and each entity in the Consolidated Operating Partnership, a system of
accounting established and administered in accordance with GAAP, and furnish to
the Lenders:
(i) as soon as available, but in any event not later than 45 days after the
close of each fiscal quarter, for the Consolidated Operating Partnership an
unaudited
<PAGE>
consolidated balance sheet as of the close of each such period
and the related unaudited consolidated statements of income
and retained earnings and of cash flows of the Consolidated
Operating Partnership for such period and the portion of the
fiscal year through the end of such period, setting forth in
each case in comparative form the corresponding figures for
the previous year, all certified by a Qualified Officer of the
General Partner;
(ii) As soon as available, but in any event not later
than 45 days after the close of each fiscal quarter, for the
Consolidated Operating Partnership, related reports in form
and substance satisfactory to the Lenders, all certified by a
Qualified Officer of the General Partner, including updates of
Schedules 6.1, 6.25 and 6.26 of this Agreement, a statement of
Funds From Operations, a description of Unencumbered Assets, a
listing of capital expenditures (in the level of detail as
currently disclosed in Borrower's "Supplemental Information"),
a report listing and describing all newly formed or acquired
Subsidiaries and all newly acquired Properties, including
their cost and Indebtedness assumed in connection with such
acquisition, if any, summary information for all Property,
including, without limitation, occupancy rates (including
Leased Space), square footage, property type, date acquired or
built, Gross Revenues, Net Operating Income, operating
expenses, capital expenditures, the status of development, and
such other information as may be requested (including, without
limitation, operating statements) to evaluate the quarterly
compliance certificate delivered as provided below;
(iii) As soon as available but in no event later than
the fifth Business Day after the date such reports are to be
filed with the Securities Exchange Commission, copies of any
Forms 10K, 10Q, 8K, and, within ten (10) Business Days after
filing, any other annual, quarterly, monthly or other reports,
copies of all registration statements and any other public
information which the Consolidated Operating Partnership files
with the Securities Exchange Commission or other governmental
authority, and to the extent any of such reports contains
information furnished under other subsections of this Section
8.2, the information need not be separately furnished;
(iv) As soon as available, but in any event not later
than 90 days after the close of each fiscal year of the
Consolidated Operating Partnership, a consolidated and, if
available, consolidating balance sheet of the Consolidated
Operating Partnership as of the end of that fiscal year and
related consolidated and, if available, consolidating
statements of income, retained earnings, cash flows and
stockholders' equity for that fiscal year, in each case with
accompanying notes and schedules, prepared in accordance with
GAAP and audited by a firm of independent certified public
accountants of recognized standing selected by Borrower and
acceptable to the Administrative Agent, which accountants
shall have issued an unqualified audit report thereon;
(v) Within thirty (30) days after the beginning of
each fiscal year of Consolidated Operating Partnership, a
projection in reasonable detail and in form and substance
satisfactory to the Administrative Agent, on an annual basis,
of the assets, liabilities, cash flow and earnings of the
Consolidated Operating Partnership for that fiscal year and
the following fiscal year;
<PAGE>
(vi) As soon as available, but in any event not later
than three Business Days after receipt thereof by any entity
in the Consolidated Operating Partnership, all quarterly
financial statements, operating reports and other financial
and operating information regarding Investment Affiliates
and/or Property owned by any Investment Affiliate;
(vii) As soon as available, but in any event not
later than 120 days after the close of each fiscal year of
each Investment Affiliate, a balance sheet of such Investment
Affiliate as of the end of that fiscal year and related
statements of income, retained earnings, cash flow and
stockholders' equity for that fiscal year, with accompanying
notes and schedules, prepared in accordance with GAAP and
audited by a firm of independent certified public accountants,
which accountants have issued an unqualified report thereon;
(viii) Not later than forty-five (45) days after the
end of each of the first three fiscal quarters, and not later
than ninety (90) days after the end of the fiscal year, a
compliance certificate in substantially the form of Exhibit F
hereto signed by a Qualified Officer of the General Partner
confirming that the Borrower is in compliance with all of the
covenants of the Loan Documents, showing the calculations and
computations necessary to determine compliance with the
financial covenants contained in this Agreement (including
such schedules and backup information as may be necessary to
demonstrate such compliance) and stating that no Default or
Event of Default exists, or if any Default or Event of Default
exists, stating the nature and status thereof;
(ix) As soon as possible and in any event within 10
Business Days after any Reportable Event has occurred with
respect to any Plan, a statement, signed by a Qualified
Officer of the General Partner, describing said Reportable
Event and within 20 days after such Reportable Event, a
statement signed by such officer describing the action which
Borrower proposes to take with respect thereto; and (b) within
10 Business Days of receipt, any notice from the Internal
Revenue Service, PBGC or Department of Labor with respect to a
Plan regarding any excise tax, proposed termination of a Plan,
prohibited transaction or fiduciary violation under ERISA or
the Code which could result in any liability to Borrower or
any member of the Controlled Group in excess of $100,000; and
(c) within 10 Business Days of filing, any Form 5500 filed by
Borrower with respect to a Plan, or any member of the
Controlled Group which includes a qualified accountant's
opinion.
(x) As soon as possible and in any event within 10
days after receipt by the Borrower, a copy of (a) any notice
or claim to the effect that any entity in the Consolidated
Operating Partnership or Investment Affiliate is or may be
liable to any Person as a result of the release by such
entity, or any of its Subsidiaries, or any other Person of any
toxic or hazardous waste or substance into the environment,
and (b) any notice alleging any violation of any federal,
state or local environmental, health or safety law or
regulation by the Borrower or any of its Subsidiaries or
Investment Affiliates, which, in either case, could be
reasonably likely to have a Material Adverse Effect;
(xi) Within thirty (30) days of the furnishing
thereof to the shareholders of the Borrower, copies of all
financial statements, reports, notices and proxy
<PAGE>
statements so furnished, provided that to the extent any of
such information has been furnished under other subsections of
this Section 8.2, such information need not be separately
furnished;
(xii) As soon as possible, and in any event within 10
days after the Borrower knows of any fire or other casualty or
any pending or threatened condemnation or eminent domain
proceeding with respect to all or any material portion of any
of the Property, a statement signed by a Qualified Officer of
General Partner, describing such fire, casualty or
condemnation and the action Borrower intends to take with
respect thereto; and
(xiii) Such supplements to the foregoing documents
and other information (including, without limitation,
non-financial information) as the Administrative Agent or any
Lender may from time to time reasonably request.
8.3 Existence and Conduct of Operations. Except as otherwise expressly
permitted herein, the Borrower shall, and shall cause each of the other Credit
Parties to, maintain and preserve its existence and all rights, privileges and
franchises now enjoyed and necessary for the operation of its business,
including remaining in good standing in each jurisdiction in which business is
currently operated. The Borrower shall, and shall cause each of the other Credit
Parties to, carry on and conduct their respective businesses in substantially
the same manner and in substantially the same fields of enterprise as presently
conducted. The Borrower shall, and shall cause each of the other Credit Parties
to, do all things necessary to remain duly incorporated and/or duly qualified,
validly existing and in good standing as a real estate investment trust,
corporation, general partnership, limited liability company or limited
partnership, as the case may be, in its jurisdiction of incorporation/formation.
The Borrower shall, and shall cause each of the other Credit Parties to,
maintain all requisite authority to conduct its business in each jurisdiction in
which any of the Properties are located and, except where the failure to be so
qualified would not have a Material Adverse Effect, in each jurisdiction
required to carry on and conduct its businesses in substantially the same manner
as it is presently conducted, and, specifically, neither the Borrower nor its
Subsidiaries will undertake any business other than the acquisition,
development, ownership, management, operation and leasing of office properties
and ancillary businesses specifically related thereto, except that the Borrower
and its Subsidiaries and Investment Affiliates may invest in other assets
subject to the certain limitations contained herein with respect to the
following specified categories of assets: (i) Land; (ii) other property holdings
(excluding cash, Cash Equivalents, and Indebtedness of any Subsidiary to the
Borrower); (iii) stock holdings other than in Subsidiaries; (iv) mortgages; (v)
joint ventures and partnerships; and (vi) projects under development. The total
investment in any one of categories (i), (ii), (iv) or (v) shall not exceed 10%
of Gross Asset Value, the total investment in category (iii) shall not exceed
five percent (5%) of Gross Asset Value and the total investment in category (vi)
shall not exceed 15% of Gross Asset Value, and the total investment in all the
foregoing investment categories in the aggregate shall not exceed twenty-five
percent (25%) of Gross Asset Value. Notwithstanding anything to the contrary
contained in this Section 8.3, any Eligible Joint Venture which is one of the
Credit Parties will not be limited by the foregoing restrictions. For the
purposes of this Section 8.3, all investments in categories (i), (iii) and (iv)
shall be valued at the lower of acquisition cost or market value and the value
of any investment in category (ii) shall be calculated as the quotient of (x)
Net Operating Income generated from such investment, divided by (y) 15%.
8.4 Maintenance of Properties. The Borrower shall, and shall cause the
other Credit Parties to, maintain, preserve, protect and keep the Properties in
good and safe repair, working order
<PAGE>
and condition, and make all necessary and proper repairs, renewals and
replacements.
8.5 Insurance. The Borrower shall, and shall cause the other Credit
Parties to, provide a certificate of insurance from all insurance carriers which
have issued policies with respect to any Properties within thirty (30) days
after the end of each fiscal year, evidencing that the insurance required to be
furnished to Lenders pursuant to Section 6.20 hereof is in full force and
effect. The Administrative Agent (for the benefit of the Lenders) shall be named
as a loss payee on each such policy of casualty insurance and as an additional
insured on each such policy of liability insurance, and all such policies of
insurance shall contain provisions to the effect that they may not be canceled
or materially changed without at least 30 days prior notice to Administrative
Agent. Borrower shall timely pay, or cause to be paid, all premiums on all
insurance policies required under this Agreement from time to time. Borrower
shall, and shall cause the other Credit Parties to, promptly notify the
insurance carrier or agent therefor (with a copy of such notification being
provided simultaneously to Administrative Agent) if there is any occurrence
which, under the terms of any insurance policy then in effect with respect to
any of the Properties, requires such notification.
8.6 Payment of Obligations. The Borrower shall, and shall cause the
other Credit Parties to, pay all taxes, assessments, governmental charges and
other obligations when due, except such as may be contested in good faith by
appropriate proceedings, and for which adequate reserves have been provided in
accordance with sound accounting principles.
8.7 Compliance with Laws. The Borrower shall, and shall cause the other
Credit Parties to, comply in all material respects with all applicable laws,
rules, regulations, orders and directions of any governmental authority having
jurisdiction over Borrower, any of the other Credit Parties, or any of their
respective businesses or assets.
8.8 Adequate Books. The Borrower shall, and shall cause the other
Credit Parties to, maintain adequate books, accounts and records in order to
provide financial statements in accordance with GAAP and, if requested by any
Lender, permit employees or representatives of such Lender at any reasonable
time and upon reasonable notice (i) to inspect and audit the assets of the
Credit Parties or any of them, (ii) to examine or audit the inventory, books,
accounts and records of each of them and make copies and memoranda thereof, and
(iii) to consult with appropriate personnel of each of them regarding the
foregoing.
8.9 ERISA. The Borrower shall, and shall cause the other Credit Parties
to, comply in all material respects with all requirements of ERISA applicable
with respect to each Plan.
8.10 Maintenance of Status. General Partner shall at all times continue
to have its common stock listed and in good standing on the New York Stock
Exchange (NYSE), and Borrower shall take all steps to maintain General Partner's
status as a real estate investment trust in compliance with all applicable
provisions of the Code.
8.11 Use of Proceeds. The Borrower shall use the proceeds of the
Facility solely for the general business purposes of the Borrower, including,
without limitation, working capital needs, closing costs, and interim funding
for acquisitions and development of office and light industrial real properties.
8.12 Pre-Acquisition Environmental Investigations. The Borrower shall, and
shall cause each of the Credit Parties to, obtain, prior to the acquisition of
each parcel of real property that it intends to acquire, an environmental report
of the scope described in Exhibit G attached hereto and made a part hereof.
<PAGE>
8.13 New Subsidiaries. The Borrower shall, from time to time, promptly
cause each Person that becomes a wholly-owned Subsidiary of General Partner
after the Agreement Execution Date to duly execute and deliver to the
Administrative Agent a Guaranty of the Obligations. Notwithstanding anything to
the contrary contained herein, such duly executed Guaranty, together with the
related documentation required to be furnished pursuant to Section 5.2(c)
hereof, shall be delivered to the Administrative Agent no later than 45 days
after the end of the fiscal quarter during which such Person became a Subsidiary
of General Partner.
8.14 Distributions. Neither the General Partner nor the Borrower shall make
any distributions which would cause a violation of any of the following
covenants:
(a) The General Partner shall not pay any distributions to its
shareholders and the Borrower shall not pay any distribution to the partners of
the Borrower if such distribution would cause a violation of Section 7.8 hereof;
provided, however, the Borrower may make distributions to the General Partner
which correspond in amount and timing to distributions which the General Partner
is permitted by Section 7.8 to make to its shareholders and other distributions
to the General Partner for "REIT Expenses" as defined in Borrower's Agreement of
Limited Partnership delivered pursuant to Section 5.1(b) hereof;
If an Event of Default specified in Section 10.1 or Section 10.3, or an
Event of Default relating to a breach of the financial covenants contained in
Article VII above, shall have occurred and be continuing, the Borrower and the
General Partner shall make no distributions other than the minimum distributions
required under the Code to maintain the tax status of the General Partner as a
REIT, as evidenced by a certification of the principal financial or accounting
officer of the General Partner containing calculations in reasonable detail
satisfactory in form and substance to Administrative Agent; and
Notwithstanding the foregoing, at any time when an Event of Default shall
have occurred and the maturity of the Obligations has been accelerated, the
Borrower and General Partner shall not make any distributions whatsoever,
directly or indirectly.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitment shall
remain in effect and until full and final payment of all Obligations incurred
under the Loan Documents, without the prior written consent of the Majority
Lenders, it shall not, and shall cause the other Credit Parties not to:
9.1 Change in Business. Except as otherwise permitted under Section
8.3, engage in any business activities or operations other than acquisition,
development, ownership, management, operation and leasing of office and light
industrial real property and ancillary businesses specifically related thereto.
9.2 Intentionally Deleted.
9.3 Change of Borrower Ownership. Allow (i) the General Partner to own less
than
<PAGE>
fifty-one percent (51%) of the partnership interests in Borrower, (ii) the
Borrower to be controlled by a Person other than the General Partner, or (iii)
any pledge of, other encumbrance on, or conversion to limited partnership
interests of, any of the general partnership interests in the Borrower.
9.4 Use of Proceeds. Apply or permit to be applied any proceeds of any
Advance directly or indirectly, to the funding of any purchase of, or offer for,
any share of capital stock of any publicly held corporation constituting (alone
or together with other shares owned by Borrower or its Subsidiaries) a
controlling interest in such corporation, or as part of a series of transactions
to acquire such controlling interest, unless the board of directors of such
corporation has consented to such purchase or offer and the Lenders have
consented to such use of the proceeds of the Facility.
9.5 Transfers of Assets. Sell or otherwise dispose of (other than the
creation or continuance of Permitted Liens) any Properties or other assets or
any interest therein, if such Property or other assets, together with all other
assets which have been transferred or disposed of prior to such date, exceeds
twenty percent (20%) of the Gross Asset Value of Borrower.
9.6 Liens. Create, incur, or suffer to exist any Lien in, of or on any of
the Properties except:
(i) Liens for taxes, assessments or governmental
charges or levies on their Property if the same shall not at
the time be delinquent or thereafter can be paid without
penalty, or are being contested in good faith and by
appropriate proceedings and for which adequate reserves shall
have been set aside on their books;
(ii) Liens which arise by operation of law, such as
carriers', warehousemen's, landlords', materialmen and
mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of
obligations not more than 30 days past due or which are being
contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its
books;
(iii) Liens arising out of pledges or deposits under
worker's compensation laws, unemployment insurance, old age
pensions, or other social security or retirement benefits, or
similar legislation;
(iv) Utility easements, building restrictions, zoning
restrictions, easements and such other encumbrances or charges
against real property as are of a nature generally existing
with respect to properties of a similar character and which do
not in any material way affect the marketability of the same
or interfere with the use thereof in the business of the
Borrower or any of the other Credit Parties;
(v) Liens of any Subsidiary in favor of the Borrower;
(vi) Liens arising in connection with any
Indebtedness permitted hereunder to the extent such Liens will
not result in a violation of any of the provisions of this
Agreement; and
(vii)Liens described in Schedule 9.6 attached hereto.
<PAGE>
Liens permitted pursuant to this Section 9.6 shall be deemed to be "Permitted
Liens".
9.7 Regulation U. Use any of the proceeds of the Advances to purchase or
carry any Margin Stock.
9.8 Mergers and Dispositions. Enter into any merger, consolidation,
pool, business combination, reorganization or liquidation, or transfer or
otherwise dispose of all or a substantial portion of its properties, except for:
such transactions that occur between wholly-owned Subsidiaries; transactions
where Borrower is the surviving entity and there is no change in business
conducted, and no Default or Event of Default under the Loan Documents results
from such transaction; or as otherwise approved in advance by the Lenders.
9.9 Negative Pledge. Agree with any third party not to create,
assume or suffer to exist any Lien securing a charge or obligation on any of its
real or personal property, whether now owned or hereafter acquired.
9.10 Consolidated Secured Recourse Debt. At any time, allow
Consolidated Secured Debt that is recourse to the Borrower or any other entity
in the Consolidated Operating Partnership to exceed ten percent (10%) of Gross
Asset Value.
ARTICLE X
DEFAULTS
The occurrence of any one or more of the following events shall
constitute an Event of Default:
10.1 Nonpayment of Principal. The Borrower fails to pay any principal
portion of the Obligations when due, whether on the Maturity Date or otherwise.
10.2 Certain Covenants. The Borrower, General Partner and/or Consolidated
Operating Partnership, as the case may be, is not in compliance with any one or
more of the provisions of Article VII or Article IX (excluding Section 9.1)
hereof.
10.3 Nonpayment of Interest and Other Obligations. The Borrower fails
to pay any interest or other portion of the Obligations, other than payments of
principal, and such failure continues for a period of ten (10) days after the
date such payment is due.
10.4 Cross Default. Any monetary default occurs (after giving effect to
any applicable cure period) under any Indebtedness (which includes liability
under guaranties) of any entity in the Consolidated Operating Group, singly or
in the aggregate, in excess of Five Million Dollars ($5,000,000), other than
Indebtedness arising from the purchase of personal property or the provision of
services, the amount of which is being contested by Borrower in good faith by
appropriate proceedings.
10.5 Loan Documents. Any Loan Document is not in full force and effect
in accordance with its terms, or a default has occurred and is continuing
thereunder after giving effect to any cure or grace period in any such document.
10.6 Representation or Warranty. At any time or times hereafter any
representation or
<PAGE>
warranty set forth in Article VI or Article VII of this Agreement or in any
other Loan Document or in any statement, report or certificate now or hereafter
made by any entity in the Consolidated Operating Group to the Lenders or the
Administrative Agent is not true and correct in any material respect.
10.7 Covenants, Agreements and Other Conditions. The Borrower fails to
perform or observe any of the covenants, agreements and conditions contained in
this Agreement or any of the other Loan Documents not specifically referred to
in any other Section of this Article X, in accordance with the terms hereof or
thereof, and such Default continues unremedied for a period of thirty (30) days
after written notice from Administrative Agent, provided, however, that if such
Default is susceptible of cure but cannot by the use of reasonable efforts be
cured within such thirty (30) day period, such Default shall not constitute an
Event of Default under this Section 10.7 so long as (i) the Borrower has
commenced a cure within such thirty-day period in a manner satisfactory to the
Administrative Agent and (ii) thereafter, Borrower is proceeding to cure such
default continuously and diligently and in a manner reasonably satisfactory to
Administrative Agent and (iii) such default is cured to Administrative Agent's
satisfaction not later than sixty (60) days after the expiration of such thirty
(30) day period.
10.8 No Longer General Partner. The General Partner shall no longer be the
sole general partner of Borrower.
10.9 Material Adverse Financial Change. Any of the Borrower or the
Guarantors have suffered a Material Adverse Financial Change or is Insolvent.
10.10 Bankruptcy.
(a) Any of the Borrower or the Guarantors (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as now
or hereafter in effect, (ii) make an assignment for the benefit of creditors,
(iii) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it or
any substantial portion of its Property, (iv) institute any proceeding seeking
an order for relief under the Federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it as a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (v) take any corporate action to authorize or effect any of the foregoing
actions set forth in this Section 10.10(a), (vi) fail to contest in good faith
any appointment or proceeding described in Section 10.10(b) or (vii) not pay, or
admit in writing its inability to pay, its debts generally as they become due.
(b) A receiver, trustee, examiner, liquidator or similar
official shall be appointed for any of the Borrower or any Guarantor or any
substantial portion of any of their Properties or other material assets, or a
proceeding described in Section 10.10(a)(iv) shall be instituted against any of
the Borrower or any such Guarantor and such appointment continues undischarged
or such proceeding continues undismissed or unstayed for a period of sixty (60)
consecutive days.
10.11 Legal Proceedings. Any of the Borrower or the Guarantors is
enjoined, restrained or in any way impaired by any court order or judgment or if
a notice of lien, levy, or assessment is filed of record with respect to all or
any part of their Properties or other material assets by any governmental
department, office, agency or authority, which, alone or in the aggregate, could
have
<PAGE>
a Materially Adverse Effect, or any proceeding is filed or commenced seeking to
enjoin, restrain or otherwise impair any of said Persons from conducting all or
a substantial part of their respective business affairs, and such proceeding is
not vacated, stayed, dismissed, set aside, removed or otherwise or remedied
within ninety (90) days after the occurrence thereof.
10.12 ERISA. Any of the Borrower or the Guarantors is deemed to hold
"plan assets" within the meaning of ERISA or any regulations promulgated
thereunder of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan (within the meaning of Section
4975 of the Code).
10.13 Failure to Satisfy Judgments. Any of the Borrower or the
Guarantors shall fail within sixty (60) days to pay, bond or otherwise discharge
any judgments or orders for the payment of money in an amount which, when added
to all other judgments or orders outstanding against the Borrower or any
Guarantor would exceed Five Million Dollars ($5,000,000) in the aggregate, which
have not been stayed pending appeal, unless the liability is insured against and
the insurer has not challenged coverage of such liability.
10.14 Environmental Remediation. Failure to remediate within the time
period required by law or governmental order, (or within a reasonable time in
light of the nature of the problem if no specific time period is so
established), environmental problems in violation of applicable law related to
any Property where the estimated cost of remediation is in the aggregate in
excess of Five Million and No/100 Dollars ($5,000,000), in each case after all
administrative hearings and appeals have been concluded.
ARTICLE XI
ACCELERATION, WAIVERS AMENDMENTS AND REMEDIES
11.1 Acceleration. If any Event of Default described in Section 10.10
hereof occurs, the obligation of the Lenders to make Advances hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable. If any other Event of Default described in Article X hereof shall have
occurred and be continuing, the Administrative Agent may (and upon demand of the
Majority Lenders, shall) notify Borrower that such obligation to make Advances
has terminated and the Obligations shall immediately become due and payable.
11.2 Preservation of Rights; Amendments. No delay or omission of the
Lenders in exercising any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of an Advance notwithstanding the existence
of a Default or Event of Default or the inability of the Borrower to satisfy any
conditions precedent to such Advance shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment, release or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Administrative Agent and the number of Lenders required hereunder
and then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative, and may
be exercised concurrently or successively, and all shall be available to the
Lenders until the Obligations have been paid in full.
<PAGE>
ARTICLE XII
THE ADMINISTRATIVE AGENT
12.1 Appointment. BOFA is hereby irrevocably appointed Administrative
Agent hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Administrative Agent to act as the agent of such
Lender. The Administrative Agent agrees to act as such upon the express
conditions contained in this Article XII. The Administrative Agent shall not
have any duties or responsibilities except those expressly set forth herein and
shall not have a fiduciary relationship in respect of any Lender by reason of
this Agreement.
12.2 Powers. The Administrative Agent shall have and may exercise such
powers under the Loan Documents as are specifically delegated to the
Administrative Agent by the terms of each thereof, together with such powers as
are reasonably incidental thereto. The Administrative Agent shall have no
implied duties, obligations or liabilities to the Lenders, or any obligation to
the Lenders to take any action thereunder except any action specifically
provided by the Loan Documents to be taken by the Administrative Agent. Only
Administrative Agent may perform the duties reserved to it under the Loan
Documents and no Lender shall act or purport to act on behalf of the other
Lenders or Administrative Agent on any such matters. Without limiting the
generality of the foregoing:
(a) Administrative Agent shall have the exclusive right to
collect from Borrower and any Guarantor, or third parties, on account of the
Facility, including, principal, interest, fees, protective advances and
prepayment premiums (if any), whether such sums are received directly from
Borrower, Guarantor, or any other Persons, or are obtained by right of offset by
Administrative Agent of any kind, or by enforcement of the Loan Documents.
Administrative Agent will receive and hold all collections with respect to the
Loan for the benefit of the Lenders in accordance with their Percentages or as
otherwise provided herein.
(b) If any Lender shall receive any payments or property in
connection with the Facility (whether or not voluntary), from any Person other
than Administrative Agent, such Lender shall transfer to Administrative Agent
all such payments or property within one Business Day of receipt.
(c) No Lender shall independently initiate any judicial action
or other proceeding against Borrower or any Guarantor with respect to the
Facility.
12.3 General Immunity. Neither the Administrative Agent nor any of its
directors, officers, agents or employees shall be liable to the Borrower or the
Lenders for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith, except for
its or their own gross negligence or willful misconduct.
12.4 No Responsibility for Loans, Recitals, etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in Article V, except receipt of items
required to be delivered to the Administrative Agent; or (iv) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith.
<PAGE>
12.5 Action on Instructions of Lenders. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder and under any other Loan Document in accordance with written
instructions signed by the Majority Lenders and such instructions and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders
and on all holders of Notes. The Administrative Agent shall be fully justified
in failing or refusing to take any action hereunder and under any other Loan
Document unless it shall first receive such advise or concurrence, if it so
requests, of the Majority Lenders and shall first be indemnified to its
satisfaction by the Lenders pro rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.
12.6 Employment of Administrative Agents and Counsel. The
Administrative Agent may execute any of its duties as Administrative Agent
hereunder and under any other Loan Document by or through employees, agents and
attorneys-in-fact and shall not be answerable to the Lenders, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Administrative Agent shall be entitled to engage and rely
upon advice of legal counsel (including the Borrower's counsel), independent
accountants and other professionals and experts selected by the Administrative
Agent concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
12.7 Reliance on Documents . The Administrative Agent shall be entitled
to rely upon any Note, writing, notice, consent, certificate, facsimile,
affidavit, letter, telegram, statement, paper, document or other communication
believed by it to be genuine and correct and to have been signed, sent or
otherwise communicated by the proper person or persons.
12.8 Administrative Agent's Reimbursement and Indemnification. The
Lenders agree to reimburse and indemnify upon demand the Administrative Agent
ratably in accordance with their respective Percentages (i) for any amounts not
reimbursed by the Borrower for which the Administrative Agent is entitled to
reimbursement by the Borrower under the Loan Documents, (ii) for any other
expenses (including attorneys' fees) incurred by the Administrative Agent on
behalf of the Lenders, in connection with the preparation, execution, delivery,
administration, modification and enforcement of the Loan Documents, if not paid
by Borrower, and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of the
Loan Documents or any other document delivered in connection therewith or the
transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Administrative Agent. Each Lender shall indemnify the
Administrative Agent and the other Lenders with respect to claims, liabilities,
damages, costs, losses and expenses (including, without limitation, attorneys'
fees) arising from or relating to the failure of such indemnifying Lender to
satisfy its obligations under this Agreement and the other Loan Documents.
12.9 Rights as a Lender. With respect to the Commitment, Advances made
by it, the Note issued to it and otherwise, the Administrative Agent shall have
the same rights and powers hereunder and under any other Loan Document as any
Lender and may exercise the same as though it were not the Administrative Agent,
and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include the Administrative Agent in its capacity as a Lender. The
Administrative Agent, in its capacity as a Lender, may accept deposits from,
lend money to, and
<PAGE>
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Lenders acknowledge that Administrative Agent and its Affiliates now or in the
future may have banking or other financial relationships, including being an
agent on other loans, with Borrower and its Affiliates, as though BOFA were not
Administrative Agent hereunder and without notice to or consent of the Lenders.
Each Lender hereby expressly waives any objection to such actual or potential
conflict of interest. The Lenders acknowledge that in the course of such
activities, BOFA or its Affiliates may receive information regarding Borrower or
its Affiliates and acknowledge that Administrative Agent shall be under no
obligation to provide such information to them, whether or not confidential.
12.10 Commitment as a Lender. BOFA agrees to maintain at all times a
Commitment of at least 50 percent of the Aggregate Commitment so long as BOFA
remains as Administrative Agent; provided, that the foregoing agreement of BOFA
shall not apply at any time following a Monetary Default or Event of Default
(irrespective of whether such Monetary Default or Event of Default subsequently
is waived).
12.11 Lender Credit Decision. Each Lender acknowledges that neither the
Administrative Agent nor any of its agents has made any representation or
warranty to such Lender and that no action or statement hereafter made or taken
by the Administrative Agent or any of its agents shall be deemed to be
representation or warranty by the Administrative Agent to such Lenders. Each
Lender further acknowledges that it has, independently and without reliance upon
the Administrative Agent or any other Lender and based on the financial
statements prepared by the Borrower and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and the other Loan Documents. Each Lender also acknowledges
that it will, independently and without reliance upon the Administrative Agent
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis and decisions
in taking or not taking action under this Agreement and the other Loan
Documents.
12.12 Successor Administrative Agent. Each Lender agrees that BOFA
shall serve as Administrative Agent at all times during the term of this
Facility, except that BOFA may resign as Administrative Agent at any time, in
its sole discretion, upon thirty (30) days' prior written notice to the Lenders
and Borrower. Upon any such resignation, the Majority Lenders shall have the
right to appoint, on behalf of the Borrower and the Lenders, a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Administrative Agent's giving notice
of resignation, then the retiring Administrative Agent may appoint, on behalf of
the Borrower and the Lenders, a successor Administrative Agent. Such successor
Administrative Agent shall be a commercial bank having capital and retained
earnings of at least $100,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent (including the right to receive any fees for performing such duties which
accrue thereafter), and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder and under the other Loan Documents.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article XII shall continue in
effect for its benefit and that of the other Lenders in respect of any actions
taken or omitted to be taken by it while it was acting as the Administrative
Agent hereunder and under the other Loan Documents.
<PAGE>
12.13 Notice of Defaults. If a Lender becomes aware of a Default or
Event of Default, such Lender shall notify the Administrative Agent of such
fact. Upon receipt of such notice that a Default or Event of Default has
occurred, the Administrative Agent shall notify each of the Lenders of such
fact. Except for defaults in the payment of principal, interest and fees payable
to Administrative Agent for the account of the Lenders and such other
Obligations for which Administrative Agent is expressly responsible for
determining Borrower's compliance, Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
unless Administrative Agent shall have received written notice from a Lender or
Borrower referring to the Loan, describing such Default or Event of Default and
stating that such notice is a "notice of default". Administrative Agent will
notify the Lenders of its receipt of any such notice. Administrative Agent shall
take action with respect to such Default or Event of Default in accordance with
the provisions of this Agreement and the Loan Documents.
12.14 Requests for Approval. If the Administrative Agent requests in
writing the consent or approval of a Lender, whether or not such consent or
approval is required hereunder (and no such requirement shall be inferred from
any such request), such Lender shall respond and either approve or disapprove
definitively in writing to the Administrative Agent within seven (7) Business
Days (or sooner if such notice specifies a shorter period based on
Administrative Agent's good faith determination that circumstances warrant an
earlier response) after such written request from the Administrative Agent. If
any Lender does not so respond, that Lender shall be deemed to have approved the
request. Upon request, the Administrative Agent shall notify the Lenders which
Lenders, if any, failed to respond to a request for approval.
12.15 Copies of Documents. Administrative Agent shall promptly deliver
to each of the Lenders copies of all notices of default and other formal notices
sent to or received by the Administrative Agent pursuant to Section 15.1 of this
Agreement. Within fifteen (15) Business Days after a request by a Lender to the
Administrative Agent for other documents furnished to the Administrative Agent
by the Borrower, the Administrative Agent shall provide copies of such documents
to such Lender except where this Agreement obligates Administrative Agent to
provide copies in a shorter period of time.
12.16 Defaulting Lenders. At such time as a Lender becomes a Defaulting
Lender, such Defaulting Lender's right to vote on matters which are subject to
the consent or approval of the Majority Lenders, such Defaulting Lender or all
Lenders shall be immediately suspended until such time as the Lender is no
longer a Defaulting Lender. If a Defaulting Lender has failed to fund its
Percentage of any Advance and until such time as such Defaulting Lender
subsequently funds its Percentage of such Advance, all Obligations owing to such
Defaulting Lender hereunder shall be subordinated in right of payment, as
provided in the following sentence, to the prior payment in full of all
principal of, interest on and fees relating to the Loans funded by the other
Lenders in connection with any such Advance in which the Defaulting Lender has
not funded its Percentage (such principal, interest and fees being referred to
as "Senior Loans" for the purposes of this section). All amounts paid by the
Borrower and otherwise due to be applied to the Obligations owing to such
Defaulting Lender pursuant to the terms hereof shall be distributed by the
Administrative Agent to the other Lenders in accordance with their respective
Percentages (recalculated for the purposes hereof to exclude the Defaulting
Lender) until all Senior Loans have been paid in full. At that point, the
"Defaulting Lender" shall no longer be deemed a Defaulting Lender. After the
Senior Loans have been paid in full equitable adjustments will be made in
connection with future payments by the Borrower to the extent a portion of the
Senior Loans had been repaid with amounts that otherwise would have been
distributed to a Defaulting Lender but for the operation of this Section 12.16.
This provision governs only the relationship among the
<PAGE>
Administrative Agent, each Defaulting Lender and the other Lenders; nothing
hereunder shall limit the obligation of the Borrower to repay all Loans in
accordance with the terms of this Agreement. The provisions of this Section
12.16 shall apply and be effective regardless of whether a Default occurs and is
continuing, and notwithstanding (i) any other provision of this Agreement to the
contrary, (ii) any instruction of the Borrower as to its desired application of
payments or (iii) the suspension of such Defaulting Lender's right to vote on
matters as provided above.
12.17 Withholding Tax. All taxes due and payable on any payments to be
made to a Lender under this Agreement shall be such Lender's sole
responsibility, except to the extent such taxes are actually reimbursed by
Borrower under the Loan Documents. All payments to be made to each Lender under
this Agreement shall be made after deduction for any taxes, charges, levies or
withholdings which are imposed by the country of incorporation of Borrower, the
United States of America or any other applicable taxing authority. Each Lender
agrees to provide to Administrative Agent completed and signed copies of any
forms that may be required by the United States Internal Revenue Service (and
any applicable state authority) in order to certify such Lender's exemption from
or reduction of United States (or applicable state) withholding taxes with
respect to payments to be made to such Lender under this Agreement or the Loan
Documents. Each Lender agrees to promptly notify Administrative Agent of any
change which would modify or render invalid any claimed exemption or reduction,
or of any sale, assignment, participation, or other transfer by such Lender of
all or part of its interest in the Facility. If any governmental authority of
the United States or other jurisdiction asserts a claim that Administrative
Agent did not properly withhold tax from amounts paid to or for the account of
any Lender, such Lender shall indemnify Administrative Agent fully for all
amounts paid by Administrative Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amount
payable to Administrative Agent under this section, together with all costs and
expenses (including legal expenses). The obligation of the Lenders under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of Administrative Agent.
12.18 Borrower's Default; Enforcement. Upon the occurrence of an Event
of Default under any Loan Document, the Majority Lenders shall have the right,
upon written notice to Administrative Agent, to require that Administrative
Agent exercise the rights of the Lenders as directed by the Majority Lenders;
provided, however, that the Lenders shall indemnify, exonerate and hold
Administrative Agent harmless from and against any and all claims, losses,
liabilities, damages and costs (including reasonable legal fees) incurred by
Administrative Agent as a result of any such exercise of rights at the direction
of the Lenders.
12.19 Workout. If Borrower is in material default under the Loan
Documents and has not cured the default within any applicable cure period,
Administrative Agent may declare by written notice to the Lenders that the Loan
is "in workout" (the "Notice of Workout"). The Lenders acknowledge that workouts
of defaulted loans usually are resolved by either a borrower cure of the
default; or a restructure of or other modification to the loan; or by exercising
remedies; and that it is in the interest of the Lenders to attain a resolution
within a reasonable period of time. Therefor the Lenders agree that if, after 90
days from the date of Administrative Agent's Notice of Workout, there has been
neither a cure of the default(s), nor a restructure nor other modification
executed, nor exercise of the Lenders' remedies hereunder, then Administrative
Agent on behalf of the Lenders shall sue Borrower and any Guarantors for
collection of amounts owing to the Lenders, subject to and in accordance with
advice of Administrative Agent's counsel. Notwithstanding any action by
Administrative Agent under this Section 12.19, Administrative Agent shall follow
the direction of the Majority Lenders under Section 12.18 above at any time.
Nevertheless, unless and until the Majority Lenders shall direct Administrative
Agent to the contrary, Administrative Agent shall have
<PAGE>
the right but not the obligation to take such action as it may deem appropriate
to preserve the rights of the Lenders to recover any amounts owing under the
Loan Documents, without the consent of the Majority Lenders.
12.20 Bankruptcy of Borrower. In the event of a bankruptcy by Borrower,
the Lenders shall act through Administrative Agent to petition the court, make
any motion for relief from the automatic stay, participate in any appropriate
creditors' committee, vote on a plan of reorganization or pursue other remedies
or actions in accordance with the approval of the Majority Lenders.
12.21 Relationship of Parties. This Agreement is not intended to
establish a partnership or joint venture between Administrative Agent and the
Lenders. The provisions of the Loan Documents regarding the relationships among
Administrative Agent and the Lenders and this Article XII is intended solely to
facilitate co-lending relationships among the Lenders for the Facility. No
security or investment contract under any federal or state law is intended to be
created among the Lenders or between Administrative Agent and the Lenders. The
execution of this Agreement, the performance of the terms thereof, and the
Lenders' purchase of and ownership interest in the Facility and the Loan
Documents shall not constitute any Lender as owner, purchaser or seller of any
security (as that term is defined in the Securities Act of 1933 or the
Securities Exchange Act of 1934) issued, owned, purchased or sole by BOFA or any
of its Subsidiaries or Affiliates, either as principal or as agent for Borrower.
Each Lender is purchasing and acquiring legal and equitable ownership of its
Percentage and is not making a loan to BOFA, and no debtor-creditor relationship
exists between them as a result of this Agreement.
12.22 Counsel. The Lenders acknowledge that Administrative Agent's
counsel has represented and shall represent only Administrative Agent, in its
capacity as Administrative Agent and Lender, in connection with the Loan
Documents and this Agreement. Each other Lender shall retain independent legal
counsel regarding all such matters, documents and agreements. After an Event of
Default, the Lenders shall enter into a joint privilege agreement regarding the
exchange of information that is or may be subject to attorney-client privilege
or related privileges. Administrative Agent's counsel shall prepare such joint
privilege agreement, subject to the approval of the Majority Lenders which
approval shall not be unreasonably withheld by any Lender.
ARTICLE XIII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 Successors and Assigns.
The terms and provisions of the Loan Documents shall be
binding upon and inure to the benefit of Borrower and the Lenders and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights or obligations under the Loan Documents without the
consent of all the Lenders and any assignment by any Lender must be made in
compliance with Section 13.3. The Administrative Agent may treat the payee of
any Note as the owner thereof for all purposes hereof unless and until such
payee complies with Section 13.3 in the case of an assignment thereof or, in the
case of any other transfer, a written notice of the transfer is filed with the
Administrative Agent. Any assignee or transferee of a Note agrees by acceptance
thereof to be bound by all the terms and provisions of the Loan Documents. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
<PAGE>
13.2 Participations.
(a) Permitted Participants: Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law,
at any time sell to one or more banks or other entities
("Participants") participating interests in any Advance owing to such
Lender, any Note held by such Lender, any Commitment of such Lender or
any other interest of such Lender under the Loan Documents. In the
event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, such
Lender shall remain the holder of any such Note for all purposes under
the Loan Documents, all amounts payable by Borrower under this
Agreement shall be determined as if such Lender had not sold such
participating interests, and Borrower and the Administrative Agent and
the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under
the Loan Documents.
(b) Voting Rights. Each Lender shall retain the sole right to
vote its Percentage of the Aggregate Commitment, without the consent of
any Participant, for the approval or disapproval of any amendment,
modification or waiver of any provision of the Loan Documents, provided
that such Lender may grant such Participant the right to approve any
amendment, modification or waiver which forgives principal, interest or
fees or reduces the interest rate or fees payable hereunder, postpones
any date fixed for any regularly-scheduled payment of principal of or
interest on the Obligations, releases Collateral beyond any releases
expressly provided for herein or extends the Maturity Date.
13.3 Assignments.
(a) Permitted Assignments. Any Lender may, with the prior
written consent of Administrative Agent and Borrower (which consents
shall not be unreasonably withheld or delayed), in accordance with
applicable law, at any time assign to one or more banks or other
entities (collectively, "Purchasers") all or any part of its rights and
obligations under the Loan Documents, except that no consent of
Borrower shall be required if any Monetary Default, other material
Default or Event of Default has occurred and is continuing and that no
consent of Administrative Agent or Borrower shall ever be required for
(i) any assignment to a Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the
assigning Lender or (ii) the pledge or assignment by a Lender of such
Lender's Note and other rights under the Loan Documents to any Federal
Reserve Bank in accordance with applicable law. Such assignments and
assumptions shall be substantially in the form of Exhibit H hereto. The
Borrower shall execute any and all documents which are customarily
required by such Lender (including, without limitation, a replacement
promissory note or notes in the forms provided hereunder) in connection
with any such assignment, but Borrower shall not be obligated to pay
any fees and expenses incurred by any Lender in connection with any
assignment pursuant to this Section. Any Lender selling all or any part
of its rights and obligation hereunder in a transaction requiring the
consent of the Administrative Agent shall pay to the Administrative
Agent a fee of $3,500.00 per assignee to reimburse Administrative Agent
for its involvement in such assignment.
(b) Effective Date of Assignment. Upon delivery to the
Administrative Agent of a
<PAGE>
notice of assignment executed by the assigning Lender and the
Purchaser, such assignment shall become effective on the effective date
specified in such notice of assignment. The notice of assignment shall
contain an undertaking by the Purchaser to be bound as a Lender by this
Agreement and the other Loan Documents with the same force and effect
as if it were an original signatory hereto, and a representation by the
Purchaser to the effect that none of the consideration used to make the
purchase of the Commitment and the Loan under the applicable assignment
agreement are "plan assets" as defined under ERISA and that the rights
and interests of the Purchaser in and under the Loan Documents will not
be "plan assets" under ERISA, all in form and content satisfactory to
the Administrative Agent. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to
this Agreement and any other Loan Document executed by the Lenders and
shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto,
and no further consent or action by Borrower, the Lenders or the
Administrative Agent shall be required to release the transferor Lender
with respect to the percentage of the Commitment and Advances assigned
to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 13.3.2, the transferor Lender, the
Administrative Agent and Borrower shall make appropriate arrangements
so that replacement Notes are issued to such transferor Lender and new
Notes or, as appropriate, replacement Notes, are issued to such
Purchaser, in each case in principal amounts reflecting their
respective Commitments, as adjusted pursuant to such assignment.
13.4 Dissemination of Information. Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of Borrower and the Guarantors. Each Transferee
shall agree to keep confidential any such information which is not publicly
available.
13.5 Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with all applicable provisions of the Code with respect to withholding and other
tax matters.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Survival of Representations. All representations and warranties
contained in this Agreement shall survive delivery of the Notes and the making
of the Advances herein contemplated.
14.2 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
14.3 Taxes. Any recording and other taxes (excluding franchise, income
or similar taxes) or other similar assessments or charges payable or ruled
payable by any governmental authority incurred in connection with the
consummation of the transactions contemplated by this Agreement shall be paid by
the Borrower, together with interest and penalties, if any.
14.4 Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
<PAGE>
14.5 No Third Party Beneficiaries. This Agreement shall not be construed so
as to confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
14.6 Expenses: Indemnification. Subject to the provisions of this
Agreement, Borrower will pay (a) all out-of-pocket costs and expenses incurred
by the Administrative Agent (including the reasonable fees, out-of-pocket
expenses and other reasonable expenses of counsel, which counsel may be
employees of Administrative Agent) in connection with the preparation, execution
and delivery of this Agreement, the Notes, the Loan Documents and any other
agreements or documents referred to herein or therein and any amendments
thereto, (b) all out-of-pocket costs and expenses incurred by the Administrative
Agent and the Lenders (including the reasonable fees, out-of-pocket expenses and
other reasonable expenses of counsel to the Administrative Agent and the
Lenders, which counsel may be employees of Administrative Agent or the Lenders)
in connection with the enforcement and protection of the rights of the Lenders
under this Agreement, the Notes, the Loan Documents or any other agreement or
document referred to herein or therein, and (c) all reasonable and customary
costs and expenses of periodic audits by the Administrative Agent's personnel of
the Borrower's books and records provided that prior to an Event of Default,
Borrower shall not be required to pay for more than one such audit during any
year. The Borrower further agrees to indemnify the Lenders, their directors,
officers and employees against all losses, claims, damages, penalties,
judgments, liabilities and reasonable expenses (including, without imitation,
all expenses of litigation or preparation therefor, whether or not any Lender is
a party thereto) which any of them may pay or incur arising out of or relating
to this Agreement, the other Loan Documents, the transactions contemplated
hereby or the direct or indirect application or proposed application of the
proceeds of any Advance hereunder, except that the foregoing indemnity shall not
apply to a Lender to the extent that any losses, claims, etc. are the result of
such Lender's gross negligence or willful misconduct. The obligations of the
Borrower under this Section shall survive the termination of this Agreement.
14.7 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
14.8 Nonliability of the Lenders. The relationship between the Borrower
and the Lenders shall be solely that of borrower and lender. Neither the
Administrative Agent nor the Lenders shall have any fiduciary responsibilities
to the Borrower. Neither the Administrative Agent nor the Lenders undertake
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
14.9 Choice of Law. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
14.10 Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
<PAGE>
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION
IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDERS TO BRING PROCEEDINGS AGAINST
THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
THE BORROWER AGAINST THE LENDERS OR ANY AFFILIATE OF THE LENDERS INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
14.11 Waiver of Jury Trial. EACH OF THE BORROWER, ADMINISTRATIVE AGENT,
DOCUMENTATION AGENT AND LENDERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN
ANY WAY IN CONNECTION WITH THIS AGREEMENT, THE NOTES, OR ANY OF THE OTHER LOAN
DOCUMENTS, THE LOAN, OR ANY OTHER STATEMENTS OR ACTIONS OF ANY PARTY HERETO.
EACH SUCH ENTITY ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF
THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS DISCUSSED THIS WAIVER WITH SUCH
LEGAL COUNSEL. BORROWER FURTHER ACKNOWLEDGES THAT (i) IT HAS READ AND
UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (ii) THIS WAIVER HAS
BEEN REVIEWED BY BORROWER AND BORROWER'S COUNSEL AND IS A MATERIAL INDUCEMENT
FOR ADMINISTRATIVE AGENT AND LENDERS TO MAKE THE LOAN, ENTER INTO THIS AGREEMENT
AND EACH OF THE OTHER LOAN DOCUMENTS, AND (iii) THIS WAIVER SHALL BE EFFECTIVE
AS TO EACH OF SUCH OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.
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INITIALS OF BORROWER
14.12 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents. Any assignee or transferee of the Notes agrees by acceptance thereof
to be bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request or
giving such authority or consent is the holder of the Notes, shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Notes or of
any note or notes issued in exchange therefor.
14.13 Entire Agreement; Modification of Agreement. The Loan Documents,
together with the letter from Borrower to Administrative Agent and Documentation
Agent regarding the underwriting fee, embody the entire agreement among the
Borrower, the Administrative Agent, and Lenders and supersede all prior
conversations, agreements, understandings, commitments and term sheets among any
or all of such parties with respect to the subject matter hereof. Any provisions
of
<PAGE>
this Agreement may be amended or waived, or any liability thereunder released,
if, but only if, such amendment or waiver is in writing and is signed by the
Borrower, and Administrative Agent if the rights or duties of Administrative
Agent are affected thereby, and
(a) each of the Lenders, if such amendment or waiver
(i) reduces or forgives any payment of principal
or interest on the Obligations or any fees payable by Borrower
to such Lender hereunder; or
(ii) postpones the date fixed for any payment of
principal of or interest on the Obligations or any fees
payable by Borrower to such Lender hereunder; or
(iii) changes the amount of such Lender's Commitment
(other than pursuant to an assignment permitted under Section
13.3) or the unpaid principal amount of such Lender's Note; or
(iv) extends the Maturity Date;
(v) changes the definition of Majority Lenders
or modifies any requirement for consent by each of the Lenders
under this Section 14.13(a); or
(vi) release any Guarantor from the obligations
of any Guaranty.
(b) the Administrative Agent, as to all other matters.
14.14 Dealings with the Borrower. The Lenders and their affiliates may
accept deposits from, extend credit to and generally engage in any kind of
banking, trust or other business with any of the Borrower or the Guarantors or
any of their Affiliates regardless of the capacity of the Lenders hereunder.
14.15 Set-Off.
(a) If an Event of Default shall have occurred, each Lender
shall have the right, at any time and from time to time without notice to the
Borrower, any such notice being hereby expressly waived, to set-off and to
appropriate or apply any and all deposits of money or property or any other
indebtedness at any time held or owing by such Lender to or for the credit or
the account of the Borrower against and on account of all outstanding
Obligations and all Obligations which from time to time may become due hereunder
and all other obligations and liabilities of the Borrower under this Agreement,
irrespective of whether or not such Lender shall have made any demand hereunder
and whether or not said obligations and liabilities shall have matured.
(b) Each Lender agrees that if it shall, by exercising any
right of set-off or counterclaim or otherwise, receive payment of a proportion
of the aggregate amount of principal, interest or fees due with respect to any
Note held by it which is greater than the proportion received by any other
Lender in respect of the aggregate amount of principal, interest or fees due
with respect to any Note held by such other Lender, the Lender receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Lenders and such other adjustments shall be made as may be
required so that all such payments of principal, interest or Fees with respect
to the Notes held by the Lenders shall be shared by the Lenders pro rata
according to their respective Commitments.
<PAGE>
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower and each of the Lenders shown on the signature pages hereof.
14.17 Discretion. In exercising any discretion reserved herein to the
Administrative Agent, the Majority Lenders or the Lenders, the Administrative
Agent, the Majority Lenders or the Lenders, as the case may be, shall exercise
such discretion in a manner which is commercially reasonable by the standards of
the commercial lending industry with respect to credits comparable to the
Facility.
ARTICLE XV
NOTICES
15.1 Giving Notice. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below or at such other address as may be designated by
such party in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid, shall be deemed given when received; any notice,
if transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confined in the case of telexes). Notice may be given as follows:
To the Borrower:
Great Lakes REIT, L.P.
823 Commerce Drive
Suite 300
Oak Brook, Illinois 60523
Attention: Jim Hicks
Telecopy: (630) 368-2929
<PAGE>
With a copy to:
Ungaretti and Harris
Three First National Plaza
Suite 3500
Chicago, Illinois 60602
Attn: Rich Ungaretti
Telecopy: (312) 977-4405
To each Lender:
As shown below the Lender's signature.
To the Administrative Agent:
Bank of America National Trust and Savings Association
Commercial Real Estate Services
231 South LaSalle Street, 12th Floor
Chicago, Illinois 60697
Attention: Dan Walsh
Telecopy: (312) 974-4970
With a copy to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Attention: Howard J. Kirschbaum, Esq.
Telecopy: (312) 984-3150
15.2 Change of Address. Each party may change the address for service of
notice upon it by a notice in writing to the other parties hereto.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
BORROWER: GREAT LAKES REIT, L.P.
By: Great Lakes REIT, Inc., its General Partner
By: /s/ James Hicks
Title: Treasurer
LENDERS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Katherine Snapp
Title: Vice President
Commitment: $17,500,000
Percentage of Aggregate Commitment: 50%
Address for Notices:
Commercial Real Estate Services
231 South LaSalle Street, 12th Floor
Chicago, Illinois 60697
Attention: Dan Walsh
Telephone: (312) 828-5087
Telecopy: (312) 974-4970
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Kevin L. Gillen
Title: Assistant Vice President
Commitment: $17,500,000
Percentage of Aggregate Commitment: 50%
Address for Notices:
One First National Plaza
Chicago, Illinois 60670
Attention: Kevin Gillen
Telephone: (312) 732-1486
Telecopy: (312) 732-1117
ADMINISTRATIVE AGENT: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Katherine Snapp
Title: Vice President
<PAGE>
Address for Notices:
Commercial Real Estate Services
231 South LaSalle Street, 12th Floor
Chicago, Illinois 60697
Attention: Dan Walsh
Telephone: (312) 828-5087
Telecopy: (312) 974-4970
DOCUMENTATION AGENT: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Kevin L. Gillen
Title: Assistant Vice President
Address for Notices:
One First National Plaza
Chicago, Illinois 60670
Attention: Kevin Gillen
Telephone: (312) 732-1486
Telecopy: (312) 732-1117
<PAGE>
SCHEDULE 1
List of Subsidiaries
GLR No. 1, Inc. an Illinois corporation
GLR No. 2, Inc., an Illinois corporation
GLR No. 3, a Maryland real estate investment trust
<PAGE>
SCHEDULE 2
List of Unencumbered Assets
Name
Address
1. Arlington Ridge Service Center
601 Campus Drive
Arlington Heights, IL
2. 3400 Corporate Drive
3400 Dundee Road
Northbrook, IL
3. Highpoint Business Center
160, 165, 175, 180 and 185 Hansen Court
Wood Dale, IL
(5 buildings)
4. 1251 Plum Grove Road
1251 Plum Grove Road
Schaumburg, IL
5. Park Place VII
11925 West Lake Park Drive
Milwaukee, WI
6. 1011 Touhy Atrium
1011 East Touhy Avenue
Des Plaines, IL
7. One Hawthorn Place
175 East Hawthorn Parkway
Vernon Hills, IL
8. Court Office Center
16601 S. Kedzie
Markham, IL
9. One Century Centre
1750 East Golf Road
Schaumburg, IL
10. Metro Center V
655 Metro Place South
Dublin, OH
11. Corporate Woods
375 Bishops Way
Brookfield, WI
12. Metro Center IV
425 Metro Place North
Dublin, OH
13. Arlington Business Center
3455, 3550 and 3555 Salt Creek Lane
Arlington Heights, IL
(3 buildings)
14. 777 Eisenhower Plaza
777 Eisenhower Parkway
Ann Arbor, MI
<PAGE>
15. 11100 Hampshire Avenue1
11100 Hampshire Avenue
Bloomington, MN
<PAGE>
EXHIBIT A
FORM OF GUARANTY
This Guaranty made as of , 199__, by
("Guarantor"), to and for the benefit of Bank of America National Trust and
Savings Association, individually as a lender ("BOFA") and as administrative
agent ("Administrative Agent") for itself and the other Lenders, as defined in
the Credit Agreement (as defined below), and The First National Bank of Chicago,
individually as a lender ("First Chicago") and as documentation agent
("Documentation Agent"), and their respective successors and assigns.
RECITALS
A. Great Lakes REIT, L.P. a Delaware limited partnership ("Borrower")
has requested that the Lenders make an unsecured revolving credit facility
available to Borrower in the aggregate principal amount of up to $35,000,000
("Facility"), and that Administrative Agent act as administrative agent and
Documentation Agent act as documentation agent with respect thereto.
B. The Lenders have agreed to make available the Facility to Borrower,
and Administrative Agent and Documentation Agent have agreed to act in said
agency capacities, pursuant to the terms and conditions set forth in an
Unsecured Revolving Credit Agreement dated January 6, 1998, between Borrower,
Administrative Agent, Documentation Agent and the Lenders ("Credit Agreement"),
and Guarantor desires that the Lenders continue to make Advances under the
Credit Agreement and that Administrative Agent and Documentation Agent continue
to act in said agency capacities. All capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Credit Agreement.
C. Borrower has executed and delivered to the Lenders one or more
promissory notes each dated January 6, 1998 in the aggregate principal amount of
$35,000,000 as evidence of its indebtedness to the Lenders with respect to the
Facility (the promissory notes described above, together with any amendments or
allonges thereto, or restatements, replacements or renewals thereof, and/or new
promissory notes to new Lenders under the Credit Agreement, are collectively
referred to herein as the "Revolving Note").
D. Guarantor is deriving and will continue to derive substantial financial
benefit from the Facility evidenced by the Revolving Note, the Credit Agreement
and the other Loan Documents.
E. The execution and delivery of this Guaranty by Guarantor is required
pursuant to the express terms of the Credit Agreement as a condition to any
further Advances under the Facility.
AGREEMENTS
NOW, THEREFORE, in consideration of the matters described in the
foregoing Recitals, which Recitals are incorporated herein and made a part
hereof, and for other good and valuable consideration, Guarantor hereby agrees
as follows:
1. Guarantor absolutely, unconditionally, and irrevocably guarantees to
Administrative Agent and the Lenders:
(a) the full and prompt payment of the principal of and
interest on the Revolving
<PAGE>
Note when due, whether at stated maturity, upon acceleration or
otherwise, and at all times thereafter, and the prompt payment of all
other sums which may now be or may hereafter become due and owing under
the Revolving Note, the Credit Agreement and/or the other Loan
Documents;
(b) the payment of all Enforcement Costs (as hereinafter
defined); and
(c) the full, complete, and punctual observance, performance,
and satisfaction of all of the obligations, duties, covenants, and
agreements of Borrower under the Credit Agreement and the Loan
Documents.
All amounts due, debts, liabilities, and payment obligations described in
subparagraphs (a) and (b) of this Paragraph 1 are referred to herein as the
"Facility Indebtedness. " All obligations described in subparagraph (c) of this
Paragraph 1 are referred to herein as the "Obligations."
2. In the event of any default by Borrower in making payment of the
Facility Indebtedness, or in performance of the Obligations, Guarantor agrees,
on demand by Administrative Agent, to pay all the Facility Indebtedness and to
perform all the Obligations as are or then or thereafter become due and owing or
are to be performed under the terms of the Revolving Note, the Credit Agreement
and/or the other Loan Documents, and to pay any reasonable expenses incurred by
Administrative Agent or the Lenders in protecting, preserving or defending its
interest in the Property or any collateral for the Facility, or otherwise in
connection with the Facility or under any of the Loan Documents, including,
without limitation, all reasonable attorneys' fees and costs. Administrative
Agent shall have the right, at its option, either before, during or after
pursuing any other right or remedy against Borrower or Guarantor, to perform any
and all of the Obligations by or through any agent, contractor or subcontractor,
or any of their agents, of its selection, all as Administrative Agent in its
sole discretion deems proper, and Guarantor shall indemnify and hold
Administrative Agent and the Lenders free and harmless from and against any and
all loss, damage, cost, expense, injury, or liability Administrative Agent or
the Lenders may suffer or incur in connection with the exercise of its rights
under this Guaranty or the performance of the Obligations, except to the extent
the same arises as a result of the gross negligence or willful misconduct of
Administrative Agent.
All of the remedies set forth herein and/or provided by any of the Loan
Documents or law or equity shall be equally available to Administrative Agent
for the benefit of itself and the Lenders, and the choice by Administrative
Agent of one such alternative over another shall not be subject to question or
challenge by Guarantor or any other person, nor shall any such choice be
asserted as a defense, set-off or failure to mitigate damages in any action,
proceeding or counteraction by Administrative Agent for the benefit of itself
and/or the Lenders to recover or seeking any other remedy under this Guaranty,
nor shall such choice preclude Administrative Agent from subsequently electing
to exercise a different remedy. The parties have agreed to the alternative
remedies hereinabove specified in part because they recognize that the choice of
remedies in the event of a failure hereunder will necessarily and should
properly be a matter of business judgment, which, with hindsight after the
passage of time and events, may or may not prove to have been the best choice to
maximize recovery by Administrative Agent for the benefit of itself and the
Lenders at the lowest cost to Borrower and/or Guarantor. It is the intention of
the parties that such choice by Administrative Agent be given conclusive effect
regardless of such subsequent developments.
3. Guarantor does hereby waive (i) notice of acceptance of this Guaranty by
Administrative Agent or the Lenders and any and all notices and demands of every
kind which may
<PAGE>
be required to be given by any statute, rule or law, (ii) any defense, right of
set-off or other claim which Guarantor may have against the Borrower or which
Guarantor or Borrower may have against Administrative Agent or any of the
Lenders or the holder of the Revolving Note, (iii) presentment for payment,
demand for payment, notice of nonpayment, dishonor, protest and notice of
protest, diligence in collection and any and all formalities which otherwise
might be legally required to charge Guarantor with liability, (iv) any failure
by Administrative Agent or any of the Lenders to inform Guarantor of any facts
Administrative Agent or any of the Lenders may now or hereafter know about
Borrower, the Facility, or the transactions contemplated by the Credit
Agreement, it being understood and agreed that Administrative Agent and the
Lenders have no duty so to inform and that Guarantor is fully responsible for
being and remaining informed by Borrower of all circumstances bearing on the
existence or creation or risk of nonpayment of the Facility Indebtedness or the
risk of nonperformance of the Obligations, and (v) any and all right to cause a
marshaling of assets of the Borrower or any other action by any court or
governmental body with respect thereto, or to cause Administrative Agent or any
of the Lenders to proceed against any other security given to Administrative
Agent or any of the Lenders in connection with the Facility Indebtedness or the
Obligations. Credit may be granted or continued from time to time by Lenders to
Borrower without notice to or authorization from Guarantor, regardless of the
financial or other condition of Borrower at the time of any such grant or
continuation. Guarantor acknowledges that no representations of any kind
whatsoever have been made by Administrative Agent or any of the Lenders to
Guarantor. No modification or waiver of any of the provisions of this Guaranty
shall be binding upon Administrative Agent or the Lenders except as expressly
set forth in a writing duly signed and delivered on behalf of Administrative
Agent and the Lenders.
4. Guarantor further agrees that Guarantor's liability as guarantor
shall in nowise be impaired by any renewals or extensions which may be made from
time to time, with or without the knowledge or consent of Guarantor of the time
for payment of interest or principal under the Revolving Note or by any
forbearance or delay in collecting interest or principal under the Revolving
Note, or by any waiver under the Credit Agreement or any other Loan Documents,
or by failure or election not to pursue any other remedies against Borrower, or
by any change or modification in the Revolving Note, the Credit Agreement or any
other Loan Documents, or by the acceptance of any additional security or any
increase, substitution or change therein, or by the release of any security or
any withdrawal thereof or decrease therein, or by the application of payments
received from any source to the payment of any obligation other than the
Facility Indebtedness, even though Administrative Agent or the Lenders might
lawfully have elected to apply such payments to any part or all of the Facility
Indebtedness, it being the intent hereof that Guarantor shall remain liable as
principal for payment of the Facility Indebtedness and performance of the
Obligations until all indebtedness has been paid in full and the other terms,
covenants and conditions of the Credit Agreement and other Loan Documents and
this Guaranty have been performed, notwithstanding any act or thing which might
otherwise operate as a legal or equitable discharge of a surety. Guarantor
further understands and agrees that Administrative Agent and the Lenders may at
any time enter into agreements with Borrower to amend and modify the Revolving
Note, Credit Agreement or other Loan Documents, and may waive or release any
provision or provisions thereof, and, with reference to such instruments, may
make and enter into any such agreement or agreements as Administrative Agent,
the Lenders and Borrower may deem proper and desirable, without in any manner
impairing this Guaranty or any of Administrative Agent's or the Lenders' rights
hereunder or any of the Guarantor's obligations hereunder.
5. This is an absolute, unconditional, complete, present and continuing
guaranty of payment and performance, and not of collection only. Guarantor
agrees that this Guaranty may be enforced by Administrative Agent and the
Lenders without the necessity at any time of resorting to
<PAGE>
or exhausting any other security or collateral given in connection herewith or
with the Facility or any of the Loan Documents, or resorting to any other
guaranties, and Guarantor hereby waives the right to require Administrative
Agent or the Lenders to join Borrower in any action brought hereunder or to
commence any action against or obtain any judgment against Borrower or to pursue
any other remedy or enforce any other right. Guarantor further agrees that
nothing contained herein or otherwise shall prevent Administrative Agent and the
Lenders from pursuing concurrently or successively all rights and remedies
available to it at law and/or in equity or under any of the Loan Documents, and
the exercise of any of its rights or the completion of any of its remedies shall
not constitute a discharge of any of Guarantor's obligations hereunder, it being
the purpose and intent of Guarantor that the obligations of Guarantor hereunder
shall be primary, absolute, independent and unconditional under any and all
circumstances whatsoever. Neither Guarantor's obligations under this Guaranty
nor any remedy for the enforcement thereof shall be impaired, modified, changed
or released in any manner whatsoever by any impairment, modification, change,
release or limitation of the liability of Borrower under the Revolving Note, the
Credit Agreement or any other Loan Documents or by reason of Borrower's
bankruptcy or by reason of any creditor or bankruptcy proceeding instituted by
or against Borrower. This Guaranty shall continue to be effective and be deemed
to have continued in existence or be reinstated (as the case may be) if at any
time payment of all or any part of any sum payable pursuant to the Revolving
Note, the Credit Agreement or any other Loan Document is rescinded or otherwise
required to be returned by the payee upon the insolvency, bankruptcy, or
reorganization of the payer, all as though such payment had not been made,
regardless of whether Administrative Agent or any of the Lenders contested the
order requiring the return of such payment. The obligations of Guarantor
pursuant to the preceding sentence shall survive any termination, cancellation
or release of this Guaranty.
6. This Guaranty shall be assignable by Agents and/or any of the
Lenders to any assignee of all or a portion of Agents and/or such Lender's
rights under the Loan Documents.
7. If: (i) this Guaranty, the Revolving Note, the Credit Agreement or
any other Loan Document is placed in the hands of an attorney for collection or
is collected through any legal proceeding; (ii) an attorney is retained to
represent Administrative Agent and/or any of the Lenders in any bankruptcy,
reorganization, receivership, or other proceedings affecting creditors' rights
and involving a claim under this Guaranty, the Revolving Note, the Credit
Agreement or any Loan Document; (iii) an attorney is retained to provide advice
or other representation with respect to the Loan Documents in connection with an
enforcement action or potential enforcement action; or (iv) an attorney is
retained to represent Administrative Agent and/or any of the Lenders in any
other legal proceedings whatsoever in connection with this Guaranty, the
Revolving Note, the Credit Agreement, any of the other Loan Documents or any
property subject thereto, then Guarantor shall pay to Administrative Agent upon
demand all reasonable attorney's fees, costs and expenses, including, without
limitation, court costs, filing fees, recording costs and all other costs and
expenses whatsoever incurred in connection therewith (all of which are referred
to herein as "Enforcement Costs"), in addition to all other amounts due
hereunder.
8. The parties hereto intend that each provision in this Guaranty
comports with all applicable local, state and federal laws and judicial
decisions. However, if any provision or provisions, or if any portion of any
provision or provisions, in this Guaranty is found by a court of competent
jurisdiction to be in violation of any applicable local, state or federal
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Guaranty to be illegal, invalid, unlawful, void or unenforceable as written,
then it is the intent of all parties hereto that such portion, provision or
provisions shall be given force to the fullest possible extent that they are
legal, valid and
<PAGE>
enforceable, that the remainder of this Guaranty shall be construed as if such
illegal, invalid, unlawful, void or unenforceable portion, provision or
provisions were not contained therein, and that the rights, obligations and
interest of Administrative Agent, the Lenders and the holder(s) of the Revolving
Note under the remainder of this Guaranty shall continue in full force and
effect.
9. Any indebtedness of Borrower to Guarantor now or hereafter existing
is hereby subordinated to the Facility Indebtedness. Guarantor agrees that until
the entire Facility Indebtedness has been paid in full, (i) Guarantor will not
seek, accept or retain for Guarantor's own account, any payment from Borrower on
account of such subordinated debt, and (ii) any such payments to Guarantor on
account of such subordinated debt shall be collected and received by Guarantor
in trust for Administrative Agent and the Lenders and shall be paid over to
Administrative Agent on account of the Facility Indebtedness without impairing
or releasing the obligations of Guarantor hereunder.
10. Guarantor waives and releases any claim (within the meaning of 11
U.S.C. Para. 101) which Guarantor may have against Borrower arising from a
payment made by Guarantor under this Guaranty and agrees not to assert or take
advantage of any subrogation rights of Guarantor, Administrative Agent or the
Lenders or any right of Guarantor, Administrative Agent or the Lenders to
proceed against (i) Borrower for reimbursement, or (ii) any other guarantor or
any collateral security or guaranty or right of offset held by Administrative
Agent or the Lenders for the payment of the Facility Indebtedness and
performance of the Obligations, nor shall Guarantor seek or be entitled to seek
any contribution or reimbursement from Borrower or any other guarantor in
respect of payments made by Guarantor hereunder. It is expressly understood that
the waivers and agreements of Guarantor set forth above constitute additional
and cumulative benefits given to Administrative Agent and the Lenders for their
security and as an inducement for their continuing extension of credit to
Borrower.
11. Any amounts received by Administrative Agent or Lender from any
source on account of any indebtedness may be applied by Administrative Agent
toward the payment of such indebtedness, and in such order of application, as
Administrative Agent may from time to time elect.
12. This Guaranty shall be governed by the internal laws of the State
of Illinois, without regard to its choice of law rules or conflict of laws
principles. The Guarantor hereby submits to personal jurisdiction in the State
of Illinois for the enforcement of this Guaranty and waives any and all personal
rights to object to such jurisdiction for the purposes of litigation to enforce
this Guaranty. Guarantor hereby consents to the jurisdiction of either the
Circuit Court of Cook County, Illinois, or the United States District Count for
the Northern District of Illinois, in any action, suit, or proceeding which
Administrative Agent or the Lenders may at any time wish to file in connection
with this Guaranty or any related matter. Guarantor hereby agrees that an
action, suit, or proceeding to enforce this Guaranty may be brought in any state
or federal court in the State of Illinois and hereby waives any objection which
Guarantor may have to the laying of the venue of any such action, suit, or
proceeding in any such court; provided, however, that the provisions of this
Paragraph shall not be deemed to preclude Administrative Agent or the Lenders
from filing any such action, suit, or proceeding in any other appropriate forum.
13. All notices and other communications provided to any party hereto
under this Agreement or any other Loan Document shall be in writing or by
facsimile and addressed or delivered to such party at its address set forth
below or at such other address as may be designated by such party in a notice to
the other parties. Any notice, if mailed and properly addressed with postage
prepaid, shall be deemed given when received; any notice, if transmitted by
facsimile, shall be deemed given when transmitted. Notice may be given as
follows:
<PAGE>
To the Guarantor:
Attention:
Telecopy:
With a copy to:
Attention:
Telecopy:
To the Administrative Agent or the Lenders:
Bank of America National Trust and Savings Association
231 S. LaSalle Street, 12th Floor
Chicago, Illinois 60697
Attention: Dan Walsh
Telecopy: (312) 974-4970
With a copy to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Howard J. Kirschbaum, Esq.
Telecopy: (312) 984-3150
or at such other address as the party to be served with notice may have
furnished in writing to the party seeking or desiring to serve notice as a place
for the service of notice.
14. Guarantors and Lender agree that such Guarantor's obligations
hereunder shall not exceed the greater of: (i) the aggregate amount of all
monies received, directly or indirectly, by such Guarantor from Borrower after
the date hereof (whether by loan, capital infusion or other means), or (ii) the
maximum amount not subject to avoidance under Title 11 of the United State Code,
as same may be amended from time to time, or any applicable state law (the
"Bankruptcy Code"). To that end, to the extent such obligations would otherwise
be subject to avoidance under the Bankruptcy Code if such Guarantor is not
deemed to have received valuable consideration, fair value or reasonably
equivalent value for its obligations hereunder, any such Guarantor's obligations
hereunder shall be reduced to that amount which, after giving effect thereto,
would not render such Guarantor insolvent, or leave such Guarantor with an
unreasonably small capital to conduct its business, or cause the Guarantor to
have incurred debts (or intended to have incurred debts) beyond its ability to
pay such debts as they mature, as such terms are determined, and at the time
such obligations are deemed to have been incurred, under the Bankruptcy Code. In
the event any Guarantor shall make any payment or payments under this Guaranty,
each other Guarantor shall contribute to such paying Guarantor an amount equal
to such non-paying Guarantor's pro rata share
<PAGE>
(based on their respective maximum liabilities hereunder) of such payment or
payments made by such paying Guarantor, provided that such contribution right
shall be subordinate and junior in right of payment to all the Facility
Indebtedness and performance of all of the Obligations to Lender.
14. This Guaranty shall be binding upon the heirs, executors, legal and
personal representatives, successors and assigns of Guarantor and shall inure to
the benefit of Administrative Agent's, Documentation Agent's and Lender's
successors and assigns.
15. This Guaranty shall be construed and enforced under the internal laws
of the State of Illinois.
16. EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN
ANY WAY IN CONNECTION WITH THIS GUARANTY, OR ANY OF THE OTHER LOAN DOCUMENTS,
THE LOAN, OR ANY OTHER STATEMENTS OR ACTIONS OF ANY PARTY HERETO. EACH GUARANTOR
ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS DISCUSSED THIS WAIVER WITH SUCH LEGAL COUNSEL. GUARANTOR
FURTHER ACKNOWLEDGES THAT (i) IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THIS WAIVER, (ii) THIS WAIVER HAS BEEN REVIEWED BY GUARANTOR
AND GUARANTOR'S COUNSEL AND IS A MATERIAL INDUCEMENT FOR ADMINISTRATIVE AGENT
AND LENDERS TO MAKE THE LOAN, ENTER INTO THE CREDIT AGREEMENT AND EACH OF THE
OTHER LOAN DOCUMENTS, AND (iii) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF
SUCH OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.
IN WITNESS WHEREOF, Guarantor has delivered this Guaranty as of the
date first written above.
By:
Its:
<PAGE>
STATE OF )
) SS.
COUNTY OF )
I, the undersigned, a Notary Public, in and for said County, in the
State aforesaid, DO HEREBY CERTIFY, that , the of , personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that he signed and delivered the
said instrument as his own free and voluntary act and as the free and voluntary
act of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal, this day of , 199 .
Notary Public
<PAGE>
EXHIBIT B
FORM OF REVOLVING NOTE
PROMISSORY NOTE
$ January ____, 1998
On or before the Maturity Date, as defined in that certain Unsecured
Revolving Credit Agreement dated as of January 6, 1998 (the "Agreement") between
Great Lakes REIT, L.P., a Delaware limited partnership corporation ("Borrower"),
Bank of America National Trust and Savings Association, individually and as
Administrative Agent for the Lenders (as such terms are defined in the
Agreement), The First National Bank of Chicago, individually and as
Documentation Agent ("First Chicago") and the other Lenders, Borrower promises
to pay to the order of (the "Lender"), or its successors and assigns, the
principal sum of AND NO/100 DOLLARS ($ ) or the aggregate unpaid principal
amount of all Loans made by the Lender to Borrower pursuant to Section 2.1 of
the Agreement, in immediately available funds to the account, or at the office
of, Administrative Agent specified in Section 2.11 of the Agreement, together
with interest on the unpaid principal amount hereof at the rates and on the
dates set forth in the Agreement. The Borrower shall pay this Promissory Note
("Note") in full on or before the Maturity Date in accordance with the terms of
the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment hereunder.
This Note is issued pursuant to, and is entitled to the security under and
benefits of, the Agreement and the other Loan Documents, to which Agreement and
Loan Documents, as they may be amended from time to time, reference is hereby
made for, inter alia, a statement of the terms and conditions under which this
Note may be prepaid or its maturity date accelerated. Capitalized terms used
herein and not otherwise defined herein are used with the meanings attributed to
them in the Agreement.
If there is an Event of Default or Default under the Agreement or any other
Loan Document and Lender exercises its remedies provided under the Agreement
and/or any of the Loan Documents, then in addition to all amounts recoverable by
the Lender under such documents, Lender shall be entitled to receive reasonable
attorneys fees and expenses incurred by Lender in exercising such remedies.
Borrower and all endorsers severally waive presentment, protest and demand,
notice of protest, demand and of dishonor and nonpayment of this Note (except as
otherwise expressly provided for in the Agreement), and any and all lack of
diligence or delays in collection or enforcement of this Note, and expressly
agree that this Note, or any payment hereunder, may be extended from time to
time, and expressly consent to the release of any party liable for the
obligation secured by this Note, the release of any of the security of this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of the Borrower and any endorsers hereof.
<PAGE>
This Note shall be governed and construed under the internal laws of
the State of Illinois.
BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS NOTE, OR ANY
OF THE OTHER LOAN DOCUMENTS, THE LOAN, OR ANY OTHER STATEMENTS OR ACTIONS OF ANY
PARTY HERETO. BORROWER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING
OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS DISCUSSED THIS WAIVER WITH SUCH
LEGAL COUNSEL. BORROWER FURTHER ACKNOWLEDGES THAT (i) IT HAS READ AND
UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (ii) THIS WAIVER HAS
BEEN REVIEWED BY BORROWER AND BORROWER'S COUNSEL AND IS A MATERIAL INDUCEMENT
FOR LENDER TO MAKE THE LOAN, ENTER INTO THE AGREEMENT AND EACH OF THE OTHER LOAN
DOCUMENTS, AND (iii) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH OTHER
LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.
GREAT LAKES REIT, L.P.
By: Great Lakes REIT, Inc., its general partner
By:
Its:
<PAGE>
LOANS AND PAYMENTS
Date
Loan
Principal
Payments
Unpaid
Principal
Balance
Notation
Made By
<PAGE>
EXHIBIT C
OPINION OF BORROWER'S COUNSEL
(Attached Hereto)
<PAGE>
EXHIBIT D
OPINION OF GUARANTORS' COUNSEL
See Exhibit C attached hereto.
<PAGE>
EXHIBIT E
WIRING INSTRUCTIONS
To: Bank of America National Trust and Saving Association,
as Administrative Agent (the "Administrative Agent") under the Credit
Agreement described below
Re: Unsecured Revolving Credit Agreement, dated as of January 6,
1998 (as amended, modified, renewed or extended from time to
time, the "Agreement"), among Great Lakes REIT, L.P. (the
"Borrower"), Administrative Agent, the Documentation Agent and
the Lenders named therein. Terms used herein and not otherwise
defined shall have the meanings assigned thereto in the
Agreement.
The Administrative Agent is specifically authorized and directed to act upon
the following standing money transfer instructions with respect to the proceeds
of Advances or other extensions of credit from time to time until receipt by the
Administrative Agent of a specific written revocation of such instructions by
the Borrower, provided, however, that the Administrative Agent may also transfer
funds as hereafter directed in writing by the Borrower in accordance with
Section 15.1 of the Agreement.
Facility Identification Number(s)
Customer/Account Name
Transfer Funds To
For Account No.
Reference/Attention To
Authorized Officer (Customer Representative) Date
(Please Print) Signature
Bank Officer Name Date
<PAGE>
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
<PAGE>
EXHIBIT F
FORM OF COMPLIANCE CERTIFICATE
To: The Administrative Agent and the Lenders
who are parties to the Agreement described below
This Compliance Certificate is furnished pursuant to that certain Unsecured
Revolving Credit Agreement, dated as of January 6, 1998 (as amended, modified,
renewed or extended from time to time, the "Agreement") among Great Lakes REIT,
L.P. ("Borrower"), Bank of America National Trust and Savings Association,
individually and as Administrative Agent, the Documentation Agent and the
Lenders named therein. Unless otherwise defined herein, capitalized terms used
in this Compliance Certificate have the respective meanings ascribed thereto in
the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected [Chief Financial Officer]
[Chief Accounting Officer] [Controller] of General Partner.
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Consolidated Operating Partnership and Investment
Affiliates during the accounting period covered by the financial statements
attached (or most recently delivered to the Administrative Agent if none are
attached).
3. The examinations described in Paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
a Material Adverse Financial Change, Event of Default or Default during or at
the end of the accounting period covered by the attached financial statements or
as of the date of this Compliance Certificate, except as set forth below.
4. Schedule I (if attached) attached hereto sets forth financial data
and computations and other information evidencing Borrower's compliance the
covenants contained in Article VII of the Agreement with certain other covenants
of the Agreement, all of which data, computations and information (or if no
Schedule I is attached, the data, computations and information contained in the
most recent Schedule I attached to a prior Compliance Certificate) are true,
complete and correct in all material respects.
5. The financial statements, updates, reports and other materials
referred to in Section 8.2(i), 8.2(ii), 8.2(iv), or 8.2(viii), as the case may
be, of the Agreement which are delivered concurrently with the delivery of this
Compliance Certificate, if any, and those most recently delivered pursuant to
Section 8.2(v) and Section 8.14 of the Agreement, if any, fairly and accurately
present in all material respects, in the case of financial statements, the
consolidated financial condition and operations of the Consolidated Operating
Partnership at such date and the consolidated results of their operations for
the period then-ended, in accordance with GAAP applied consistently throughout
such period and with prior periods and, in the case of deliveries other than
financial statements, the matters set forth therein as of the dates and for the
periods covered thereby; provided, however, that any projections included
therein constitute good faith estimates of reasonably anticipated future matters
which cannot be predicted with certainty.
Described below are the exceptions, if any, to Paragraph 3 by listing,
in detail, the nature of
<PAGE>
the condition or event, the period during which it has existed and the action
which the Borrower has taken, is taking, or proposes to take with respect to
each such condition or event:
The foregoing certifications, together with the computations and
information set forth in Schedule I hereto and the financial statements,
updates, reports and other materials delivered with or covered by this
Compliance Certificate are made and delivered this day of , 19
.
, a Qualified Officer of General Partner
<PAGE>
EXHIBIT G
SCOPE OF WORK FOR ENVIRONMENTAL INVESTIGATIONS
ENVIRONMENTAL SITE ASSESSMENTS
Bank of America ("BofA") Reporting Standards
The following are BofA Guidelines for the qualification of firms and for
information to be included in Environmental Site Assessments. These standards
include the minimum elements common to acceptable site assessments. Generally,
it is intended for the standards to be consistent with those outlined in the
American Society for Testing and Materials (ASTM) Designation: E 1527-93. This
listing is not intended to be a "how to" manual, as we rely on the environmental
professionals to expand the scope of their services and the information included
in the reports as required.
Qualifications of Investigating Firm
The firm must have 5 years of experience in hazardous substances
investigation. Many of these firms began as geotechnical consultants,
but expertise only in soils analysis does not qualify them for
hazardous substance analysis. The person supervising and signing the
report should be experienced in all matters covered in the report. He
should be a registered professional engineer or have advanced degrees
in related disciplines. The firm performing the work should be of a
professional nature with knowledge of local conditions.
Depth of Reporting Required
Phase I - Consists of site description, review of historical and
regulatory data and a physical inspection. If no potential
contamination is indicated, the report should so state, and a specific
statement should be made that no further investigation is required (see
content requirements below).
Phase II - If a Phase I examination indicates the possibility of
contamination, the consultant should describe his suspicions, the areas
to be tested, sampling procedures to be used and methods used to assess
the sample. He should then specify and carry out a testing program for
further evaluation.
Phase III - If Phase II reveals material contamination at the site in
amounts or concentrations that are deemed unacceptable by BofA in its
sole discretion, the consultant will design and implement a remediation
program to remove the identified hazardous materials in accordance with
all environmental laws. The report should include an estimated cost for
the clean-up.
BofA will initially require a Phase I site assessment report including the
following:
<PAGE>
Site Description
The site description section should include a detailed description of
the site, existing buildings and current site use. It should also
include a general description of the uses and conditions of adjacent
properties which might result in migrating contamination. It should
include a summary of the visual observations including, but not limited
to, vegetation stress, debris, fill materials, ponding, evidence of
underground storage tanks, evidence of previous dumping or storage,
discolored or stained soils, wetlands, groundwater flows, and a
description of regional geology and hydrology. On vacant sites, the
investigator should compare his observations to a USGS topographic map,
noting any changes in elevations or depressions which have been covered
over, possibly indicating past dumping or burial of wastes.
On sites with existing improvements, the investigator should interview
personnel at the site regarding hazardous materials currently or
previously used at the site, underground storage tanks, pipeline right
of ways and any other areas of concern. Buildings should be checked for
asbestos containing materials, PCB equipment, etc.
Historical Uses of Site, Adjacent Properties, and Significant Nearby Properties
The historical analysis should provide a chronology of past and present
significant uses of the subject site and adjacent sites, and highlight
activities which might have contributed unacceptable levels of
contaminants. It should contain an explanation of the methods of
historical search which were pursued, the information expected to be
obtained and the information actually obtained from each search. In
general, the historical review should cover 30-40 years of history
depending on the availability of information. Its purpose is to
investigate the possibility of prior hazardous substances releases at
the property, identify potential contingent liability from historic
off-site disposal of hazardous substances, or identify sources of
contamination which have or might in the future migrate to the site.
The historical analysis should include but not be limited to:
Review of aerial photographs to identify past land uses and
development trends, and identify possible locations of ponds,
landfills, tanks, areas of soil discoloration or drum storage.
Review of county tax records or title search to identify past uses of
potential concern such as gas stations or industrial uses.
Conversations with local environmental and health officials,
investigation of local, state and federal regulatory agencies
files including the EPA and Corps of Engineers, and a check of
EPA lists of known contaminated sites, to check for recorded
hazardous substances handling, or potential permitting
requirements of air emissions, wastewater, RCRA or TSD
permits.
Other information which may be attached to the report include, but
should not be limited to:
A discussion of existing and proposed environmental standards and
legislation of the area
Site Plan
<PAGE>
Ground level photos of the site with specific attention to any
characteristics noted in the report
Area diagram showing the location of any matters mentioned in the report
and showing the site and adjacent properties if any potential hazardous sources
are identified on adjacent or nearby properties
Copies of representative aerial photos
Copies of correspondence with regulatory agencies
Documents acquired during title search
Chain of custody records
Location map of site and immediate surroundings
Listing of adjacent property owners and use of the properties
Any other material available which describes or verifies information
given or conclusions drawn in the report
Conclusions and Recommendations
The Consultant will prepare a complete written report which fully
defines the scope of his responsibilities and objectives. It should
describe the sources used, the activities performed, the dates when
activities were performed, the results of research and recommendations.
Specific recommendations for remedial action, additional tests or
investigations for each recognized area of concern or condition and
approximate costs of further investigation or remediation shall be
provided within the report.
The conclusion section must clearly state that the firm has exercised
professional judgment in reaching one of the following:
The Consultant, after performing the appropriate level of
investigation, has revealed no evidence of recognized
environmental conditions in connection with the subject
property and no further testing or investigation is warranted.
or
The Consultant, after performing the appropriate level of
investigation, has revealed no evidence of recognized
environmental conditions in connection with the subject
property except for the following:
If the Consultant was restricted by factors such as time limitations or
scope-of-service limitations agreed to with the borrower, the report
should so state.
The report is to be signed by a professional engineer, environmental
manager or supervisor or any other individuals who provide significant
professional assistance in completing the assignment. The
qualifications of the individuals signing the report should be
included.
<PAGE>
EXHIBIT H
FORM OF ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
(the "Assignor") and , (the "Assignee") is dated as of
, 19_. The parties hereto agree as follows:
PRELIMINARY STATEMENT. The Assignor is a party to an Unsecured
Revolving Credit Agreement (which, as it may be amended, modified, renewed or
extended from time to time is herein called the "Credit Agreement") described in
Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Credit Agreement.
ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement and the other Loan Documents. The aggregate
Commitment (or Loans, if the applicable Commitment has been terminated)
purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1.
EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two (2) Business Days (or such shorter period agreed to by the
Administrative Agent) after a Notice of Assignment substantially in the form of
Schedule 2 attached hereto has been delivered to the Administrative Agent. In no
event will the Effective Date occur if the payments required to be made by the
Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are
not made on the proposed Effective Date, unless otherwise agreed to in writing
by Assignor and Assignee. The Assignor will notify the Assignee of the proposed
Effective Date no later than the Business Day prior to the proposed Effective
Date. As of the Effective Date, (i) the Assignee shall have the rights and
obligations of a Lender under the Loan Documents with respect to the rights and
obligations assigned to the Assignee hereunder and (ii) the Assignor shall
relinquish its rights and be released from its corresponding obligations under
the Loan Documents with respect to the rights and obligations assigned to the
Assignee hereunder.
PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Administrative Agent all payments of
principal, interest and fees with respect to the interest assigned hereby. The
Assignee shall advance funds directly to the Administrative Agent with respect
to all Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. [In consideration for the sale and
assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the
Effective Date, an amount equal to the principal amount of the portion of all
Base Rate Loans assigned to the Assignee hereunder and (ii) with respect to each
LIBOR Loan made by the Assignor and assigned to the Assignee hereunder which is
outstanding on the Effective Date, (a) on the last day of the Interest Period
therefor or (b) on such earlier date agreed to by the Assignor and the Assignee
or (c) on the date on which any such Loan either becomes due (by acceleration or
otherwise) or is prepaid (the
<PAGE>
date as described in the foregoing clauses (a), (b) or (c) being hereinafter
referred to as the "Fixed Due Date"), the Assignee shall pay the Assignor an
amount equal to the principal amount of the portion of such Loan assigned to the
Assignee which is outstanding on the Fixed Due Date. If the Assignor and the
Assignee agree that the applicable Fixed Due Date for such Loan shall be the
Effective Date, they shall agree, solely for purposes of dividing interest paid
by the Borrower on such Loan, to an alternate interest rate applicable to the
portion of such Loan assigned hereunder for the period from the Effective Date
to the end of the related Interest Period (the "Agreed Interest Rate") and any
interest received by the Assignee in excess of the Agreed Interest Rate, with
respect to such Loan for such period, shall be remitted to the Assignor. In the
event a prepayment of any Loan which is existing on the Effective Date and
assigned by the Assignor to the Assignee hereunder occurs after the Effective
Date but before the applicable Fixed Due Date, the Assignee shall remit to the
Assignor any excess of the funding indemnification amount paid by the Borrower
under Section 4.4 of the Credit Agreement an account of such prepayment with
respect to the portion of such Loan assigned to the Assignee hereunder over the
amount which would have been paid if such prepayment amount were calculated
based on the Agreed Interest Rate and only covered the portion of the Interest
Period after the Effective Date. The Assignee will promptly remit to the
Assignor (i) the portion of any principal payments assigned hereunder and
received from the Administrative Agent with respect to any such Loan prior to
its Fixed Due Date and (ii) any amounts of interest on Loans and fees received
from the Administrative Agent which relate to the portion of the Loans assigned
to the Assignee hereunder for periods prior to the Effective Date, in the case
of Base Rate Loans or fees, or the Fixed Due Date, in the case of LIBOR Loans,
and not previously paid by the Assignee to the Assignor.]* In the event that
either party hereto receives any payment to which the other party hereto is
entitled under this Assignment Agreement, then the party receiving such amount
shall promptly remit it to the other party hereto.
FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a
fee on each day on which a payment of interest or fees is made under the Credit
Agreement with respect to the amounts assigned to the Assignee hereunder (other
than a payment of interest or fees attributable to the period prior to the
Effective Date in the case of Base Rate Loans or, in the case of LIBOR Loans,
prior to the Fixed Due Date, which the Assignee is obligated to deliver to the
Assignor pursuant to Section 4 hereof). The amount of such fee shall be the
difference between (i) the interest or fee, as applicable, paid with respect to
the amounts assigned to the Assignee hereunder and (ii) the interest or fee, as
applicable, which would have been paid with respect to the amounts assigned to
the Assignee hereunder if each interest rate was calculated at the rate of _%
rather than the actual percentage used to calculate the interest rate paid by
the Borrower or if the fee was calculated at the rate of __% rather than the
actual percentage used to calculate the fee paid by the Borrower, as applicable.
In addition, the Assignee agrees to pay % of the fee required to be paid to the
Administrative Agent in connection with this Assignment Agreement. [This
sentence can be revised appropriately based on how the fee is being paid.]
1.*Each Assignor may insert its standard provisions in lieu of the
payment terms included in Sections 4 and 5 of this Exhibit.
REPRESENTATIONS OF THE ASSIGNOR: LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor nor
any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity,
<PAGE>
enforceability, genuineness, sufficiency or collectability of any Loan Document,
including without limitation, documents granting the Assignor and the other
Lenders a security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
Property, books or records of the Borrower, its Subsidiaries or Investment
Affiliates, (vi) the validity, enforceability, perfection, priority, condition,
value or sufficiency of any collateral securing or purporting to secure the
Loans or (vii) any mistake, error of judgment, or action taken or omitted to be
taken in connection with the Loans or the Loan Documents.
REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has
received a copy of the Credit Agreement and the other Loan Documents, together
with copies of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Administrative Agent, the
Assignor or any other Lender and based on such documents and information at it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents, (iii) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Lender, (v) agrees that its payment
instructions and notice instructions are as set forth in the attachment to
Schedule 1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder are "plan
assets" as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA, [and (vii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that the Assignee is entitled to receive payments under the
Loan Documents without deduction or withholding of any United States federal
income taxes].**
** to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section 13.3.1 of the Credit Agreement to assign the
rights which are assigned to the Assignee hereunder to any entity or person,
provided that (i) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (ii) unless the prior written
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under Sections 4, 5 and 8 hereof.
REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate
Commitment occurs between the date of this Assignment Agreement and the
Effective Date, the
<PAGE>
percentage interest specified in Item 3 of Schedule 1 shall remain the same, but
the dollar amount purchased shall be recalculated based on the reduced Aggregate
Commitment.
ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of
Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
NOTICES. Notices shall be given under this Assignment Agreement in the
manner set forth in the Credit Agreement. For the purpose hereof, the addresses
of the parties hereto until notice of a change is delivered) shall be the
address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment Agreement by their duly authorized officers as of the date first
above written.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
<PAGE>
SCHEDULE 1 TO
ASSIGNMENT AGREEMENT
Description and Date of Credit Agreement:
Date of Assignment Agreement: __________, 19__
Amounts (as of date of Item 2 above):
a. Aggregate Commitment
(Loans)* under
Loan Agreement $
b. Assignee's Percentage
of the Aggregate Commitment
purchased under this
Assignment Agreement** %
Amount of Assignee's Commitment (Loan Amount)*
purchased under this Assignment Agreement: $
Amount of Assignor's Commitment (Loan Amount)
after purchase under this Assignment Agreement
Proposed Effective Date:
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
Title: Title:
*If a Commitment has been terminated, insert outstanding Loans in place of
Commitment.
**Percentage taken to 10 decimal places.
<PAGE>
ATTACHMENT TO SCHEDULE 1 TO
ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address and account information for the Assignor
and the Assignee.
<PAGE>
SCHEDULE 2 TO
ASSIGNMENT AGREEMENT
NOTICE OF ASSIGNMENT
______________, 19___
To: [NAME OF ADMINISTRATIVE AGENT]
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
We refer to that Unsecured Revolving Credit Agreement (the "Credit
Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings attributed to them in the Loan Agreement.
This Notice of Assignment (this "Notice") is given and delivered to the
Administrative Agent pursuant to Section 13.3.1 of the Credit Agreement.
The Assignor and the Assignee have entered into an Assignment Agreement,
dated as of ______, 19___ (the "Assignment"), pursuant to which, among other
things, the Assignor has sold, assigned, delegated and transferred to the
Assignee, and the Assignee has purchased, accepted and assumed from the Assignor
the percentage interest specified in Item 3 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement. From and after such purchase,
the Assignor's Commitment shall be the amount specified in Item 5 of Schedule 1.
The Effective Date of the Assignment shall be the later of the date specified in
Item 5 of Schedule 1 or two (2) Business Days (or such shorter period as agreed
to by the Administrative Agent) after this Notice of Assignment and any fee
required by Section 13.3.1 of the Credit Agreement have been delivered to the
Administrative Agent, provided that the Effective Date shall not occur if any
condition precedent agreed to by the Assignor and the Assignee or set forth in
Section 13 of the Credit Agreement has not been satisfied.
The Assignor and the Assignee hereby give to the Administrative Agent
notice of the assignment and delegation referred to herein. The Assignor will
confer with the Administrative Agent before the date specified in Item 6 of
Schedule 1 to determine if the Assignment Agreement will become effective on
such date pursuant to Section 3 hereof, and will confer with the Administrative
Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs
thereafter. The Assignor shall notify the Administrative Agent if the Assignment
Agreement does not become effective on any proposed Effective Date as a result
of the failure to satisfy the conditions precedent agreed to by the Assignor and
the Assignee. At the request of the Administrative Agent, the Assignor will give
the Administrative Agent written confirmation of the satisfaction of the
conditions precedent.
<PAGE>
The Assignor or the Assignee shall pay to the Administrative Agent on or
before the Effective Date the processing fee of $3,500 required by Section
13.3.1 of the Loan Agreement.
If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Administrative Agent prepare and cause the
Borrower to execute and deliver new Notes or, as appropriate, replacements notes
to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee
each agree to deliver to the Administrative Agent the original Note received by
it from the Borrower upon its receipt of a new Note in the appropriate amount.
The Assignee advised the Administrative Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
The Assignee hereby represents and warrants that none of the funds, monies,
assets or other consideration being used to make the purchase pursuant to the
Assignment are "plan assets" as defined under ERISA and that its rights,
benefits and interests in and under the Loan Documents will not be "plan assets"
under ERISA.
The Assignee authorized the Administrative Agent to act as its agent under
the Loan Document in accordance with the terms thereof. The Assignee
acknowledges that the Administrative Agent has no duty to supply information
with respect to the Borrower or the Loan Documents to the Assignee until the
Assignee becomes a party to the Credit Agreement.*
*May be eliminated if Assignee is a party to the Loan Agreement prior to the
Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: ______________________ By:
Title: __ Title:
ACKNOWLEDGED AND CONSENTED TO
BY BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION OF CHICAGO,
as Administrative Agent
<PAGE>
SCHEDULE 6.1
CREDIT PARTIES
<PAGE>
SCHEDULE 6.9
LITIGATION
None.
<PAGE>
SCHEDULE 6.19
ENVIRONMENTAL MATTERS
<PAGE>
SCHEDULE 6.24
TRADE NAMES
None.
<PAGE>
SCHEDULE 6.25
SUBSIDIARIES (EXCLUDING CREDIT PARTIES)
There are no Subsidiaries that are not Credit Parties and no
Investment Affiliates.
<PAGE>
SCHEDULE 6.26
PROPERTY
<PAGE>
SCHEDULE 9.6
LIENS (OTHER THAN THOSE COVERED BY 9.6(i)-(vi))
<PAGE>
Exhibit 10.4
GREAT LAKES REIT, INC.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. Purpose. The purpose of the 1997 Equity and Performance Incentive Plan
(the "Plan") is to attract and retain directors, officers and other key
employees for Great Lakes REIT, Inc. (the "Company") and to provide to such
persons incentives and rewards for superior performance.
2. Definitions. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, and shall include both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof) pursuant
to Section 14 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 11 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Shares" means shares of Common Stock, par value $.01 per share,
of the Company or any security into which such shares of Common Stock may be
changed by reason of any transaction or event of the type referred to in Section
10 of this Plan.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which date shall not be earlier than the date on which the Board
takes action with respect thereto).
"Deferral Period" means the period of time during which Deferred Shares
are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a specified Deferral
Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such law, rules and regulations may
be amended from time to time.
"Exercise Price" means the price payable upon exercise of a
Free-Standing Appreciation Right.
"Free-Standing Appreciation Right" means an Appreciation Right not
granted in tandem with an Option Right.
<PAGE>
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits pursuant to this Plan. Management Objectives may be described in terms
of Company-wide objectives or objectives that are related to the performance of
the individual Participant or of the Subsidiary, division, department, region or
function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of other
corporations. The Management Objectives applicable to any award to a Covered
Employee shall be based on specified levels of or growth in one or more of the
following criteria:
i. cash flow/net assets ratio;
ii. debt/capital ratio;
iii. return on total capital;
iv. return on equity;
v. funds from operations;
vi. funds from operations per share growth;
vii. revenue growth; and
viii. total return to stockholders.
Except where a modification would result in an award no longer qualifying as
performance based compensation within the meaning of Section 162(m) of the Code,
the Board may in its discretion modify such Management Objectives or the related
minimum acceptable level of achievement, in whole or in part, as the Board deems
appropriate and equitable.
"Market Value per Share" means, as of any particular date, the fair
market value of the Common Shares as listed on the NYSE as of the close of
business on such date or the latest such date on which there is a listing.
"Non-Employee Director" means a Director of the Company who is not an
employee of the Company or any Subsidiary.
"NYSE" means the New York Stock Exchange, Inc.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer, or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the Date
of Grant.
<PAGE>
"Performance Period" means, with respect to a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(g) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the prohibition on transfers referred to in such Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
(or any successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Exercise Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Tandem Appreciation Right" means an Appreciation Right granted in
tandem with an Option Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
directors of the Company.
3. Shares Available Under the Plan. (a) Subject to adjustment as
provided in paragraph (b) below and Section 10 of this Plan, the number of
Common Shares that may be issued or transferred (i) upon the exercise of Option
Rights or Appreciation Rights, (ii) as Restricted Shares and released from
substantial risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in
payment of Performance Shares or Performance Units that have been earned, or (v)
in payment of dividend equivalents paid with respect to awards made under the
Plan, shall not exceed in the aggregate 2,250,000 Common Shares plus any shares
described in paragraph (b) below. Such shares may be shares of original issuance
or treasury shares or a combination of the foregoing.
(b) The number of shares available in paragraph (a) above shall be
adjusted to account for shares relating to awards that expire; are forfeited; or
are transferred, surrendered, or relinquished upon the payment of any Option
Price by the transfer to the Company of Common Shares or upon satisfaction of
any withholding amount.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary, the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 2,250,000 Common Shares, subject to adjustments as provided in
Section 10 of this Plan. Further, no Participant shall be granted Option Rights
for more than 750,000 Common Shares during any period of 5 years, subject to
adjustments
<PAGE>
as provided in Section 10 of this Plan.
(d) Upon payment in cash of the benefit provided by any award granted
under this Plan, any shares that were covered by that award shall again be
available for issue or transfer hereunder.
(e) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any period of 5 years receive more than
500,000 Appreciation Rights, subject to adjustments as provided in Section 10 of
this Plan.
(f) Notwithstanding any other provision of this Plan to the contrary,
the number of shares issued as Restricted Shares shall not in the aggregate
exceed 500,000 Common Shares, subject to adjustments as provided in Section 10
of this Plan; and, in no event shall any Participant in any period of 5 years
receive more than 500,000 Restricted Shares or 500,000 Deferred Shares, subject
to adjustments as provided in Section 10 of this Plan.
(g) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any calendar year receive an award of
Performance Shares or Performance Units having an aggregate maximum value as of
their respective Dates of Grant in excess of $3,000,000.
4. Option Rights. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, or (ii) by the actual or
constructive transfer to the Company of nonforfeitable, unrestricted Common
Shares owned by the Optionee (or other consideration authorized pursuant to
subsection (d) below) having a value at the time of exercise equal to the total
Option Price, or (iii) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any option (other than an Incentive Stock Option)
may also be made in whole or in part in the form of Restricted Shares or other
Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
paragraph, the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent of (i) the number of shares or Performance Shares, (ii) the Spread of any
unexercisable portion of Option Rights, or (iii) the stated value of Performance
Units surrendered.
(e) Any grant may provide for deferred payment of the Option Price from the
proceeds
<PAGE>
of sale through a bank or broker on a date satisfactory to the Company of some
or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments, with or without interest, upon terms
determined by the Board.
(g) Any grant may, at or after the Date of Grant, provide for the
automatic grant of Reload Option Rights to an Optionee upon the exercise of
Option Rights (including Reload Option Rights) using Common Shares or other
consideration specified in paragraph (d) above. Reload Option Rights shall cover
up to the number of Common Shares, Deferred Shares, Option Rights or Performance
Shares (or the number of Common Shares having a value equal to the value of any
Performance Units) surrendered to the Company upon any such exercise in payment
of the Option Price or to meet any withholding obligations. Reload Options may
have an Option Price that is no less than the applicable Market Value per Share
at the time of exercise and shall be on such other terms as may be specified by
the Directors, which may be the same as or different from those of the original
Option Rights.
(h) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain unexercised.
(i) Each grant shall specify the period or periods (if any) of
continuous service by the Optionee with the Company or any Subsidiary following
the grant that is necessary before the Option Rights or installments thereof
will become exercisable and may provide for the earlier exercise of such Option
Rights in the event of a Change in Control or other similar transaction or
event.
(j) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(k) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(1) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(m) The exercise of an Option Right shall result in the cancellation on
a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(n) No Option Right shall be exercisable more than 10 years from the Date
of Grant.
(o) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the Optionee
and containing such terms and provisions, consistent with this Plan, as the
Board may approve.
5. Appreciation Rights. (a) The Board may also authorize the granting to
any Optionee of Tandem Appreciation Rights with respect to Option Rights granted
hereunder at any time prior to the exercise or termination of such related
Option Rights; provided, however, that a
<PAGE>
Tandem Appreciation Right awarded in relation to an Incentive Stock Option must
be granted concurrently with such Incentive Stock Option. A Tandem Appreciation
Right shall be a right of the Optionee, exercisable by surrender of the related
Option Right, to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(b) The Board may also authorize the granting to any Participant of
Free-Standing Appreciation Rights. A Free-Standing Appreciation Right shall be a
right of the Participant to receive from the Company an amount determined by the
Board, which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(c) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(i) Any grant may specify that the amount payable on exercise
of an Appreciation Right may be paid by the Company in cash, in Common Shares or
in any combination thereof and may either grant to the Participant or retain in
the Board the right to elect among those alternatives.
(ii) Any grant may specify that the amount payable on exercise
of an Appreciation Right may not exceed a maximum specified by the Board at the
Date of Grant.
(iii) Any grant may specify waiting periods before exercise
and permissible exercise dates or periods and shall provide that no Appreciation
Right may be exercised except at a time when the related Option Right (if
applicable) is also exercisable and at a time when the Spread is positive.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of a Change in Control or other similar transaction
or event.
(v) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to and
accepted by the Participant, which agreement shall describe such Appreciation
Rights, identify the related Option Rights (if applicable), state that such
Appreciation Rights are subject to all the terms and conditions of this Plan,
and contain such other terms and provisions, consistent with this Plan, as the
Board may approve.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such rights.
6. Restricted Shares. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Participant that is less than Market Value
per Share at the Date of Grant.
<PAGE>
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code, for a period of not
less than one year to be determined by the Board at the Date of Grant, except in
the event of a Change in Control or other similar transaction or event.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Board at the Date of Grant (which restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
which, if achieved, will result in termination or early termination of the
restrictions applicable to such shares and each grant may specify with respect
to such specified Management Objectives, a minimum acceptable level of
achievement and shall set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance is at or
above the minimum level, but falls short of full achievement of the specified
Management Objectives.
(f) Any such grant or sale of Restricted Shares may require that any or
all dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional Restricted
Shares, which may be subject to the same restrictions as the underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by an authorized officer and
delivered to and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing Restricted Shares
shall be held in custody by the Company until all restrictions thereon shall
have lapsed, together with a stock power or powers executed by the Participant
in whose name such certificates are registered, endorsed in blank and covering
such Shares.
7. Deferred Shares. The Board may also authorize the granting or sale of
Deferred Shares to Participants. Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements contained
in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than one year, as determined by the Board at the Date of Grant except
(if the Board shall so determine) in the event of a Change in Control or other
similar transaction or event.
<PAGE>
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of ownership
in the Deferred Shares and shall have no right to vote them, but the Board may,
at or after the Date of Grant, authorize the payment of dividend equivalents on
such Shares on either a current or deferred or contingent basis, either in cash
or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by an authorized officer and
delivered to and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve.
8. Performance Shares and Performance Units. The Board may also
authorize the granting of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment reflect changes in compensation or other factors; provided, however,
that no such adjustment shall be made in the case of a Covered Employee.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time (not less than one year, except in
the event of a Change in Control or other similar transaction or event, if the
Board shall so determine) commencing with the Date of Grant (as shall be
determined by the Board at the time of grant).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify with respect to such specified
Management Objectives a minimum acceptable level of achievement and shall set
forth a formula for determining the number of Performance Shares or Performance
Units that will be earned if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives. The
grant of Performance Shares or Performance Units shall specify that, before the
Performance Shares or Performance Units shall be earned and paid, the Board must
certify that the Management Objectives have been satisfied.
(d) Each grant shall specify a minimum acceptable level of achievement
with respect to the specified Management Objectives below which no payment will
be made and shall set forth a formula for determining the amount of payment to
be made if performance is at or above such minimum but short of full achievement
of the Management Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units which have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.
(f) Any grant of Performance Shares may specify that the amount payable
with respect thereto may not exceed a maximum specified by the Board at the Date
of Grant. Any grant of Performance Units may specify that the amount payable or
the number of Common Shares issued
<PAGE>
with respect thereto may not exceed maximums specified by the Board at the Date
of Grant.
(g) The Board may, at or after the Date of Grant of Performance Shares,
provide for the payment of dividend equivalents to the holder thereof on either
a current or deferred or contingent basis, either in cash or in additional
Common Shares.
(h) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by an authorized
officer and delivered to and accepted by the Participant, which agreement shall
state that such Performance Shares or Performance Units are subject to all the
terms and conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
9. Transferability. (a) Except as otherwise determined by the Board on
a case-by-case basis, no Option Right, Appreciation Right or other derivative
security granted under the Plan shall be transferable by an Optionee other than
by will or the laws of descent and distribution. Except as otherwise determined
by the Board on a case-by-case basis, Option Rights and Appreciation Rights
shall be exercisable during the Optionee's lifetime only by him or her or by his
or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
10. Adjustments. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the prices
per share applicable to such Option Rights and Appreciation Rights and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 10.
11. Change in Control. For purposes of this Plan, a "Change in Control"
shall mean if at any time any of the following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation
<PAGE>
or person immediately after such transaction are held in the aggregate by the
holders of Common Shares immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's stockholders, of each director
of the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period.
Notwithstanding the foregoing provisions of Section 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred for purposes
of this Plan (i) solely because (A) the Company; (B) a Subsidiary; or (c) any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares, whether in
excess of 20% of the Voting Power or otherwise, or because the Company reports
that a change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership or (ii) solely
because of a change in control of any Subsidiary.
12. Fractional Shares. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
13. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a Participant or such other person
may also make similar arrangements with respect to the payment of any taxes with
respect to which
<PAGE>
withholding is not required.
14. Administration of the Plan. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than three Non-Employee Directors appointed by the Board. A majority
of the committee (or subcommittee) shall constitute a quorum, and the action of
the members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or
document shall be final and conclusive. No member of the Board shall be liable
for any such action or determination made in good faith.
15. Amendments, Etc. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that any amendment
which must be approved by the stockholders of the Company in order to comply
with applicable law or the rules of the NYSE or, if the Common Shares are not
traded on the NYSE, the principal national securities exchange upon which the
Common Shares are traded or quoted, shall not be effective unless and until such
approval has been obtained. Presentation of this Plan or any amendment hereof
for stockholder approval shall not be construed to limit the Company's authority
to offer similar or dissimilar benefits under other plans without stockholder
approval.
(b) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Board also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
(c) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.
(d) In case of termination of employment by reason of death, disability
or normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right or Appreciation Right
not immediately exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, or any Deferred Shares as to which the Deferral Period has not been
completed, or any Performance Shares or Performance Units which have not been
fully earned, or who holds Common Shares subject to any transfer restriction
imposed pursuant to Section 9(b) of this Plan, the Board may, in its sole
discretion, accelerate the time at which such Option Right or Appreciation Right
may be exercised or the time at which such substantial risk of forfeiture or
prohibition or restriction on transfer will lapse or the time when such Deferral
Period will end or the time at which such Performance Shares or Performance
Units will be deemed to have been fully earned or the time when such transfer
restriction will terminate or may waive any other limitation or requirement
under any such award.
(e) This Plan shall not confer upon any Participant any right with respect
to continuance of
<PAGE>
employment or other service with the Company or any Subsidiary, nor shall it
interfere in any way with any right the Company or any Subsidiary would
otherwise have to terminate such Participant's employment or other service at
any time.
(f) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to such
Option Right. Such provision, however, shall remain in effect for other Option
Rights and there shall be no further effect on any provision of this Plan.
16. Termination. No grant shall be made under this Plan more than 10
years after the date on which this Plan is first approved by the stockholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
As adopted September 11, 1997
Richard L. Rasley, Secretary
<PAGE>
Exhibit 10.7
GREAT LAKES REIT, INC.
STOCK OPTION PLAN
FOR INDEPENDENT DIRECTORS
As of this date, November 18, 1997, Great Lakes REIT, Inc. ("Company")
hereby amends and restates the Great Lakes REIT, Inc. Stock Option Plan for
Independent Directors (the "Plan") originally established on July 2, 1992 and
amended from time to time thereafter, effective with respect to members of the
Board of Directors who are not employees of the Company ("Independent
Directors")
1. Statement of Purpose The purpose of the Plan is to benefit Great
Lakes REIT, Inc. (the "Company") through the maintenance and development of the
Company's management and capital base by offering the directors of the Company
who are not affiliated with the Company ("Independent Directors") an opportunity
to become holders of stock in the Company over a period of years through the
grant of options (hereafter "Options"), thereby giving the Independent Directors
a stake in the growth and prosperity of the Company and encouraging the
continuance of the Independent Director's services to the Company.
2. Administration Except as otherwise noted herein, the Plan shall be
administered by the Company's Board of Directors (the "Board"), whose
interpretation of the terms and provisions of the Plan shall be final and
conclusive. No such member of the Board shall be liable for any such action or
determination made in good faith with respect to the Plan or any Option granted
thereunder. Members of the Board who are either eligible for Options or have
been granted Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan including the granting of
an Option to himself. Any such member may also be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to the granting of Options to him.
3. Eligibility Options shall be granted hereunder only to Independent
Directors, however, this limitation shall not operate to limit the right of the
Company to grant options to other individuals pursuant to other plans.
4. Granting of Options The Board may grant options under which shares
of the common stock of the Company may be purchased from the Company, subject to
adjustment as provided in Paragraph 13. Options granted under the Plan are
intended not to be treated as incentive stock options as defined in Section 422A
of the Internal Revenue Code of 1986 as amended (the "Code"). Shares subject to
the options will be shares of the Company's authorized but unissued Common
Stock, $.01 par value, or treasury shares of such class reacquired by the
Company. The number of shares granted Independent Directors shall be determined
according to the terms of resolutions adopted by the Board.
5. Failure to Exercise Option In the event that an Option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned (including a grant in substitution for a canceled Option).
Shares subject to options may be made available from unissued or reacquired
shares of common stock.
6. Service Continuation Nothing contained in the Plan or in any Option
granted pursuant thereto shall confer upon the Independent Directors any right
to be continued in the service of the Company, or interfere in any way with the
right of the Company Shareholders to remove the Independent Directors subject to
the terms of the Company's Charter.
<PAGE>
7. Option Price The option price of any Options granted to Independent
Directors hereunder subject to the provisions of Paragraph 13, shall be the Fair
Market Value of the shares of Company common stock at the end of each calendar
year. For the purpose of this Plan "Fair Market Value" shall mean: (i) the Net
Asset Value of a Share as last determined by the Board, or (ii) if the shares of
the Company have been listed on a national or regional market, the average of
the highest sales price per share of the Company's common shares on such market
or exchange on each of the five trading days immediately preceding the relevant
date.
8. Duration of Options, Increments, and Extensions All Options granted
under the Plan shall be evidenced by written Option certificates signed by an
officer of the Company. Any term or condition of any Option granted hereunder
which the Board is empowered to establish may be determined through an
appropriate provision in the form of written Option certificate evidencing the
grant. Such certificates shall comply with and be subject to the following terms
and conditions which are expressly a part of this Plan. Subject to the
provisions of Paragraph 9 hereof, each Option granted Independent Directors
shall be for terms of ten (10) years. Subject to the foregoing, all or any part
of the shares to which the right to purchase has accrued may be purchased at the
time of such accrual or at any time or times thereafter during the option
period. Until all conditions regarding the exercise of any Option are satisfied,
no right to vote or receive dividends or other rights granted to stockholders
shall exist with respect to optioned shares. No adjustment will be made for a
dividend or other rights for which the record date is prior to the date the
stock Option is effectively exercised, except as provided in the Plan.
9. Consequence of Change in Control For purposes of this Plan the term
"Change in Control" shall mean the occurrence, at any time during the specified
term of an Option granted under the Plan, of any of the following events:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Common Shares immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority
<PAGE>
thereof, unless the election, or the nomination for election by the Company's
stockholders, of each director of the Company first elected during such period
was approved by a vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the beginning of any
such period.
Notwithstanding the foregoing provisions of Section 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred for purposes
of this Plan (i) solely because (A) the Company; (B) a Subsidiary; or (C) any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares, whether in
excess of 20% of the Voting Power or otherwise, or because the Company reports
that a change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership or (ii) solely
because of a change in control of any Subsidiary.
Notwithstanding any other provisions in the Plan, during the period of
thirty (30) days after any Change in Control, an Independent Director (or other
person entitled to exercise an Option granted under the Plan) (in either case,
the "Optionholder") shall have the right to require the Company to purchase from
him any Option granted under the Plan at a purchase price equal to (1) the
excess of the Fair Market Value per share as of the date of the notice over the
option price (2) multiplied by the number of Option shares specified by the
Optionholder for purchase in a written notice to the Company, attention of the
Secretary. The amount payable to each Optionholder by the Company shall be in
cash or by certified check and shall be reduced by any taxes required to be
withheld.
10. Exercise of Option (a) An Option may be exercised by giving written
notice to the Company, attention of the Secretary, specifying the number of
shares to be purchased, accompanied by the full purchase price for the shares to
be purchased either in cash, by check, or by shares of the Company's common
stock or by a combination of these methods of payment. For this purpose, the
share value of the Company's common stock shall be the fair market value on the
date of exercise as defined above.
(b) At the time of any exercise of any Option, the Company
may, if it shall determine it necessary or desirable for any reason, require the
Optionholder (or his heirs, legatees, or legal representative, as the case may
be) as a condition upon the exercise thereof, to deliver to the Company a
written representation of present intention to purchase the shares for
investment and not for distribution. In the event such representation is
required to be delivered, an appropriate legend may be placed upon each
certificate delivered to the Optionholder upon his exercise of part or all of
the Option.
(c) Each Option shall also be subject to the requirement that,
if at any time the Company determines, in its discretion, that the listing,
registration or qualification of the shares subject to the Option upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the issue or purchase of shares 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 Company.
(d) At the time of the exercise of any Option the Company may
require, as a condition of the exercise of such Option, the Optionholder to pay
the Company an amount equal to the amount of the tax the Company may be required
to withhold to obtain a deduction for Federal income tax purposes as a result of
the exercise of such Option by the Optionholder.
<PAGE>
11. Exercise After Retirement or Dismissal of an Independent Director.
The retirement, "removal", or failure of an Independent Director to be reelected
to the Board of Directors shall not effect the Options that were granted
hereunder previous to such event, unless an Independent Director has been
removed from the Board of Directors by a vote of the shareholders "for cause"
under the Company's ByLaws, in which event the term of any Options previously
granted the Independent Director shall toll, and all rights to purchase shares
pursuant thereto must be exercised within six months from such date.
12. Transferability of Options The Options shall not be transferable
except: (i) to an Independent Director's employer or an affiliate of such
employer, (ii) to one or more trusts established solely for the benefit of one
or more members of the Independent Director's family or to one or more
partnerships in which the only partners are members of the Independent
Director's family or to another entity established by the Independent Director
for estate planning purposes, or (iii) by will or the laws of descent and
distribution. Independent Director or his/her assignee shall provide the Company
written notice of any such transfer, and any such transfer shall not effect the
conditions of the exercise of the Option except as otherwise noted herein.
13. Adjustment The number of shares subject to the Plan and to Options
granted under the Plan shall be adjusted as follows:
(a) in the event that the Company's outstanding common stock
is changed by any stock dividend, stock split or combination of shares, the
number of shares subject to the Plan and to Options granted thereunder shall be
proportionately adjusted;
(b) in the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
shall be substituted, on an equitable basis as determined by the Board, for each
share of common stock then subject to the Plan, whether or not at the time
subject to outstanding Options, the number and kind of shares of stock or other
securities to which the holders of common stock of the Company will be entitled
pursuant to the transaction; and
(c) in the event of any other relevant change in the
capitalization of the Company, the Board shall provide for an equitable
adjustment in the number of shares of common stock then subject to the Plan,
whether or not then subject to outstanding Options. In the event of any such
adjustment the purchase price per share shall be proportionately adjusted.
14. Director Indemnification In addition to such other rights of
indemnification as they have as directors or as members of the Board, the
members of the Board making determinations hereunder shall be indemnified by the
Company against the reasonable expenses, including attorney's fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement is approved by independent legal counsel
selected by the Company or paid by them in satisfaction of a judgement in any
such action, suit or proceeding except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such director is
liable for negligence or misconduct in the performance of his duties; provided
that within sixty (60) days after institution of any such action, suit or
proceeding, a director shall, in writing, offer the Company the opportunity, at
its own expense, to hand the defend the same.
<PAGE>
15. Amendment of Plan The Board may amend or discontinue the Plan at
any time. However, no such amendment or discontinuance shall (a) change or
impair any Option previously granted, without the consent of the Optionholder,
(b) change the minimum purchase price, or (c) change the limitations on the
option period or increase the time limitations on the grant of Options.
16. Effective Date The Plan became effective on July 2, 1992 and was
previously amended as of December 5, 1996.
IN WITNESS WHEREOF, this Stock Option Plan has been adopted by the duly
authorized directors of the Company on the date above written.
By: /s/ Richard L. Rasley
Richard L. Rasley, Secretary
<PAGE>
GREAT LAKES REIT, INC.
NON-QUALIFIED STOCK OPTION CERTIFICATE / INDEPENDENT DIRECTOR
This is to certify that on this day of , 19 , Great Lakes REIT, Inc., a
Maryland corporation (the "Company"), pursuant to the amended and restated Great
Lakes REIT, Inc. Stock Option Plan (the "Plan"), hereby grants to (the
"Director") an option to purchase
shares of its common stock, par value $.01 per share, upon the terms
and conditions set forth herein. The Director and other individual to whom an
option or any portion thereof has been granted or transferred hereunder may be
referred to herein as the "Optionholder" as necessary.
1. The purchase price, payable upon exercise of the option, shall
be $ per share, subject to adjustment as provided in paragraph 6 below.
2. The exercise of the option shall be subject to the following
conditions:
(a) The option shall become exercisable with respect to the
total number of shares subject to the option immediately after the date of the
grant. The Board administering the Plan may in its discretion accelerate the
exercisability of the option subject to such terms and conditions as it deems
necessary and appropriate. All or any part of the shares with respect to which
the right to purchase has accrued may be purchased at the time of such accrual
or at any time or times thereafter during the option period.
(b) The option may be exercised by giving written notice to
the Company, attention of the Secretary, specifying the number of shares to be
purchased, accompanied by the full purchase price for the shares to be purchased
either in cash or by check or by shares of the Company's common stock or by a
combination of such methods of payment. At the time of any exercise of the
option, the Company may, if it shall determine it necessary or desirable for any
reason, require the Optionholder (or his heirs, legatees or legal
representative, as the case may be) as a condition upon the exercise thereof, to
deliver to the Company a written representation of present intention to purchase
the shares for investment and not for distribution. In the event such
representation is required to be delivered, an appropriate legend may be placed
upon each certificate delivered to the Optionholder upon his exercise of part or
all of the option and a stop transfer order may be placed with the transfer
agent. The option shall also be subject to the requirement that, if at any time
the Company determines, in its discretion, that the listing, registration or
qualification of the shares subject to the option upon any securities exchange
or under any state or Federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the issue or purchase of shares 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 Company.
3. The term of the option is ten (10) years, but is subject to earlier
expiration as provided in paragraph 5. The option is thus not exercisable to any
extent after the expiration of ten (10) years from the date of this stock option
certificate, or after any earlier expiration date that may be applicable under
the terms of paragraph 5, unless the Board extends the term of the option for
such additional period as the Board, in its discretion, determines, provided
that in no event shall the aggregate option period, including the original term
of the option and any extensions thereof, exceed ten (10) years.
4. The options shall not be transferable except: (i) to an Independent
Director's employer or an affiliate of such employer, (ii) to one or more trusts
established solely for the benefit of one or more members of the Independent
Director's family or to one or more partnerships in which the only partners are
members of the Independent Director's family, or (iii) by will or the laws of
descent and distribution.
<PAGE>
Independent Director or his/her assignee shall provide the Company written
notice of any such transfer, and any such transfer shall not effect the
conditions of the exercise of the Option except as otherwise noted herein or in
the Plan.
5. In the event the Director is removed "for cause" under Article II
Section 13 of the Company's By-Laws the term of any option granted hereunder
shall toll, and all rights to purchase shares pursuant thereto must be exercised
within six months from the termination date.
6. The number of shares subject to the option shall be adjusted as
follows: (a) in the event that the Company's outstanding common stock is changed
by any stock dividend, stock split or combination of shares, the number of
shares subject to the option shall be proportionately adjusted; (b) in the event
of any merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted on an equitable basis as
determined by the Board for each share of common stock then subject to the
option, the number and kind of shares of stock or other securities to which the
holders of common stock of the Company will be entitled pursuant to the
transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Board shall provide for an equitable
adjustment in the number of shares of common stock then subject to the option.
In the event of such adjustment, the purchase price per share shall be
proportionately adjusted.
7. Notwithstanding any other provisions in the Plan, during the period
of thirty (30) days after any "change in control" each Optionholder shall have
the right to require the Company to purchase from him any option granted under
the Plan and held by him at a purchase price equal to (a) the excess of the
"Fair Market Value per share" (as defined in the Plan) over the option price (b)
multiplied by the number of option shares specified by him for purchase in a
written notice to the Company, attention of the Secretary. The amount payable to
each Optionholder by the Company shall be in cash or by certified check and
shall be reduced by any taxes required to be withheld.
8. The granting of this option shall not modify in any way the
terms and conditions of the Directory Agreement (if any).
9. The Optionholder(s) shall not have any rights of shareholders with
respect to the shares subject to the option until such shares are actually
issued upon exercise of the option.
IN WITNESS WHEREOF, this instrument has been executed by the duly
authorized officer of the Company on the date above written.
Great Lakes REIT, Inc.
By: , Secretary
Richard L. Rasley
Exhibit 10.9
(MODEL) CHANGE IN CONTROL AGREEMENT
This Agreement between GREAT LAKES REIT INC., (the "Company") and
RICHARD A. MAY ("Executive"), is made as of the 20th day of November, 1997 and
supercedes the Change in Control Agreement between the parties dated 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.
G. Executive is willing to continue to serve as an Executive of the
Company and to make certain covenants with the Company, but Executive desires
assurance that in the event of a change in control he will continue to have the
employment compensation, benefits, and responsibilities he could reasonably
expect absent such event, and that, in the event such is not possible, he will
have fair and reasonable severance protection.
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Operation of Agreement.
(a) The "effective date of this Agreement" shall be the date
on which a change in control of the Company (as described in Section 3) occurs.
Until there 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
<PAGE>
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 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" shall mean if at any time any
of the following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Common Shares immediately prior to such transaction;
<PAGE>
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's stockholders, of each director
of the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period.
Notwithstanding the foregoing provisions of Section 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred, (i) solely
because (A) the Company; (B) a Subsidiary; or (c) any Company-sponsored employee
stock ownership plan or other employee benefit plan of the Company either files
or becomes obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares, whether in excess of 20% of the Voting
Power or otherwise, or because the Company reports that a change of control of
the Company has or may have occurred or will or may occur in the future by
reason of such beneficial ownership, or (ii) solely because of a change in
control of any Subsidiary.
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.
<PAGE>
(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 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);
<PAGE>
(iii) any reduction in Executive's total compensation or benefits from that
provided in Section 4, if that reduction in compensation or benefits is unique
to Executive and is not part of a reduction in compensation or benefits
applicable to substantially all of the Company's employees;
(iv) a breach by the Company of any other material provision of this
Agreement; or
(v) a reasonable determination by Executive that, as a result of a change
in control of the Company and a change in circumstances thereafter significantly
affecting his position, Executive is unable to exercise the authority and
responsibility described in Section 3; provided, however, that a change in job
title or in the name of the office or position held shall not be deemed to be a
change in circumstances "significantly affecting" his position, nor shall it be
deemed a factor in any determination of either whether the Executive's position
has been significantly effected, or whether he is unable to exercise the
authority and responsibility described in Section 3.
(d) Termination that entitles Executive to the payments and
benefits provided in Section 6 shall not be deemed or treated by the Company as
the 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 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
Company, because the plan or arrangement has been terminated or amended after
the effective date of this Agreement, or for any other reason, the Company
itself shall pay or otherwise provide the equivalent of such rights, benefits,
and credits for such benefits to Executive, his dependents, beneficiaries and
estate.
(i) The Company's obligation under this Section 6 to continue
to pay or provide health care and life and accident insurance to Executive
during the remainder of the Employment Period shall be reduced when and to the
extent any of such benefits are paid or provided to Executive by another
employer, provided that Executive shall have all rights afforded to retirees to
convert group insurance coverage to individual coverage as, to the extent of,
and whenever Executive's group insurance coverage under this Section 6 is
reduced or expires.
(j) The Company shall deduct applicable withholding taxes
in performing its obligations under this Section 6.
(k) Except for Section 6(i) above, Executive shall have
no obligation to mitigate damages.
Nothing in this Section 6 is intended, or shall be deemed or
interpreted, to be an amendment to any compensation, benefit, or other plan of
the Company. To the extent the Company's performance under this Section 6
includes the performance of the Company's obligations to Executive under any
such plan or under another agreement between the Company and Executive, the
rights of Executive under such plan or other agreement, as well as under this
Agreement, are discharged, surrendered, or released pro tanto.
7. Parachute Payment Limitation. Notwithstanding any provision of this
Agreement to the contrary, the aggregate present value of all parachute payments
payable to or for the benefit of Executive, whether payable pursuant to this
Agreement or otherwise, shall be one dollar less than three (3) times
Executive's base amount and, to the extent necessary, payments under this
Agreement and any parachute
<PAGE>
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 Agreement.
8. Arrangements Not Exclusive or Limiting. The specific arrangements
referred to herein are not intended to exclude or limit Executive's
participation in other benefits available to executive personnel generally, or
to preclude or limit other compensation or benefits as may be authorized by the
Board of Directors of the Company at any time, or to limit or reduce any
compensation or benefit to which Executive would be entitled but for this
Agreement.
9. Enforcement Costs. The Company is aware that upon the occurrence of
a change in control of the Company, the Board of Directors or a stockholder of
the Company may then cause or attempt to cause the Company to refuse to comply
with its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute, litigation, seeking to have this
Agreement declared unenforceable, or may take, or attempt to take, other action
to deny Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the parties that Executive not be required to incur the legal fees and
expenses associated with the protection or enforcement of rights under this
Agreement by litigation or other legal action because such costs would
substantially detract from the benefits intended for Executive hereunder, nor be
bound to negotiate any settlement of rights hereunder under threat of incurring
such costs. Accordingly, if at any time after a change in control of the
Company, it should appear to Executive that the Company is or has acted contrary
to or is failing or has failed to comply with any of its obligations under this
Agreement for the reason that it regards this Agreement to be void or
unenforceable or for any other reason, or that the Company has purported to
terminate his employment for cause or is in the course of doing so, in either
case contrary to this Agreement, or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable or
institutes any litigation or other legal action designed to deny, diminish or to
recover the benefits provided or intended to be provided to Executive hereunder,
and Executive has acted in good faith to perform his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice at the expense of the Company to represent
Executive in connection with the protection and enforcement of his rights
hereunder, including without limitation representation in connection with
termination of employment contrary to this Agreement or with the initiation of
defense of any litigation or other legal action, whether by or against Executive
or the Company or any director, officer, stockholder, or other person affiliated
with Company, in any jurisdiction. The reasonable fees and expenses of counsel
selected from time to time by Executive as 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.
<PAGE>
10. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and personally delivered by
hand or sent by registered or certified mail, if to Executive, at the last
address Executive has filed in writing with the Company, and if to the Company,
to its corporate secretary at its principal executive offices.
11. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate, or in any way create a lien upon any amounts provided
under this Agreement, and no payments or benefits due hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary acts or
by operation of law. So long as Executive lives, no person, other than the
parties hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
12. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement of the parties in respect of the subject matter hereof. No
provision of this Agreement may be amended, waived, or discharged except by the
mutual written agreement of the parties. The consent of any other person to
any such amendment, waiver, or discharge shall not be required.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, by operation of
law or otherwise, including without limitation any corporation or other entity
or person which shall succeed (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and
assets of the Company, and the Company shall require any successor, by agreement
in form and substance satisfactory to Executive, to expressly assume and agree
to perform the Agreement. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of Executive and his legal
representatives, heirs, and assigns; provided, however, that in the event of
Executive's death prior to payment or distribution of all amounts,
distributions, and benefits due him hereunder, each unpaid amount and
distribution shall be paid in accordance with this Agreement to the person or
persons designated by Executive to the Company to receive such payment or
distribution and if Executive has made no applicable designation, to the person
or persons designated by Executive as beneficiary or beneficiaries of proceeds
of life insurance payable in the event of Executive's death under the Company's
group life insurance plan.
14. Governing Law. Except to the extent required to be governed
by the law of the State of Maryland because the Company is incorporated under
the laws of that State, the validity, interpretation, and enforcement of this
Agreement shall be governed by the law of the State of Illinois, excepting its
choice of law provisions.
15. Severability. 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: Richard L. Rasley, Secretary
By: __________________________________
Richard A. May
Exhibit 10.10
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is entered into as of
the 12th day of September, 1997 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 February 27, 1997 the Board of Directors granted certain stock
options to Employee subject to the adoption of a final stock option plan and the
approval of that plan by GLRs stockholders, and
WHEREAS on May 29, 1997 the Board of Directors of GLR adopted a new
compensation plan for the Companys employees known as the "1997 Equity and
Performance Incentive Plan" (the "Incentive Plan"), and the stockholders of GLR
approved the adoption of the Incentive Plan on September 11, 1997; and
WHEREAS, certain 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
hereinafter contained, the parties agree as follows:
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 September 12, 1997 and terminating
February 27, 2007 (ten years from the date of the grant), Employee may exercise
the Option to purchase up to ________(one half) shares of the aggregate number
of shares of Stock covered by the Option;
(b) During the period commencing August 27, 1998 (eighteen months from the
date of the grant) and terminating February 27, 2007 (ten years from the date of
the grant), Employee may exercise the Option to purchase up to an additional
________ (one half) shares of the aggregate number of shares of Stock covered by
the Option; and
(c) Of the shares of Stock identified in paragraph 1(a) shares shall be
treated as subject to an Incentive Stock Option, and shares shall be subject to
a non-qualified option. Of the shares of Stock identified in paragraph 1(b),
shares shall be treated as subject to an Incentive Stock Option, and shares
shall be subject to a non-qualified option.
<PAGE>
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 of the grant
(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
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 $16.00 per share,
which price is not less than 100% of the fair market value of the Stock on the
date of the grant.
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 Employees employment is
terminated for any reason other than Employees 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.ent 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
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.
(c) Change in Control. In the event of a change in control of GLR, as
defined herein, Employee shall have the right to exercise this Option to
purchase all of the shares subject to this Option Agreement immediately,
notwithstanding the provisions of paragraph 1. For purposes of this Agreement, a
change in control of GLR shall mean any of the following events:
(i) GLR is merged or consolidated or reorganized into or with another
corporation or other legal person, and as a result of such merger, consolidation
or reorganization less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person immediately after such
transaction are held in the aggregate by the holders of Common Shares (as
defined in the Incentive Plan) immediately prior to such transaction;
(ii) GLR sells or otherwise transfers all or substantially all of its
assets to any other corporation or other legal person, and less than a majority
of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended, disclosing that any person (as the
term Person is used in Section 13(d)(3) or Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended) has become the beneficial owner (as the term
beneficial owner is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Securities Exchange Act of 1934, as amended) of
securities representing 20% or more of the Voting Power (as defined in the
Incentive Plan);
(iv) GLR files a report or proxy statement with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended,
disclosing in response to Form 8-K or Schedule 14A (or any successor schedule,
form or report or item therein) that a change in control of GLR has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the directors of GLR cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by GLRs stockholders, of each director of GLR first
elected during such period was approved by a vote of at least two-thirds of the
directors of GLR then still in office who were directors of GLR at the beginning
of any such period.
<PAGE>
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:
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
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. As noted in the Incentive
Plan, in the event the Company completes such a transaction to merge,
consolidate, dissolve, liquidate, sell or transfer all or any part of its
business or assets the Board of Directors of GLR may, in its sole discretion,
provide adjustments to the number or kind of shares covered by the Options
granted hereunder.
<PAGE>
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 Employees (or
other Stock recipients) estimated total federal, state and local tax obligation
associated with the transaction.
9. Premature Disposition. If Employee disposes of shares of Stock acquired
on the exercise of the Incentive Stock Options by sale or exchange either within
two (2) years after the date of the grant, 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
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:
EMPLOYEE
Exhibit 10.12
GREAT LAKES REIT, INC.
LIMITED PURPOSE EMPLOYEE LOAN PROGRAM
PROMISSORY NOTE
$
(Maker) in consideration of the receipt of $ from Great Lakes REIT, Inc.
("GLR") promises to pay to the order of GLR and its successors and assigns, the
sum of Dollars ($ ) on , 2001, together with interest on the outstanding
principal balance on the tenth (10th) day of each calendar quarter, at a per
annum rate which is the the rate GLR pays on its borrowed funds from its
principal lender, such interest rate being adjusted quarterly.
All sums due pursuant to this Note shall become due and payable on earlier
of : (1) the date sixty (60) days following the day the Maker ceases to be an
employee of GLR; or (2) the date specified in the first paragraph of this Note.
Payment of the principal, interest and any related costs of collection is
secured by a pledge of the Makers shares of GLR Common Stock.
No delay on the part of GLR in the exercise of any power or right under
this Note, or under any other instrument executed pursuant hereto, shall operate
as a waiver thereof, nor shall a single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other right or power hereunder.
All payments hereunder shall be applied first to interest on the unpaid
balance at the rate herein specified and then to principal.
All payments of principal and interest on this Note shall be payable in
lawful money of the United States of America. Principal and interest shall be
paid to GLR at its principal office in Illinois, or at such other place as the
holder of this Note may designate in writing to the undersigned. This Note may
be prepaid in whole or in part at any time or from time to time without premium
or penalty.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived. Maker will pay all reasonable attorneys fees and other costs
of collection incurred by GLR to collect any unpaid sums due and owing pursuant
to this Note.
This Note shall be binding upon the Maker and his/her successors and
assigns.
By:
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-40129 of Great Lakes REIT, Inc. and in the related Prospectus
of our report dated January 29, 1998, except for Note 14 as to which the date is
March 13, 1998, with respect to the consolidated financial statements and
schedule of Great Lakes REIT, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1997.
Ernst & Young LLP
Chicago, Illinois
March 30, 1998
<PAGE>
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
Each of the undersigned, a director of Great Lakes REIT, Inc. (the
"Company"), does hereby constitute and appoint Richard A. May, Richard L. Rasley
and James Hicks, and each of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and any and all
amendments hereto, and to file the same, with exhibits and schedules thereto,
and other documents therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact, or his
substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each has hereunto set my hand his 27th day of March,
1998.
/s/ James J. Brinkerhoff
------------------------
James J. Brinkerhoff
/s/ Daniel E. Josephs
------------------------
Daniel E. Josephs
/s/ Edward Lowenthal
------------------------
Edward Lowenthal
/s/ Donald E. Phillips
------------------------
Donald E. Phillips
/s/ Walter H. Teninga
------------------------
Walter H. Teninga
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<NAME> GREAT LAKES REIT, INC.
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