SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
KEYSTONE PROPERTY TRUST
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KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER, SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 10, 2003
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To Our Shareholders:
The 2003 Annual Meeting of Shareholders of Keystone Property Trust will be
held at 2:30 p.m. on June 10, 2003, at the Philadelphia Marriott West, 111
Crawford Avenue, West Conshohocken, Pennsylvania, for the following purposes:
1. To elect four Class III trustees to serve until the 2006 Annual Meeting
of Shareholders, in each case until his successor has been duly elected
and qualified;
2. To consider and vote upon a proposal to approve the adoption of an
amendment to and restatement of the Company's 1994 Non-Employee Stock
Option Plan, to provide for the issuance of restricted stock and other
stock-based awards to non-employee trustees and consultants to the
Company; and
3. To transact such other business as may properly come before the meeting.
The Board of Trustees has fixed the close of business on April 16, 2003 as
the record date for the meeting. Only holders of record of the Company's Common
Shares as of that date are entitled to notice of and to vote at the meeting and
any adjournment or postponement thereof.
The accompanying form of proxy is solicited by the Board of Trustees of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the meeting.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you plan to attend, PLEASE PROMPTLY SIGN, DATE AND MAIL
THE ENCLOSED PROXY CARD IN THE ENCLOSED RETURN ENVELOPE, which requires no
postage if mailed in the United States. Returning your Proxy Card does not
deprive you of your right to attend the meeting and vote your shares in person.
By Order of the Board of Trustees,
Saul A. Behar
Secretary
April 30, 2003
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER, SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
(484) 530-1800
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PROXY STATEMENT
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SOLICITATION, VOTING, AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished to the holders of common shares of
beneficial interest, par value $.001 per share (the "Common Shares"), of
Keystone Property Trust, a Maryland real estate investment trust (the
"Company"), and the holders of preferred shares of beneficial interest, par
value $.001 per share (the "Preferred Shares"), of the Company, in connection
with the solicitation by the Company's Board of Trustees (the "Board" or "Board
of Trustees") of proxies to be voted at the Annual Meeting of Shareholders of
the Company (the "Meeting") to be held at the Philadelphia Marriott West, 111
Crawford Avenue, West Conshohocken, Pennsylvania on Tuesday, June 10, 2003, at
2:30 p.m., or at any adjournment thereof, for the purposes set forth in the
accompanying Notice.
References in this Proxy Statement to the "Company" include its subsidiaries
and American Real Estate Investment Corporation as predecessor to the Company,
unless the context otherwise requires. References to "trustees" means trustees
of the Company and directors of the Company's predecessor, unless the context
otherwise requires.
This Proxy Statement and form of proxy are being mailed to shareholders on
or about April 30, 2003. If the enclosed form of proxy is executed and returned,
it nevertheless may be revoked by the shareholder at any time prior to its use
by filing with the Secretary of the Company a written revocation or a duly
executed proxy bearing a later date. A shareholder who attends the meeting in
person may revoke his or her proxy at that time and vote in person if so
desired. Unless revoked or unless contrary instructions are given, each proxy
duly signed, dated and returned will be voted as specified therein, but unless
otherwise specified, will be deemed to grant authority to vote, as applicable:
(1) FOR the election of four trustee nominees to serve as Class III trustees
for three-year terms, as provided in Proposal No. 1 below (the "Election
Proposal");
(2) FOR approval of the Amended and Restated 1994 Non-Employee Stock
Incentive Plan, as provided in Proposal No. 2 below (the "Plan
Proposal"); and
(3) At the discretion of the persons named in the enclosed form of proxy, on
any other matter that may properly come before the meeting or any
adjournment thereof.
THE BOARD OF TRUSTEES OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
ELECTION OF EACH OF THE NOMINEES LISTED UNDER THE ELECTION PROPOSAL AND "FOR"
APPROVAL OF THE PLAN PROPOSAL. PROXIES SOLICITED BY THE BOARD OF TRUSTEES WILL
BE VOTED "FOR" ELECTION OF EACH OF THE NOMINEES LISTED UNDER THE ELECTION
PROPOSAL AND "FOR" APPROVAL OF THE PLAN PROPOSAL IN THE ABSENCE OF INSTRUCTIONS
TO THE CONTRARY.
QUORUM AND VOTING
RECORD DATE; QUORUM
The Board of Trustees has fixed the close of business on April 16, 2003 as
the record date (the "Record Date") for the Meeting. Only holders of Common
Shares on the close of business on the Record Date are entitled to notice of,
and to vote at, the Meeting and any adjournments and postponements thereof. The
Common Shares are the only class of voting shares of the Company currently
issued and outstanding which are entitled to vote at the Meeting. The holders of
the Preferred Shares are entitled to notice of the meeting but are not entitled
to vote such shares at the Meeting. On the Record Date, there were 21,702,955
Common Shares outstanding. Each holder of Common Shares on the Record Date is
entitled to cast one vote per share at the Meeting on each matter properly
brought before the meeting, exercisable in person or by properly executed proxy.
The presence of the holders of a majority of the outstanding Common Shares
entitled to vote at the Meeting, in person or by properly executed proxy, is
necessary to constitute a quorum at the Meeting. A quorum is necessary for any
action to be taken at the Meeting. Common Shares represented at the Meeting in
person or by properly executed proxy but not voted will be included in the
calculation of the number of shares considered to be present at the Meeting for
purposes of determining the presence of a quorum.
VOTES REQUIRED FOR APPROVAL
With respect to the Election Proposal and any other matters which properly
come before the meeting, other than the Plan Proposal, the affirmative vote of a
majority of all of the Common Shares entitled to vote at the Meeting is required
for approval, pursuant to the Company's Declaration of Trust. Cumulative voting
is not permitted in the election of trustees. With respect to the Plan Proposal,
pursuant to the rules of the New York Stock Exchange (the "NYSE"), the
affirmative vote of a majority of the votes cast at the Meeting, assuming that
the votes cast at the Meeting represent at least a majority of the outstanding
Common Shares, is required for approval.
PROXIES; ABSTENTIONS; BROKER NON-VOTES
All Common Shares represented by properly executed proxies received prior to
or at the Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. If no instructions are given on a
properly returned proxy, your proxy will be voted "FOR" election of each of the
nominees listed under the Election Proposal, "FOR" approval of the Plan Proposal
and, to the extent permitted by applicable rules of the Securities and Exchange
Commission (the "SEC"), in accordance with the judgment of the persons voting
the proxies upon such other matters as may come before the Meeting and any
adjournment or postponement thereof.
Abstentions and broker non-votes are each included in the determination of
the number of shares present and entitled to vote at the Meeting for purposes of
determining a quorum but will not be counted as a vote cast. A "broker non-vote"
occurs when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
for that particular matter and has not received instructions from the beneficial
owner. Brokers generally have discretionary authority to vote on routine
matters. Abstentions and broker non-votes (i) will be counted as a vote
"AGAINST" approval of the Election Proposal and (ii) will be counted as a vote
"AGAINST" approval of the Plan Proposal unless holders of more than a majority
of all outstanding Common Shares cast votes, in which event they will be counted
neither as a vote "FOR" nor "AGAINST" approval of the Plan Proposal.
A shareholder may revoke his or her proxy at any time before it has been
voted by delivering written notice to the Secretary of the Company at the
offices of the Company set forth above, by presenting a duly executed proxy
bearing a later date or by voting in person at the Meeting; but mere attendance
at the Meeting, without further action, will not revoke a proxy.
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OTHER BUSINESS; ADJOURNMENTS
The Board of Trustees is not currently aware of any business to be acted
upon at the Meeting other than as described herein. If other matters are
properly brought before the Meeting, or any adjournment or postponement thereof,
the persons appointed as proxies, to the extent permitted by applicable rules of
the SEC, will have discretion to vote or act thereon according to their best
judgment. Adjournments may be made for the purpose of, among other things,
soliciting additional proxies. Any adjournment may be made from time to time by
approval of the holders of a majority of the shares present in person or by
proxy at the Meeting (whether or not a quorum exists) without further notice
other than by an announcement made at the Meeting. If the Meeting is adjourned
or postponed for any reason, all proxies will be voted at the reconvened Meeting
in the same manner as such proxies would have been voted at the original
convening of the Meeting (except for proxies that have theretofore effectively
been revoked or withdrawn). The Company does not currently intend to seek an
adjournment of the Meeting.
The Company's 2002 Annual Report, including financial statements for the
fiscal year ended December 31, 2002, is being mailed to shareholders
concurrently with this Proxy Statement. The Annual Report, however, is not part
of the proxy solicitation material. A copy of the Company's annual report filed
with the SEC on Form 10-K, including the financial statements and the financial
statement schedules, may be obtained without charge by writing to the Secretary
of the Company at the offices of the Company set forth above.
PROPOSAL NO. 1--ELECTION OF TRUSTEES
The Declaration of Trust of the Company provides for a Board of Trustees of
no fewer than three nor more than 15 members, with the exact number of trustees
to be designated from time to time by resolution of the Board of Trustees. In
April 2003, the Company's Board of Trustees voted to increase the number of
trustees from nine to ten. Subject to the rights of the holders of any class of
stock separately entitled to elect one or more trustees, the Board of Trustees
may fill a vacancy which results from the death, resignation or removal of a
trustee or from an increase in the number of trustees. Any trustee elected by
the Board of Trustees to fill a vacancy serves until the next annual meeting of
shareholders and until his or her successor is duly elected and qualified.
The Board of Trustees has determined that a majority of the current trustees
are and, assuming the election of all nominees, will continue to be
"independent" within the meaning of applicable and proposed rules of the SEC and
the NYSE.
Pursuant to the Declaration of Trust, the members of the Board of Trustees
are divided into three classes which have staggered terms of office, so that the
terms of office of trustees of only one class expires at each annual meeting of
shareholders and each trustee of that class is elected for a three-year term and
until his or her successor is elected and duly qualified or until his or her
earlier death, resignation or removal. The following table lists the name, class
designation and age for each trustee:
NAME CLASS AGE EXPIRATION
---- -------- -------- ----------
Russell C. Platt....................................... III 42 2003
David M. Sherman....................................... III 45 2003
Francesco Galesi....................................... III 72 2003
Robert F. Savage, Jr................................... III 35 2003
Donald E. Callaghan.................................... I 56 2004
Jonathan D. Eilian..................................... I 35 2004
John S. Moody.......................................... I 54 2004
David F. McBride....................................... II 56 2005
Jeffrey E. Kelter...................................... II 48 2005
Rodney B. Berens....................................... II 58 2005
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The terms of office of the Class I trustees will expire at the Annual
Meeting of Shareholders to be held in 2004 and the terms of office of the
Class II trustees will expire at the Annual Meeting of Shareholders to be held
in 2005. The term of office of each of the current four Class III trustees
(Messrs. Platt, Sherman, Galesi and Savage) expires at the Meeting. Mr. Platt
was appointed as a Class III trustee by the Board of Trustees in July 2002 to
fill a vacancy caused by the resignation of a trustee. Mr. Savage was appointed
as a Class III trustee by the Board of Trustees in April 2003 to fill a vacancy
caused by an increase in the number of trustees. Set forth below are the
nominees for election as Class III trustees. The Board of Trustees, upon the
recommendation of the Nominating and Corporate Governance Committee, has
nominated Messrs. Platt, Sherman, Savage and Mr. Richard M. Cummins to stand for
election as Class III trustees, each for a three-year term expiring at the
Annual Meeting of Shareholders to be held in 2006. In the event that such
nominees are unable to serve or for good cause will not serve, the proxies will
be voted at the Meeting for such other person or persons as the Board of
Trustees may recommend.
NOMINEES FOR CLASS III TRUSTEE
The following biographical descriptions set forth certain information with
respect to the Class III trustee nominees based on information furnished to the
Company by each Class III trustee nominee. The following information is as of
April 16, 2003.
RUSSELL C. PLATT has been a trustee of the Company since July 2002 and
previously served as a trustee of the Company from June 1999 to June 2001. He is
Managing Director and Chief Executive Officer of Forum Partners, a real estate
investment firm with offices in Santa Fe, New Mexico, Stamford, Connecticut and
London. Prior to establishing Forum Partners, Mr. Platt served as Managing
Director of Security Capital Global Capital Management Group Incorporated, where
he was responsible for the firm's private equity and international investment
businesses, and as President of JER Partners, where he managed their European
real estate investment business. Prior to joining JER Partners, Mr. Platt served
as a Managing Director of Morgan Stanley & Co., where for 17 years he was
involved in all aspects of its real estate business. Mr. Platt founded and
managed the global real estate department of Morgan Stanley Asset Management
("MSAM"). Under his leadership, MSAM managed over $2 billion in private real
estate and listed real estate securities worldwide on behalf of institutional
and individual investors. Previously, he served as a Director of the Morgan
Stanley Real Estate Funds. Mr. Platt received a B.A. in Economics from Williams
College and an M.B.A. from Harvard Business School. He is a member of various
real estate industry associations.
DAVID M. SHERMAN has been a trustee of the Company since June 2000. He has
served as President of D. Sherman & Company, Inc., a firm founded and wholly
owned by Mr. Sherman which provides services to public real estate companies,
since February 2000. In addition, he has been an adjunct professor of real
estate at Columbia University Graduate School of Business since February 2000.
Prior to February 2000 and beginning in 1995, he was the Managing Director,
Senior Analyst and Head of the REIT Equity Research Team at Salomon Smith
Barney, Inc. which was an Institutional Investor ranked team in 1999 and 1998.
From 1993 to 1995 he was a Managing Director in Salomon Smith Barney's CMBS Debt
Origination and Securitization Group. From 1991 to 1993, he was Managing
Director and Partner of The Harlan Company, Inc., a real estate investment
banking and advisory firm. He currently serves as a director of Brookfield Homes
Corporation and was formerly a member of the board of Crescent Real Estate
Equities Company and a member of the advisory committee for the Primus Fund, a
REIT fund sponsored by Deutsche Bank Realty Advisors. Mr. Sherman is a graduate
of Brown University and has an M.B.A. in Finance from Columbia University
Graduate School of Business.
ROBERT F. SAVAGE, JR. has been a trustee of the Company since April 2003.
He has served as Executive Vice President and Chief Operating Officer of the
Company since December 2000. Prior to joining the Company, he spent three years
as a partner at Hudson Bay Partners, L.P., a private equity firm where he was
responsible for the execution of the Company's formation transactions in
December 1997. Prior to
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Mr. Savage's position at Hudson Bay, he worked from January 1994 to May 1997 in
the Investment Banking Division at Merrill Lynch & Co. where he specialized in
corporate finance and strategic advisory services for REITs, real estate
investment funds and lodging companies. He started his career at Arthur Andersen
LLP and then worked at Jones Lang LaSalle in a variety of project finance and
portfolio management positions. Mr. Savage received an A.B. in Urban Studies and
Business Economics from Brown University and is a member of the Urban Land
Institute.
RICHARD M. CUMMINS, 65, has been nominated by the Board for election as a
trustee in June 2003. Mr. Cummins has 40 years of experience in the field of tax
and financial planning. Since 1998, he has served as a consultant to
PricewaterhouseCoopers LLP. From 1977 to 1998, he was a Partner at Coopers &
Lybrand LLP, and served as the firm's National Director of Personal Financial
Services for 14 years. From 1983 to 1998, he served as an adjunct professor at
Columbia University Graduate School of Business, teaching courses on tax aspects
of business transactions. Mr. Cummins is a director of Mutual of America Life
Insurance Company and Nicklaus Golf Equipment Company and a former director of
Thomson Industries, the New York Mets and Jamaica Savings Bank. He has been a
director of the United States Luge Federation Foundation since 1998 and served
as its President from 1997 to 2000. Mr. Cummins received a B.S. from DePaul
University, an L.L.B. from Fordham University School of Law and an L.L.M. from
New York University School of Law. He is a member of the bars of New York and
Arizona and is licensed as a Certified Public Accountant in California.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE ELECTION OF THE CLASS III TRUSTEE NOMINEES.
TRUSTEES CONTINUING IN OFFICE
The following biographical descriptions set forth certain information with
respect to the trustees whose terms of office continue after the Meeting based
on information furnished to the Company by each trustee. The following
information is as of April 16, 2003.
CLASS I TRUSTEES (TERMS EXPIRE IN 2004)
DONALD E. CALLAGHAN has been a trustee of the Company since June 2001. He is
a Principal of Hirtle, Callaghan & Co., Chief Investment Officers, based in
Conshohocken, Pennsylvania. Hirtle, Callaghan currently manages in excess of
$5 billion of investments for high net worth families, endowments, foundations
and corporations. The firm provides asset allocation, investment strategy
management, manager selection, manager supervision, reporting and performance
measurement services. Mr. Callaghan serves on the firm's Executive Committee and
Investment Committee and leads the firm's research effort. Prior to founding
Hirtle, Callaghan, he served as Vice President of Goldman, Sachs & Co. for
15 years, where he was responsible for advising banks, investment advisors, and
pension funds on investment strategy and securities selection. He received a
B.A. in Psychology from Trinity College and an M.B.A. from The Wharton School of
the University of Pennsylvania. He served as an officer in the United States
Navy from 1968 through 1971. Currently, he serves on the boards of The Franklin
Institute and the Mann Center for the Performing Arts, which are both located in
Philadelphia, Pennsylvania.
JONATHAN D. EILIAN has been a trustee of the Company since June 2001.
Mr. Eilian has been a private investor since January 2001. He was a founding
member and served as Senior Managing Director and Co-Head of Acquisitions of
Starwood Capital Group, LLC, a real estate related private equity investment
firm. He joined Starwood Capital at its inception in 1991, played a primary role
in raising and investing over $2 billion of equity capital on behalf of
institutional investors, and became a non-executive member of the firm in 2001.
Mr. Eilian also played a primary role in the creation of Starwood Hotels and
Resorts Worldwide, Inc., and its transformation into one of the largest publicly
traded hotel companies in the world. From 1995 until 2001 he served on the board
of directors of Starwood Hotels and, together with its Chairman, comprised
Starwood Hotels' Executive Committee. From 1999 to 2001, Mr. Eilian also served
on the board of trustees of iStar Financial, Inc. the largest publicly traded
finance company focused
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exclusively on real estate. Mr. Eilian received a B.S. and M.B.A. from The
Wharton School of the University of Pennsylvania.
JOHN S. MOODY has been a trustee of the Company since June 2001. He is
President of Marsh & McLennan Real Estate Advisors, Inc., which serves as real
estate advisor for Marsh & McLennan Companies, Inc. From 1995 to 2000, he served
as President and CEO of Cornerstone Properties Inc., a $4.6 billion office REIT
which merged with Equity Office Properties Trust in June 2000. Prior to his
tenure with Cornerstone, he was President and CEO of Deutsche Bank Realty
Advisors, the advisor for Cornerstone, where he served from 1991 to 1995. From
1987 to 1991 he was President and CEO of Paine Webber Properties, the real
estate syndication, advisory and asset management arm of the financial services
company. He was President and CEO of The Moody Corporation, a family-owned
Texas-based development company, from 1984 to 1987. For 11 years he worked in
commercial law specializing in real estate at the firm of Wood, Campbell,
Moody & Gibbs, which he co-founded in 1973. Mr. Moody is a graduate of Stanford
University and the University of Texas School of Law. Currently, he serves on
the board of Equity Office Properties Trust and was formerly a board member of
Meridian Industrial Trust and Prologis Trust. He is also a former member of the
Board of Directors of the National Association of Real Estate Investment Trusts
(NAREIT) and former Chairman of the Board of the Association of Foreign
Investors in U.S. Real Estate. He is a member of the Urban Land Institute and
the Real Estate Roundtable.
CLASS II TRUSTEES (TERMS EXPIRE IN 2005)
DAVID F. MCBRIDE has been Chairman of the Board of Trustees of the Company
since December 1997. He served as Secretary of the Company from January 1998
until December 1998. He is currently a partner in the law firm of Harwood Lloyd,
LLC in Hackensack, New Jersey. He has served as Chief Executive Officer of
McBride Enterprises, Inc. and affiliated family real estate, construction and
brokerage companies since 1987 and has been a director of McBride
Enterprises, Inc. and such affiliates since 1975. He is a member of the Board of
Directors of Warwick Community Bank Corp., Inc., Warwick Savings Bank and Towne
Center Bank. Mr. McBride served as a director of MidAtlantic Corporation,
MidAtlantic National Bank and various subsidiaries for 13 years prior to its
merger with PNC Bank in 1996. Prior to 1987, he was a partner in the law firm of
Harwood Lloyd from 1981 to 1987, a partner in the law firm of Murphy, Ellis &
McBride from 1977 to 1981, and an associate in the law firm of Robinson,
Wayne & Greenberg from 1973 to 1977, all located in New Jersey. Mr. McBride
received B.A. and J.D. degrees from Georgetown University. He is a member of the
bars of New Jersey and New York.
JEFFREY E. KELTER has been a trustee of the Company since December 1997. He
has served as President of the Company since December 1997 and was appointed
Chief Executive Officer in December 1998. He has over 20 years of experience in
all phases of commercial real estate including development and third-party
management. Mr. Kelter began his career in 1976 at Bankers Trust Corporation
where he was an assistant treasurer in the Corporate Finance division. In 1982
Mr. Kelter founded Penn Square Properties, Inc. ("Penn Square") in Philadelphia
and served as Chief Executive Officer and President. At Penn Square he
developed, owned, managed and leased more than 4.5 million square feet of office
and warehouse projects throughout the Pennsylvania and New Jersey markets.
Mr. Kelter received a B.A. from Trinity College.
RODNEY B. BERENS has been a trustee of the Company since June 2002. He is
the founding partner of Berens Capital Management, LLC, an investment firm based
in New York. Mr. Berens has more than 30 years of experience in the securities
industry. From 1992 to 1998, he was at Salomon Brothers, where he was a member
of the five-person firm operating committee, the top executive body at the firm.
While at Salomon, Mr. Berens was also the Head of Global Equities with
responsibility for all sales, trading, research, capital markets and support,
CEO of Europe and CEO of the Asia-Pacific region. From 1975 to 1991, Mr. Berens
was at Morgan Stanley, where he was Managing Director, Head of Equity Trading
and Head of Global Research. Prior to joining Morgan Stanley, he was an
investment manager for the Ford Foundation. He began his career with The First
Boston Corporation. Mr. Berens received a B.A. from the
6
University of Pennsylvania and an M.B.A. from The Wharton School of the
University of Pennsylvania. He is a Trustee and member of the Investment
Committees of The Woods Hole Oceanographic Institute and the Pierpont Morgan
Library. He is also a member of the Board of Directors of Storyfirst
Communications, Inc. and a Non-Executive Director of Pendragon Capital
Management Limited. Mr. Berens was formerly the President of the Board of
Trustees of Green Vale School, a member of the Board of Directors of the
American Stock Exchange and the National Organization of Investment
Professionals, and Head of the Upstairs Traders Advisory Committee of the New
York Stock Exchange.
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
The Board of Trustees held eight meetings and acted by written consent five
times in 2002. Each current trustee except Mr. Galesi attended at least 75% of
the aggregate of the total number of meetings held by the Board of Trustees and
the total number of meetings held by all committees of the Board of Trustees on
which he served, in each case during the period for which such trustee served as
a trustee or committee member. The Board of Trustees has an Audit Committee, a
Compensation Committee, an Investment Committee and a Nominating and Corporate
Governance Committee.
AUDIT COMMITTEE. The Audit Committee, currently comprised of
Messrs. Sherman (chair), Callaghan and Berens, all of whom are independent
trustees, (i) appoints the Company's independent auditors, (ii) reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, (iii) reviews and evaluates the Company's internal
accounting controls, (iv) receives and processes complaints regarding
accounting, internal controls or auditing matters and (v) performs such other
duties as directed by the Board of Trustees. In addition, in July 2002 the
Conflicts Committee of the Board was disbanded and the Audit Committee assumed
the responsibility, previously held by the Conflicts Committee, to review and
make recommendations to the Board regarding any proposed related party
transactions. The Board of Trustees has adopted a written charter that specifies
the scope of the Audit Committee's responsibilities. A copy of the amended and
restated charter, as adopted by the Board of Trustees in April 2003, is attached
hereto as Appendix A. The Audit Committee met eight times in 2002.
The SEC has adopted rules to implement certain requirements of the
Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of
the rules adopted by the SEC requires a company to disclose whether it has an
"audit committee financial expert" serving on its audit committee. Although this
requirement is not yet in effect, the Board of Trustees hereby discloses that it
has determined that Mr. Sherman qualifies as an "audit committee financial
expert" under the rules adopted by the SEC.
COMPENSATION COMMITTEE. The Compensation Committee, currently comprised of
Messrs. Moody (chair), Callaghan and Eilian, all of whom are independent
trustees, (i) oversees the administration of the Company's compensation
programs, (ii) makes recommendations to the Board of Trustees and reviews
management decisions regarding executive officer compensation, and
(iii) performs such other duties as directed by the Board of Trustees. The
Compensation Committee met four times in 2002.
INVESTMENT COMMITTEE. The Investment Committee, currently comprised of
Messrs. Kelter, McBride, Galesi and Eilian, (i) supervises and maintains the
financial affairs of the Company, (ii) is authorized to approve acquisitions,
dispositions and development projects not exceeding $25 million per transaction
(or $10 million per transaction in the case of any acquisition or disposition of
vacant land) and financing arrangements not exceeding $18.75 million per
transaction, and (iii) performs such other duties as directed by the Board of
Trustees. The Investment Committee met five times and acted by written consent
once in 2002.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. In October 2002, the Board
of Trustees renamed the Nominating Committee as the Nominating and Corporate
Governance Committee and expanded the Committee's responsibilities. The
Nominating and Corporate Governance Committee, currently comprised of
Messrs. Platt (chair) and Moody, both of whom are independent trustees,
(i) makes recommendations to the Board of Trustees regarding the selection of
new members to be nominated to, or
7
fill vacancies on, the Company's Board of Trustees, (ii) develops, recommends to
the Board of Trustees and oversees the administration of corporate governance
principles for the Company, and (iii) performs such other duties as directed by
the Board of Trustees. The Nominating and Corporate Governance Committee met
four times in 2002.
The Board of Trustees may from time to time establish certain other
committees to facilitate the management of the Company.
TRUSTEE COMPENSATION
Trustees who are also employees of the Company receive no additional
compensation for their service as trustees. Trustees who are not also employees
of the Company (the "Outside Trustees") received a quarterly fee of $5,000 for
serving as a trustee in 2002, plus $1,000 for each meeting of the Board of
Trustees attended in person and $500 for each meeting attended by telephone.
Each trustee who served as a member of a committee received an annual fee of
$2,500 for each committee on which he served. For 2002, the Company issued an
aggregate of 14,592 Common Shares to trustees, in lieu of cash payments, at
prices ranging from $14.08 to $17.03 per share, based upon the average closing
price during the ten trading days prior to the end of each quarter.
In addition, under the Company's 1994 Non-Employee Stock Option Plan (the
"1994 Plan"), the Board of Trustees or the Compensation Committee has the power
to make option grants to non-employee trustees. Grants under the 1994 Plan are
made at an exercise price equal to the historical average market price of Common
Shares (as determined by the Board or Committee) at the time of the grant. The
Board of Trustees may amend, suspend or terminate the 1994 Plan at any time (but
not more often than once every six months) except that any amendments that would
(i) increase the number of Common Shares reserved for options under the plan, or
(ii) require shareholder approval in order for the plan to comply with
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, must be approved
by the holders of the majority of issued and outstanding Common Shares of the
Company entitled to vote.
In January 2003, the Board of Trustees, upon the recommendation of the
Compensation Committee, terminated the existing trustee compensation program and
adopted a new program for Outside Trustees, effective as of January 1, 2003,
consisting of the following: (i) a grant of 10,000 options to purchase Common
Shares upon becoming a trustee, which options shall vest immediately and shall
expire ten years from the date of grant, (ii) subject to shareholder approval of
the Plan Proposal, an annual award of 1,000 restricted Common Shares, which
restricted shares shall vest in equal increments on the first three
anniversaries of the date of grant, (iii) an annual fee of $25,000 for serving
as a trustee, (iv) an annual fee of $2,500 for serving as a committee member,
and (v) fees of $1,000 per meeting for attending meetings of the Board or any
Board committee in person, and $500 per meeting for attending meetings by
telephone. In addition, the Board of Trustees approved the grant of 10,000 stock
options under the 1994 Plan to each of Messrs. Berens, Callaghan, Ellian, Moody
and Platt, in each case retroactive to the date on which the trustee began his
current term of service. The option price for each grant was based on the
historical average market price of the Common Shares on the date of grant as
determined by the Board of Trustees. Each trustee's options vested immediately
upon grant and shall expire ten years from the date on which the trustee began
his current term of service on the Board.
The Company reimburses the trustees for out-of-pocket expenses incurred in
connection with their activities on behalf of the Company.
CORPORATE GOVERNANCE
The Company's Board of Trustees and management are dedicated to establishing
and maintaining a "best practices" approach to corporate governance matters. In
April 2003, in response to the Sarbanes-Oxley Act of 2002 and recently enacted
or currently pending SEC and NYSE rule changes, the Board of
8
Trustees, upon the recommendation of the Nominating and Corporate Governance
Committee, took the following actions:
CORPORATE GOVERNANCE GUIDELINES: Adopted a set of Corporate Governance
Guidelines for the Company. The Corporate Governance Guidelines reflect the
Board's commitment to shareholder interests and address a variety of matters,
such as: (i) trustee qualifications; (ii) the Board's responsibility to oversee
management succession; (iii) trustee orientation and continuing education; and
(iv) annual self-evaluation of the Board's performance.
TRUSTEE INDEPENDENCE: Confirmed the independence of a majority of the
current trustees under applicable and proposed rules of the SEC and NYSE. In
undertaking its annual review of trustee independence, the Board considered
transactions and relationships during the current and prior year between each
trustee and the Company and its affiliates, including those reported under
"Certain Relationships and Related Transactions" on pages 29-31 below.
EXECUTIVE SESSIONS OF NON-MANAGEMENT TRUSTEES: Appointed Mr. Platt as the
lead trustee to preside at quarterly executive sessions of non-management
trustees. The first executive session of non-management trustees was held in
January 2003. Shareholders and other parties interested in communicating
directly with the lead trustee may do so by writing to Mr. Platt, c/o Keystone
Property Trust, 200 Four Falls Corporate Center, Suite 208, West Conshohocken,
Pennsylvania 19428.
RETIREMENT AGE: Established a rule that a trustee must retire from the
Board at the annual meeting following the trustee's 75th birthday.
SERVICE ON OTHER BOARDS: Adopted a requirement that a trustee may not serve
on the boards of more than three other for-profit public companies.
CHANGE IN TRUSTEE'S JOB RESPONSIBILITY: Adopted a requirement that if the
principal position held by a trustee at the time of joining the Board changes,
he or she must offer to resign.
SHARE OWNERSHIP REQUIREMENTS: Adopted minimum share ownership requirements
for Company trustees and executive officers. Each trustee is required to own,
within 24 months of becoming a trustee, Company securities having a market value
at the time of acquisition of at least $50,000. Each of the Company's Chief
Executive Officer, President, Executive Vice Presidents and Senior Vice
Presidents is required to own, within 18 months after being appointed to such
office, Company securities having a market value at the time of acquisition of
at least $100,000.
PROHIBITION ON OPTION REPRICING: Approved an amendment to the Company's
Amended and Restated 1993 Omnibus Incentive Plan, as amended (the "Employee
Stock Plan"), to prohibit the repricing of options granted under the Employee
Stock Plan. This prohibition is also included in the proposed Amended and
Restated 1994 Non-Employee Stock Incentive Plan.
EXPENSING OF STOCK OPTIONS: In consultation with the Audit Committee,
adopted a policy, effective January 1, 2003, requiring the Company to expense
the cost of granting stock options on its financial statements.
CODE OF CONDUCT: Adopted a Code of Business Conduct and Ethics applicable
to Company executives, employees and trustees. The Code of Business Conduct and
Ethics reflects and reinforces the Company's commitment to integrity in the
conduct of its business. Any waiver of the Code for executive officers or
trustees may only be made by the Board or Audit Committee.
COMMITTEE CHARTERS: Expanded the charter of the Audit Committee, as
reflected in Appendix A hereto, and adopted charters for the Compensation
Committee and the Nominating and Corporate Governance Committee.
9
AUTHORITY TO RETAIN OUTSIDE ADVISORS: Vested independent authority in the
Board of Trustees and each committee of the Board to retain any outside legal,
financial or other advisor at the Company's expense, including but not limited
to search firms and compensation consultants.
WEBSITE DISCLOSURES: Directed the posting on the Company's website
(www.keystoneproperty.com) of the charters of each of the Audit, Compensation,
and Nominating and Corporate Governance Committees, the Corporate Governance
Guidelines and the Code of Business Conduct and Ethics. Copies of these
documents may also be obtained upon request from the Company's Secretary.
Information on the Company's website is not incorporated by reference into this
proxy statement and shall not be deemed part of this proxy statement.
PROPOSAL NO. 2--APPROVAL OF AMENDED AND RESTATED
1994 NON-EMPLOYEE STOCK INCENTIVE PLAN
At its meeting on April 16, 2003, the Board of Trustees of the Company
adopted the Amended and Restated 1994 Non-Employee Stock Incentive Plan
(hereinafter the "Amended and Restated Plan" or the "Plan") (a copy of which is
attached hereto as Appendix B) and directed that the Plan be submitted to the
shareholders for their approval. Under the 1994 Non-Employee Stock Option Plan
(hereinafter the "1994 Plan"), which was originally effective on August 31,
1994, the Company authorized 150,000 shares for issuance subject to grants of
non-qualified stock options to non-employee trustees and consultants to the
Company. In 1997, the stockholders approved an increase in the amount of shares
available for issuance under the 1994 Plan to 300,000. The exercise price for
each option granted under the 1994 Plan cannot be less than the fair market
value of the Company's Common Shares underlying the option at the date of the
grant. The term of each option is ten years, and each option is exercisable upon
the date of the grant, provided that the option holder remains a non-employee
trustee or consultant to the Company during the exercise period. On April 16,
2003, the Board approved an amendment and restatement of the 1994 Plan to
provide for awards of restricted stock and other stock-based awards to
non-employee trustees and consultants to the Company.
The Board of Trustees believes that the Amended and Restated Plan is in the
best interests of the Company and its shareholders because it is an important
factor in attracting, motivating and retaining distinguished personnel with
proven ability and vision to serve on the Board of Trustees and as consultants
to the Company.
SUMMARY OF THE PROVISIONS OF THE AMENDED AND RESTATED PLAN
The following summary of the Plan is qualified in its entirety by the
specific language of the Plan, a copy of which is attached hereto as
Appendix B. Capitalized terms used but not defined herein shall have the
meanings given to them in the Plan.
GENERAL. The Plan is designed to provide an equity ownership opportunity to
each non-employee trustee and consultant to the Company who is not otherwise an
employee of the Company or of any Affiliate of the Company. The Plan provides
that in the event of any subdivision or consolidation of Common Shares, dividend
or other distribution (whether in the form of cash, shares, other securities or
property), recapitalization or other capital adjustment of the Company, merger,
consolidation or other reorganization of the Company, or change in the rights to
purchase Common Shares or other securities of the Company, the Board may make
appropriate adjustments to the Common Shares subject to the Plan and to any
outstanding awards thereunder. The Plan also provides that in the event of
dissolution, liquidation, merger, consolidation, reverse merger, or any other
capital reorganization in which more than 50% of the shares of the Company
entitled to vote are exchanged, then, at the sole discretion of the Board, the
surviving corporation shall assume any outstanding awards; or the exercise time
of the options shall be accelerated, or the options shall terminate if not
exercised prior to such event; or the restricted stock or restricted stock units
shall become free from all restrictions; or the awards shall continue in full
force and effect. A total of 300,000 Common Shares are available for issuance
under the Plan.
10
ADMINISTRATION. The Plan is administered by the Board unless and until the
Board delegates administration to a committee. The Board may delegate
administration of the Plan to a committee composed of at least two individuals,
each of whom shall be a "non-employee trustee" as defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (hereinafter the "Committee").
The Committee shall have the powers possessed by the Board, subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as the Board
may adopt from time to time. The Committee shall construe and interpret the Plan
and any awards granted thereunder, and establish, amend and revoke rules and
regulations for its administration. In exercising this power, the Committee may
correct any defect, omission or inconsistency in the Plan or in any award
agreement in such a manner as deemed necessary or expedient to make the Plan
fully effective. The Committee may amend the Plan, provided that it shall not
make amendments more than once every six months with respect to the provisions
that relate to the amount, price and timing of grants, other than to comport
with changes in the Internal Revenue Code (hereinafter the "Code"), the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules
thereunder. Amendments that increase the number of shares reserved for awards
under the Plan must be approved by the shareholders of the Company within twelve
months before or after the adopting of the amendment to become effective.
Shareholder approval is also required for any amendments that modify the
requirements as to the eligibility for participation under the Plan, or any
other amendments that would require shareholder approval in order to comply with
the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. The Committee may not institute amendments that alter or impair the
rights and obligations under any award unless the Company requests the consent
of the person to whom the award was granted and the person consents in writing.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
ELIGIBILITY. Participation in the Plan is limited to (i) persons who serve
as members of the Board of Trustees who, at the time of award, are not employees
of the Company or (ii) consultants to the Company.
TERMS AND CONDITIONS OF OPTION GRANTS. The Plan provides for each eligible
participant non-employee trustee to receive an option to acquire Common Shares
shares at a price not less than the fair market value at the date of the grant
of the Common Shares shares subject to such option. The options under the Plan
are not "incentive stock options" within the meaning of Section 422(b) of the
Code. Pursuant to the terms of the Plan, options may be exercised either by the
payment of the exercise price in cash, by the tender of Common Shares owned by
the option holder for a period of time necessary to avoid a charge to the
Company's reported earnings and valued at the fair market value not less than
the exercise price, or by a combination of these methods. Options are
nontransferable by the option holder other than by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is legally granted. Any unexercised portion of an
option granted to a non-employee trustee shall terminate 30 days after the date
such person is no longer a trustee of the Company. Options can be exercised only
if the shares issuable are registered under the Securities Act of 1933, as
amended, (hereinafter the "Securities Act") or, if such shares are not then so
registered, the Company has determined that the exercise and issuance would be
exempt from the registration requirements of the Securities Act. The maximum
term of options granted under the Plan is ten years.
11
TERMS AND CONDITIONS OF OTHER AWARDS. The Board or the Committee is
authorized to grant awards of restricted stock and restricted stock units,
subject to the restrictions that the Board or the Committee may impose, provided
that these are not inconsistent with the provisions of the Plan. Restrictions on
stock may include, but are not limited to, limitations on the right to vote
shares of restricted stock or the right to receive any dividends or other right
or property. Notwithstanding the foregoing, subject to the provisions of the
Plan and any applicable award agreements, during the period commencing on the
date of such award and ending on the date the period of forfeiture with respect
to such shares lapses, the grantee of restricted stock or restricted stock units
shall be permitted voluntarily or involuntarily to sell, transfer, pledge,
anticipate, alienate, encumber or assign shares of restricted stock or
restricted stock units awarded under the Plan (or have such shares of restricted
stock or restricted stock units attached or garnished). The awards of restricted
stock under the Plan shall be evidenced by book-entry registration, the issuance
of stock certificates, or in any manner as the Board may deem appropriate. If
stock certificates are issued in respect to the shares of restricted stock
granted under the Plan, these certificates shall be registered in the name of
the participant and shall refer to the terms, conditions, and restrictions
applicable. The stock certificates shall be held in custody by the Company until
the restrictions thereon shall have lapsed, and the participant shall have
delivered a stock power, endorsed in blank, related to the stock covered by the
award. If a participant's service is terminated for any reason during the
applicable restriction period, the shares of the restricted stock shall be
forfeited and the Company will reacquire them; provided, however, that the
Company may also waive, in whole or in part, any or all of the restrictions with
respect to the shares of restricted stock if it finds the waiver to be in the
best interest of the Company. Upon the lapse of restrictions, the Common Shares
subject to the award shall become distributable to the participant.
In addition to the foregoing, at the discretion of the Board, the fees
payable to each non-employee trustee (including annual retainer fees or meeting
fees for service on the Board, fees for service on a Board committee, and any
other fees paid to trustees) may be provided in the form of Common Shares in
lieu of cash payment of such fees at the date any such fee is otherwise payable.
Shares so granted shall have a fair market value on such date equal to the
aggregate amount of the fees then payable to the trustee. Fractional shares
shall be paid in cash.
OTHER PROVISIONS. A person who is an optionee or to whom an option is
transferred must satisfy all the requirements under the Plan for the exercise of
options to be considered a holder of, or to have any of the rights of a holder
with respect to, any of the shares subject to such option. Additionally, nothing
under the Plan shall be construed to give any non-employee any right to serve as
trustee or consultant to the Company. The right of the Company to terminate the
service of any non-employee with or without cause will not be affected in any
way by the Plan. The Company or any Affiliate will also be authorized to
withhold from any awards granted, payments due, or transfers made under the Plan
the amount of withholding taxes due with respect to such awards, their exercise,
the release of restrictions on such awards, or payments or transfers. The
Company may take such other actions as may be necessary to satisfy all the
obligations for the payment of such taxes.
TERMINATION OR AMENDMENT OF THE PLAN. Unless sooner terminated, no awards
may be granted under the Plan after May 31, 2013. The Board may terminate or
amend the Plan at any time, but the rights and obligations granted while the
Plan is in effect may not be altered or impaired without the participant's
consent.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE AMENDED AND RESTATED PLAN
The following summary is intended only as a general guide as to the federal
income tax consequences under current law with respect to participation in the
Plan and does not attempt to describe all possible federal or other tax
consequences of such participation. Furthermore, the tax consequences of awards
granted under the Plan are complex and subject to change, and a taxpayer's
particular situation may be such that some variation of the described rules is
applicable.
12
NON-QUALIFIED STOCK OPTIONS. Options that are granted under the Plan do not
qualify as incentive stock options (within the meaning of Section 422(b) of the
Code), and as such are non-qualified stock options and have no special tax
status. In general, no gain or loss is recognized by the option holder at the
time an option is granted under the Plan. Upon the exercise of an option, the
option holder normally recognizes ordinary income in the amount of the
difference between the fair market value of the Common Shares on the date of
exercise and the option price, and the Company would be entitled to a deduction
for federal income tax purposes for the same amount. Upon a subsequent sale or
exchange of stock acquired pursuant to the exercise of an option, the option
holder would have gain or loss, measured by the difference between the sale
price and the basis of such shares, which will generally be taxable as a capital
gain or loss. A capital gain or loss will be long-term if the option holder's
holding period is more than 12 months. No tax deduction is available to the
Company with respect to the grant of a non-qualified option or the sale of the
stock acquired pursuant to such grant.
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS. Unless a holder of
restricted stock makes an "83(b) election" (as discussed below), there generally
will be no tax consequences as a result of the grant of restricted stock until
the restricted stock is no longer subject to a substantial risk of forfeiture or
is transferable (free of the risk). Generally, when the restrictions are lifted,
the holder will recognize ordinary income, and the Company will be entitled to a
deduction, equal to the difference between the fair market value of the stock at
that time and the amount, if any, paid by the holder for the restricted stock.
Subsequently realized changes in the value of the stock generally will be
treated as long-term or short-term capital gain or loss, depending on the length
of time the shares are held prior to disposition of the shares. In general
terms, if a holder makes an 83(b) election (under Section 83(b) of the Code)
upon the award of restricted stock, the holder will recognize ordinary income on
the date of the award of restricted stock, and the Company will be entitled to a
deduction, equal to (i) the fair market value of the restricted stock as though
the stock were (A) not subject to a substantial risk of forfeiture or
(B) transferable, minus (ii) the amount, if any, paid for the restricted stock.
If an 83(b) election is made, there will generally be no tax consequences to the
holder upon the lifting of restrictions, and all subsequent appreciation in the
restricted stock generally would be eligible for capital gains treatment.
The restricted stock units have been designed with the intention that there
will be no tax consequences as a result of the granting of a restricted stock
unit until payment is made with respect to the restricted stock unit. When
payment is made, the participant generally will recognize ordinary income, and
the Company will generally be entitled to a deduction, equal to the fair market
value of the Common Shares and cash, as applicable, received upon payment.
SHARES IN LIEU OF FEES
With regard to the award of Shares in lieu of fees, it is anticipated that
the trustee would have ordinary income in an amount equal to the fair market
value of such Shares at the time of receipt.
VOTE REQUIRED AND BOARD OF TRUSTEES' RECOMMENDATION
Assuming that the votes cast at the Meeting represent at least a majority of
the outstanding Common Shares entitled to vote thereon, the affirmative vote of
a majority of the votes cast on Proposal No. 2 is required for approval.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE ADOPTION OF THE AMENDED AND RESTATED 1994 NON-EMPLOYEE STOCK
INCENTIVE PLAN.
13
REPORT OF AUDIT COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, INCLUDING PREVIOUS FILINGS THAT MIGHT INCORPORATE
FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THIS REPORT
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Audit Committee of the Board of Trustees (for purposes of this report,
the "Committee") assists the Board in fulfilling its oversight of the Company's
financial reporting process. The Company's management is responsible for
preparing the financial statements and the independent auditors are responsible
for auditing those financial statements and expressing an opinion as to their
conformity with generally accepted accounting principles. The Committee has
prepared the following report on its activities with respect to the Company's
audited financial statements for the fiscal year ended December 31, 2002.
The Committee has reviewed and discussed the audited financial statements
with management and the independent auditors. The Committee has discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The Committee
has received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), and has discussed with the independent
auditors their independence from the Company. In addition, the Company has
considered whether the non-audit services provided by the independent auditors
is compatible with maintaining their independence.
Based on the review and discussions referred to above and relying thereon,
the Committee recommended to the Board of Trustees that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, filed with the Securities and Exchange
Commission.
Submitted by the Audit Committee:
David M. Sherman, Chair
Donald E. Callaghan
Rodney B. Berens
14
EXECUTIVE OFFICERS
The following table sets forth certain information regarding executive
officers of the Company based on information supplied by such executive
officers. The following information is as of April 16, 2003.
NAME AGE POSITION
---- -------- ------------------------------------------
Jeffrey E. Kelter(1)...................... 48 President and Chief Executive Officer
Robert F. Savage, Jr.(1).................. 35 Executive Vice President and Chief
Operating Officer
John B. Begier............................ 37 Executive Vice President and Chief
Investment Officer
Timothy E. McKenna........................ 39 Senior Vice President--Chief Financial
Officer
Saul A. Behar............................. 41 Senior Vice President--General Counsel and
Secretary
Stephen J. Butte.......................... 43 Senior Vice President--Asset Management
A. Donald Chase, Jr....................... 35 Senior Vice President--Investments
John P. DiCola............................ 35 Senior Vice President--Investments
Charles C. Lee............................ 39 Senior Vice President--Leasing
Jennifer A. Pancoast...................... 39 Senior Vice President--Marketing
Francis K. Ryan........................... 43 Senior Vice President--Construction and
Property Operations
------------------------
(1) Denotes a member of the Board of Trustees. See the Election Proposal for
additional information.
JOHN B. BEGIER has served as Chief Investment Officer of the Company since
February 2001 with primary responsibility for the Company's investment activity.
In this role he oversees all acquisitions and development projects as well as
dispositions, including all transactions related to the Company's capital
recycling initiatives. He served as Senior Vice President from December 1997
until January 2000, when he was appointed Executive Vice President. Mr. Begier
joined Penn Square in 1995. Prior to working for Penn Square he worked for eight
years as a real estate broker with the Pennsylvania office of Cushman &
Wakefield where he was responsible for leasing, sales and acquisition of
commercial and industrial properties. Mr. Begier received a B.A. from the
University of Virginia and is a member of the Council of Logistics Management.
TIMOTHY E. MCKENNA has served as the Company's Senior Vice President and
Chief Financial Officer since February 2002. He was previously Senior Vice
President--Finance and Chief Accounting Officer from June 1999 until
February 2002. Prior to that he was the Company's Vice President of Finance and
Corporate Controller from January 1998, when he joined the Company, until
June 1999. Mr. McKenna was previously employed as a senior manager in the Real
Estate Services Group of Arthur Andersen LLP's Philadelphia office. Prior to
joining the Company, he worked for over 12 years providing consulting and
accounting services to publicly and privately-owned real estate companies; over
11 years of his experience was obtained as an employee of Arthur Andersen LLP.
Mr. McKenna is a graduate of the University of Scranton with a B.S. in
Accounting and is a Certified Public Accountant.
SAUL A. BEHAR served as Vice President and Secretary of the Company from
May 2000 to December 2000, when he was promoted to Senior Vice President and
Secretary. Mr. Behar has overall responsibility for the Company's legal and
corporate governance matters. Prior to joining the Company, Mr. Behar served for
seven years as Senior Counsel at Pep Boys in Philadelphia, where he handled
15
numerous corporate and real estate matters. Before that, he practiced law at
Dechert LLP in Philadelphia. He received an A.B. with honors from Cornell
University and a J.D. from The University of Chicago Law School. He is a member
of the Pennsylvania bar.
STEPHEN J. BUTTE has served as Senior Vice President of the Company since
December 1997. He served as Chief Investment Officer from March 1999 until
February 2001 and Secretary from September 1999 until May 2000. In January 2001
he was appointed Senior Vice President of Asset Management with primary
responsibility for overseeing all portfolio and property level analysis for the
Company's existing properties as well as proposed investments. As head of the
Asset Management Department, Mr. Butte works closely with and supports the
functions of the operating departments including Investments, Leasing, Property
Operations and Construction. Prior to joining Penn Square in 1988, he spent five
years in public accounting as a manager in the audit department of Asher &
Company, specializing in providing financial and accounting services to
companies in the real estate industry. Mr. Butte received a B.S. in Accounting
and a Masters of Taxation from Villanova University and is a Certified Public
Accountant.
A. DONALD CHASE JR. has served as Senior Vice President--Investments since
August 2002 with primary responsibility for overseeing acquisitions and
development in the Pennsylvania and Mid-West markets, including Indianapolis.
Mr. Chase is based in the Company's West Conshohocken office. Mr. Chase was
formerly the Director of Development at TIG Real Estate Services, Inc. where he
focused on industrial and suburban office projects on a speculative,
build-to-suit and fee development basis, working with both institutional and
private capital sources. Prior to TIG, Mr. Chase was an investment manager at
AEW Capital Management and Copley Real Estate Advisors. Mr. Chase has twelve
years of real estate experience in industrial development,
acquisitions/dispositions, asset management and construction. Mr. Chase holds a
B.A. in Business Economics/Organizational Behavior and Management from Brown
University.
JOHN P. DICOLA was appointed Senior Vice President--Investments in
September 2002, responsible for overseeing acquisitions and development in the
New Jersey market. Mr. DiCola is based in the Company's New York office. Prior
to joining the Company, Mr. DiCola was most recently principal and co-founder of
Triad Partners, LLC, a firm specializing in development opportunities in the New
York City metropolitan area. Prior to founding Triad, Mr. DiCola spent ten years
with Jones Lang LaSalle, most recently as Senior Vice President, responsible for
the firm's land investment and development activities in the Eastern portion of
the United States. Mr. DiCola has negotiated and completed acquisition and
development deals in commercial and residential real estate in numerous markets.
Mr. DiCola holds a B.A. in Urban Studies and a B.S. in Civil Engineering from
Brown University.
CHARLES C. LEE has served as Senior Vice President of the Company since
March 1998 and has primary responsibility for the Company's leasing activities.
Mr. Lee joined Penn Square in 1987 where he was responsible for leasing
activities for various commercial properties. From September 1997 until
March 1998, when he re-joined the Company, Mr. Lee was the regional leasing
director for the Philadelphia region of Equity Office Properties Trust. Prior to
working for Penn Square, he was an Assistant Portfolio Manager in the Private
Banking Division of the Boston Safe Deposit and Trust Company. Mr. Lee received
a B.A. from Tufts University and has a Pennsylvania real estate brokerage
license.
JENNIFER A. PANCOAST has served as Senior Vice President--Marketing since
September 2002. Her responsibilities include the management and execution of the
Company's corporate and property marketing. Prior to September 2002,
Ms. Pancoast was Vice President of Leasing, responsible for all aspects of
leasing the Company's office portfolio in Pennsylvania, New Jersey and New York.
Ms. Pancoast rejoined the Company in 1996 after spending three years with Bell
Atlantic Properties, the real estate subsidiary of Bell Atlantic, where she was
Director of Portfolio Management responsible for over 600,000 square feet of
office properties in the Philadelphia region. From September 1990 until
September 1993 she
16
was responsible for leasing the Philadelphia office portfolio for Penn Square.
Ms. Pancoast started her career in 1986 as a real estate broker for The Flynn
Company, a manager and developer of office and industrial properties in the
Philadelphia region. She is a graduate of the University of Massachusetts at
Amherst.
FRANCIS K. RYAN has served as Senior Vice President of the Company since
December 1997 with primary responsibility for the Company's property operations,
property management activities and tenant-related and third-party construction.
In February 2001 he was named head of Property Operations and Construction. In
this expanded role, Mr. Ryan's primary responsibilities include the construction
of the Company's development projects in addition to directing property
management. Mr. Ryan joined Penn Square in 1991 where he was responsible for the
management of various commercial and industrial properties. Prior to working for
Penn Square, Mr. Ryan worked for four years as a senior property manager for
Cushman & Wakefield's Pennsylvania office and as a project manager for American
Building Maintenance from 1984 through 1986. Mr. Ryan is certified as a Real
Property Administrator by the BOMI Institute. He is a member of the Building
Owners and Managers Association and the Institute of Real Estate Management
(IREM).
17
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth, for the three years ended December 31, 2002,
the compensation earned by or paid to the Company's chief executive officer,
chief operating officer and the four (4) other most highly compensated executive
officers of the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------ ---------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND BONUS COMPENSATION SHARE AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) (1)($) ($) ($) OPTIONS (#) (2)($)
------------------------- -------- ---------- -------- ------------- ------------- ----------- -------------
Jeffrey E. Kelter ....... 2002 $375,000 $175,000 $ 13,200(3) $1,548,027(4) -- $ 16,888(5)
President and Chief 2001 325,000 195,000(6) 13,200(3) 550,000(7) -- 16,763(8)
Executive Officer 2000 325,000 125,000 198,912(9) -- 150,750(10) 2,625(11)
Robert F. Savage, Jr. ... 2002 $290,000 $190,000 $ 12,000(12) $ 866,827(4) -- $ 7,218(13)
Executive Vice 2001 250,000 150,000(6) 12,000(12) 450,000(7) -- 4,409(14)
President and Chief 2000 24,097(15) -- 1,000(12) -- 100,000(16) --
Operating Officer --
John B. Begier .......... 2002 $250,000 $100,000 $ 6,000(12) $ 300,000(4) -- $ 3,475(17)
Executive Vice 2001 240,000 134,400(6) 6,000(12) 375,000(7) -- 3,350(18)
President and Chief 2000 215,000 125,000 6,000(12) -- 150,750(10) 2,625(11)
Investment Officer
Timothy A. Peterson ..... 2002 $206,769 $ -- $ 5,000(12) $ -- -- $546,050(20)
Former Executive Vice 2001 240,000 52,800(21) 39,333(22) 125,000(23) -- 3,650(24)
President--Corporate 2000 236,500 60,000 39,333(22) -- 75,375(25) 2,625(11)
Strategy and New
Business
Initiatives(19)
Stephen J. Butte ........ 2002 $200,000 $ 72,000 $ 6,000(12) $ 100,000(4) -- $ 3,775(26)
Senior Vice President-- 2001 195,000 62,400(6) 6,000(12) 100,000(7) -- 3,650(24)
Asset Management 2000 195,000 50,000 6,000(12) -- 33,500(10) 2,625(11)
Charles C. Lee .......... 2002 $185,000 $ 83,250 $ 6,000(12) $ 100,000(4) -- $ 3,475(17)
Senior Vice President-- 2001 185,000 40,000(6) 6,000(12) 100,000(7) -- 3,410(27)
Leasing 2000 175,000 70,000 6,000(12) -- 50,250(10) 2,625(11)
------------------------------
(1) Includes cash bonuses paid in the fiscal year following the fiscal year for
which they were earned.
(2) Does not include shares acquired by executives prior to May 2002 through
recourse loan programs approved by the Compensation Committee of the Board
of Trustees. For a discussion of such shares, please refer to "Other" on
pages 21-22 hereof.
(3) Consists of lease payments for an automobile leased by the Company for
Mr. Kelter's use.
(4) Restricted shares were granted at $17.03 per share and vest over a
seven-year period in the case of Messrs. Kelter, Savage and Begier and over
a five-year period in the case of Messrs. Butte and Lee. The price was based
on the historical average market price of the Common Shares at the date of
grant as determined by the Compensation Committee of the Board of Trustees.
Sixty percent (60%) of the award will be subject to forfeiture unless the
Company's total return to shareholders, consisting of share price
appreciation or depreciation plus dividends and other distributions to
shareholders ("TRS"), is greater than the mean TRS of a group of peer REITs
as selected by the Compensation Committee. The TRS measurement will be made
on both an annual and cumulative basis. These restricted shares pay
dividends as declared payable by the Board of Trustees at the prevailing
dividend rate payable to all shareholders of the Company.
(5) Consists of $8,150 for life insurance premiums, $5,988 for supplemental
disability insurance premiums and $2,750 for matching contributions to the
Company's 401(k) Savings and Retirement Plan (the "401(k) Match").
(6) Bonuses for 2001 are payable in equal annual installments over three years.
The first installment was paid in February 2002 and the second installment
was paid in January 2003. The third and final installment will be paid in
January 2004, provided that the executive officer is employed by the Company
on December 31, 2003.
18
(7) Restricted shares were granted at $13.10 per share and vest over a
seven-year period in the case of Messrs. Kelter, Savage and Begier and over
a five-year period in the case of Messrs. Butte and Lee. The price was based
on the historical average market price of the Common Shares at the date of
grant as determined by the Compensation Committee of the Board of Trustees.
Sixty percent (60%) of the award will be subject to forfeiture unless the
Company's total return to shareholders, consisting of share price
appreciation or depreciation plus dividends and other distributions to
shareholders ("TRS"), is greater than the mean TRS of a group of peer REITs
as selected by the Compensation Committee. The TRS measurement will be made
on both an annual and cumulative basis. These restricted shares pay
dividends as declared payable by the Board of Trustees at the prevailing
dividend rate payable to all shareholders of the Company.
(8) Consists of $8,150 for life insurance premiums, $5,988 for supplemental
disability insurance premiums and $2,625 for the 401(k) Match.
(9) Includes $185,712 in forgiveness of indebtedness to purchase Common Shares
of the Company and $13,200 in lease payments for an automobile leased by the
Company for Mr. Kelter's use.
(10) Options were granted at $12.83 per share. One-third of the options vest on
each of the first three anniversaries of the date of grant.
(11) Consists of the 401(k) Match.
(12) Consists of an automobile allowance.
(13) Consists of $2,935 for life insurance premiums, $1,533 for a health
insurance opt-out payment, and $2,750 for the 401(k) Match.
(14) Consists of $2,935 for life insurance premiums and $1,474 for a health
insurance opt-out payment.
(15) Mr. Savage was hired in November 2000 at an annual salary of $250,000.
(16) Options were granted at $12.83 per share. One-third of the options vest on
each of the date of grant and the first two anniversaries thereof.
(17) Consists of $2,750 for the 401(k) Match and $725 for life insurance
premiums.
(18) Consists of $2,625 for the 401(k) Match and $725 for life insurance
premiums.
(19) Mr. Peterson resigned from the Company in October 2002.
(20) Consists of $2,750 for the 401(k) Match and $543,300 for consulting
services provided to the Company following Mr. Peterson's resignation in
October 2002. See "Separation Agreement" on page 22.
(21) This bonus was payable in equal annual installments over three years, and
the first installment was paid in February 2002. The second installment was
to be paid in January 2003, provided that Mr. Peterson was employed by the
Company on December 31, 2002; and the third installment was to be paid in
January 2004, provided that Mr. Peterson was employed by the Company on
December 31, 2003. However, Mr. Peterson resigned from the Company in
October 2002 and as a result forfeited the remaining two installments.
(22) Includes $33,333 in forgiveness of indebtedness to purchase Common Shares
of the Company and a $6,000 automobile allowance.
(23) Restricted shares were granted at $13.10 per share and were to vest over a
five-year period. Under Mr. Peterson's separation agreement with the Company
entered into in 2002, the Company accelerated the vesting of one-fifth of
the shares and Mr. Peterson forfeited the remaining shares.
(24) Consists of $2,625 for the 401(k) Match and $1,025 for life insurance
premiums.
(25) Options were granted at $12.83 per share. One-third of the options vested
in April 2002 and the remaining options were to vest in equal installments
in April 2003 and April 2004. Under Mr. Peterson's separation agreement with
the Company entered into in 2002, the Company accelerated the vesting of all
such remaining options.
(26) Consists of $2,750 for the 401(k) Match and $1,025 for life insurance
premiums.
(27) Consists of $2,625 for the 401(k) Match and $785 for life insurance
premiums.
STOCK OPTIONS
No options were granted to the Company's Chief Executive Officer or the
other named executive officers for 2002.
19
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information related to exercised and
unexercised options held by the Company's Chief Executive Officer and each of
the other named executive officers at December 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST CALENDAR YEAR AND CALENDAR YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES VALUE YEAR-END(#) YEAR-END($)(A)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
Jeffrey E. Kelter........... -- -- 50,250 100,500 208,035 416,070
Robert F. Savage, Jr........ -- -- 66,667 33,333 276,001 137,999
John B. Begier.............. -- -- 152,750 100,500 386,210 416,070
Timothy A. Peterson......... 157,581(b) 365,522 -- 7,794 -- 32,267
Stephen J. Butte............ -- -- 98,667 22,333 187,356 92,459
Charles C. Lee.............. -- -- 104,250 33,500 210,470 138,690
------------------------
(a) Based on the NYSE closing price for the last business day of the fiscal year
($16.97).
(b) Mr. Peterson acquired these shares through the exercise of stock options in
connection with his resignation from the Company in October 2002. See
"Separation Agreement" on page 22.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Kelter,
Savage and Begier. The agreements with Messrs. Kelter and Begier expire in
June 2003 and the agreement with Mr. Savage expires in November 2003. Each
agreement is subject to automatic successive one-year renewals thereafter until
terminated by either party. Each agreement provides for a minimum annual base
salary that may be increased (but not decreased) from time to time by the Board
of Trustees, plus such additional compensation as may be awarded from time to
time by the Board of Trustees.
The agreement with Mr. Savage provides that he was entitled to receive a
minimum bonus of $150,000 for 2001, plus options with respect to 100,000 Common
Shares, with one-third of such options to vest upon the date of grant and each
succeeding anniversary thereof. Mr. Savage's 2001 bonus is being paid in equal
annual installments over three years. In addition, under his agreement the
Company loaned Mr. Savage $1,283,000 on an interest-free, recourse basis in
order to enable him to purchase 100,000 Common Shares. Under the original terms
of the loan, one-fifth of the loan was to be forgiven each year, beginning in
2003, if he was employed by the Company at such time. However, in 2001 the terms
of the loan were modified to provide that, beginning in 2004, one-eighth of the
loan will be forgiven each year, if he is employed by the Company at such time.
The agreement with each executive officer provides that in the event of
termination upon death or disability, termination without cause or involuntary
termination (as such terms are defined in the agreements), he shall be entitled
to receive a lump sum payment equal to his target bonus for the year in which
the termination occurs, prorated through the effective date of termination, and,
in the case of Mr. Kelter, in the event of termination upon death or disability
all loans made by the Company to purchase Common Shares shall be forgiven. In
the event of termination without cause or involuntary termination in the absence
of a change in control, each executive officer shall be entitled to receive a
lump-sum payment equal to three times (in the case of Messrs. Kelter and Savage)
or one times (in the case of Mr. Begier) the
20
sum of his base salary and prior year's bonus, and all loans made by the Company
to purchase Common Shares shall be forgiven. In the event of a change in control
(as defined in the agreements), each of Messrs. Kelter and Savage shall be
entitled to receive a lump-sum payment equal to three times his annual
compensation (as calculated in accordance with his agreement), and in the event
of termination without cause or involuntary termination following a change in
control, Mr. Begier shall be entitled to receive a lump-sum payment equal to two
times his annual compensation (as calculated in accordance with his agreement).
Each agreement also restricts the executive officer from engaging in certain
activities in competition with the Company during the term of the agreement and
for a period of two years (in the case of Messrs. Kelter and Savage) or one year
(in the case of Mr. Begier), as applicable, after the termination of his
employment.
OTHER
1999 STOCK PURCHASE LOAN TO MR. KELTER. In April 1999, the Company issued
100,000 Common Shares to Mr. Kelter in return for an interest-free recourse
promissory demand note in the amount of $1.3 million. The purchase price of $13
per share represented the market price of the Common Shares on the date of the
grant by the Compensation Committee. Under the original terms of the loan,
one-seventh of the loan was to be forgiven each year, beginning in 2000.
However, in 2001 the terms of the loan were modified to provide that, beginning
in 2004, one-eighth of the remaining outstanding balance of the loan will be
forgiven each year, if he is employed by the Company at such time. In addition,
under the terms of Mr. Kelter's employment agreement, the loan will be forgiven
after a change of control of the Company. If Mr. Kelter's employment is
terminated for any reason other than a change of control, Mr. Kelter must repay
the loan or surrender Common Shares to the Company (at a value of $13 per share)
sufficient to repay the outstanding principal balance of the note. The Company
granted certain registration rights to Mr. Kelter.
1999 STOCK PURCHASE LOANS. In 1999, First Union National Bank ("First
Union") made approximately $700,000 in loans (the "1999 Loans") to certain
executives and other employees. The 1999 Loans, which were guaranteed by the
Company, were used by the executives and employees to purchase Common Shares.
The 1999 Loans were evidenced by recourse promissory notes from the executives
and employees to First Union. Under the terms of the notes, interest accrued on
the loans at the rate of one percentage point less than the First Union prime
rate in effect from time to time, and the loans matured in 2003. In March 2002,
the Compensation Committee of the Board of Trustees approved the assumption of
the 1999 Loans by the Company, and the modification of the terms of the 1999
Loans, in exchange for the executives' and employees' consent to certain
modifications of the 2000 Loans (as defined in the next succeeding paragraph).
As modified, the 1999 Loans (i) bear interest at the rate of 4.74%, the
Applicable Federal Rate in effect for the term of the loans at the time of the
assumption of the loans by the Company, (ii) mature in 2010 and (iii) are
forgivable by the Company over a five-year period beginning with 2004. In
addition, the loans will be forgiven in the event of termination of employment
within two years after the occurrence of a change of control of the Company. If
the executives' or employees' employment is terminated for any reason other than
within two years after a change of control, such executives or employees must
repay the loans or surrender a sufficient number of Common Shares to the Company
(at a value of $13.74 per share) in order to repay the outstanding principal
balance of the loans.
2000 STOCK PURCHASE LOANS. In 2000, the Company issued an aggregate of
211,660 Common Shares to certain executives and other employees in return for
promissory notes in the aggregate amount of approximately $2.7 million pursuant
to an executive loan program approved by the Compensation Committee on
April 18, 2000 (the "2000 Loans"). The purchase price of $12.839 per share was
based on the historical average market price of the Common Shares at the date on
which the 2000 Loans were made as determined by the Compensation Committee. The
promissory notes are interest-free recourse demand notes. Under the original
terms of the 2000 Loans, the loans were forgivable by the Company over a
21
five-year period beginning with the third year after the date of the notes.
However, in 2001 the terms of the 2000 Loans were modified to provide that the
loans are forgivable by the Company over a five-year period beginning with the
fifth year after the date of the notes. The promissory notes will be forgiven
after the occurrence of a change of control. If the executives' or employees'
employment is terminated for any reason other than a change of control, such
executives or employees must repay the loan or surrender Common Shares to the
Company (at a value of $12.839 per share) sufficient to repay the outstanding
principal balance of the promissory note.
2001 STOCK PURCHASE LOANS. In April 2001, as part of the Company's
long-term incentive compensation awards for 2000, the Company issued an
aggregate of 56,213 Common Shares to certain executives and other employees in
return for promissory notes in the aggregate amount of approximately $721,000
pursuant to an executive loan program approved by the Compensation Committee of
the Board of Trustees on April 16, 2001 (the "2001 Loans"). The purchase price
of $12.83 per share was based on the historical average market price of the
Common Shares as determined by the Compensation Committee. The promissory notes
accrue interest at the rate of 4.94%, the Applicable Federal Rate in effect for
the term of the notes at the time the 2001 Loans were made. The notes are
recourse demand notes which are forgivable by the Company over a five-year
period beginning with the third year after the date thereof. In addition, the
promissory notes will be forgiven in the event of termination of employment
within two years after the occurrence of a change of control. If the executives'
or employees' employment is terminated for any reason other than within two
years after a change of control, such executives or employees must repay the
loan or surrender Common Shares to the Company (at a value of $12.83 per share)
sufficient to repay the outstanding principal balance of the promissory note.
Consistent with the requirements of the Sarbanes-Oxley Act of 2002, the
Company has discontinued the use of stock loans as a long-term incentive.
SEPARATION AGREEMENT. The Company entered into a separation agreement with
Mr. Peterson in connection with his resignation from the Company in
October 2002. Under the agreement, (i) the Company accelerated the vesting of
50,250 stock options and 1,908 restricted shares, and Mr. Peterson forfeited
7,634 unvested restricted shares, (ii) Mr. Peterson exercised 157,581 stock
options in 2002 and 7,794 stock options in 2003, and (iii) the Company purchased
179,124 Common Shares from Mr. Peterson at a price of $16.50 per share. In
addition, Mr. Peterson received a payment of $543,300 for consulting services
provided to the Company in November and December of 2002 in connection with
(a) the sale of a portfolio of 34 properties for approximately $178 million and
(b) the formation of a joint venture and the contribution and sale to the
venture of eight properties valued at approximately $90 million. Immediately
after receiving the net proceeds of the stock sales and the consulting payment,
Mr. Peterson repaid $716,847 in outstanding loans previously made by the Company
in order to enable him to purchase Common Shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002, the members of the Compensation Committee included
Messrs. Moody, Callaghan and Eilian. No member of the Compensation Committee is
an employee of the Company. No executive officer of the Company serves as a
director, trustee or member of the compensation committee of any entity that has
one or more executive officers serving as a trustee of the Company.
22
REPORT OF COMPENSATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, INCLUDING PREVIOUS FILINGS THAT MIGHT INCORPORATE
FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THIS REPORT
AND THE PERFORMANCE GRAPH FOLLOWING IT SHALL NOT BE INCORPORATED BY REFERENCE
INTO ANY SUCH FILINGS.
THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Trustees is currently comprised
of three independent non-employee trustees, Messrs. Moody, Callaghan and Eilian.
The Compensation Committee is responsible for administering the policies which
govern the Company's executive compensation.
OBJECTIVES OF EXECUTIVE COMPENSATION
The Compensation Committee strives to provide the proper incentives to
management to maximize the Company's performance and to attract, retain and
motivate talented executives in order to serve the best interests of its
shareholders. The Compensation Committee utilizes a pay-for-performance
philosophy which focuses on annual and long-term incentive awards. In
establishing compensation for executive officers the Compensation Committee
considers industry data, the recommendations of third-party consultants and the
Company's financial performance and industry position.
The Compensation Committee based compensation levels for each executive on a
number of factors, including:
- the Company's Total Return to Shareholders ("TRS") during 2002. The
Company's TRS consists of share price appreciation or depreciation plus
dividends and other distributions to shareholders.
- the growth in the Company's net asset value, funds from operations per
share, earnings per share, and the progress in the Company's capital
recycling program during 2002;
- compensation levels of executive officers of other real estate investment
trusts, including companies of comparable size or located in geographic
proximity to the Company, based in part on a compensation study prepared
by Schonbraun Safris McCann Bekritsky & Co., L.L.C.;
- the impact of compensation arrangements on the Company's earnings and
funds from operations; and
- individual and functional performance based on both qualitative and
quantitative factors.
The Compensation Committee did not rank separately the importance of each of
those factors and did not follow a formula in arriving at the compensation
arrangements that were approved.
BASE SALARIES
The Compensation Committee takes into account competitive market practices,
individual performance and each executive's role and responsibility within the
organization when establishing base salary levels. In setting salary levels the
Compensation Committee compares the base salaries of the Company's executives to
the base salaries of executive officers of other publicly-held REITs of
comparable size and asset focus.
ANNUAL INCENTIVES
The Company awards executives officers and employees with annual incentive
cash bonus awards which are based on both the Company's and the individual's
performance. Performance goals are established annually and link the key
functions of the Company to the Company's overall financial and strategic
objectives. The Compensation Committee meets prior to the beginning of each
fiscal year to
23
establish base salary and performance targets for the upcoming year and meets
again at the beginning of each year to review performance and approve incentive
awards for the preceding fiscal year.
LONG-TERM INCENTIVES
To align the financial interests of the executive officers and managers with
those of shareholders, the Compensation Committee endeavors to facilitate equity
ownership among executives and managers. The Compensation Committee grants stock
options, restricted stock and other incentive awards to the executive officers
under the Company's Amended and Restated 1993 Omnibus Incentive Plan (the
"Omnibus Plan"). Stock-based awards are granted at the fair market value of the
Common Shares at the date of grant to ensure that executive officers can only be
rewarded for appreciation in the price of the Common Shares when the Company's
shareholders are similarly benefited. The Compensation Committee determines
those executive officers who will receive incentive award grants and the size of
such awards.
Prior to July 2002, the Company also granted certain interest-bearing and
non-interest-bearing loans to certain executive officers of the Company in order
for these executive officers to acquire the Company's Common Shares. Such loans
and guarantees were granted to provide incentive to improve shareholder value
over the long term and to encourage and promote executive share ownership.
Consistent with the requirements of the Sarbanes-Oxley Act of 2002, the Company
has discontinued the use of stock loans as a long-term incentive.
COMPENSATION OF PRESIDENT AND CEO
The salary paid to Mr. Kelter, the Company's President and Chief Executive
Officer, in 2002 was set by his employment agreement and modified by the
Compensation Committee. The compensation of Mr. Kelter was based on a number of
factors, including: (i) the Company's TRS during 2002; (ii) the growth in the
Company's net asset value, funds from operations per share, earnings per share,
and the progress in the Company's capital recycling program during 2002;
(iii) compensation levels of chief executive officers of other office and
industrial real estate investment trusts, including companies of comparable size
or located in geographic proximity to the Company, based in part on a
compensation study prepared by Schonbraun Safris McCann Bekritsky & Co. L.L.C.;
and (iv) the impact of compensation arrangements on the Company's earnings and
funds from operations. The Compensation Committee did not separately rank the
importance of each of those factors and did not follow a formula in arriving at
the compensation arrangements that were approved.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility on the Company's tax return of compensation over $1 million to any
of the named executive officers of the Company unless, in general, the
compensation meets certain "performance-based" requirements. The Company does
not expect any compensation in excess of the Section 162(m) limitations to be
paid in the foreseeable future, and has generally not endeavored to structure
compensation to be eligible for an exemption under Section 162(m). However,
option grants under the Omnibus Plan have generally been structured with the
intent that such grants be qualified for an exemption from Section 162(m).
The Compensation Committee believes that it has designed and implemented a
compensation structure which provides appropriate awards and incentives for the
Company's executive officers as they work to sustain and improve the Company's
overall performance.
Submitted by the Compensation Committee:
John S. Moody, Chair
Donald E. Callaghan
Jonathan D. Eilian
24
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information, as of December 31, 2002,
relating to equity compensation plans of the Company (including individual
compensation arrangements) pursuant to which equity securities of the Company
are authorized for issuance:
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR FUTURE ISSUANCE
TO BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------- -------------------- ------------------------
Equity Compensation Plans Approved
by Shareholders(1).............. 1,150,373 $13.79 1,464,977(2)(3)
Equity Compensation Plans Not
Approved by Shareholders........ N/A N/A N/A
Total............................. 1,150,373 $13.79 1,464,977
------------------------
(1) Consists of the Amended and Restated 1993 Omnibus Incentive Plan, as amended
(the "Employee Plan"), and the 1994 Non-Employee Stock Option Plan, as
amended (the "Existing Non-Employee Plan").
(2) Securities remaining available for future issuance set forth in column (c)
may be in the form of (i) options, stock appreciation rights, restricted
stock, restricted stock units, performance units, dividend equivalents, or
other stock awards or stock-based awards under the Employee Plan,
(ii) options under the Existing Non-Employee Plan, if shareholders do not
approve the Amended and Restated 1994 Non-Employee Stock Incentive Plan (the
"Amended and Restated Non-Employee Plan"), and (iii) options, restricted
stock, restricted stock units, or other stock awards or stock-based awards
under the Amended and Restated Non-Employee Plan, if approved by
shareholders.
(3) The maximum number of Common Shares issuable under the Employee Plan is 10%
of the combined number of Common Shares and units of limited partnership
interest in Keystone Operating Partnership, L.P. outstanding from time to
time. In addition, not more than 2,000,000 Common Shares may be made subject
to options issued under the Employee Plan and no employee may receive
options with respect to more than 1,000,000 Common Shares under the Employee
Plan.
25
SHARE PRICE PERFORMANCE GRAPH
The graph set forth below compares, for the period from January 1, 1998
through December 31, 2002, the cumulative total return to holders of Common
Shares with the cumulative total return of the Standard & Poor's 500 Stock Index
("S&P 500") and the National Association of Real Estate Investment Trusts, Inc.
("NAREIT") Equity REIT Total Return Index ("NAREIT Index"), an index of equity
REITS which includes the Company. Total return values for the S&P 500, the
NAREIT Index and the Common Shares were calculated based on cumulative total
return assuming the investment of $100 on January 1, 1998, and assuming
reinvestment of dividends. Equity REITs are defined as those with 75% or more of
their gross invested book value of assets invested directly or indirectly in the
equity ownership of real estate. Upon written request, the Company will provide
any shareholder with a list of the REITs included in the NAREIT Index. The
historical information set forth below is not necessarily indicative of future
performance. Data for the NAREIT Index and the S&P 500 was provided to the
Company by NAREIT. The data shown is based on the share prices or index values,
as applicable, at the end of each month shown.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Indexed Value
1997 1998 1999 2000 2001 2002
KEYSTONE PROPERTY TRUST 100 87.72 90.71 81.56 92.11 130.15
S&P 500 100 128.58 155.63 141.46 124.65 97.1
NAREIT INDEX 100 82.5 78.69 99.43 113.29 117.61
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE S&P 500 AND THE NAREIT INDEX*
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
KEYSTONE PROPERTY TRUST............................ 100.00 87.72 90.71 81.56 92.11 130.15
S&P 500............................................ 100.00 128.58 155.63 141.46 124.65 97.10
NAREIT INDEX....................................... 100.00 82.50 78.69 99.43 113.29 117.61
------------------------
* The NAREIT Index (consisting of 149 REITs with a total market capitalization
of approximately $151.3 billion at December 31, 2002) is maintained by
NAREIT, is published monthly, and is based on the last closing prices of the
preceding month.
26
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 16, 2003 (except as otherwise
noted), information with respect to each person (including any "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) who is known to the Company to be the beneficial owner of more than 5%
of the Company's Common Shares as well as Common Shares beneficially owned by
all trustees, trustee nominees and executive officers of the Company and all
trustees, trustee nominees and executive officers of the Company as a group. The
table also includes the number of common units of limited partnership interest
("OP Units") in the Operating Partnership owned as of April 16, 2003 by such
persons. Any owner of OP Units may convert or exchange the OP Units into, at the
election of the Company, Common Shares or the cash equivalent. As of April 16,
2003, the Company had 21,702,955 Common Shares outstanding, not including
5,519,204 shares reserved for issuance upon conversion of OP Units, 2,601,508
shares reserved for issuance upon conversion of Series C Convertible Preferred
Units, 682,879 shares reserved for issuance upon conversion of Series D
Convertible Preferred Units, 452,381 shares reserved for issuance upon
conversion of outstanding shares of Series C Convertible Preferred Stock, par
value $.001 per share, and 1,202,066 shares reserved for issuance upon exercise
of outstanding stock options.
PERCENTAGE OF
COMMON SHARES
AMOUNT AND NATURE OF BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OWNED (2)
---------------------------------------- ------------------------ -------------
Jeffrey E. Kelter...................................... 1,437,416(3) 6.45%
David F. McBride....................................... 326,915(4) 1.50%
Francesco Galesi....................................... 536,613(5) 2.42%
Robert F. Savage, Jr................................... 342,942(6) 1.57%
Rodney B. Berens....................................... 56,778(7) *
John S. Moody.......................................... 43,205(8) *
Donald E. Callaghan.................................... 24,676(9) *
David M. Sherman....................................... 18,637(10) *
Russell C. Platt....................................... 18,172(8) *
Jonathan D. Eilian..................................... 13,242(8) *
Richard M. Cummins..................................... 0 *
John B. Begier......................................... 345,424(11) 1.58%
Charles C. Lee......................................... 184,620(12) *
Stephen J. Butte....................................... 171,066(13) *
Timothy A. Peterson.................................... 50,000(14) *
Cohen & Steers Capital Management, Inc................. 2,461,600(15) 11.34%
CRA Real Estate Securities, L.P........................ 1,319,310(16) 6.08%
All Executive Officers, Trustees and Trustee Nominees
as a group (21 persons).............................. 3,944,911 16.58%
------------------------
* Less than 1%.
(1) Unless otherwise noted, the address for each of the persons listed is c/o
Keystone Property Trust, 200 Four Falls Corporate Center, Suite 208, West
Conshohocken, PA 19428.
(2) Includes Common Shares issuable upon the conversion or exchange of OP Units,
or the exercise of stock options, in each such case within 60 days after
April 16, 2003. Each beneficial owner's percentage of ownership was
determined by assuming that all such OP Units and stock options have been
converted, exchanged or exercised, as applicable, by such person but not by
any other person.
27
(3) Includes 469,494 OP Units owned directly by Mr. Kelter, 816 OP Units owned
beneficially through a corporation in which Mr. Kelter is the sole
shareholder, and 100,500 Common Shares issuable pursuant to stock options
exercisable within 60 days of April 16, 2003.
(4) Includes 1,031 Common Shares owned by a limited liability corporation in
which Mr. McBride has an ownership interest and 101 Common Shares owned by a
trust, in the name of Mr. McBride's deceased father, for which Mr. McBride
is a trustee. Mr. McBride expressly disclaims any beneficial ownership of
any Common Shares not directly owned by him. Also includes 46,379 OP Units
owned directly by Mr. McBride, 106,538 OP Units beneficially owned through
ownership interests in various limited partnerships and corporations in
which Mr. McBride has an interest, and 3,791 OP Units owned by a trust in
the name of Mr. McBride's deceased father for which Mr. McBride is a
trustee.
(5) Includes 43,966 Common Shares owned by an employees' pension plan and trust
for a corporation of which Mr. Galesi is the sole shareholder. Mr. Galesi
expressly disclaims any beneficial ownership of any Common Shares not
directly owned by him. Also includes 484,677 OP Units, all of which are held
through various corporations in which Mr. Galesi owns a controlling
interest.
(6) Includes 22,394 OP Units and 100,000 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(7) Includes 16,000 Common Shares owned by Mr. Berens' children and 10,000
Common Shares issuable pursuant to stock options exercisable within 60 days
of April 16, 2003. Mr. Berens expressly disclaims any beneficial ownership
of any Common Shares not directly owned by him.
(8) Includes 10,000 Common Shares issuable pursuant to stock options exercisable
within 60 days of April 16, 2003.
(9) Includes 4,000 Common Shares held in an individual retirement account for
the benefit of Mr. Callaghan, and 10,000 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(10) Includes 3,000 Common Shares held in an individual retirement account for
the benefit of Mr. Sherman and 10,000 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(11) Includes 20,764 OP Units and 203,000 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(12) Includes 12,992 OP Units and 121,000 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(13) Includes 6,496 OP Units and 109,834 Common Shares issuable pursuant to
stock options exercisable within 60 days of April 16, 2003.
(14) As of January 2, 2003. Mr. Peterson resigned from the Company in
October 2002. See "Separation Agreement" on page 22.
(15) Based on information disclosed on a Schedule 13G/A dated February 14, 2003.
The address of this beneficial owner is 757 Third Avenue, New York, New York
10017. The beneficial owner is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The number of shares reported
represents shares for which the beneficial owner has sole dispositive power
and includes 2,411,200 Common Shares for which it has sole voting power.
(16) Based on information disclosed on a Schedule 13G dated February 27, 2003.
The address of this beneficial owner is 259 North Radnor-Chester Road, Suite
205, Radnor, Pennsylvania 19087. The beneficial owner is an investment
adviser registered under the Investment Advisers Act of 1940, as amended.
The number of shares reported represents shares for which the beneficial
owner has sole dispositive power and includes 1,006,552 Common Shares for
which it has sole voting power.
28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASE OF AN INTEREST IN A LIMITED PARTNERSHIP. In December 1999, the
Company acquired an 89% interest (and escrowed OP Units to purchase the
remaining 11%) in a limited partnership which owns a 407,100 square foot
industrial building in Carlisle, Pennsylvania. Jeffrey E. Kelter was the general
partner and certain other employees, including John B. Begier, Stephen J. Butte
and Charles C. Lee, executive officers of the Company, were limited partners in
this limited partnership prior to the Company acquiring the limited partnership.
After the Company's acquisition of the 89% ownership interest, Mr. Kelter and
certain other employees, including Messrs. Begier, Butte and Lee, remain as
limited partners. The purchase price for this building was $16 million and the
consideration consisted of $14.6 million in cash and $1.4 million in OP Units in
the Operating Partnership at a price of $15.26, which was the 30-day average
price of the Company's Common Shares prior to the acquisition date.
ISSUANCES OF COMMON SHARES TO TRUSTEES IN LIEU OF FEES. Messrs. Berens,
Callaghan, Eilian, Michael J. Falcone, Galesi, McBride, Moody, Platt, Scott H.
Rechler and Sherman (collectively, the "2002 Trustee Holders") received 14,592
Common Shares in the aggregate in January 2003, in lieu of cash fees, as
compensation for services provided by them to the Company in their capacity as
members of the Board of Trustees during 2002. Mr. Rechler retired from the Board
in June 2002 and Mr. Falcone resigned from the Board in July 2002. Under
registration rights agreements dated as of January 17, 2003, the Company agreed
to register the Common Shares within six months from the date of such agreements
and the 2002 Trustee Holders agreed not to sell their Common Shares for a period
of one year from the date of such agreements.
Messrs. Callaghan, Eilian, Falcone, Galesi, McBride, Moody, Joseph D.
Morris, James R. Mulvihill, Platt, Rechler and Sherman (collectively, the "2001
Trustee Holders") received 18,206 Common Shares in the aggregate in the fourth
quarter of 2001 and the first quarter of 2002, in lieu of cash fees, as
compensation for services provided by them to the Company in their capacity as
members of the Board of Trustees during 2001. Messrs. Morris and Mulvihill
retired from the Board of Trustees in June 2001. Under registration rights
agreements dated as of January 16, 2002 (in the case of Messrs. Callaghan,
Eilian, Falcone, Galesi, Moody, Morris, Mulvihill, Platt, Rechler, and Sherman)
and March 11, 2002 (in the case of Mr. McBride), the Company agreed to register
the Common Shares within six months from the dates of the respective agreements
and the 2001 Trustee Holders agreed not to sell their Common Shares for a period
of one year from the dates of the respective agreements.
Messrs. Falcone, Galesi, Morris, Mulvihill, Platt, Rechler, Sherman and
David H. Lesser (collectively, the "2000 Trustee Holders") received 17,330
Common Shares in the aggregate in January 2001, in lieu of cash fees, as
compensation for services provided by them to the Company in their capacity as
members of the Board of Trustees during the fourth quarter of 1999 and all of
2000. Mr. Lesser retired from the Board of Trustees in June 2000. Under
registration rights agreements dated January 15, 2001, the Company agreed to
register the Common Shares within six months from the date of such agreements
and the 2000 Trustee Holders agreed not to sell their Common Shares for a period
of one year from the date of such agreements.
LEASES. During 2002, the Company leased approximately 33,532 square feet to
an affiliate of Mr. Falcone and approximately 73,000 square feet to an affiliate
of Mr. Galesi. The aggregate 2002 base rental revenues were approximately
$271,000 and $458,000 for the leases to Messrs. Falcone and Galesi,
respectively. In December 2002 the Company sold the properties subject to these
leases.
PAYMENTS FOR SERVICES TO AFFILIATES OF TRUSTEES. In 2002, the Company
incurred costs of approximately $243,000 for building improvements, $348,000 for
leasing commissions and $19,500 for repair, maintenance, and other costs to
companies in which Mr. Falcone is an officer and shareholder. In 2002, the
Company incurred approximately $263,000 for repair, maintenance and other costs
to a company in which Mr. Galesi is an officer and shareholder.
29
LOAN GUARANTEES. Certain limited partners of the Operating Partnership,
which include Messrs. Falcone and Kelter and entities in which each of them has
an ownership interest, have guaranteed certain mortgage loans to the Operating
Partnership and its affiliates as of December 31, 2002. The amount of the
guarantees from Mr. Falcone and his affiliates is $2.4 million, and the amount
of the guarantees from Mr. Kelter and his affiliates is $1.0 million. In
addition, the Company and affiliates of Mr. Galesi each guarantee $2 million of
an $11.8 million mortgage loan related to two office properties which were sold
by the Company in December 2002.
TAX PROTECTION AGREEMENTS. The Company has contractual commitments, with
expiration dates ranging from 2004 to 2007, with certain limited partners of the
Operating Partnership, including Messrs. Falcone, Galesi and McBride and certain
of their respective affiliates, not to sell certain real estate assets, which
aggregated approximately $99 million of gross book value at December 31, 2002 in
taxable transactions, which include $27 million of gross book value related to
contractual commitments which expire in 2004. Accordingly, if sold, the proceeds
from the sales of the assets subject to these commitments may need to be
reinvested by the Company in other real estate assets through the utilization of
Section 1031 exchange transactions in accordance with the Code.
CONTRIBUTION OF OP UNITS AND ISSUANCE OF COMMON SHARES. In 2002, in a
transaction that was approved by the shareholders of the Company at the
Company's 2002 Annual Meeting of Shareholders, the Company received 390,735 OP
Units from an affiliate of Mr. McBride, in exchange for the issuance of 390,735
shares to him and certain members of his family in a transaction intended to
qualify as a reorganization under Section 368(a) of the Code. Pursuant to the
contribution agreement for the transaction, Mr. McBride and certain affiliates
and family members released the Company from certain contractual commitments
relating to the requirement for the Company to reinvest proceeds from any sale
of certain of the Company's properties in accordance with Section 1031 of the
Code.
LITIGATION. The Company is a co-defendant in an action entitled "McBride
Corporate Real Estate v. Keystone Properties Trust, Kushner Companies and CK
Bergen Associates, L.L.C.", filed in March 2003 in the Superior Court of Bergen
County, New Jersey. Mr. McBride is an officer and shareholder of the plaintiff.
In the complaint, the plaintiff alleges that it is entitled to payment of
approximately $665,000 in leasing commissions under a brokerage agreement (the
"McBride Commission Agreement") relating to an office lease at a property in
Oakland, New Jersey. The plaintiff is seeking, among other things, compensatory
damages, consequential damages, interest and equitable relief. The Company
believes that the claim against the Company is without merit for the reasons set
forth below. The plaintiff alleges that the breach of contract occurred in
October 2002, when a commission of approximately $320,000 became due and payable
under the McBride Commission Agreement. The Company sold the property in
question in November 2002 (i.e., 11 months prior to the commission due date) to
an affiliate of the other defendants in the action. The agreement of sale
between the Company and the purchaser specifically provided that the purchaser
would be responsible for payment of all leasing commissions under the McBride
Commission Agreement which became due and payable after the closing date.
Accordingly, the Company intends to pursue a claim against the co-defendants and
otherwise vigorously defend this action.
MANAGEMENT COMPANY. Through the Operating Partnership's 100% ownership of
the preferred stock of Keystone Realty Services, Inc., (the "Management
Company"), the Operating Partnership is entitled to receive 95% of the amounts
paid as dividends by the Management Company. The remaining amounts paid as
dividends by the Management Company are paid to the holders of common stock of
the Management Company. Mr. Kelter owns 40% of the common stock of the
Management Company, and Mr. McBride and certain members of his family own 30% of
the common stock of the Management Company. To date, the Management Company has
not declared or paid any dividends. In 2002, the Management Company received
approximately $795,000 in management fees, leasing commissions and other fees
for services provided to a joint venture in which the Company has a minority
interest, and $566,000 in management
30
fees, leasing commissions and other fees for services provided to an entity that
owns an office building in Philadelphia, Pennsylvania in which Mr. Kelter has a
general partnership interest.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
trustees and executive officers of the Company and persons, or "groups" of
persons, who own more than 10% of a registered class of the Company's equity
securities (collectively, "Covered Persons") to file with the SEC and the NYSE,
within specified time periods, initial reports of beneficial ownership, and
subsequent reports of changes in ownership, of certain equity securities of the
Company. To the Company's knowledge, based solely on its review of copies of
such reports furnished to it and upon written representations of Covered Persons
that no other reports were required, the Company believes that all such filing
requirements applicable to Covered Persons with respect to 2002 have been
complied with on a timely basis, other than the late filing of a Form 3 for
Mr. Platt in connection with his appointment as a trustee.
INDEPENDENT AUDITORS
It is not the Company's practice to submit to shareholders a proposal for
the selection or ratification of the Company's independent certified public
accountants, and no such proposal is submitted hereby. The Board of Trustees
selected KPMG LLP ("KPMG") as the Company's independent auditors for 2002. The
Company expects representatives of that firm to be present at the Meeting. They
will be given an opportunity to make a statement if they wish to do so, and are
expected to be available to respond to appropriate questions. KPMG has also been
engaged to provide audit services to the Company for the quarter ended
March 31, 2003. The Audit Committee has not yet determined the independent
auditors for the balance of 2003.
On May 23, 2002, upon the recommendation of its Audit Committee, the Board
of Trustees dismissed Arthur Andersen LLP ("Andersen") as the Company's
independent auditor and appointed KPMG to serve as independent auditor for the
fiscal year ended December 31, 2002. Representatives of Andersen will not be
present at the Meeting.
Andersen's reports on the Company's consolidated financial statements for
each of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2001 and 2000, and the subsequent
interim period through May 31, 2002, (i) there were no disagreements with
Andersen on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Andersen's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on our consolidated financial statements for such
years; and (ii) there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K. The Company has provided Andersen with a copy of
the foregoing disclosures.
During the fiscal years ended December 31, 2001 and 2000, and the subsequent
interim period through May 31, 2002, the Company did not consult KPMG with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of
Regulation S-K.
FEE DISCLOSURE
AUDIT FEES. The aggregate fees billed by KPMG for audit services relating
to the Company's financial statements for the year ended December 31, 2002 were
$172,500. In addition, KPMG billed the Company $355,000 for audit services in
connection with KPMG's re-audit of the Company's financial statements for
31
the years ended December 31, 2001, December 31, 2000 and December 31, 1999. The
re-audit was required as a result of the Company's adoption in 2002 of Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", relating to discontinued operations.
The aggregate fees billed by Andersen for audit services relating to the
Company's financial statements for the years ended December 31, 2002 and
December 31, 2001 were $15,000 and $170,000, respectively.
AUDIT-RELATED FEES. The aggregate fees billed by KPMG for audit-related
services during the year ended December 31, 2002 were $244,800 for comfort and
consent letters related to public filings. Andersen did not provide or bill fees
for any audit-related services during the year ended December 31, 2002. The
aggregate fees billed by Andersen for audit-related services during the year
ended December 31, 2001 were $102,000 for comfort and consent letters related to
public filings and stand-alone property audits required for loan compliance.
TAX FEES. The aggregate fees billed by KPMG for tax services during the
year ended December 31, 2002 were $175,400 for recurring and non-recurring tax
services. Andersen did not provide or bill fees for any tax services during the
year ended December 31, 2002. The aggregate fees billed by Andersen for tax
services during the year ended December 31, 2001 were $275,000 for recurring and
non-recurring tax services.
ALL OTHER FEES. Neither KPMG nor Andersen provided or billed fees for any
other services during the years ended December 31, 2002 and December 31, 2001.
SOLICITATION OF PROXIES
The cost of soliciting the proxies will be paid by the Company. The Company
intends to use the services of D.F. King & Co., Inc. in soliciting proxies, at a
cost not to exceed $4,500 plus out-of-pocket expenses. Trustees, officers and
employees of the Company may solicit proxies in person, or by mail, telephone,
electronic mail or otherwise, but no such person will be compensated for such
services. The Company will request banks, brokers and other nominees and
fiduciaries to forward proxy materials to beneficial owners of Common Shares
held of record by them and will, upon request, reimburse them for their
reasonable out-of-pocket expenses in so doing.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material for
the 2004 Annual Meeting of Shareholders, shareholders' proposals to take action
at such meeting must comply with applicable SEC rules and regulations and must
be received by the Secretary of the Company at its principal executive offices
set forth above no later than January 1, 2004. In addition, any shareholder who
wishes to propose a nominee to the Board of Trustees or submit any other matter
to a vote at a meeting of shareholders (other than a shareholder proposal
included in the Company's proxy materials pursuant to Rule 14a-8 of the rules
promulgated under the Securities Exchange Act of 1934, as amended), must comply
with the advance notice provisions and other requirements of the Company's
By-laws (i.e., delivery of such proposal to the Secretary of the Company at the
address herein indicated not before March 12, 2004 and not later than April 11,
2004) which are on file with the SEC and may be obtained from the Secretary of
the Company upon request.
ANNUAL REPORT ON FORM 10-K
The Company's 2002 Annual Report on Form 10-K is hereby incorporated by
reference into this proxy statement. Upon request, the Company will furnish free
of charge to record and beneficial owners of its Common Shares a copy of the
Form 10-K (including financial statements and schedules but without
32
exhibits). Copies of exhibits to the Form 10-K also will be furnished upon
request and the payment of a reasonable charge. All requests should be directed
to the Secretary of the Company at the address and telephone number of the
Company's principal office set forth above.
OTHER MATTERS
At the date of this Proxy Statement, management was not aware that any
matters not referred to in this Proxy Statement would be presented for action at
the meeting. If any other matters should come before the meeting, the persons
named in the accompanying form of proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
By Order of the Board of Trustees,
Saul A. Behar
Secretary
April 30, 2003
33
APPENDIX A
KEYSTONE PROPERTY TRUST
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (the "Committee") is appointed by the Board of Trustees
(the "Board") of Keystone Property Trust (the "Company"). Its primary functions
are to:
- Assist Board oversight of (i) the integrity of the Company's financial
statements, (ii) the Company's compliance with legal and regulatory
requirements, (iii) the qualifications and independence of the registered
public accounting firm employed by the Trust for the audit of the
Company's financial statements (the "Independent Auditor"), (iv) the
performance of the Company's internal audit function, including (if
applicable) any third party employed by the Company for the purpose of
performing all or any portion of the Company's internal audit function
(the "Internal Auditor"), and (v) the performance of the Independent
Auditor,
- Deliver the report that the rules of the Securities and Exchange
Commission (the "SEC") require be included in the Company's annual proxy
statement, and
- Provide an open avenue of communication among the Independent Auditor, the
Internal Auditor, the Company's management and the Board.
MEMBERSHIP
- The Committee will be composed of at least three members, each of whom is
financially literate (i.e., able to read and understand financial
statements and aware of the functions of auditors for a company) or, in
the judgment of the Board, able to become financially literate within a
reasonable period of time after his or her appointment to the Committee.
- The composition of the Committee will be in compliance with the
independence and experience requirements set forth in (i) the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and (ii) any other applicable laws, rules or
regulations, including without limitation any rules promulgated by the
SEC, and (iii) the listing standards of the New York Stock Exchange.
- No trustee who holds 20% or more of the Company's stock (or who is a
general partner, controlling shareholder or officer of any such holder)
may be a member of the Committee.
- No trustee who serves on the audit committee of more than two other public
companies may be a member of the Committee unless the Board determines
such simultaneous service would not impair the ability of such trustee to
effectively serve on the Committee.
- The members of the Committee will be appointed, removed and replaced by,
and in the sole discretion of, the Board. The Board will designate a
member of the Committee to be the chairman of the Committee. The chairman
of the Committee must have accounting or related financial management
expertise.
ORGANIZATION
- The Committee will meet at least quarterly, or more frequently as
circumstances dictate.
- A majority of the members of the Committee will constitute a quorum for
the transaction of business. Approval by a majority of the members present
at a meeting at which a quorum is present,
A-1
either in person or by telephone, will constitute approval by the
Committee. The Committee may also act by written consent without a
meeting.
- The Committee may create subcommittees to perform particular functions,
either generally or in specific instances.
- Minutes will be kept with regard to each meeting of the Committee, which
will record all actions taken by the Committee. The minutes will be
maintained with the books and records of the Company.
- The Committee will report to the Board at all regular meetings of the
Board or at such other times as the Committee deems necessary or
appropriate.
POWERS AND RESPONSIBILITIES
To fulfill its responsibilities the Committee will:
ACCOUNTING AND REPORTING PROCESS
1. Discuss the Company's annual audited financial statements and quarterly
financial statements with management and the Independent Auditor,
including the results of the Independent Auditor's reviews of the
quarterly financial statements and the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," prior to the filing of each Form 10-K and Form 10-Q by
the Company.
2. Review and discuss (i) any major issues regarding accounting principles
and financial statement presentations, including any significant changes
in the Company's selection or application of accounting principles, and
any major issues as to the adequacy of the Company's internal controls
and any special audit steps adopted in light of material control
deficiencies, (ii) any analyses prepared by management and/or the
Independent Auditor setting forth significant financial reporting issues
and judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative methods
under generally accepted accounting principles ("GAAP") on the financial
statements, (iii) the development, selection and disclosure of critical
accounting policies and related accounting estimates, (iv) the effect of
regulatory and accounting initiatives, as well as off-balance sheet
structures, on the Company's financial statements, and (v) the Company's
earnings press releases, including the use of "pro forma" or "adjusted"
non-GAAP information, as well as financial information and earnings
guidance provided to analysts and rating agencies (provided, however,
that the discussion under this clause (v) may be general in nature (i.e.,
discussion of the types of information to be disclosed and the type of
presentation to be made) and need not take place in advance of each
instance in which the Company may provide earnings guidance).
3. Discuss with management the Company's policies with respect to risk
assessment and risk management, including discussion of the Company's
major financial risk exposures and the steps management has taken to
monitor and control such exposures.
INDEPENDENT AUDITOR
4. Be directly responsible for the appointment, termination, compensation
and oversight of the work of the Independent Auditor (including
resolution of disagreements between management and the Independent
Auditor regarding financial reporting) or any other accounting firm
engaged to perform other audit, review or attestation services. The
Independent Auditor will report directly to the Committee, and will
acknowledge to the Committee that the Board and the Committee, as
representatives of the Company's shareholders, are the Independent
Auditor's clients.
A-2
5. Pre-approve the fees and terms of all auditing services and permitted
non-audit services (including tax services) to be provided to the Company
or its subsidiaries by the Independent Auditor, except for certain DE
MINIMUS non-audit services for which pre-approval is not required under
applicable laws, rules or regulations.
6. In order to evaluate the Independent Auditor's qualifications,
performance and independence, at least annually obtain and review a
report by the Independent Auditor describing: (i) the firm's internal
quality-control procedures, (ii) any material issues raised by the most
recent internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by government or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken to deal
with any such issues, and (iii) (to assess the auditor's independence)
all relationships between the Independent Auditor and the Company. This
evaluation should include the review and evaluation of the lead partner
of the Independent Auditor and should take into account the opinions of
management and the Internal Auditor (or the Company's personnel
responsible for the internal audit function). In addition, the report
will include a written statement of the fees billed for each of the
following categories of services rendered by the Independent Auditor:
(a) the audit of the Company's annual financial statements for the most
recent fiscal year and the reviews of the financial statements included
in the Company's Quarterly Reports on Form 10-Q for that fiscal year;
(b) information technology consulting services for the most recent fiscal
year, in the aggregate and by each service (and separately identifying
fees for such services relating to financial information systems, design
and implementation); and (c) all other services rendered by the
Independent Auditor for the most recent fiscal year, in the aggregate and
by each service.
7. Ensure the Company's compliance with all applicable legal requirements
regarding auditor independence, including the periodic rotation of the
lead partner and other senior members of the Independent Auditor.
8. Present to the full Board the Committee's conclusions with respect to
(i) the qualifications, performance and independence of the Independent
Auditor, (ii) the quality and integrity of the Company's financial
statements, and (iii) the performance of the Company's internal audit
function.
9. Consider whether, in order to assure continuing auditor independence, it
is appropriate to change the Independent Auditor periodically.
10. Obtain and review a report from the Independent Auditor at least
annually regarding any audit problems or difficulties and management's
response, including any restrictions on the scope of the Independent
Auditor's activities or on access to requested information, and any
significant disagreements with management. This report will include:
(i) all critical accounting policies and practices used or expected to be
used by the Company, (ii) any adoption of, or changes to, the Company's
significant accounting principles and practices as suggested by the
Independent Auditor, the Internal Auditor or management, (iii) any
accounting adjustments that were noted or proposed by the Independent
Auditor but were "passed" (as immaterial or otherwise), (iv) any
communications between the audit team and the Independent Auditor's
national office respecting auditing or accounting issues presented by the
engagement, and (v) any "management" or "internal control" letter issued,
or proposed to be issued, by the Independent Auditor to the Company, and
all other material written communications between the Independent Auditor
and management.
11. Set clear policies for the hiring by the Company of employees or former
employees of the Independent Auditor.
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INTERNAL AUDIT
12. Review the appointment and replacement of the Company's senior executive
responsible for the internal audit function.
13. Review and discuss with management the organization, plan and results of
the activities of the internal audit function, including the appointment,
termination and compensation of the Internal Auditor, if applicable.
14. Review any significant changes in the planned scope of the internal
audit.
OTHER
15. Meet with the Company's Chief Executive Officer and Chief Financial
Officer, prior to their certification of each annual or quarterly report
filed by the Company with the SEC, and receive those officers'
disclosures of (i) any significant deficiencies in the design or
operation of internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data and
identify any material weakness in internal controls, and (ii) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the Company's internal controls.
16. Obtain reports from management, the Independent Auditor and the senior
internal audit executive regarding the compliance or failure of
compliance of the Company with applicable legal requirements and the
Company's Code of Business Conduct and Ethics. These reports will include
disclosures of any related party transactions.
17. Review with management and the Independent Auditor any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the Company's
financial statements or accounting policies.
18. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
controls or auditing matters, and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting, internal controls or auditing matters.
19. Review management's assessment of any legal matters that could have a
significant impact on the Company's financial statements, and discuss
such matters with the Company's general counsel and outside counsel when
appropriate.
GENERAL
20. Engage independent counsel, accounting and other advisors, as it
determines necessary to carry out its duties. The Company will provide
appropriate funding, as determined by the Committee, for payment of
compensation to the Independent Auditor and to any advisors employed by
the Committee.
21. Meet with management, the Independent Auditor and the Internal Auditor
in separate executive sessions at least quarterly. The Committee may
also, to the extent it deems necessary or appropriate, meet with the
Company's investment bankers or financial analysts who follow the
Company. The Committee may require any officer or employee of the Company
or the Company's outside counsel or the Independent Auditor to attend a
meeting of the Committee or to meet with any members of, or consultants
to, the Committee.
22. Conduct an annual evaluation of its own performance.
23. Conduct an annual review of this Charter and recommend to the Board any
changes the Committee deems appropriate.
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24. Retain such other authority, duties and responsibilities as may be
granted or assigned to the Committee by the Board from time to time.
LIMITATION OF RESPONSIBILITY
While the Committee has the powers and responsibilities set forth in this
Charter, it is not the duty or responsibility of the Committee to (i) plan or
conduct audits, (ii) determine that the Company's financial statements and
disclosures are complete and accurate or are in accordance with GAAP or
applicable rules and regulations, or (iii) monitor and control risk assessment
and management. These are the responsibilities of the Company's management and
of the Independent Auditor, who will be engaged to plan and conduct audits in
accordance with generally accepted auditing standards in order to render an
opinion on the financial statements prepared by management.
A-5
APPENDIX B
KEYSTONE PROPERTY TRUST
AMENDED AND RESTATED 1994 NON-EMPLOYEE STOCK INCENTIVE PLAN
ADOPTED EFFECTIVE AUGUST 31, 1994
1. PURPOSE.
(a) The purpose of the Amended and Restated 1994 Non-Employee Stock
Incentive Plan (the "Plan") is to provide an equity ownership opportunity to
each Non-Employee Trustee or consultant to Keystone Property Trust, a
self-administered Maryland real estate investment trust (the "Company"), who is
not otherwise an employee of the Company or of any Affiliate of the Company
(each such person being hereafter referred to as a "Non-Employee").
(b) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Trustees of the Company, to secure and
retain the services of persons capable of serving in such capacity and as
consultants to the Company, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean any parent corporation or subsidiary corporation
of the Company as those terms are defined in Sections 424(e) and (f),
respectively, of the Code and any partnership of which the Company is a general
or managing partner.
(b) "Award" shall mean any Option, Restricted Stock, Restricted Stock Unit
or award of Shares granted under the Plan.
(c) "Award Agreement" shall mean a written agreement, contract or other
instrument or document evidencing an Award granted under the Plan.
(d) "Board" shall mean the Board of Trustees of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Compensation Committee of the Board.
(g) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Board.
(j) "Option" shall mean the right to purchase, at a price and for the term
fixed by the Board in accordance with the Plan, and subject to such other
limitations and restrictions in the Plan and the applicable Award Agreement, a
number of Shares determined by the Board.
(k) "Participant" shall mean a Non-Employee Trustee of or consultant to the
Company who has been granted an Award under the Plan.
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(l) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have expired,
lapsed, or have been waived.
(m) "Restricted Securities" shall mean Restricted Stock or any other Award
under which issued and outstanding Shares are held subject to restrictions
imposed by the terms of the Award.
(n) "Restricted Stock" shall mean any Share granted under paragraph 7 of
the Plan.
(o) "Restricted Stock Unit" shall mean any right granted under paragraph 7
of the Plan that is denominated in Shares.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended.
(q) "Shares" shall mean the common shares of beneficial interest of the
Company, $0.001 par value, and such other securities or property as may become
the subject of Awards pursuant to an adjustment made under paragraph 12 of the
Plan.
(r) "Trustee" shall mean any person serving as a member of the Board.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a committee, as provided in subparagraph 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To construe and interpret the Plan and Awards granted thereunder,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Award Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(2) To amend the Plan as provided in paragraph 13.
(3) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to the Committee,
provided that the Committee is composed of at least two individuals each of whom
shall be a "non-employee director" as defined in Rule 16b-3 as promulgated by
the Securities and Exchange Commission under the Exchange Act. If administration
is delegated to the Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
(d) Other than as provided under paragraph 12(a), and notwithstanding any
other provision of the Plan to the contrary, the Board and Committee are
expressly prohibited from effecting a repricing of any Award granted under the
Plan, and, without limiting the foregoing, in no event shall the Board or
Committee have the right to amend an outstanding Award to reduce the exercise
price thereunder.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, no more than an aggregate of three hundred thousand (300,000)
Shares may be the subject of Awards. Notwithstanding the foregoing provisions of
this paragraph 4, Shares as to which an Option is granted under the Plan that
remain unexercised at the expiration, forfeiture or other termination of such
Option
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and Shares of Restricted Stock or Restricted Stock Units that are forfeited may
be the subject of further Awards of a type for which the Shares were initially
available. If any Awards are paid out in cash, the underlying Shares may again
be made the subject of Awards under the Plan. The certificates for Shares issued
hereunder may include any legend which the Board deems appropriate to reflect
any restrictions on transfer hereunder or under the Award Agreement, or as the
Board may otherwise deem appropriate.
(b) The stock subject to the Plan may be unissued Shares or reacquired
Shares, bought on the market or otherwise.
5. ELIGIBILITY.
Awards shall be granted only to Non-Employee Trustees of the Company or
consultants to the Company.
6. OPTION PROVISIONS.
Each Option shall contain the following terms and conditions:
(a) No Option shall be exercisable after the expiration of ten (10) years
from the date it was granted. No Option granted under the Plan shall be an
"incentive stock option," within the meaning of Section 422(b) of the Code.
(b) The exercise price of each Option shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the day the Option is
granted.
(c) The purchase price of Shares acquired pursuant to an Option shall be
paid, to the extent permitted by applicable statutes and regulations, either
(1) in cash at the time the Option is exercised, or (2) by delivery to the
Company of Shares that have been held for the requisite period necessary to
avoid a charge to the Company's reported earnings and valued at the Fair Market
Value on the date of exercise, or (3) by a combination of such methods of
payment.
(d) An Option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person or by his or her
guardian or legal representative.
(e) An Option shall be exercisable at such time or times as may be
determined by the Board at the time of grant, provided, however, with respect to
Options granted to Trustees, any unexercised portion of an Option granted under
the Plan shall terminate thirty (30) days after the date such Trustee is no
longer a Trustee of the Company.
(f) The Company may require any optionee, or any person to whom an Option
is transferred under subparagraph 6(d), as a condition of exercising any such
Option: (1) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the Shares subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the Shares.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the Shares upon the exercise of the
Option has been registered under a then-currently effective registration
statement under the Securities Act, or (ii), as to any particular requirements,
a determination is made by counsel for the Company that such requirements need
not be met in the circumstances under the then-applicable securities laws.
B-3
(g) Notwithstanding anything to the contrary contained herein, an Option
may not be exercised unless the Shares issuable upon exercise of such Option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
(a) The Board is hereby authorized to grant Awards of Restricted Stock and
Restricted Stock Units to Non-Employee Trustees of or consultants to the Company
subject to such restrictions as the Board may impose (including, without
limitation, any limitation on the right to vote a Share of Restricted Stock or
the right to receive any dividend or other right or property), which
restrictions may lapse separately or in combination at such time or times, in
such installments or otherwise, as the Board may deem appropriate but not
inconsistent with the provisions of the Plan:
(1) REGISTRATION. Any Restricted Stock granted under the Plan may be
evidenced in such a manner as the Board may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of Shares of Restricted Stock granted under the Plan, such
certificate shall be registered in the name of the Participant and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock. The Board shall require
that the stock certificates evidencing such Shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Award of Restricted Stock, the Participant shall have
delivered a stock power, endorsed in blank, relating to the stock covered by
such Award. If and when such restrictions so lapse, the stock certificates
shall be delivered by the Company to the Participant or his or her designee
as provided in paragraph 7(a)(3).
(2) FORFEITURE. Subject to the provisions of the Plan and the
applicable Award Agreement, during a period commencing with the date of such
Award and ending on the date the period of forfeiture with respect to such
Shares lapses, the grantee of Restricted Stock or Restricted Stock Units
shall not be permitted voluntarily or involuntarily to sell, transfer,
pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock
or Restricted Stock Units awarded under the Plan (or have such Shares or
Restricted Stock Units attached or garnished). Except as otherwise
determined by the Board, upon termination of service with the Company (as
determined under criteria established by the Board) for any reason during
the applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units still, in either case, subject to restriction shall
be forfeited to and reacquired by the Company; provided, however, that the
Board may, when it finds that a waiver would be in the best interests of the
Company, waive in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock or Restricted Stock Units.
(3) LAPSE OF RESTRICTIONS. Unrestricted Shares, evidenced in such
manner as the Board shall deem appropriate, shall be delivered to the holder
of Restricted Stock promptly after such shares of Restricted Stock become
Released Securities.
8. GRANT OF SHARES IN LIEU OF FEES.
At the discretion of the Board, the fees payable to each Non-Employee
Trustee (including annual retainer fees or meeting fees for service on the
Board, fees for service on a Board committee, and any other fees paid to
Trustees) may be provided in the form of Shares in lieu of cash payment of such
fees at the date any such fee is otherwise payable. Shares so granted shall have
a Fair Market Value on such date equal to the aggregate amount of the fees then
payable to the Trustee. Fractional Shares shall be paid in cash.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Awards granted under the Plan, the Company
shall keep available at all times the number of Shares required to satisfy such
Awards.
B-4
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell Shares in connection with Awards granted under the Plan;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option granted under the
Plan, or any Shares issued or issuable pursuant to any such Option or other
Award granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Options or issuances of
Shares, Restricted Stock or Restricted Stock Units.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Shares pursuant to Awards granted under the Plan
shall constitute general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an Option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any Shares subject to such Option unless
and until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee any right to continue in the service of the
Company or any Affiliate or shall affect any right of the Company, its Board or
shareholders or any Affiliate to terminate the service of any Non-Employee with
or without cause.
(c) No Non-Employee individually or as a member of a group, and no
beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any Option reserved for the purposes of the Plan
except as to such Shares, if any, as shall have been reserved for him pursuant
to an Option granted to him.
(d) The Company or any Affiliate shall be authorized to withhold from any
Award granted or any payment due or transfer made under any Award or under the
Plan the amount (in cash, Shares, other securities, or other property) of
withholding taxes due in respect of an Award, its exercise, the release of
restrictions on such Award or any payment or transfer under such Awards or under
the Plan and to take such other actions as may be necessary in the opinion of
the Company to satisfy all obligations for the payment of such taxes. In case of
Awards paid in Shares, the Participant or other person receiving such Shares may
be required to pay the Company or Affiliate, as appropriate, the amount of any
such withholding taxes which is required to be withheld with respect to such
Shares. Notwithstanding anything contained in the Plan to the contrary, the
Participant's satisfaction of any tax-withholding requirements imposed by the
Board shall be a condition precedent to the Company's obligation as may
otherwise be provided hereunder to provide Shares to the Participant and to the
release of any restrictions as may otherwise be provided hereunder or under any
Award Agreement, as applicable; and the applicable Award shall be forfeited upon
the failure of the Participant to satisfy such requirements with respect to an
Award, its exercise, the release of restrictions on such Award, or any payment
or transfer under such Award or under the Plan.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) In the event that the Board shall determine that any (A) subdivision or
consolidation of Shares, (B) dividend or other distribution (whether in the form
of cash, Shares, other securities, or other property), (C) recapitalization or
other capital adjustment of the Company, (D) merger, consolidation or other
reorganization of the Company or (E) change in rights to purchase Shares or
other securities of the Company, or other similar corporate transaction or
event, affects the Shares such that an adjustment is determined by the Board to
be appropriate in order to prevent dilution or enlargement of the benefits or
B-5
potential benefits intended to be made available under the Plan, then the Board
shall, in such manner as it may deem equitable, adjust any or all of (w) the
number and type of Shares (or other securities or property) which thereafter may
be made the subject of Awards, (x) the number and type of Shares (or other
securities or property) subject to outstanding Awards, (y) the grant, purchase,
or exercise price with respect to any Award and (z) any performance goals and
periods applicable to outstanding Awards or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the Shares of the Company outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the Shares of the Company entitled to
vote are exchanged, then, at the sole discretion of the Board and to the extent
permitted by applicable law, (i) any surviving corporation shall assume any
Awards outstanding under the Plan or shall substitute similar Awards for those
outstanding under the Plan, or (ii) the time during which Options may be
exercised shall be accelerated and the Options terminated if not exercised prior
to such event or all outstanding Restricted Stock or Restricted Stock Units
shall become Released Securities (or otherwise free of all restrictions
thereon), or (iii) such Awards shall continue in full force and effect.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan;
provided, however, that the Board shall not amend the Plan more than once every
six months with respect to the provisions of the Plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, ERISA, or the rules thereunder. Except as provided in paragraph 12
relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the shareholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the amendment will:
(1) Increase the number of Shares reserved for Awards under the Plan;
(2) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires shareholder approval in order
for the Plan to comply with the requirements of Rule 16b-3 promulgated under
the Exchange Act); or
(3) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to comply with the requirements
of Rule 16b-3 promulgated under the Exchange Act,
(b) Rights and obligations under any Award granted before any amendment of
the Plan shall not be altered or impaired by such amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on May 31, 2013. No Award may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Award granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Award was granted.
15. EFFECTIVE DATE OF PLAN; CONDITIONS OF AWARDS.
(a) The Plan shall become effective upon adoption by the Board of Trustees,
subject to the condition subsequent that the Plan is approved by the
shareholders of the Company.
(b) No Option granted under the Plan shall be exercised or exercisable, no
Award of Shares under paragraph 8 shall be made, and no Restricted Stock or
Restricted Stock Unit shall become Released Securities (or otherwise free of
restrictions) unless and until the condition of subparagraph 15(a) above has
been met.
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ANNUAL MEETING OF SHAREHOLDERS OF
KEYSTONE PROPERTY TRUST
JUNE 10, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
THE BOARD OF TRUSTEES RECOMMENDS AVOTE "FOR" THE ELECTION OF ALL TRUSTEE
NOMINEES AND "FOR" APPROVAL OF PROPOSAL NO. 2. PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS
SHOWN HERE /X/
1. ELECTION OF TRUSTEE NOMINEES
NOMINEES:
/ / FOR ALL NOMINEES o Russell C. Platt (Class III Trustee)
o David M. Sherman (Class III Trustee)
/ / WITHHOLD AUTHORITY o Robert F. Savage, Jr. (Class III Trustee)
FOR ALL NOMINEES o Richard M. Cummins (Class III Trustee)
/ / FOR ALL EXCEPT
(See instructions below)
FOR AGAINST ABSTAIN
2. Approval of amendment to and restatement of the / / / / / /
Company's 1994 Non-Employee Stock Option Plan to
provide for the issuance of restricted stock and
other stock-based awards to non-employee trustees
and consultants to the Company.
3. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: /X/
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via
this method. / /
Check here if you plan to attend the Annual Meeting. / /
Signature of Shareholder_________________________ Date:_______________________
Signature of Shareholder_________________________ Date:_______________________
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER, SUITE 208
WEST CONSHOHOCKEN, PA 19428
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 10, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned, revoking all previous proxies, hereby appoints Jeffrey E.
Kelter, David F. McBride and Saul A. Behar, or any of them, as proxies, each
with full power of substitution and all of the powers which the undersigned
would possess if present in person, and hereby authorizes them to represent and
vote all of the common shares of Keystone Property Trust (the "Company")
registered in the name of the undersigned on April 16, 2003 as designated on the
reverse side of this proxy and, in their discretion, on all other matters which
may properly come before the Annual Meeting of Shareholders of the Company to be
held on June 10, 2003, and at any adjournment or postponement thereof.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
FOR TRUSTEE LISTED UNDER PROPOSAL NO. 1 AND FOR APPROVAL OF THE AMENDED AND
RESTATED 1994 NON-EMPLOYEE STOCK INCENTIVE PLAN AS PROVIDED IN PROPOSAL NO. 2.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
Receipt of the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement is acknowledged.
(IMPORTANT - TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE)