<PAGE>
SCHEDULE 14 A
(Rule 14a-101)
Information Required In Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
Burnham Pacific Properties, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computer on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- -------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previous paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
610 WEST ASH STREET
SAN DIEGO, CA 92101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Monday, May 11, 1998
TO THE STOCKHOLDERS OF BURNHAM PACIFIC PROPERTIES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Burnham
Pacific Properties, Inc. (the "Corporation") will be held at the San Diego
Hilton Beach & Tennis Resort, 1775 East Mission Bay Drive, San Diego,
California, on Monday, May 11, 1998 at 10:30 a.m. for the following purposes:
1. To elect nine Directors.
2. To consider and approve the issuance of Common Stock upon the conversion
or exchange of all of the Series 1997-A Convertible Preferred Stock of
the Corporation and all of the Common Operating Partnership Units and
Preferred Operating Partnership Units of the Corporation's recently
formed operating partnership, Burnham Pacific Operating Partnership,
L.P., which preferred stock and common and preferred units were issued or
are issuable in connection with the acquisition of a portfolio of twenty
shopping centers and the financing of that acquisition.
3. To consider and approve the increase in the number of shares of Common
Stock for which awards may be made under the Corporation's Stock Option
and Incentive Plan by 1,150,000 shares.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The transfer books of the Corporation will not be closed prior to the
meeting. The Board of Directors has determined that stockholders of record at
the close of business on March 13, 1998 are entitled to notice of and to vote at
the Annual Meeting and any adjournment or postponement thereof.
April 7, 1998 By Order of the Board of Directors
BURNHAM PACIFIC PROPERTIES, INC.
Nina Galloway,
SECRETARY
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE URGED TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
610 WEST ASH STREET
SAN DIEGO, CA 92101
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 1998
This Proxy Statement is furnished to the stockholders of Burnham Pacific
Properties, Inc., a Maryland corporation (the "Corporation"), in connection with
the solicitation of proxies by and on behalf of the Board of Directors of the
Corporation (the "Board of Directors") for the Annual Meeting of Stockholders of
the Corporation to be held at the San Diego Hilton Beach & Tennis Resort, 1775
East Mission Bay Drive, San Diego, California, on Monday, May 11, 1998 at 10:30
a.m., and any adjournment or postponement thereof (the "Annual Meeting"). This
Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders
and Proxy Card are first being mailed to stockholders on or about April 7, 1998.
As more fully described in this Proxy Statement, the stockholders will be
asked to consider and act upon: (i) the election of nine Directors; (ii)
approval of the issuance of common stock, par value $.01 per share, of the
Corporation (the "Common Stock") upon the conversion or exchange of all of the
Series 1997-A Convertible Preferred Stock, par value $.01 per share, of the
Corporation (the "Series A Preferred Stock") and all of the common units of
limited partnership interest (the "Common Units") and preferred units of limited
partnership interest (the "Preferred Units") of the Corporation's recently
formed operating partnership, Burnham Pacific Operating Partnership, L.P., a
Delaware limited partnership (the "Operating Partnership"), which preferred
stock and common and preferred units were issued or are issuable in connection
with the acquisition of a portfolio of twenty shopping centers and the related
financing thereof; (iii) approval of the increase in the number of shares of
Common Stock for which awards may be made under the Corporation's Stock Option
and Incentive Plan by 1,150,000 shares; and (iv) such other business as may
properly come before the meeting or any adjournment thereof.
Stockholders of record at the close of business on March 13, 1998 are
entitled to notice of and to vote at such meeting. On such date, there were
issued and outstanding 23,463,852 shares of the Common Stock. On such date,
there were also issued and outstanding 2,800,000 shares of the Series A
Preferred Stock, each share of which is entitled to vote with the Common Stock
(except as to Proposal 2) as if fully converted into Common Stock. Each share of
Series A Preferred Stock is currently convertible into 1.626 shares of Common
Stock, resulting in the Series A Preferred Stock being convertible into an
aggregate of 4,552,800 shares of Common Stock. Accordingly, shares having an
aggregate of 28,016,652 votes are entitled to vote (except as to Proposal 2) at
the Annual Meeting. A majority of the votes entitled to be cast represented in
person or by proxy constitutes a quorum for the meeting. If a quorum is not
present, the Annual Meeting may be adjourned to a later date at which a quorum
is present, and shares represented by proxies may be voted for such adjournment.
Shares present but abstaining or not being voted by brokers (broker non-votes)
are included in the number of shares present at the Annual Meeting for purposes
of establishing a quorum.
Assuming that a quorum is present (including shares of Series A Preferred
Stock in determining the presence of a quorum), the affirmative vote of a
plurality of all the votes cast at the Annual Meeting is required for the
election of Directors ("Proposal 1"). Assuming that a quorum is present (not
including shares of Series A Preferred Stock in determining the presence of a
quorum), the affirmative vote of a majority of the shares of Common Stock cast
on the proposal to issue Common Stock upon the conversion or exchange of all of
the Series A Preferred Stock and all of the Common Units and Preferred Units of
the Operating Partnership ("Proposal 2"), provided that all shares cast
represent a majority of the shares of Common Stock entitled to vote on Proposal
2, is required to approve Proposal 2. Assuming that a quorum is present
(including the shares of Series A Preferred Stock in determining the presence of
a quorum), a
1
<PAGE>
majority of all the votes cast at the Annual Meeting is required to approve the
amendment of the Stock Option and Incentive Plan ("Proposal 3").
A stockholder may revoke a proxy given with respect to the Annual Meeting at
any time prior to the exercise thereof at the Annual Meeting by filing with the
Secretary of the Corporation a written revocation or a duly executed proxy
bearing a later date or, if such stockholder is present, indicating his or her
intention to vote in person at the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Burnham Pacific Properties, Inc. Bylaws (the "Bylaws") currently provide
that the number of Directors shall be not less than the minimum number required
by Maryland General Corporation Law, nor more than eleven. The Board of
Directors has fixed the number of Directors to be elected at the Annual Meeting
at nine, each to hold office for the term of one year or until his or her
successor is elected and qualified. The Board of Directors has nominated the
persons named below for election. The holders of the Series A Preferred Stock
have the right to suggest one person for nomination and election, and Nina B.
Matis is the nominee so suggested.
The Bylaws provide that every stockholder entitled to vote in the election
of Directors may vote each of his or her shares for as many individuals as there
are directors to be elected and for whose election the share is entitled to be
voted. Assuming the presence of a quorum, the nine candidates receiving the
highest number of affirmative votes of the votes cast will be elected, and
abstentions will have no legal effect.
The nominees for Director and the principal officers of the Corporation have
indicated that they intend to vote all shares of Common Stock which they are
entitled to vote FOR the election of each of the nominees for Director. As of
March 13, 1998, the current Directors and executive officers of the Corporation
in the aggregate had the right to vote 318,162 shares of Common Stock,
representing approximately 1.4% of the outstanding Common Stock as of such date.
It is intended that the proxies received by management will be voted FOR the
election of the nominees for Directors described below, unless authority to do
so is withheld. The Board of Directors anticipates that each of the nominees for
Director will serve as a director if elected. However, if any person nominated
by the Board of Directors is unable to accept election, the proxies will be
voted for the election of such other person or persons as the Board of Directors
may recommend.
NOMINEES FOR DIRECTOR
The following persons are the nominees for election to the Board of
Directors:
MALIN BURNHAM, age 70, has been Chairman of the Board of Directors since
1986 and served as interim President and Chief Executive Officer from October
1994 to September 1995. Mr. Burnham is a private investor. He is also Chairman
of John Burnham & Company and of First National Bank (San Diego) and a Trustee
of The Burnham Institute.
JAMES D. HARPER, JR., age 64, has been a Director since 1997. Mr. Harper has
been President of JDH Realty Co. in Miami, Florida since 1982 and is the
principal partner in AH Development, S.E. and AH HA Investments, S.E., both of
which are partnerships developing land in Puerto Rico. From 1971 until 1985, Mr.
Harper worked for Continental Illinois Corporation, serving as its Executive
Vice President in charge of all domestic and international real estate services
beginning in 1974. From 1969 until its acquisition by Continental Illinois
Corporation in 1971, Mr. Harper served as President and Chief Executive Officer
of Group Counselor's Inc., a privately held REIT management company. He is a
Director of Equity Residential Properties Trust, Equity Office Properties Trust,
American Health Properties, Inc. and JDH Realty Co.
JAMES D. KLINGBEIL, age 62, has been a Director since 1996. He is Chairman,
President and Chief Executive Officer of American Apartment Communities, Inc. He
is a Trustee and former President of the
2
<PAGE>
Urban Land Institute, and a member of the Chief Executives Organization and
World Business Council, and serves on the Policy Advisory Board for the Center
for Real Estate and Urban Economics, University of California. He has also
served as Public Interest Director of Federal Home Loan Bank of Cincinnati and
as a member of the Young Presidents' Organization and the Federal Home Loan
Mortgage Corporation Advisory Board.
J. DAVID MARTIN, age 42, became President, Chief Executive Officer and a
Director of the Corporation on October 1, 1995. From 1984 until joining the
Corporation, Mr. Martin was the Founder, Chairman and Chief Executive Officer of
The Martin Group of Companies, Inc. (the "Martin Group"), a full-service real
estate development and management company of which Mr. Martin still retains the
title of Chairman. Mr. Martin is a Trustee of Golden Gate University and a
member of the Policy Advisory Board for the Center for Real Estate and Urban
Economics at the University of California. He is a Director of the Bay Area
Council and a Director of the Bay Area Economic Forum. Mr. Martin is a member of
the Young Presidents' Organization and serves on its international board. He is
also a member of the Urban Land Institute, International Council of Shopping
Centers and the National Association of Real Estate Investment Trusts.
NINA B. MATIS, age 50, a new candidate for Director, is a partner in and
member of the Executive Committee of the law firm of Katten Muchin & Zavis, in
Chicago, Illinois. She became a partner in the firm in September 1976. During
the years 1984 through 1987, she was Adjunct Professor at Northwestern
University School of Law where she taught Real Estate Transactions. She is a
member of the American College of Real Estate Lawyers, Ely Chapter of Lambda
Alpha International, Chicago Finance Exchange, Urban Land Institute, REFF,
Chicago Real Estate Executive Woman, The Chicago Network and The Economic Club
of Chicago.
DONNE P. MOEN, age 62, has been a Director since 1996. He is the retired
President and Vice Chairman of Union Bank in California, where he served in a
variety of executive positions from 1963 until 1992. Mr. Moen is also a member
of the board of a number of civic and nonprofit organizations including The Los
Angeles Library Foundation, The Los Angeles Urban League, Los Angeles
Educational Partnership, Toberman Settlement House, and Chadwick School.
THOMAS A. PAGE, age 65, has been a Director since 1992. He is the former
Chairman and Chief Executive Officer of San Diego Gas and Electric Company,
serving in that capacity from 1983 through the end of 1997. He also served as
Chairman of Enova Corporation from its inception in 1996 through the end of
1997. He will continue as a Director of both corporations until their annual
meetings in 1998. Mr. Page is a Director of USCS International, the California
Chamber of Commerce and is a member of the Board of Overseers of the University
of California at San Diego. He is a Certified Public Accountant and a
professional engineer.
PHILIP S. SCHLEIN, age 63, has been a Director since 1996. He has been a
partner in U.S. Venture Partners, a California based venture capital company,
since 1985. Prior to that time, he had a 28-year career in the retailing
industry, including serving as President and Chief Executive Officer of Macy's
California from 1974 to 1985. Mr. Schlein was a member of the Board of Directors
of Apple Computer, Inc. from 1979 to 1987. He currently serves as a Director of
Ross Stores, Inc., ReSound Corporation, Quick Response Services and a number of
private companies.
ROBIN WOLANER, age 43, has been a Director since 1997. Ms. Wolaner is
Executive Vice President of C/ Net Inc., an internet media company, Chairman of
Online Partners, Inc. and a Director of Medical SelfCare Inc., a health products
marketing company. From 1992 to 1995, she was President and Chief Executive
Officer of Sunset Publishing Corporation. In 1986, Ms. Wolaner founded The
Parenting Group, later serving as its President and Chief Executive Officer from
1990 to 1992. Ms. Wolaner also served as the Vice President in charge of
Development of Time Publishing Ventures from 1990 to 1992. She is a frequent
public speaker and has been an instructor at the Radcliffe Publishing Procedures
Course since 1982.
3
<PAGE>
EXECUTIVE OFFICERS
The following persons are executive officers of the Corporation:
<TABLE>
<CAPTION>
NAME POSITIONS
- ------------------------------- -------------------------------------------------------------
<S> <C>
J. David Martin................ President, Chief Executive Officer
Daniel B. Platt................ Executive Vice President, Chief Financial Officer, Chief
Administrative Officer
Kris Hoffman................... Executive Vice President, Chief Operating Officer
James W. Gaube................. Senior Vice President, Chief Investment Officer
James M. Kessler............... Senior Vice President, Chief Development Officer
Michael L. Rubin............... Senior Vice President
</TABLE>
MR. MARTIN'S biography is set forth above.
MR. PLATT, age 51, has been the Chief Financial Officer and Chief
Administrative Officer of the Corporation since October 1995. Until 1994, Mr.
Platt was Group Executive Vice President of Bank of America with responsibility
for merging the real estate lending activities of the two banks upon Bank of
America's acquisition of Security Pacific Bank in 1992. Mr. Platt joined
Security Pacific Bank in 1990 as Executive Vice President responsible for
creating a new real estate workout group and in 1991 was made Vice Chairman of
the Real Estate Industries Group, where he assumed additional corporate
management responsibilities for all real estate activities. Prior to joining
Security Pacific Bank, Mr. Platt spent 20 years with Union Bank, where he was
responsible for all real estate and commercial lending activities.
MR. HOFFMAN, age 57, joined the Corporation in July 1997 as Regional
Operating Officer in charge of the Corporation's Los Angeles operations. He
assumed his present title in February 1998. Prior to joining the Corporation, he
had served since 1988 in a number of capacities including President, Chief
Operating Officer and Partner with Albert B. Glickman & Associates and H&G
Development Company in Beverly Hills, California, where he was responsible for
all development activities for neighborhood, community and power centers
throughout California and in Nevada and Hawaii. A licensed attorney and a Senior
Certified Shopping Center Manager, Mr. Hoffman is a member of the International
Council of Shopping Centers and is on the Advisory Board of the California
Business Properties Association.
MR. GAUBE, age 48, joined the Corporation in February 1997 to start up the
Corporation's operations in the Pacific Northwest. He assumed his present title
in February 1998. From June 1995 until joining the Corporation, Mr. Gaube served
as Senior Vice President of Real Estate, Design & Construction of Thrifty
Payless, Inc. From July 1994 through May 1995, he served as Western Regional
Director of Real Estate for Home Depot and from 1986 through June 1994, Mr.
Gaube served as Senior Vice President of Real Estate & Construction for Payless
Drug Stores Northwest, Inc. Beginning in 1966, Mr. Gaube enjoyed a twenty year
career at Safeway Stores, Inc. where he served as Regional Real Estate Director
prior to leaving.
MR. KESSLER, age 45, joined the Corporation in October 1995 as Director of
Development and Regional Operating Officer responsible for the Corporation's
Northern California operations. He assumed his present title in February 1998.
From 1990 until joining the Corporation, Mr. Kessler served as Executive Vice
President of The Martin Group, with overall responsibility for the company's
retail developments. Between 1985 and 1990, Mr. Kessler served as Director of
Marketing for Transpacific Development Company.
MR. RUBIN, age 52, has been an officer of the Corporation since 1986,
serving in various capacities and with various titles since that date, most
recently as Regional Operating Officer responsible for the Corporation's
operations in Orange County and San Diego. He assumed his present title in
January 1998. Mr. Rubin is a Certified Property Manager and a licensed real
estate broker.
4
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of the March 13, 1998 record date for
the Annual Meeting by (i) each Director and nominee for Director, (ii) the
Corporation's Chief Executive Officer and the four other most highly compensated
executive officers whose total salary and bonus exceeded $100,000 during 1997,
and (iii) all Directors and executive officers of the Corporation as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------------------- -------------------- ---------
<S> <C> <C>
Malin Burnham................................................. 349,316(1)(2) 1.5%
James D. Harper, Jr........................................... 1,977 *
James D. Klingbeil............................................ 27,807(3) *
J. David Martin............................................... 380,000(1)(4) 1.6%
Nina B. Matis................................................. -- --
Donne P. Moen................................................. 9,675(5) *
Thomas A. Page................................................ 33,684(1) *
Philip S. Schlein............................................. 7,115 *
Robin Wolaner................................................. 1,950 *
Daniel B. Platt............................................... 233,555(1)(6)(7) 1.0%
Kris Hoffman.................................................. 1,100 *
Michael L. Rubin.............................................. 62,833(1)(7)(8) *
James M. Kessler.............................................. 40,516(1)(4)(7) *
- ------------------------
All Director nominees and executive officers of the
Corporation as a group (14 persons)......................... 1,150,528(1) 4.9%
</TABLE>
- ------------------------
* less than 1%
(1) Based upon information provided by the Director nominees and executive
officers, such persons have the direct right to vote and dispose of all such
shares except (i) the following number of shares included in the table which
are not yet outstanding which the following persons have the right presently
to acquire under outstanding options that are vested or will vest within 60
days: Messrs. Burnham 164,500, Martin 350,000, Page 15,000, Platt 216,668,
Rubin 46,200, Kessler 40,000, all Director nominees and executive officers
as a group 832,368, and (ii) as set forth in the following notes.
(2) Includes 8,877 shares of Common Stock held by Mr. Burnham as trustee of a
trust in which Mr. Burnham disclaims any economic interest.
(3) Includes 2,200 shares of Common Stock held by Mr. Klingbeil as trustee of a
trust in which Mr. Klingbeil disclaims any economic interest.
(4) In addition to the shares of Common Stock included in the table, Mr. Martin
also holds 62,537 limited partner units in two partnerships of which the
Operating Partnership is general partner. Each such partnership owns a
completed retail center acquired from Mr. Martin and other affiliates of the
Martin Group. Each such unit is exchangeable on a 1-for-1 basis for a share
of the Corporation's Common Stock. Mr. Kessler, an executive officer, held
9,866 of such exchangeable limited partner units, which he redeemed for cash
on February 25, 1998, and currently holds 15,525 of such exchangeable
limited partner units.
(5) Includes 4,800 shares of Common Stock as to which Mr. Moen shares the power
to vote and dispose.
(6) Includes 2,500 shares of Common Stock held in an IRA for Mr. Platt's wife,
as to which Mr. Platt disclaims any beneficial or economic interest, and
13,200 shares of Common Stock as to which Mr. Platt shares the power to vote
and dispose.
(FOOTNOTES CONTINUED ON NEXT PAGE)
5
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(7) Based upon information provided by the Director nominees and executive
officers, the following persons beneficially own the following number of
shares of Common Stock included in the table which are held in 401(k) plans:
Messrs. Platt 1,189, Kessler 516, Rubin 9,015.
(8) Includes 310 shares of Common Stock held in an IRA for Mr. Rubin's wife and
760 shares of Common Stock held by Mr. Rubin's children as to which Mr.
Rubin disclaims any beneficial or economic interest, and 5,977 shares of
Common Stock as to which Mr. Rubin shares the power to vote and dispose.
BENEFICIAL OWNERSHIP OF NON-MANAGEMENT
Information known to the Corporation with respect to beneficial ownership
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of more than 5% of each class of the Corporation's voting
securities (the "Shares") as of the March 13, 1998 record date for the Annual
Meeting is as follows. Such information is based upon filings received by the
Corporation under the Exchange Act, with respect to the Common Stock, and the
terms of the Stock Purchase Agreement by and among Westbrook Burnham Holdings,
L.L.C., Westbrook Burnham Co-Holdings, L.L.C., Burnham Pacific Properties, Inc.
and Burnham Pacific Operating Partnership, L.P. dated as of December 5, 1997
(the "Stock Purchase Agreement"), with respect to the Series A Preferred Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL OWNERSHIP
----------------------
SERIES A
COMMON PREFERRED PERCENT OF
NAME AND ADDRESS STOCK STOCK CLASS
- ---------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co.(1) 1,879,150 8.02%
1585 Broadway
New York, NY 10036
Westbrook Burnham Holdings, L.L.C. and 2,799,990 100%
Westbrook Burnham Co-Holdings, L.L.C.(2)
11150 Santa Monica Blvd., Suite 1450
Los Angeles, CA 90025
</TABLE>
- ------------------------
(1) In a filing on Schedule 13 under the Exchange Act dated February 12, 1998,
Morgan Stanley, Dean Witter, Discover & Co. and its wholly-owned subsidiary,
Morgan Stanley Asset Management Inc., reported that the former had shared
voting and dispositive power with respect to 1,744,150 and 1,879,150 of such
shares, respectively, and that the latter had shared voting and dispositive
power with respect to 1,203,900 and 1,338,900 of such shares, respectively.
(2) The Series A Preferred Stock beneficially owned by Westbrook Burnham
Holdings, L.L.C. and Westbrook Burnham Co-Holdings, L.L.C. vote with the
Common Stock as if fully converted into Common Stock. If such shares were
fully converted, such holders would be the beneficial owners of
approximately 4,552,800 shares of Common Stock representing 16.3% of the
outstanding number of shares of Common Stock after giving effect to such
conversion.
DIRECTORS' AND COMMITTEE MEETINGS
During 1997, the Board of Directors met eight times. Each of the Directors
attended at least 75% of the total number of Board of Director meetings. Each of
the Directors attended at least 75% of the total number of meetings of Board
committees on which he or she served. The Corporation has standing Audit and
Compensation Committees. The Compensation Committee also suggests nominees to
the Board of Directors for their election as Directors.
6
<PAGE>
AUDIT COMMITTEE. The members of this committee from January 1, 1997 until
the 1997 Annual Meeting held on May 6, 1997, were Messrs. Donne P. Moen
(Chairman), Richard R. Tartre and Philip L. Gildred, Jr., who did not stand for
reelection. The members of this committee for the remainder of 1997 were Messrs.
Donne P. Moen (Chairman), Richard R. Tartre and Ms. Robin Wolaner. This
committee advises and assists the Corporation's principal financial officer in
making periodic overall reviews of the Corporation's internal controls and
financial statements, appoints the Corporation's independent auditors for the
Corporation's annual audit, meets periodically with the auditors to discuss
their audit, and advises and provides oversight of the Corporation's internal
audit activities. This committee held three meetings in 1997, one before and two
after the 1997 Annual Meeting.
COMPENSATION COMMITTEE. The members of this committee from January 1, 1997
until the 1997 Annual Meeting held on May 6, 1997, were Messrs. Thomas A. Page
(Chairman), James D. Klingbeil and Philip S. Schlein. The members of this
committee for the remainder of 1997 were Messrs. Thomas A. Page (Chairman),
James D. Klingbeil, Philip S. Schlein and James D. Harper, Jr. This committee
did not meet during 1997, but met on January 13, 1998 with respect to
compensation for 1997. See "Report of the Compensation Committee" for additional
information.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Corporation's executive
officers and directors, and persons who are beneficial owners of more than 10%
of a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than 10% beneficial owners are required
by SEC regulations to furnish the Corporation with copies of all Section 16(a)
forms they file. To the Corporation's knowledge, based solely on review of the
copies of such reports furnished to the Corporation, and written representations
that no other reports were required during the fiscal year ended December 31,
1997, all Section 16(a) filing requirements applicable to such persons were
satisfied, except that Mr. Harper inadvertently did not file on a timely basis
one report relating to two issuances of an aggregate of 27 shares of Common
Stock and Mr. Hoffman's initial report of ownership following his becoming an
executive officer was filed approximately two weeks late.
EXECUTIVE COMPENSATION
DIRECTORS
The Corporation awarded to each Director, with the exception of Mr. Harper
and Ms. Wolaner, 750 Director Restricted Shares on March 31, 1997, June 30,
1997, September 30, 1997 and December 31, 1997 for their services as Directors.
The Corporation awarded to each of Mr. Harper and Ms. Wolaner 450 Director
Restricted Shares on June 30, 1997 and 750 Director Restricted Shares on each of
September 30, 1997 and December 31, 1997. Mr. Martin receives no compensation
for his services as a Director in addition to his compensation as President and
Chief Executive Officer.
7
<PAGE>
EXECUTIVE OFFICERS
Compensation paid to each person serving as Chief Executive Officer and each
of the four most highly compensated other officers whose total compensation for
1997 equaled or exceeded $100,000 is summarized in the following table. See also
"Report of the Compensation Committee."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
----------------------------------------- COMPENSATION AWARDS
OTHER --------------------------
ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (# SHARES) COMPENSATION
- -------------------------------------------- --------- ---------- ---------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. David Martin(1).......................... 1997 $ 250,000 $ 350,000 (2) 300,000(3) $ -0-
President/Chief Executive Officer 1996 $ 250,000 $ -0- (2) 300,000 $ -0-
1995 $ 62,500 $ -0- (2) 250,000 $ -0-
Daniel B. Platt(1).......................... 1997 $ 200,000 $ 175,000 (2) 150,000(3) $ 4,000(4)
Executive Vice President, 1996 $ 200,000 $ -0- (2) 125,000 $ 2,000(4)
Chief Financial Officer, 1995 $ 50,000 $ -0- (2) 175,000 $ -0-
Chief Administrative Officer
James M. Kessler(1)......................... 1997 $ 175,000 $ 100,000 (2) -0- $ 3,500(4)
Senior Vice President, 1996 $ 175,000 $ -0- (2) 30,000 $ 1,750(4)
Chief Development Officer 1995 $ 47,500 $ -0- (2) 30,000 $ -0-
Michael L. Rubin............................ 1997 $ 175,000 $ -0- (2) 15,000(3) $ 3,500(4)
Senior Vice President 1996 $ 175,000 $ -0- (2) 17,500 $ 3,500(4)
1995 $ 175,000 $ 28,000 (2) -0- $ 3,500(4)
Kris Hoffman(5)............................. 1997 $ 91,190 $ 75,000 (2) 30,000(3) $ -0-
Executive Vice President,
Chief Operating Officer
</TABLE>
- ------------------------
(1) Messrs. Martin, Platt and Kessler joined the Corporation effective October
1, 1995.
(2) Other annual compensation, if any, constituted less than 10% of such
person's salary and bonus.
(3) Subject to stockholder approval of Proposal 3.
(4) Corporation's matching contributions to employee's 401(k) plan.
(5) Mr. Hoffman joined the Corporation effective June 23, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to any of the officers listed in the Summary
Compensation Table above during 1997. See "Report of the Compensation Committee"
and "Proposal 3--Increase in Number of Shares Awardable Under Stock Option and
Incentive Plan" for a description of certain options granted by the Compensation
Committee in January 1998.
8
<PAGE>
AGGREGATED OPTIONS EXERCISED IN LAST
FISCAL YEAR AND YEAR-END OPTION VALUE
The following table sets forth information with respect to options exercised
during 1997 and unexercised options at the end of the year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END
(#) ($)
SHARES ACQUIRED VALUE ----------------- --------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------- ------------------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
J. David Martin............................. -- -- 350,000/200,000 $890,625/$562,500
President, Chief Executive Officer
Daniel B. Platt............................. -- -- 216,666/83,334 $543,748/$234,377
Executive Vice President,
Chief Financial Officer, Chief
Administrative Officer
Kris Hoffman................................ -- -- -- --
Executive Vice President,
Chief Operating Officer
James M. Kessler............................ -- -- 40,000/20,000 $101,250/$56,250
Senior Vice President, Chief
Development Officer
Michael L. Rubin............................ -- -- 40,367/5,833 $32,813/$16,405
Senior Vice President
</TABLE>
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
GENERAL
The Compensation Committee of the Board of Directors consists of four
members, all of whom are independent directors of other companies. Two members
of the Committee have extensive experience as directors and chief executive
officers of public companies or major operating divisions of public companies,
the third has extensive experience as a director and chief executive officer of
private companies and the fourth has extensive experience as a director of a
public company and chief executive officer of a private company. No member of
the Committee was or is an officer or employee of the Corporation.
The Corporation has retained the same compensation consultant which has
advised the Committee and senior management since 1995. During 1997 the
Committee worked with the compensation consultant with the goal of assessing the
competitiveness of the Corporation's compensation and benefits program and of
enhancing the program and maintaining its competitiveness by incorporating
incentive-based compensation strategies.
The compensation consultant's report for 1997, which reviewed industry
background and appropriate comparatives, provided recommendations regarding both
compensation structure in general and specific compensation for various
positions. The consultant's final report was received in January 1998, and based
on this report and the consultant's presentation at a meeting of the
Compensation Committee in January 1998, the Committee concluded that the total
compensation for the Chief Executive Officer and the other executive officers
should be consistent with a subset of the REIT industry that reflects similar
business characteristics as the Corporation.
At the January 1998 meeting, the Committee reaffirmed the compensation
philosophies which it adopted in 1996 to guide it in establishing executive
compensation. In an effort to align employee and owner interests in the
Corporation, the Committee decided to maintain its previously adopted philosophy
that executive compensation should be heavily weighted toward incentives, which
will take the form of largely stock-based incentives with respect to employees
at the officer level and largely cash-based incentives below the officer level.
The Committee also reaffirmed its philosophy that the compensation policy
and the structure of compensation should be closely monitored to assure that the
Corporation's compensation program remains competitive and consistent with the
industry. To assist in achieving this objective, the Committee decided to
continue to retain the consultant to provide recommendations as to reasonable
comparatives and compensation components and levels on an ongoing basis.
SALARY AND BONUS
Mr. Martin joined the Corporation effective October 1, 1995. Pursuant to his
Employment Agreement of the same date (the "Employment Agreement"), Mr. Martin
serves as the Corporation's President, Chief Executive Officer and a Director
for an indefinite term, subject to termination by the Corporation or Mr. Martin.
Pursuant to the Employment Agreement, Mr. Martin received a base salary at the
annual rate of $250,000 in 1996. Although Mr. Martin's salary was approved at
the annual rate of $350,000 effective April 1, 1997, he voluntarily postponed
the $100,000 increase and instead maintained a base salary of $250,000 for 1997.
At its meeting in January 1998, after considering the data furnished by the
consultant and evaluating the performance of Mr. Martin, the Committee voted to
increase Mr. Martin's base annual salary to $400,000 effective February 1, 1998.
Mr. Platt also joined the Corporation on October 1, 1995 as Chief Financial
Officer and an Executive Vice President, at a base annual salary of $200,000.
Mr. Platt's salary remained at this level throughout 1996. At its December 1996
meeting, the Committee voted to increase Mr. Platt's base salary to $250,000
effective April 1, 1997. Mr. Platt voluntarily postponed the $50,000 increase
and instead maintained a salary of $200,000 for 1997. At its meeting in January
1998, the Committee voted to increase Mr. Platt's
10
<PAGE>
salary to $250,000 and to establish the salary of Mr. Hoffman at $250,000, the
salaries of Messrs. Gaube and Kessler at $200,000 each, and the salary of Mr.
Rubin at $175,000, effective for 1998.
Supplemental or bonus compensation is awarded to the Chief Executive Officer
and the executive officers of the Corporation at the discretion of the
Committee. At the meeting held on January 13, 1998, the Committee considered the
recommendations of the consultant and, based upon the performance of the
Corporation during 1997 and consistent with its philosophies, awarded Mr. Martin
a $350,000 bonus, Mr. Platt a $175,000 bonus, Messrs. Gaube and Kessler a
$100,000 bonus each and Mr. Hoffman a $75,000 bonus. Keeping with its policy of
providing incentive-based compensation, the Committee also voted to grant
certain stock options as described below.
STOCK OPTIONS
The Committee believes that the Chief Executive Officer and the other
executive officers should have the opportunity to acquire a significant equity
interest in the Corporation, and that options to acquire increased stakes in the
Corporation are an appropriate component of an overall compensation program. As
noted above, at its meeting in January 1998, the Committee reiterated its
compensation philosophy of aligning employee and owner interests. Incorporating
this philosophy with the desire to provide compensation consistent with officer
compensation of other REITs with similar business characteristics, the Committee
awarded Mr. Martin an option for 300,000 shares, Mr. Platt an option for 150,000
shares, Messrs. Hoffman and Gaube an option for 30,000 shares each, and Mr.
Rubin an option for 15,000 shares, all exercisable at $12.50 per share, the
current value of the Corporation's stock on the New York Stock Exchange at the
time such options were approved in December 1996.
Thomas A. Page, Chairman
James D. Harper, Jr.
James D. Klingbeil
Philip S. Schlein
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<PAGE>
STOCK PERFORMANCE
The following graph compares the Corporation's stock price for the past five
years with the Standard & Poor's 500 Index and the Equity REIT Index prepared by
the National Association of Real Estate Investment Trusts ("NAREIT"). The graph
assumes all dividends were reinvested at the market price on the day the
dividend was paid.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Index (12/31/92=100)
<S> <C> <C> <C>
S&P 500 Burnham All Equity REITs (1)
Dec-92 100.000 100.000 100.000
Dec-93 110.040 116.030 119.655
Dec-94 111.490 94.460 123.449
Dec-95 153.330 79.760 142.295
Dec-96 188.510 134.830 192.478
Dec-97 251.390 147.680 231.474
</TABLE>
- ------------------------
(1) Source: NAREIT Total Return Index
PROPOSAL 2
APPROVAL OF THE ISSUANCE OF COMMON STOCK
On December 31, 1997 the Corporation completed a series of transactions in
which, through certain of its subsidiaries, it acquired a portfolio of twenty
shopping centers (the "Golden State Properties") from investment funds
affiliated with Blackacre Capital Group, L.P. and Highridge Partners (the
"Golden State Acquisition"). The Corporation financed the Golden State
Acquisition through the privately negotiated sale of $70 million of the
Corporation's newly designated Series 1997-A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), the borrowing of first
mortgage debt collateralized by nineteen of the Golden State Properties,
additional borrowings under the Corporation's existing credit facility with
Nomura Asset Capital Corporation and the issuance by the Corporation's newly
formed operating partnership, Burnham Pacific Operating Partnership, L.P. (the
"Operating Partnership") of $50 million of Series 1997-A Preferred Units (the
"Preferred Units" and together with Common Units that may be issued to the
contributors of the Golden State Properties as a part of the additional
consideration therefor, the "Exchangeable OP Units"). The Series A Preferred
Stock and Exchangeable OP Units (collectively, the "Convertible Securities") are
convertible or exchangeable into shares of Common Stock, subject to stockholder
approval as described below.
Under the Corporation's Charter and the Maryland General Corporation Law,
the Board of Directors had the authority to approve the issuance of the Series A
Preferred Stock without stockholder approval. Under the Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement") and the
Delaware Revised Uniform Limited Partnership Act, the Corporation, as general
partner of the Operating Partnership, had the authority to approve the issuance
by the Operating Partnership of the Exchangeable OP Units without stockholder
approval. However, because the Convertible Securities are potentially
convertible or exchangeable into a number of shares of Common Stock that exceeds
20% of the number of shares of Common Stock issued and outstanding prior to the
issuance of such Convertible Securities, Rule 312 of the New York Stock Exchange
(the "NYSE") requires stockholder approval of the issuance of shares of Common
Stock in excess of such number upon conversion or exchange of the Convertible
Securities (the "Conversion Issuance") in order for the Common Stock to be
listed on the NYSE. On December 29, 1997, the NYSE approved the listing of
11,125,878 shares of Common Stock to
12
<PAGE>
be issued upon conversion or exchange of the Convertible Securities subject to
such stockholder approval and 4,665,127 shares of Common Stock in the event that
stockholder approval is not obtained.
The Board of Directors would not have caused the Corporation to issue the
Series A Preferred Stock and the Operating Partnership to issue the Preferred
Units and possibly Common Units if it had not believed that the acquisition and
the issuance of such securities were clearly in the interest of the Corporation.
The transactions involved in effecting the Golden State Acquisition and the
terms of the securities issued are described below. The Board of Directors seeks
the approval of the stockholders for the issuance of Common Stock upon the
conversion and exchange of all of the Convertible Securities. Only holders of
Common Stock are eligible to vote on this Proposal 2. Failure of the
stockholders to approve the Conversion Issuance at the Annual Meeting (or a
subsequent special meeting held not later than June 30, 1998) will require that
the Corporation redeem a significant amount of the Convertible Securities
(approximately $50,000,000 worth) by June 30, 1998 and to incur significant
penalties if the Corporation fails to meet such redemption obligation (see
"--Impact of Failure to Approve the Issuance of the Common Stock: Mandatory
Redemption" below); and the Board of Directors believes that substituting
additional borrowed money for such amount of equity securities issued to acquire
the Golden State Properties would result in undesirably increasing the portion
of the Corporation's total capital represented by debt rather than equity.
DESCRIPTION OF GOLDEN STATE ACQUISITION TRANSACTIONS
AGREEMENT TO CONTRIBUTE
As part of the Golden State Acquisition, the Corporation entered into an
Agreement to Contribute dated as of December 5, 1997 (the "Contribution
Agreement") with investment funds affiliated with Blackacre Capital Group, L.P
and Highridge Partners (together, the "Contributors") pursuant to which the
Contributors contributed the Golden State Properties, a portfolio of twenty
shopping centers containing approximately 2.6 million square feet of gross
leasable area, to the Operating Partnership in exchange for initial
consideration $302.4 million and the right to receive up to $41.6 million of
additional consideration. That initial consideration consisted of 2,000,000
Preferred Units issued at an agreed upon price of $25 per unit and other
consideration, consisting primarily of cash.
The Corporation financed the cash portion of the initial consideration for
the Golden State Properties through the privately negotiated sale of $70 million
of Series A Preferred Stock, the borrowing of $150 million in first mortgage
debt collateralized by certain of the Golden State Properties and additional
borrowings under its existing credit facility with Nomura Asset Capital
Corporation.
The Contributors have the right to receive additional consideration of up to
$41.6 million for additional value resulting from the lease-up of certain
specified portions of the Golden State Properties and construction and lease-up
of certain additional space. The additional consideration, if any, will be based
upon incremental income and will be paid out over an eighteen-month period. The
Contributors have the option of taking the additional consideration in Common
Units with the number of such Common Units to be the amount of such additional
value divided by the then fair market value (as determined at the respective
times of payment) of the Common Stock. The Contributors will have the option of
having the Corporation or the Operating Partnership immediately redeem such
Common Units for cash. In no event will the value of the initial and additional
consideration exceed $344 million in the aggregate.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The Corporation's sale of $70 million of Series A Preferred Stock was
pursuant to a Stock Purchase Agreement dated as of December 5, 1997 (the "Stock
Purchase Agreement") among the Corporation and affiliates of Westbrook Real
Estate Partnership II, L.P., and Westbrook Real Estate Co-Investment Partnership
II, L.P. (together, the "Buyer"). Under the terms of the Stock Purchase
Agreement, the
13
<PAGE>
Corporation issued to the Buyer 2,800,000 shares of Series A Preferred Stock at
an agreed upon price of $25 per share for cash. The Series A Preferred Stock has
a dividend yield of 8% and is convertible after a period of approximately one
year into Common Stock at a conversion price per share initially equal to
$15.375, which price represents 107% of the $14.375 base price of the Common
Stock at the time that the principal terms of the Series A Preferred Stock were
negotiated.
MORTGAGE FINANCING
As additional financing for the Golden State Acquisition, on December 31,
1997, the Corporation's (and the Operating Partnership's) subsidiary BPP/Golden
State Acquisitions, L.L.C. ("Golden State LLC") sold to Nomura Asset Capital
Corporation its 8.33% $135,039,950.82 mortgage promissory note due December 31,
2007 for $150 million, being the equivalent of a 6.76% $150 million mortgage
promissory note with the same maturity. The Corporation has accounted for the
sale of the mortgage note and expects to account for the payment of principal
and interest thereon as if the note were a 6.76% $150 million mortgage
promissory note. This first mortgage debt is collateralized by nineteen of the
twenty Golden State Properties. The assets of Golden State LLC, including the
Golden State Properties, are not available to satisfy claims that any creditor
may have against the Corporation or the Operating Partnership or any other
affiliate of the Corporation other than Golden State LLC. Golden State LLC has
not agreed to pay or make its assets available to pay creditors of the
Corporation or the Operating Partnership or any other affiliate other than
Golden State LLC.
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.
In December 1997, the Corporation substantially completed the process of
transferring legal or beneficial ownership of the real property and related
personal property owned by the Corporation and its subsidiaries to the Operating
Partnership or subsidiaries of the Operating Partnership. The Operating
Partnership is consequently the vehicle through which the Corporation now owns
its current assets, will make its future acquisitions and generally conducts its
business. The Corporation believes that this structure (frequently called an
"UPREIT structure") enhances the Corporation's ability to acquire properties
from existing owners on a basis which the Corporation understands may defer the
recognition of certain federal income taxes to the contributing owners. The
Corporation is the sole general partner of the Operating Partnership and the
owner of a substantial majority of the limited partner interests in the
Operating Partnership. Effective January 1, 1998, the Operating Partnership has
assumed the paymaster function of the Company, whose former employees thereupon
became employees of the Operating Partnership.
DESCRIPTION OF CONVERTIBLE SECURITIES
Of the 5,000,000 authorized shares of Preferred Stock of the Corporation,
4,800,000 shares are designated Series 1997-A Convertible Preferred Stock.
Pursuant to the Agreement of Limited Partnership of the Operating Partnership,
the Corporation as the general partner of the Operating Partnership (the
"General Partner") holds an initial 1% interest in the Operating Partnership as
General Partner Units, with all other interests therein to be Limited Partner
Interests. Pursuant to the Partnership Agreement, the General Partner has
designated 4,800,000 units of Limited Partner Interest as Preferred Units. All
other units of Limited Partner Interest constitute Common Units that shall
collectively have all of the rights of the limited partners of the Operating
Partnership except for those that are expressly granted to the Preferred Units.
The following discussion summarizes certain features of the Series A
Preferred Stock of the Corporation and Common and Preferred Units of the
Operating Partnership.
14
<PAGE>
SERIES A PREFERRED STOCK OF THE CORPORATION
DIVIDENDS AND DISTRIBUTIONS
Holders of shares of Series A Preferred Stock are entitled to receive out of
funds legally available for the payment of dividends cumulative quarterly cash
dividends per share equal to the greater of (i) 2.00% (per quarter) of the
$25.00 per share stated value (the "Stated Value") of the Series A Preferred
Stock, and (ii) the amount of dividends payable on the number of shares of
Common Stock into which the shares of Series A Preferred Stock are convertible.
The dividends are payable on the last business day of March, June, September and
December of each year, commencing on the first such day after the issuance of a
share of Series A Preferred Stock (each a "Dividend Payment Date").
Cumulative quarterly cash dividends will accrue daily and will, to the
extent not paid in full on a Dividend Payment Date, together with accruals
thereon, accrue at the compounded quarterly rate of 2.00% from such Dividend
Payment Date until payment is made, whether or not the Corporation has earnings
or surplus.
Unless and until all accrued dividends on the Series A Preferred Stock
through the most recent preceding Dividend Payment Date have been paid (or are
being paid contemporaneously therewith), the Corporation may not, with certain
exceptions, (i) declare or pay any dividend, make any distribution (other than a
distribution payable solely in shares of Common Stock), or set aside any funds
or assets for payment or distribution with regard to (A) partnership interests
in the Operating Partnership (other than those partnership interests held of
record and beneficially by the Corporation), (B) shares of Common Stock and (C)
shares of any other class or series of stock of the Corporation to which the
shares of Series A Preferred Stock are prior in rank with regard to payment of
dividends or payments upon the liquidation, dissolution or winding-up of the
Corporation (collectively, the "Junior Shares"), (ii) redeem or purchase
(directly or indirectly), or set aside any funds or other assets for the
redemption or purchase of, any Junior Shares or (iii) authorize, take or cause
or permit to be taken any action of the general partner of the Operating
Partnership, that will result in (A) the declaration or payment or the setting
aside of funds or other assets for payment by the Operating Partnership of any
distribution to its partners, or (B) the redemption or purchase (directly or
indirectly) or the setting aside of funds or other assets for the redemption or
purchase of any partnership interests in the Operating Partnership, except for
exchange or conversions of partnership interests in the Operating Partnership in
the ordinary course into shares of (1) Common Stock or (2) pursuant to the
Partnership Agreement, Series A Preferred Stock.
While any shares of Series A Preferred Stock are outstanding, the
Corporation may not pay any dividend, or set aside any funds for the payment of
a dividend, with regard to any shares of any class or series of stock of the
Corporation which ranks on a parity with Series A Preferred Stock as to payment
of dividends unless at least a proportionate payment is made with regard to all
accrued dividends on the Series A Preferred Stock (except, as to any shares of
the Series A Preferred Stock as to which a notice of conversion has been
furnished by the holder thereof, at the effective time of conversion) through
the most recent preceding Dividend Payment Date.
Any dividend paid with regard to shares of Series A Preferred Stock will be
paid equally with regard to each outstanding share of Series A Preferred Stock,
except to the extent that shares of Series A Preferred Stock are outstanding for
differing amounts of time during the relevant dividend period.
VOTING RIGHTS
The holders of shares of Series A Preferred Stock have the right to vote on
all matters (other than this Proposal 2) on which the holders of Common Stock
are entitled to vote. They vote on an "as converted" basis with holders of
shares of the Common Stock, as though part of the same class as holders of
Common Stock. The number of shares of Common Stock deemed to be held of record
by holders of shares of Series A Preferred Stock on any record date is the
number of shares of Common Stock into which the
15
<PAGE>
shares of Series A Preferred Stock held by such holders would be entitled to be
converted on such record date. The holders of Series A Preferred Stock are
entitled to take such actions, and shall have such rights, as are available to
the holders of shares of Common Stock in the Charter and in the By-laws of the
Corporation. The holders of shares of Series A Preferred Stock do not have the
right to vote (and shall not be counted in determining whether a quorum is
present for such purposes) on this Proposal 2.
While any shares of Series A Preferred Stock are outstanding, the
Corporation may not, without approval of holders of at least a majority of the
outstanding shares of Series A Preferred Stock voting separately as a class,
take any of several actions described in the Articles Supplementary that would
diminish the rights of the holders of Series A Preferred Stock (including the
authorization or issuance of any class or series of stock that would rank prior
to or on a parity with the Series A Preferred Stock) or that would result in the
Corporation's transfer of its general partnership interest in the Operating
Partnership or a merger or consolidation of assets which would result in the
Common Stock having a value of less than $15.375 per share, or the termination
of the Corporation's qualification as a real estate investment trust, or a
change of control or certain other actions.
The Corporation shall act on or with respect to any matter as to which it is
entitled or requested to act in its capacity as a holder of Preferred Units of
the Operating Partnership by voting or otherwise acting with respect to all such
Preferred Units solely in accordance with instructions received from a majority
of the holders of Series A Preferred Stock of the Corporation.
DIRECTORS
The holders of the Series A Preferred Stock have the right to submit a
recommendation to the Nominating Committee of the Board of Directors for the
election of a director at the Annual Meeting and each annual meeting thereafter
(until the number of outstanding shares of Series A Preferred Stock is
significantly reduced).
Upon the failure of the Corporation to pay the full amount of the Series A
Preferred Stock preferential dividend for four consecutive quarters or upon
certain other defaults of the Corporation in its obligations with respect to the
Series A Preferred Stock, the number of members of the Board of Directors (as if
there were no vacancies or unfilled newly-created directorships thereon) shall
be automatically increased by two, from not more than 11 to not more than 13,
such that the holders of the Series A Preferred Stock, voting as a separate
class, shall be entitled immediately to elect two directors. The right of the
holders of shares of Series A Preferred Stock to elect two members of the Board
of Directors shall continue without interruption until the defaults are cured,
at which time the right of the holders of shares of Series A Preferred Stock to
elect directors and the terms of the incumbent directors elected by such holders
shall terminate. The right of the holders of shares of Series A Preferred Stock
to elect two members of the Board of Directors is subject to reinstatement upon
any further default. The election of directors by holders of shares of Series A
Preferred Stock shall be by the affirmative vote of the holders of a plurality
of the votes cast by such holders. Any director elected by the holders of shares
of Series A Preferred Stock may be removed by the holders of record of not less
than a majority of the outstanding shares of Series A Preferred Stock and, if so
removed, a successor may be elected by the holders of record of not less than a
majority of the outstanding shares of Series A Preferred Stock.
CHANGE OF CONTROL; LIQUIDATION
Upon a change in control in the Corporation, each holder of the Series A
Preferred Stock will be entitled to receive before any distributions made to
holders of any Junior Shares, including Common Stock, an amount per share equal
to the sum of (1) the Stated Value plus the per share amount of accrued
dividends with regard to the Series A Preferred Stock to the date of final
distribution (whether or not declared) and (2) 5% of the sum of the Stated Value
and the per share amount of outstanding dividends with regard to the Series A
Preferred Stock to the date of final distribution.
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<PAGE>
In the event of an involuntary liquidation, dissolution or winding-up of the
Corporation as a result of which the assets of the Corporation are sold to
multiple unrelated entities, and the holders of the Corporation's equity
securities receive solely cash in a distribution upon liquidation, each holder
of the Series A Preferred Stock shall be entitled to receive, before any
distributions made to holders of any Junior Shares, including Common Stock, an
amount per share equal to the sum of (i) the Stated Value plus (ii) the per
share amount of accrued dividends with respect to the Series A Preferred Stock
to the date of final distribution (whether or not declared). In the event of any
other involuntary or a voluntary
liquidation, dissolution or winding-up of the Corporation, each holder of the
Series A Preferred Stock shall be entitled to receive, before any distributions
made to holders of any Junior Shares, an amount per share equal to the sum of
(i) the Stated Value plus the per share amount of accrued dividends with respect
to the Series A Preferred Stock to the date of final distribution (whether or
not declared) and (ii) 5% of the sum of the Stated Value and the per share
amount of outstanding dividends.
Holders of Series A Preferred Stock may elect, in lieu of receiving the
change of control preference or the liquidation preference, as the case may be,
to receive Common Stock on conversion of Series A Preferred Stock.
CONVERSION INTO COMMON STOCK
OPTIONAL CONVERSION. On and after December 31, 1998, March 31, 1999, June
30, 1999, and September 30, 1999 (or earlier in the event of a change of control
or certain other defined events), each holder of shares of Series A Preferred
Stock will have the right to convert 25% of the shares of Series A Preferred
Stock held of record by such holder into a number of shares of Common Stock
equal to (i) the Stated Value plus the amount, if any, of the per share amount
of outstanding dividends as of the effective time of the conversion, divided by
(ii) $15.375, subject to antidilution adjustments (the "Conversion Price").
MANDATORY CONVERSION. After the fifth anniversary of the date of the first
issuance of shares of Series A Preferred Stock, the Corporation may give notice
of mandatory conversion of all of the outstanding Series A Preferred Stock if
the value of the Common Stock (both on the day prior to the notice of conversion
and on a value weighted basis over a period of time prior to such date) is
greater than $15.375 per share and after such notice all such outstanding shares
shall be mandatorily converted into Common Stock as provided in the Articles
Supplementary, except that each holder of Series A Preferred Stock shall have
the right, prior to the date established for such mandatory conversion, instead
to cause the Corporation to redeem such holder's Series A Preferred Stock at its
Stated Value plus accrued dividends to the redemption date multiplied by a
percentage equal to 105% if the redemption date is prior to December 31, 2003,
decreasing by 1% each year thereafter (but not less than 100% after December 31,
2007).
ADJUSTMENT OF CONVERSION PRICE. The Articles Supplementary provide for the
adjustment of the initial $15.375 conversion price upon the occurrence of
various events described therein, including among other events, any dividend or
distribution on the Common Stock of Common Stock, or other stock of the
Corporation, evidences of indebtedness, assets or rights or warrants or other
derivative securities to subscribe for or purchase any securities, any
subdivision, split or reclassification of the Common Stock, any issuance of
rights or warrants to purchase Common Stock to holders of the Common Stock, any
issuance or sale of any equity or debt securities convertible into or
exchangeable for Common Stock, certain issuances and sales of Common Stock and
certain reclassifications of, and changes in, the Common Stock.
COMMON UNITS OF THE OPERATING PARTNERSHIP
The Partnership Agreement provides that, subject to the preferences of any
class or series of partnership interest established by the General Partner, the
General Partner shall make distributions pro rata to partners holding Common
Units (including the General Partner Units held by the General Partner
17
<PAGE>
as Common Units for this purpose) in proportion to their respective partnership
interests. The Corporation will hold as many Common Units as there are shares of
Common Stock of the Corporation outstanding from time to time, and contemplates
making quarterly distributions to the holders of Common Units concurrently with
and in the same amounts as dividends paid by the Corporation on its Common Stock
(which amount is currently at the rate of $0.2625 per share payable on the last
business day of each of March, June, September and December).
In addition, the Partnership Agreement provides that, approximately one year
after the issuance of Common Units (or earlier in the event of certain
extraordinary transactions), the holder of each Common Unit other than the
Corporation will have the right to require the Operating Partnership to redeem
each Common Unit at a redemption price equal to the then market value of a share
of Common Stock. Such redemption will be in cash, except that the Corporation
may assume the redemption obligation and pay the redemption in the form of
registered shares of its Common Stock.
PREFERRED UNITS OF THE OPERATING PARTNERSHIP
The economic rights of holders of Preferred Units, with respect to
distributions and upon liquidation, are identical to the rights of holders of
Series A Preferred Stock. Distributions by the Operating Partnership with
respect to Preferred Units held by the Corporation will provide the funds to
enable the Corporation to make its distributions to the holders of the Series A
Preferred Stock. Holders of Preferred Units other than the Corporation will have
the right to exchange their Preferred Units for a like number of shares of
Series A Preferred Stock (upon which exchange the number of Preferred Units held
by the Corporation will increase so that the Corporation will always hold a
number of Preferred Units equal to the number of outstanding shares of Series A
Preferred Stock), with such right of exchange commencing on the earlier of the
date of the Annual Meeting, if the stockholders approve this Proposal 2, or,
with respect to Preferred Units not mandatorily redeemed following failure to
obtain the stockholder approval, approximately one year after the first issuance
of Preferred Units, or earlier upon the happening of certain events described in
the Partnership Agreement.
In general, the provisions of the Partnership Agreement that define the
economic rights of holders of Preferred Units other than the Corporation are
identical to the provisions of the Articles Supplementary that define the
economic rights of the holders of Series A Preferred Stock.
OTHER PROVISIONS
FIRST OFFER RIGHTS, REGISTRATION RIGHTS AND WAIVER OF LIMIT ON OWNERSHIP
The Contribution Agreement and the Stock Purchase Agreement each provide
that, upon the proposed issuance by the Corporation of any further equity
securities, the Contributors and the initial holders of the Series A Preferred
Stock shall have the right to purchase a number of such equity securities so as
to maintain their respective proportionate interests in the Corporation on a
fully diluted basis. Such right shall not apply, however, to certain specified
issuances including the issuance of up to $120 million of Common Stock not later
than June 30, 1998 at a public offering price of not less than $13.75 or after
the holdings of the Contributors and of the initial holders have fallen below
specified levels. The Corporation has also agreed to register the securities
held by the Contributors or the Buyer to facilitate their resale thereof, and to
include within registration statements of the Corporation shares that the
Contributors or the Buyer may desire to sell on a "tag-along" basis under
certain circumstances.
Based upon representations of the Contributors and of the Buyer of the
Series A Preferred Stock that no individual would, after giving effect to
applicable attribution rules of the Internal Revenue Code, own more than 9.8% of
the Common Stock or of the value of all of the capital stock of the Corporation,
and on certain other representations and agreements, the Board of Directors of
the Corporation has partially waived the "Limits" on ownership by any one person
that would otherwise limit the amount of capital stock of the Corporation that
the Buyer could own and that would otherwise limit the number of shares of
Preferred Stock and of Common Stock that the holders of Preferred Units may
acquire upon the exchange of their Operating Partnership Units for capital stock
of the Corporation.
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<PAGE>
APPROVAL REQUIRED TO AUTHORIZE ISSUANCE OF COMMON STOCK
An affirmative vote of a majority of the shares of Common Stock cast,
provided that all shares cast represent a majority of the shares of Common Stock
entitled to vote on Proposal 2, is required to approve the issuance of Common
Stock described above. Shares of Series A Preferred Stock may not be voted on
this Proposal 2. Abstentions and broker non-votes could result in the failure of
the votes cast to represent a majority of shares of Common Stock entitled to
vote but otherwise will not have an effect on the proposal.
GENERAL EFFECT OF APPROVAL ON EXISTING HOLDERS OF COMMON STOCK
If the Conversion Issuance is approved, the Convertible Securities would be
exchangeable for Common Stock, and upon exchange would permit the holders
thereof to vote on all matters on which the holders of Common Stock are entitled
to vote. Consequently, the voting rights of the current holders of Common Stock
would be subject to dilution. In addition, if the Conversion Issuance is
approved, the economic interest of the current holders of Common Stock would be
diluted to the extent that holders of Convertible Securities who would otherwise
be subject to mandatory redemption would retain their economic interest in the
Corporation.
IMPACT OF FAILURE TO APPROVE THE ISSUANCE OF THE COMMON STOCK: MANDATORY
REDEMPTION
If stockholder approval of this Proposal 2 is not obtained, the Corporation
will be obligated to redeem, not later than June 30, 1998, an aggregate number
of Preferred Units and shares of Series A Preferred Stock (other than shares
owned by the Corporation) that will result in the aggregate number of shares of
Common Stock issuable upon the conversion or exchange of Series A Preferred
Stock and Operating Partnership Units after such redemption not exceeding 19.9%
of the number of shares of Common Stock outstanding immediately prior to the
issuance of the Series A Preferred Stock and of the Preferred Units. Based upon
the number of shares of Common Stock outstanding at December 31, 1997, the
Corporation will be required to redeem 1,126,386 shares of Series A Preferred
Stock and 804,561 Preferred Units having an aggregate Stated Value of
$48,273,675. Such redemption will be in cash at the greater of the Stated Value
plus accrued dividends (or accrued distributions) or a price based upon the
current Common Stock market price on an "as converted" basis (the "Mandatory
Redemption Price"). In addition, the Corporation will not be able to issue
Common Stock in exchange for Common Units presented for redemption if Common
Units are issued and remain outstanding in connection with the Operating
Partnership's payment of the additional consideration for the Golden State
Properties.
To the extent that the Mandatory Redemption Price is not paid in full by
June 30, 1998, the unpaid portion thereof payable to the holders of Preferred
Units shall bear interest compounded at the lesser of the rate of 1.25% per
month and the highest lawful rate of interest until paid, and the Corporation
shall be responsible to the holders of the Series A Preferred Stock (but not to
the holders of the Preferred Units) for liquidated damages equal to 150% of the
portion of the Mandatory Redemption Price not paid by such date. The obligation
to pay such Mandatory Redemption Price, or to pay the higher interest on the
unpaid portion and/or the liquidated damage amount, could require the
Corporation to increase its short-term borrowings even if prevailing market
conditions are not favorable for such borrowings.
The Board of Directors believes the proposed Conversion Issuance is in the
best interest of the Corporation and recommends that stockholders approve the
proposed Conversion Issuance.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2.
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<PAGE>
PROPOSAL 3
INCREASE IN NUMBER OF SHARES AWARDABLE UNDER
STOCK OPTION AND INCENTIVE PLAN
Subject to approval by the stockholders, the Board of Directors has voted to
increase the number of shares for which awards may be granted under the
Corporation's Stock Option and Incentive Plan, as amended to date (the "Option
Plan") by 1,150,000 shares (the "Proposed Increase"), a number of shares that is
approximately 4.9% of the currently outstanding shares of Common Stock. The
Option Plan requires a vote of the Corporation's stockholders to give effect to
any increase in the number of shares as to which awards may be granted under the
Option Plan.
SUMMARY OF OPTION PLAN
NUMBER OF SHARES ISSUABLE. As amended and restated in 1997, the Option Plan
provides for the issuance of up to 1,800,000 shares of Common Stock pursuant to
the exercise of options or other awards granted under the Option Plan. At the
present time, and excluding options granted in January 1998, options have been
exercised with respect to 174,659 shares, options remain unexercised with
respect to 1,361,377 shares and options or other awards are available to be
granted with respect to 263,964 shares. If stockholders approve the Proposed
Increase, the number of shares of Common Stock available for issuance pursuant
to new options or other awards under the Option Plan would be increased from
263,964 shares to 1,413,964 shares (plus the number of shares that may become
available for grant or other award upon the termination of currently outstanding
options that remain unexercised at the time of termination). The numbers of
shares described in this paragraph are subject to adjustment for stock splits,
stock dividends and similar events.
PLAN ADMINISTRATION. The Option Plan provides that it shall be administered
by the Compensation Committee of the Board of Directors (the "Committee"), no
member of which shall be an officer or full-time employee of the Corporation.
The Committee currently consists of Messrs. Page, Harper, Klingbeil and Schlein.
The Committee has full power to determine and authorize the awards to be granted
to eligible persons under the Option Plan and to prescribe and amend the terms
and provisions of any award granted.
OPTIONS. The Option Plan provides for the granting of options to officers,
other employees, Directors and consultants of the Corporation or any subsidiary
of the Corporation (which would include the Operating Partnership), which
options may be either "incentive stock options" ("Incentive Options") as defined
by the Internal Revenue Code of 1986, as amended (the "Code"), or options that
do not so qualify ("Nonqualified Options" and together with Incentive Options,
"Options"). Because under the Code Incentive Options may be granted only to
employees of a corporation or a corporate subsidiary of the issuer and lose
their status as Incentive Options if not exercised within three months following
the optionee's ceasing to be an employee of such corporation, the shift in
paymaster from the Corporation to the Operating Partnership on January 1, 1998
resulted in (a) all options granted after that date to employees of the
Operating Partnership being limited to Nonqualified Options and (b) all
previously granted Incentive Options not exercised by March 31, 1998 becoming
Nonqualified Options. While Incentive Options granted under the Option Plan
required that the purchase price for shares subject to such options be no less
than the fair market value of a share of Common Stock on the date of grant, the
Option Plan contains no such requirement for Nonqualified Options, and the
Committee may establish such purchase price for shares that are the subject of
Nonqualified Options as it determines to be appropriate. It has been the
practice of the Committee to establish the exercise price of Nonqualified
Options as the fair market value of a share of Common Stock either on the date
of grant or, in the case of certain senior executives, on the commencement date
of the period during which various performance objectives are measured that
determine the number of shares for which Nonqualified Options are granted to the
executive involved. See "Report of the Compensation Committee." No option may be
exercised at a date which is later than the earliest of (i) the tenth
anniversary of the date on which the option was granted, (ii) the 90th day after
termination of the optionee's employment by or rendering of services to the
20
<PAGE>
Corporation or a subsidiary for any reason other than the death of the optionee,
or (iii) the first anniversary of the date of the optionee's death. Subject to
certain other limitations contained in the Option Plan, the terms of each option
grant are in other respects generally determined by the Committee in its
discretion.
DIRECTOR RESTRICTED SHARES. As amended in 1996, the Option Plan authorizes
the quarterly grant to each Independent Director (as defined in the Option Plan)
of the Corporation of up to 1,000 shares ("Director Restricted Shares") in lieu
of any cash retainer or meeting fees to such Independent Director (but not in
lieu of out-of-pocket expenses incurred in performing his or her duties as such
or in lieu of any cash compensation that the Board of Directors determines
appropriate for services as a Board of Directors or Committee chairman or for
services to the Corporation other than as a Director) and in lieu of any stock
options which might otherwise be issued to such Independent Director. For 1996
and subsequently, the Board of Directors has determined that the number of
Director Restricted Shares to be issued each quarter shall be 750 shares, rather
than the 1,000 share maximum provided in the Option Plan. Except upon an
Independent Director's ceasing to serve as Director, the Independent Director is
restricted from disposing of any Director Restricted Shares during the first
year after their grant, more than one-third of such Director Restricted Shares
during the second year following their grant or more than two-thirds of such
Director Restricted Shares during the third year following their grant.
OTHER STOCK-BASED AWARDS. At the Annual Meeting held in 1997, the
stockholders approved an amendment and restatement of the Option Plan which
expanded the types of stock-based incentive awards that may be made under the
Option Plan beyond Incentive and Nonqualified Options and the Director
Restricted Shares described in the preceding paragraphs. The Committee has not
made any such awards as yet, but under the expanded authority approved in 1997
now has authority to issue or grant the following types of stock-based
incentives.
RESTRICTED STOCK. Under the Option Plan, the Committee may award
shares of Common Stock to officers, other employees and consultants,
subject to such conditions and restrictions as the Committee may
determine ("Restricted Stock"). These conditions and restrictions may
include the achievement of certain performance goals and/or continued
employment with the Corporation through a specified restricted period.
The purchase price, if any, of shares of Restricted Stock will be
determined by the Committee. If the performance goals or other
restrictions are not attained, the grantees will forfeit their awards of
Restricted Stock. In addition, if a grantee's employment with the
Corporation or a subsidiary terminates for any reason, the Corporation
shall have the right to repurchase all shares of Restricted Stock with
respect to which conditions have not lapsed at their purchase price.
UNRESTRICTED STOCK. The Committee may also grant any such persons
shares of Common Stock which are free from any restrictions under the
Option Plan ("Unrestricted Stock"). Unrestricted Stock may be issued in
recognition of past services or other valid consideration, and may be
issued in lieu of cash compensation.
PERFORMANCE SHARE AWARDS. The Committee may also grant performance
share awards to employees or other key persons entitling the recipient to
receive Common Stock upon the achievement of such performance goals and
satisfaction of such other conditions as the Committee shall determine
("Performance Share Award"). A grantee's rights in all Performance Share
Awards automatically terminate upon the grantee's termination of
employment with the Corporation or a subsidiary.
DIVIDEND EQUIVALENT RIGHTS. The Committee may grant dividend
equivalent rights that entitle the recipient to receive dividends that
would be paid if the grantee had held specified shares ("Dividend
Equivalent Rights"). Dividend Equivalent Rights may be granted as a
component of another award or as a freestanding award. Dividend
equivalents credited under the Option Plan may be paid currently in cash
or may be deemed to be reinvested in additional
21
<PAGE>
shares which may thereafter accrue additional equivalents. In certain
instances, a person awarded Unrestricted Stock may elect to defer receipt
of the shares, in accordance with such rules and procedures as may from
time to time be established by the Committee. During the period of
deferral, Dividend Equivalent Rights may be paid with respect to the
shares whose receipt has been deferred. A Dividend Equivalent Right
granted as a component of another award shall expire or be forfeited or
annulled under the same conditions as such other award.
STOCK APPRECIATION RIGHTS. The Committee may award stock
appreciation rights ("SARs") either as a freestanding award or in tandem
with a Nonqualified Option. Upon exercise of an SAR, the holder will be
entitled to receive an amount equal to the excess of the fair market
value on the date of exercise of one share over the exercise price per
share specified in the related Option (or, in the case of a freestanding
SAR, the price per share specified in such right, which price may not be
less than 85% of the fair market value of the shares on the date of
grant) times the number of shares with respect to which the SAR is
exercised. This amount may be paid in cash, in shares, or a combination
thereof, as determined by the Committee. If the SAR is granted in tandem
with an Option, exercise of the SAR cancels the related Option to the
extent of such exercise and termination of the related Option causes the
SAR to terminate.
CHANGE OF CONTROL PROVISIONS. The Option Plan provides that in the event of
a "Change of Control" (as defined in the Option Plan) of the Corporation, all
outstanding Options and SARs shall automatically become fully exercisable, and
all outstanding Restricted Stock, Performance Share Awards and Divided
Equivalent Rights shall automatically become fully vested. In addition, at any
time prior to or after a Change of Control, the Committee may accelerate awards
and waive conditions and restrictions on any awards to the extent it may
determine appropriate.
TAX ASPECTS. Under current federal tax law, an employee who receives a
Nonqualified Option does not generally realize any taxable income at the time
the option is granted. However, upon the exercise of such an Option, the
employee will recognize ordinary income measured by the excess of the then fair
market value of the Common Stock over the exercise price, and the Company
generally will be entitled to a tax deduction for a corresponding amount. The
award of Unrestricted Stock to any officer, employee or consultant, or the
vesting of a Performance Share Award, or the exercise of any SAR, is treated as
compensation to the grantee taxable at ordinary income rates, and deductible as
an ordinary expense of the Corporation, at the time of, and in the amount equal
to the then fair market value of, the shares awarded. Unless the grantee elects
to treat the value of shares subject to Restricted Stock awards as ordinary
income at the time of grant by filing an election under Section 83(b) of the
Code, the grantee will be treated as receiving ordinary income in an amount
equal to the fair market value of the Shares at the time the restrictions lapse.
The Corporation will be entitled to a deduction in a comparable amount at the
time that the grantee is considered to receive ordinary income.
INTERESTS OF EXECUTIVE OFFICERS IN ADDITIONAL SHARES SUBJECT TO THE OPTION PLAN
At its meeting on January 14, 1998, the Board of Directors voted to amend
the Option Plan by increasing the number of shares of Common Stock for which
awards may be made by 1,150,000 shares (approximately 4.9% of the number of
shares of Common Stock then outstanding) and to recommend that the stockholders
approve such increase at the Annual Meeting. Such increase was recommended by
the Compensation Committee of the Board of Directors on January 13, 1998, which
on that date also voted to grant, subject to such increase, Nonqualified Options
for an aggregate of 525,000 shares of Common Stock to senior executives,
including those named below. The purchase price for each share subject to such
Options is $12.50, and such Options will vest with respect to one-third of each
optionee's Options on January 1 in each of the years 1999, 2000, 2001 (or
earlier in the event of Change of Control). The number of shares subject to each
Option was determined by comparing the Corporation's and each optionee's
performance with certain performance targets established by the Compensation
Committee in December 1996 for the year 1997, in the case of Messrs. Martin,
Platt and Rubin, and in recognition of the fact
22
<PAGE>
that Mr. Hoffman, who has become an executive officer subsequent to the most
recent grant of Options to senior management in 1996, had not previously been
granted Options under the Option Plan. (See "Report of the Compensation
Committee.") The price of $12.50 per share was established as the exercise price
for such Options, based upon that being the approximate market value of a share
of Common Stock at the time that the Compensation Committee set the performance
objectives for 1997.
If the stockholders do not approve the Proposed Increase in the number of
shares for which Options and other stock-based incentive awards may be granted
under the Option Plan pursuant to Proposal 3, the Committee intends to reduce
the aggregate number of Options that it approved in January 1998 to Options for
lesser number of shares that are available under the Option Plan as previously
approved by the stockholders and to make additional cash awards in lieu of the
reduced Options.
If the stockholders approve the Proposed Increase, then all of the following
Options will remain outstanding subject to vesting as described above, and the
Committee will have authority to make future awards under the Option Plan with
respect to an additional 903,964 shares of Common Stock (plus such additional
number of shares, if any, represented by currently outstanding Options which may
terminate without being exercised).
<TABLE>
<CAPTION>
DOLLAR NUMBER
VALUE OF
NAME AND POSITION ($) OPTIONS
- ----------------------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
J. David Martin................................................................................ -0- 300,000
President/Chief Executive Officer
Daniel B. Platt................................................................................ -0- 150,000
Executive Vice President /Chief Financial Officer/
Chief Administrative Officer
Kris Hoffman................................................................................... -0- 30,000
Executive Vice President/Chief Operating Officer
Michael L. Rubin............................................................................... -0- 15,000
Senior Vice President
Executive Officers as a Group.................................................................. -0- 525,000
</TABLE>
APPROVAL REQUIRED TO AMEND THE OPTION PLAN
The amendment must be approved by a majority of votes cast at a meeting at
which a quorum is present. Assuming a quorum is present, broker non-votes and
abstentions will have no effect on this proposal.
RECOMMENDATION OF THE BOARD
The Board of Directors believes that increasing the number of shares for
which stock-based incentive awards may be made to the senior management and
employees of the Corporation and its subsidiaries enables the Board of Directors
and the Compensation Committee to make a greater part of the total compensation
package of management and the employees stock-based compensation, thereby
further aligning their interests with the interests of the stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Pursuant to the agreement entered into concurrently with Mr. Martin's
employment by the Corporation on October 1, 1995, the Corporation acquired on
January 1, 1998 a recently completed development project, Gateway Center in
Marin City, California, for consideration that included the issuance of limited
partnership units of a subsidiary partnership of the Corporation which units are
ultimately exchangeable for 90,000 shares of Common Stock of the Corporation.
Such units were issued to the original developer of the property, Gateway Retail
Partners, in which Mr. Martin holds a 41.75% interest and Mr. Kessler holds a
17.25% interest.
23
<PAGE>
On December 31, 1997, the Corporation acquired a leasehold interest in a
44,324 square feet former Ernst Home Improvement Store in Redmond, Washington
for approximately $3.3 million in cash. The Corporation has an option to acquire
up to 11 additional leasehold interests in former locations of the Ernst Home
Improvement chain in California, Utah and Washington. The Corporation acquired
its existing store and its option from the purchaser of the leasehold interest
in bankruptcy proceedings involving the Ernst Home Improvement chain. One of the
principals of such purchaser is Donald Gaube, a brother of James W. Gaube,
Senior Vice President and Chief Investment Officer of the Corporation. James W.
Gaube disclaims any personal interest in his brother's interest in the
purchaser, has no personal interest in any proceeds that the purchaser received
in connection with the Redmond, Washington leasehold interest and will have no
personal interest in future acquisitions that the Corporation may make under its
option for the remaining locations.
AUDITORS
The Corporation's financial statements for the year ended December 31, 1997
were audited by Deloitte & Touche LLP, which has audited the Corporation's books
and records since 1986. A representative of Deloitte & Touche LLP will be
present at the Annual Meeting, will be given the opportunity to make a statement
if he or she so desires and will be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Proposals of stockholders (including nominations for Directors) intended to
be presented at the next Annual Meeting must be received by the Secretary of
Burnham Pacific Properties, Inc., 610 West Ash Street, Suite 1600, San Diego,
California 92101, no later than December 7, 1998.
OTHER MATTERS
All stockholders of record at the close of business on March 13, 1998, the
record date for the determination of stockholders entitled to vote at the Annual
Meeting, are concurrently being sent a copy of the Corporation's Annual Report,
including financial statements for the fiscal year ended December 31, 1997.
The expense of preparing, printing and mailing the Notice of Annual Meeting
of stockholders and proxy material, and all other expenses of soliciting proxies
will be borne by the Corporation. The Corporation expects to retain Beacon Hill
Partners as agent for soliciting proxies. Officers or other employees of the
Corporation may, without additional compensation therefor, solicit proxies in
person, by telephone, facsimile or mail. The Corporation may also reimburse
brokerage firms, banks, trustees, nominees and other persons for their expenses
in forwarding proxy material to the beneficial owners of shares held by them of
record.
Under Maryland law, the state of incorporation of the Corporation, there are
no dissenter's rights available to stockholders who object to the actions set
forth in any of the Proposals to be presented to the Annual Meeting.
Management knows of no business which will be presented for consideration at
the Annual Meeting other than that stated in the Notice of Meeting. However, if
any such matter shall properly come before the meeting, the persons named as
proxies will vote on such matters in accordance with their best judgment.
24
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Corporation hereby incorporates by reference the financial statements,
supplementary financial information and management's discussion and analysis of
the financial conditions and results of operations contained in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on March 20, 1998, as well as
the financial statements relating to the Golden State Properties contained in
the Corporation's Current Report on Form 8-K, filed on December 16, 1997, which
information will be furnished without charge to any person to whom this proxy
statement is mailed upon the written or oral request of any such person to Nina
Galloway, Secretary, Burnham Pacific Properties, Inc., 610 West Ash Street San
Diego, California 92101.
By Order of the Board of Directors
BURNHAM PACIFIC PROPERTIES, INC.
Nina Galloway,
Secretary
San Diego, California
April 7, 1998
25
<PAGE>
The undersigned hereby constitutes and appoints J. David Martin and
Daniel B. Platt, or either of them, with full power of substitution,
attorneys and proxies of the undersigned, to represent the undersigned and
vote all shares of Common Stock, par value $.01 per share, and Series 1997-A
Convertible Preferred Stock, par value $.01 per share, of BURNHAM PACIFIC
PROPERTIES, INC., which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held at the
San Diego Hilton Beach & Tennis Resort, 1775 East Mission Bay Drive, San
Diego, California on Monday, May 11, 1998 at 10:30 a.m., and at any
adjournment or postponement thereof.
The Board of Directors recommends a vote FOR all of the matters proposed.
If properly executed, the shares represented by this proxy will be voted
in the manner directed. IF NO DIRECTION IS GIVEN, THE SHARES OF COMMON STOCK
AND SERIES A PREFERRED STOCK WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
AND FOR PROPOSAL 3, AND THE SHARES OF COMMON STOCK ONLY WILL BE VOTED FOR
PROPOSAL 2. To vote in accordance with the Board's recommendation, just sign
the reverse side of this card, no box needs to be checked.
IMPORTANT: PLEASE COMPLETE, SIGN AND
RETURN THIS PROXY PROMPTLY.
A SELF-ADDRESSED STAMPED ENVELOPE
IS ENCLOSED.
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED
PROXY
BURNHAM PACIFIC
PROPERTIES, INC.
PROXY FOR
ANNUAL MEETING
OF STOCKHOLDERS
MAY 11, 1998
<PAGE>
/X/ Please mark your
votes as in this
example.
- -------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors. The Board of
Directors recommends a vote FOR proposals 1, 2 and 3.
- -------------------------------------------------------------------------------
1. Election FOR WITHHELD Nominees are: Malin
of Directors. Burnham, James D. Harper,
/ / / / Jr., James D. Klingbeil,
J. David Martin, Nina B.
Matis, Donne P. Moen,
Thomas A. Page, Philip S.
Schlein, Robin Wolaner
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
2. To approve the FOR AGAINST ABSTAIN
issuance of the
Corporation's Common / / / / / /
Stock upon the
conversion or exchange
of certain convertible
securites as described
in the enclosed Proxy
Statement.
3. To approve the FOR AGAINST ABSTAIN
amendment to the
Corporation's Stock / / / / / /
Option and Incentive
Plan as described in
the enclosed Proxy
Statement.
CHECK HERE IF YOU
PLAN TO ATTEND THE / /
MEETING
- -------------------------------------------------------------------------------
The undersigned acknowledges receipt of the Corporation's 1997 Annual Report
and the Notice of Annual Meeting of Stockholders and the Proxy Statement
relating to such meeting. (If your account is registered in more than one
name, all joint owners should sign. Trustees and others acting in
representative capacities should indicate the capacity in which they are
signing. If a corporation, sign in full corporate name by authorized
officer. If a partnership, sign in partnership name by authorized person.)
Please mark, date and sign this proxy and return it promptly whether or not
you plan to attend the Annual Meeting. If you do attend, you may still vote
in person if you desire.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGNATURE(S) DATE
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED
BURNHAM PACIFIC PROPERTIES, INC.
- -------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -------------------------------------------------------------------------------
