<PAGE>
SCHEDULE 14A (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
(as filed with the Securities and Exchange Commission on April 28, 2000)
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
KEYSTONE PROPERTY TRUST
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Declaration of Trust)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 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 Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
NOTES
<PAGE>
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE TRUST CENTER, SUITE 208
WEST CONSHOHOCKEN, PA 19428
(484) 530-1800
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 1, 2000
------------------------
To our Shareholders:
We invite you to attend our 2000 Annual Meeting of Shareholders at
9:00 a.m., local time, on June 1, 2000, at the Company's corporate office
located at 200 Four Falls Corporate Center, Suite 208, West Conshohocken, PA
19428. At the meeting, holders of the Company's Common Shares will vote on the
following proposals, together with any other business that may properly come
before the meeting:
1. To elect one Class I trustee to serve until the Annual Meeting of
Shareholders to be held in 2001 and until his respective successor is
duly elected and qualified and three Class III trustees to serve until
the Annual Meeting of Shareholders to be held in 2003 and until their
respective successors are duly elected and qualified;
2. To transact other business which properly comes before the 2000 Annual
Meeting of Shareholders or its adjournment or postponement thereof.
The Board of Trustees has fixed the close of business on April 19, 2000 as
the record date for the 2000 Annual Meeting of Shareholders. Only holders of
record of the Company's Common Shares as of that date are entitled to notice of
and to vote at the meeting and any adjournment or postponement thereof,
notwithstanding transfer of any shares on the books of the Company after such
record date. The share transfer books will not be closed.
A Proxy Statement, form of proxy and copy of the Annual Report on the
Company's operations during the fiscal year ended December 31, 1999 accompany
this notice.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you plan to attend, PLEASE PROMPTLY SIGN, DATE AND MAIL
THE ENCLOSED PROXY CARD IN THE ENCLOSED RETURN ENVELOPE, which requires no
postage if mailed in the United States. Returning your proxy card does not
deprive you of your right to attend the meeting and vote your shares in person.
The proposals and other information relating to the annual meeting are described
in detail in the accompanying Proxy Statement.
By Order of the Board of Trustees,
Stephen J. Butte,
Secretary
April 28, 2000
Plymouth Meeting, PA
<PAGE>
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE TRUST CENTER, SUITE 208
WEST CONSHOHOCKEN, PA 19428
(484) 530-1800
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 1, 2000
------------------------
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished to the holders of common shares of
beneficial interest, par value $.001 per share (the "Common Shares"), of
Keystone Property Trust, a Maryland real estate investment trust (the
"Company"), and the holders of preferred shares of beneficial interest, par
value $.001 per share (the "Preferred Shares") of the Company, in connection
with the solicitation by the Company's Board of Trustees (the "Board of
Trustees") of proxies to be voted at the Annual Meeting of Shareholders of the
Company (the "Meeting") to be held at the Company's corporate office located at
200 Four Falls Corporate Center, Suite 208, West Conshohocken, PA 19428 on
Thursday, June 1, 2000, at 9:00 a.m. local time, or at any adjournment thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders.
At the Annual Meeting of Shareholders held on June 3, 1999, the shareholders
approved the conversion of the Company from a Maryland corporation to a Maryland
real estate investment trust. This conversion was effected through a merger (the
"Trust Conversion") of American Real Estate Investment Corporation with and into
Keystone Property Trust, a wholly-owned real estate investment trust formed
solely for the purposes of the Trust Conversion. The Trust Conversion became
effective October 13, 1999. References in this Proxy Statement to the "Company"
include its subsidiaries and American Real Estate Investment Corporation as
predecessor to the Company, unless the context otherwise requires. References to
"trustees" means directors of the Company's predecessor prior to the Trust
Conversion and to the trustees of the Company after the Trust Conversion, unless
the context otherwise requires.
This Proxy Statement and form of proxy are first being mailed to
shareholders on or about April 28, 2000. If the enclosed form of proxy is
executed and returned, it nevertheless may be revoked by the shareholder at any
time prior to its use by filing with the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date. A shareholder who
attends the meeting in person may revoke his or her proxy at that time and vote
in person if so desired. Unless revoked or unless contrary instructions are
given, each proxy duly signed, dated and returned will be voted as specified
therein, but unless otherwise specified, will be deemed to grant authority to
vote, as applicable:
(1) FOR the election of the trustee nominee listed under "Proposal
One-Election of Trustees Proposal-Nominee for Class I Trustee" to serve
as a Class I trustee for a one-year term and the three trustee nominees
listed under "Proposal One-Election of Trustees Proposal-Nominees for
Class III Trustee" to serve as Class III trustees for a three-year term
(the "Election of Trustees Proposal");
(2) At the discretion of the persons named in the enclosed form of proxy, on
any other matter that may properly come before the meeting or any
adjournment thereof.
The enclosed proxy is solicited by and on behalf of the Board of Trustees of
the Company.
THE BOARD OF TRUSTEES OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF TRUSTEES PROPOSAL.
<PAGE>
QUORUM AND VOTING
RECORD DATE; QUORUM
The Board of Trustees has fixed the close of business on April 19, 2000 as
the record date (the "Record Date") for the Meeting. Only holders of Common
Shares on the close of business on the Record Date are entitled to notice of and
to vote at the Meeting and any adjournments and postponements thereof. The
Common Shares are the only class of voting shares of the Company currently
issued and outstanding which are entitled to vote at the Meeting. The holders of
the Company's Preferred Shares are entitled to notice of, but not entitled to
vote such shares, at the Meeting. On the Record Date, there were 9,283,935
Common Shares outstanding and entitled to vote at the Meeting. Each holder of
Common Shares on the Record Date is entitled to cast one vote per share at the
Meeting on each matter properly brought before the meeting, exercisable in
person or by properly executed proxy.
The presence of the holders of a majority of the outstanding Common Shares
entitled to vote at the Meeting, in person or by properly executed proxy, is
necessary to constitute a quorum at the Meeting. A quorum is necessary for any
action to be taken at the Meeting. Common Shares represented at the Meeting in
person or by properly executed proxy but not voted will be included in the
calculation of the number of shares considered to be present at the Meeting for
purposes of determining the presence of a quorum.
VOTES REQUIRED FOR APPROVAL
With respect to "Proposal One--Election of Trustees Proposal," assuming a
quorum is present, the plurality of the votes cast at the Meeting will be
sufficient to elect a trustee (i.e., the nominees receiving the greatest number
of votes will be elected). Cumulative voting is not permitted in the election of
trustees.
With respect to other matters which properly come before the Meeting,
assuming a quorum is present, unless any statute or the Declaration of Trust
provides otherwise, the majority of all the votes cast at the Meeting is
sufficient to approve any other matter which properly comes before the Meeting.
PROXIES; ABSTENTIONS; BROKER NON-VOTES
All Common Shares represented by properly executed proxies received prior to
or at the Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. If no instructions are given on a
properly returned proxy, your proxy will be voted "FOR" the Election of Trustees
Proposal; and, to the extent permitted by applicable rules of the Securities and
Exchange Commission, in accordance with the judgment of the persons voting the
proxies upon such other matters as may come before the Meeting and any
adjournment or postponement thereof.
Abstentions and broker non-votes are each included in the determination of
the number of shares present at the Meeting for purposes of determining a
quorum. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner. Brokers generally have
discretionary authority to vote on routine matters. Abstentions and broker
non-votes will not be counted for purposes of the Election of Trustees Proposal
and, therefore, are counted neither as a vote "FOR" nor "AGAINST" the Election
of Trustees Proposal.
A shareholder may revoke his/her proxy at any time before it has been voted
by delivering written notice to the Secretary of the Company at the offices of
the Company set forth above, by presenting a duly executed proxy bearing a later
date or by voting in person at the Meeting, but mere attendance at the Meeting,
without further action, will not revoke a proxy.
2
<PAGE>
OTHER BUSINESS; ADJOURNMENTS
The Board of Trustees is not currently aware of any business to be acted
upon at the Meeting other than as described herein. If other matters are
properly brought before the Meeting, or any adjournment or postponement thereof,
the persons appointed as proxies, to the extent permitted by applicable rules of
the Securities and Exchange Commission, will have discretion to vote or act
thereon according to their best judgment. Adjournments may be made for the
purpose of, among other things, soliciting additional proxies. Any adjournment
may be made from time to time by approval of the holders of a majority of the
shares present in person or by proxy at the Meeting (whether or not a quorum
exists) without further notice other than by an announcement made at the
Meeting. The Company does not currently intend to seek an adjournment of the
Meeting.
The Company's 1999 Annual Report, including financial statements for the
fiscal year ended December 31, 1999, is being mailed to shareholders
concurrently with this Proxy Statement. The Annual Report, however, is not part
of the proxy solicitation material. A copy of the Company's annual report filed
with the Securities and Exchange Commission on Form 10-K, including the
financial statements and the financial statement schedules, may be obtained
without charge by writing to the Secretary of the Company at the offices of the
Company set forth above.
PROPOSAL ONE
ELECTION OF TRUSTEES PROPOSAL
The Bylaws of the Company provide for a Board of Trustees of no fewer than
three nor more than 15 members, divided into three classes, with the exact
number of trustees to be designated from time to time by resolution of the Board
of Trustees. Until September 27, 1999, our Board of Trustees consisted of seven
members. However, in connection with the Reckson/Morris Transaction discussed in
the Certain Relationships and Related Transactions Section herein on page 23, we
increased the Board of Trustees to nine members and appointed Joseph D. Morris
as a Class I trustee and Scott H. Rechler as a Class II trustee. Messrs. Morris
and Rechler were then elected Class I trustee and Class II trustee,
respectively, at the Special Meeting of Shareholders held on December 16, 1999.
A majority of our trustees are independent of our management. The three classes
have staggered terms of office so that the terms of office of trustees of only
one class expires at each Annual Meeting of Shareholders and the trustees of
that class are elected for three year terms and until his or her successor is
elected and duly qualified or until his or her earlier death, resignation or
removal. The following table lists the name, class designation and age for each
trustee:
<TABLE>
<CAPTION>
NAME CLASS AGE EXPIRATION
- ---- -------- -------- ----------
<S> <C> <C> <C>
Michael J. Falcone..................................... I 64 2001
Francesco Galesi....................................... I 69 2001
Joseph D. Morris....................................... I 56 2001
Jeffrey E. Kelter...................................... II 45 2002
Russell C. Platt....................................... II 39 2002
Scott H. Rechler....................................... II 32 2002
David H. Lesser........................................ III 34 2000
David F. McBride....................................... III 53 2000
James R. Mulvihill..................................... III 35 2000
</TABLE>
The term of office of the Class I trustees will expire at the Annual Meeting
of Shareholders to be held in 2001 and the term of office of the Class II
trustees will expire at the Annual Meeting of Shareholders to be held in 2002.
The term of office of the current three Class III trustees (Messrs. Lesser,
David F. McBride and Mulvihill) expires at the Meeting. Set forth below are the
nominees for election as Class III trustees. Mr. Galesi has resigned as a
Class I trustee effective as of the Meeting in order to stand for election as a
Class III trustee. The Board of Trustees is nominating Mr. Mulvihill for
election as a Class I
3
<PAGE>
trustee to fill the vacancy created by Mr. Galesi's resignation. In the event
that such nominees are unable to serve or for good cause will not serve, the
proxies will be voted at the Meeting for such other person as the Board of
Trustees may recommend.
NOMINEES FOR CLASS I TRUSTEE
The following biographical description sets forth certain information with
respect to the Class I trustee nominee based on information furnished to the
Company by the Class I trustee nominee. The following information is as of
April 17, 2000.
MR. MULVIHILL was Chairman of the Board of Directors of the Company's
predecessor from the 1997 Reorganization from December 1993 until
December 1997. Since 1990, Mr. Mulvihill has been actively investing in the
Denver real estate market. In 1993, he formalized his activities with the
formation of Black Creek Capital, LLC, a firm specializing in Denver real estate
investment, including residential and commercial land development, tax exempt
housing and golf course construction and ownership. Black Creek Capital, LLC is
also a controlling shareholder in EquityCity.com, a major e-commerce company
specializing in real estate equity investment through the use of the Internet.
From November 1992 to November 1993, he was Senior Vice President of Finance and
Acquisitions at Jerry J. Moore Investments, an owner and manager of shopping
centers in Texas. From January 1992 to November 1992, Mr. Mulvihill was a Vice
President of Chemical Bank's Real Estate Investment Banking Group, where he
managed the Real Estate Owned Distribution Group. From 1986 to January 1992,
Mr. Mulvihill was an officer of Manufacturers Hanover Trust Company's Real
Estate Banking and Investment Banking Groups. Mr. Mulvihill graduated from
Stanford University in 1986 with a B.A. in Political Science.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE
CLASS I TRUSTEE NOMINEE.
NOMINEES FOR CLASS III TRUSTEES
The following biographical descriptions set forth certain information with
respect to the Class III trustee nominees based on information furnished to the
Company by each Class III trustee nominee. The following information is as of
April 17, 2000.
MR. SHERMAN, age 42, has served as an adjunct professor of real estate at
Columbia University since February 2000. Prior to February 2000 and beginning in
1995, he was the Managing Director, Senior Analyst and Head of the REIT Equity
Research Team at Salomon Smith Barney, Inc. which was an institutional investor
ranked team in 1999 and 1998. From 1993 to 1995 he was a Managing Director in
Salmon Smith Barney, Inc.'s CMBS Debt Organization and Securitization group.
From 1991 to 1993, he was Managing Director and Partner of the Harlan
Company, Inc., a real estate investment banking and advisory firm. Mr. Sherman
is a graduate of Brown University and has an MBA in Finance from Columbia
University Graduate School of Business Administration.
MR. MCBRIDE has been Chairman of the Board of Trustees of the Company since
December 1997. He served as Secretary of the Company from January 1998 until
December 1998. He is currently a partner in the law firm of Harwood Lloyd, LLC.
He has served as Chief Executive Officer of McBride Enterprises, Inc. and
affiliated family real estate, construction and brokerage companies since 1987
and has been a director of McBride Enterprises, Inc. and such affiliates since
1975. He has been a member of the Georgetown University Board of Regents since
1990, and is a member of the Board of Directors of the Towne Center Bank.
Mr. McBride has served as a director of Midlantic Corporation, Midlantic
National Bank and various subsidiaries for thirteen years prior to its merger
with PNC Bank in 1996. Prior to 1987, he was a partner in the law firm of
Harwood Lloyd from 1981 to 1987, a partner in the law firm of Murphy, Ellis &
McBride from 1977 to 1981, and an associate in the law firm of Robinson,
Wayne & Greenberg from 1973 to 1977, all located in New Jersey. He is a member
of the bars of New Jersey and New York.
4
<PAGE>
MR. GALESI has been a trustee of the Company since May 1998 as a result of
the acquisition by the Company of a portfolio of properties in which Mr. Galesi
had a significant interest. Since 1969, he has been the Chairman and Chief
Executive Officer of the Galesi Group, which includes companies engaged in
distribution, manufacturing, real estate and telecommunications industries. He
is a director of MCI-WorldCom, Inc. Mr. Galesi was a director of ATC
Communications Group until ATC merged with WorldCom in 1992. Mr. Galesi also
serves as a director of Amnex, Inc. and Walden Residential Properties, Inc.
Mr. Galesi is a graduate of Princeton University.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE
CLASS III TRUSTEE NOMINEES.
TRUSTEES CONTINUING IN OFFICE
The following biographical descriptions set forth information with respect
to each trustee who is not up for election based on information furnished to the
Company by each trustee. The following information is as of April 17, 2000.
CLASS I TRUSTEES (TERM EXPIRES IN 2001)
MR. FALCONE has been a trustee of the Company since August 1998 as a result
of the acquisition by the Company of a portfolio of 11 office properties and one
industrial property in northern New York (the "Pioneer Group") in which
Mr. Falcone had a significant interest. He founded the Pioneer Group in 1975,
the predecessor to the Pioneer Development Company, one of the largest
developers of commercial office properties in northern New York. He currently
serves as Chairman of the Pioneer Development Company. Prior to the founding of
the Pioneer Group, he co-founded the Pyramid Companies, a real estate
development firm. Mr. Falcone was Chairman of the Board of Directors of First
National Bank of Rochester from 1992 until April 1999 when it was sold to M&T
Bank. He has served as a director of M&T Bank since April 1999. He also serves
on the Corporate Advisory counsel for the Syracuse University School of
Management. He is a graduate of Syracuse University.
MR. MORRIS has been a trustee of the Company since September 1999 as a
result of the Reckson/Morris Transaction. He is President and Chairman of the
Morris Companies and formerly was the Vice Chairman of Reckson Morris Industrial
Trust. Mr. Morris also serves as trustee of the New Jersey Chapter-NAIOP, the
Association for Commercial Real Estate and was appointed by Governors Florio and
Keane to serve on the Skylands Greenway Task Force and Highlands Commission. He
is a graduate of C.W. Post College.
CLASS II TRUSTEES (TERM EXPIRES IN 2002)
MR. KELTER has been President of the Company since December 1997 and was
appointed Chief Executive Officer in December 1998. He has over 18 years of
experience in all phases of commercial real estate including development and
third-party management. Mr. Kelter began his career at Bankers Trust Corporation
where he was an assistant treasurer in the Corporate Finance division. In 1982
Mr. Kelter was employed by Vector Properties in Tulsa, Oklahoma, where he was in
charge of the development and finance of several downtown Tulsa office building
renovations. In 1982 Mr. Kelter founded Penn Square Properties, Inc. ("Penn
Square") in Philadelphia and served as Chief Executive Officer and President. At
Penn Square he developed, owned, managed and leased more than 4.5 million square
feet of office and warehouse projects throughout the Pennsylvania and New Jersey
markets.
MR. PLATT has been a trustee of the Company since June 1999. He serves as
Principal and President of JER International, with primary responsibility for
all J.E. Robert Companies' international investments and operations. In addition
to his international responsibilities, Mr. Platt serves on such firm's
Investment Committee. Prior to joining J.E. Robert Companies in 1999, Mr. Platt
served as a Managing Director of Morgan Stanley. Mr. Platt was the founder of
and had primary responsibility for managing the global real estate investment
business for Morgan Stanley Asset Management ("MSAM"). MSAM manages over
5
<PAGE>
$2 billion in private real estate and listed real estate securities worldwide
for institutional and individual investors. Mr. Platt is a graduate of Williams
College and received an MBA from Harvard Business School. He is a member of the
advisory boards of the National Multi Housing Council, The Wharton Real Estate
Center and the MIT Center for Real Estate. He is also a member of The Urban Land
Institute, the National Association of Real Estate Investment Trusts, the
Pension Real Estate Association and the Association of Foreign Investors in Real
Estate.
MR. RECHLER has been a trustee of the Company since September 1999 as a
result of the Reckson/Morris Transaction. He has been a Co-Chief Executive
Officer since June 1999 and a director of Reckson Associates Realty Corp. since
its formation and from February 1997 until September 1999, he served as its
President. Mr. Rechler also serves as President, Chief Executive Officer and a
director of Frontline Capital Group, Inc. (formerly Reckson Services Industries,
Inc). Mr. Rechler is a member of the board of directors of the Long Island
Children's Museum. He is a graduate of Clark University and received a master's
degree in finance with a specialization in real estate from New York University.
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
The Board of Trustees held a total of 10 meetings in 1999. Each trustee
attended at least 75% of the aggregate of the total number of meetings held by
the Board of Trustees and the total number of meetings held by all committees of
the Board of Trustees on which he served, in each case during the period for
which such trustee served as a trustee or committee member. The Board of
Trustees took action by written consent a total of four (4) times in 1999. The
Board of Trustees has an Audit Committee (the "Audit Committee"), a Compensation
Committee (the "Compensation Committee") and an Executive Committee (the
"Executive Committee"). The Board of Trustees formed a Nominating Committee (the
"Nominating Committee") in February 2000.
AUDIT COMMITTEE. The Audit Committee, currently comprised of Messrs. Platt
and Galesi, makes recommendations to the Board of Trustees regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors, reviews and
evaluates the Company's internal accounting controls and performs such other
functions as directed by the Board of Trustees. The Audit Committee met three
(3) times during 1999.
COMPENSATION COMMITTEE. The Compensation Committee, currently comprised of
Messrs. David F. McBride and Mulvihill, administers the Company's stock
incentive and benefit plans, determines executive officer compensation and
performs such other duties as from time to time are designated by the Board of
Trustees. The Compensation Committee met three (3) times in 1999.
EXECUTIVE COMMITTEE. The Executive Committee, currently comprised of
Messrs. Kelter, Lesser and David F. McBride, (i) supervises and maintains the
financial affairs of the Company, (ii) is authorized to enter into acquisitions,
dispositions and development projects not exceeding $25.0 million per
transaction, and to enter into financing arrangements not exceeding
$18.75 million per transaction and (iii) performs such other duties as from time
to time are designated by the Board of Trustees. The Executive Committee met 14
times in 1999.
NOMINATING COMMITTEE. The Nominating Committee, currently comprised of
Messrs. Platt and Rechler, makes recommendations to the Board of Trustees
regarding the selection of new members to be nominated to the Company's Board of
Trustees. The Nominating Committee was formed in February 2000.
The Board of Trustees may from time to time establish certain other
committees to facilitate the management of the Company.
6
<PAGE>
TRUSTEE COMPENSATION
Trustees who are also employees of the Company receive no additional
compensation for their service as trustees. The trustees who are not also
employees of the Company (the "Outside Trustees") received a quarterly fee of
$5,000 for serving as a trustee in 1999. In addition, each trustee who is not an
employee of the Company received $1,000 for each Board of Trustee meeting
attended in person and $500 for each meeting attended telephonically. Each
trustee who serves as a member of a committee receives an annual fee of $2,500
for each committee on which he serves. The Company paid aggregate cash
compensation for the first quarter fees of $38,300. For the second and the third
quarters the Company issued 5,602 Common Shares in lieu of cash payments at
prices ranging from $14.64 to $16.46 per Common Share (the average closing price
of the Common Shares on the ten trading days prior to the end of the respective
quarter). Trustee fees for the fourth quarter have not yet been paid.
The Company reimburses the trustees for out of pocket expenses incurred in
connection with their activities on behalf of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee consisted, for parts of the year, of
Messrs. Timothy B. McBride, James R. Mulvihill and David F. McBride. None of
Messrs. Timothy B. McBride, James R. Mulvihill or Mr. David F. McBride is
currently an officer of the Company and, other than as described below, and none
of them has any other business relationship or affiliation with the Company,
except his service as a trustee. Mr. Mulvihill was Chairman of the Board of
Directors of the Company's predecessor from the 1997 Reorganization from
December of 1993 until December of 1997. Mr. David F. McBride has been a trustee
and Chairman of the Board of Trustees since 1997.
ISSUANCE OF COMMON SHARES AND OP UNITS TO CERTAIN TRUSTEES AND MAJOR
SHAREHOLDERS. During the fourth quarter of 1999 and in January 2000, the Company
sold an aggregate of 1,279,778 Common Shares directly to Hudson Bay Partners II,
L.P. ("Hudson Bay"), Hudson Bay Partners, Inc., Crescent Real Estate Equities
Limited Partnership ("Crescent"), David H. Lesser, Jeffrey E. Kelter, Michael J.
Falcone, Russell C. Platt, Francesco Galesi, David F. McBride (collectively, the
"Holders") at a purchase price of $14.50 per share as part of a $20 million
private placement. The market price of the Common Shares was $14.50 on
August 3, 1999, the date the Board of Trustees approved the issuance of the
Common Shares (based upon the closing price on the day prior to the meeting of
the Company's Board of Trustees). The Common Shares were sold as follows: on
October 12, 1999, the Company issued and sold 68,966 of these Common Shares to
Mr. Galesi; on October 29, 1999, the Company issued and sold 586,207 of these
Common Shares to Mr. Kelter; on December 10, 1999, the Company issued and sold
89,655 of these Common Shares to Hudson Bay; on December 29, 1999, the Company
issued and sold 6,620 of these Common Shares to Hudson Bay, 252 of these Common
Shares to Hudson Bay Partners, Inc., 406,559 of these Common Shares to Crescent,
47,317 of these Common Shares to David H. Lesser, and 3,000 of these Common
Shares to Russell C. Platt; on January 3, 2000, the Company issued and sold
68,966 of these Common Shares to Michael J. Falcone; on January 18, 2000, the
Company issued and sold 2,236 of these Common Shares to David F. McBride. Under
registration rights agreements entered into with each Holder at the time of each
sale, the Company agreed to register the Common Shares issued to each Holder
within six months from the date of their respective agreements and each Holder
agreed not to sell the Common Shares for a period of one year from the date of
such agreement. Pursuant to such registration rights agreements, the Company has
registered the Common Shares issued to each Holder pursuant to a registration
statement on Form S-3 filed with the Securities and Exchange Commission on
March 2, 2000. In December of 1999, Hudson Bay was dissolved and its Common
Shares and OP Units (as defined below) were distributed to its partners,
including but not limited to, Crescent Real Estate Equities Limited Partnership
and David H. Lesser.
7
<PAGE>
Keystone Operating Partnership, L.P. (the "Operating Partnership") issued to
Hudson Bay and to Messrs. Kelter and David F. McBride (the "OP Unit Recipients")
approximately 278,034 units of limited partnership of the Operating Partnership
("OP Units") in exchange for certain warrants to acquire 300,000 Common Shares
and the cancellation of certain warrants to acquire 375,000 OP Units at an
exercise price of $11.00 per share or OP Unit, which were held by Hudson Bay and
Messrs. Kelter and David F. McBride. Pursuant to the terms of their respective
OP Unit Recipient Agreements, each dated as of October 29, 1999, the Company
agreed to register the Common Shares issuable upon conversion of the OP Units
within six months from the date of such agreements and the OP Unit Recipients
agreed not to sell their Common Shares for a period of six months from the date
of such agreements. Pursuant to such OP Unit Recipient Agreements, the Company
has registered Common Shares issuable upon the conversion of OP Units pursuant
to a registration statement on Form S-3 filed with the Securities and Exchange
Commission on March 2, 2000.
Messrs. Timothy B. McBride, Robert Branson, James Mulvihill, Evan Zucker,
David Lesser, Francesco Galesi, Russell C. Platt and Michael J. Falcone
(collectively, the "Trustee Holders"), received 5,602 common shares in December
of 1999, in aggregate, as compensation for services provided by them to the
Company in their capacity as members of our Board of Trustees during the second
and third quarters of the Company's 1999 fiscal year. Under a registration
rights agreement, dated as of December 2, 1999, we agreed to register the Common
Shares issued to the Trustee Holders within six months from the date of such
agreement and the Trustee Holders agreed not to sell their Common Shares for a
period of one year from the date of such agreement. Pursuant to such
registration rights agreement, the Company has registered the Common Shares
pursuant to a registration statement on Form S-3 filed with the Securities and
Exchange Commission on March 2, 2000.
LEASES. The Company leases approximately 17,575 square feet to a company in
which Michael J. Falcone serves as Chairman. As of December 31, 1999, the annual
aggregate base rental revenue for this lease was approximately $354,000. The
Company also leases approximately 73,000 square feet to a company in which
Francesco Galesi is an executive officer and a beneficial owner of Common
Shares. As of December 31, 1999, the annual aggregate base rental revenue for
this lease was approximately $481,000. In the past, we had leases with companies
in which David F. McBride is an officer and with respect to certain of these
companies, a shareholder. These leases are no longer in place as a result of our
sale of the Urban Farms Shopping Center in March 1999 and the sale of one of the
companies to an entity which is not affiliated with David F. McBride. For the
twelve months ended as of December 31, 1999 we received approximately $70,000 in
aggregate base rental revenue from these companies. The Company also leases
11,500 square feet to a company in which Joseph Morris serves as Vice Chairman
which requires annual aggregate base rental revenue of $69,000.
SUBLEASES. The Company subleased office space in Denver, Colorado from
Black Creek Capital, LLC. The lease agreement requires a monthly lease payment
of $1,346. This lease expired on December 31, 1999. James R. Mulvihill is one of
the principal officers and members of Black Creek Capital, LLC.
PAYMENTS FOR SERVICES TO AFFILIATES OF TRUSTEES. The Company incurred costs
for the year ended December 31, 1999 relating to the building improvements of
$591,000, leasing commissions of approximately $1,273,000, and repair, and
maintenance and other costs of approximately $21,000. These amounts were earned
by companies in which David F. McBride and Michael J. Falcone are officers and
shareholders.
SPIN-OFF. As part of the Company's 1997 Reorganization, the Company
organized and agreed to spin-off, at a later date, a subsidiary of the Company
to enable Messrs. Mulvihill and Zucker to pursue real estate investment
opportunities other than in the office and industrial sectors. The terms of the
spin-off have not yet been determined.
8
<PAGE>
MANAGEMENT COMPANY. Through the Operating Partnership's 100% ownership of
the preferred stock of Keystone Realty Services, Inc. (the "Management
Company"), the Operating Partnership is entitled to receive 95% of the amounts
paid as dividends by the Management Company. The remaining amounts paid as
dividends by the Management Company are paid to the holders of common stock of
the Management Company. To date, the Management Company has not declared or paid
any dividends. Mr. Kelter, Hudson Bay and McBride Hudson Bay, L.P. ("McBride
Hudson Bay") own 40%, 30% and 30% of the common stock of the Management Company.
Mr. David McBride has an interest in McBride Hudson Bay. The Operating
Partnership, in the normal course of business, advances funds to the Management
Company to fund working capital needs. The Operating Partnership has a
management agreement with the Management Company for property management and
leasing services. Under the terms of this management agreement the Management
Company receives a management fee based upon a percentage of rent for all
properties it manages. For the twelve months ended December 31, 1999, the
Management Company received $3,048,000 in management fees from the Company. In
addition, the Management Company is reimbursed for the salaries of our executive
officers and certain other employees involved in management and operations of
our properties and earns leasing commissions on leases brokered by its
employees. For the twelve months ended December 31, 1999, the Management Company
received $2,800,000 in such reimbursements and $565,000 in leasing commissions.
The Company believes that the management fee paid to the Management Company is
based upon competitive rates.
The Management Company manages one property which is owned by entities in
which Mr. Kelter has a general partnership interest.
9
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth-certain information regarding named executive
officers and other executives of the Company based on information supplied by
such executive officers and such other executives. The following information is
as of April 17, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David F. McBride(1)(2)........ 53 Chairman
Jeffrey E. Kelter(1)(2)....... 45 President and Chief Executive Officer
Timothy A. Peterson(2)........ 34 Executive Vice President and Chief Financial Officer
John B. Begier................ 34 Executive Vice President--Acquisitions and Development
Stephen J. Butte(2)........... 40 Senior Vice President, Chief Investment Officer and
Secretary
Charles C. Lee, Jr............ 36 Senior Vice President--Marketing and Leasing
Francis X. Ryan............... 40 Senior Vice President--Property Operations
Timothy E. McKenna(2)......... 36 Senior Vice President--Finance
Jennifer A. Pancoast.......... 36 Vice President--Leasing
Jeffrey D. Anderson........... 47 Vice President--Operations
Matthew T. Marshall........... 34 Vice President--Leasing
George S. Hasenecz............ 32 Vice President--Acquisitions
Rosemarie Gentner............. 37 Vice President--Operations
Sandra M. Richardson.......... 42 Vice President--Leasing
Stephanie M. Krewson.......... 30 Vice President and Treasurer
David G. Hagan................ 36 Vice President-Development
</TABLE>
- ------------------------
(1) Denotes a member of the Board of Trustees. See "Election of Trustees
Proposal" for additional information.
(2) Denotes a named executive officer of the Company within the meaning of
Section 16 of the Securities and Exchange Act of 1934, as amended.
MR. PETERSON has served as Chief Financial Officer of the Company since
August 1998 and was Secretary from December 1998 until September 1999. He was
appointed Executive Vice President of the Company in December 1998. Prior to
joining the Company, Mr. Peterson held a variety of positions with Post
Properties, Inc. beginning in 1989, including his final position as Executive
Vice President, Finance. While at Post Properties, Mr. Peterson managed all
capital markets activities, maintained all rating agency relationships and
oversaw accounting, budgeting and financial reporting functions. Mr. Peterson is
a Certified Public Accountant, a member of the National Association of Real
Estate Investment Trusts and currently serves as Co-Chairman of its Accounting
Committee and Adjunct member of the Best Financial Practices Task Force. He is a
member of University of Florida Real Estate Advisory Board and serves on
President's Council of the Real Estate Round Table.
MR. BEGIER has served as Senior Vice President of the Company since
December 1997 with primary responsibility for the Company's acquisition and
development activities. In January 2000 he was appointed Executive Vice
President. Mr. Begier joined Penn Square in 1995; prior to working for Penn
Square he worked for eight years as a real estate broker with the Pennsylvania
office of Cushman & Wakefield where he was responsible for leasing, sales and
acquisition of commercial and industrial properties.
MR. BUTTE has served as Senior Vice President of the Company with primary
responsibility for acquisition and development due diligence since
December 1997. He was appointed Chief Investment Officer in March 1999 and
Secretary in September 1999. Prior to joining Penn Square in 1988, he spent five
years in public accounting as a manager in the audit department of Asher &
Company, specializing in providing financial and accounting services to
companies in the real estate industry. Mr. Butte is a Certified Public
Accountant.
10
<PAGE>
MR. LEE has served as a Senior Vice President of the Company since
March 1998 with primary responsibility for the Company's leasing and marketing
activities. Mr. Lee joined Penn Square in 1987 where he was responsible for
leasing and marketing activities for various commercial properties. From
September 1997 until March 1998, when he re-joined the Company, Mr. Lee was the
regional leasing director for the Philadelphia region of Equity Office
Properties. Prior to working for Penn Square, he was an Assistant Portfolio
Manager in the Private Banking Division of the Boston Safe Deposit and Trust
Company.
MR. RYAN has served as Senior Vice President of the Company since
December 1997 with primary responsibility for the Company's property operations
and management activities. Mr. Ryan joined Penn Square in 1991 where he was
responsible for the management of various commercial offices and industrial
properties. Prior to working for Penn Square, Mr. Ryan worked for four years as
a senior property manager for Cushman & Wakefield's Pennsylvania office and as a
project manager for American Building Maintenance from 1984 through 1986.
Mr. Ryan is certified as a Real Property Administrator by the Building Owners
and Managers Association.
MR. MCKENNA served as Vice President-Finance of the Company from
January 1998 until June 1999 when he was promoted to Senior Vice
President-Finance. Mr. McKenna was previously employed as a senior manager in
the Real Estate Services Group of Arthur Andersen LLP's Philadelphia office.
Prior to joining the Company, he worked for over 12 years providing consulting
and accounting services to publicly and privately-owned real estate companies;
over 11 years of his experience was obtained as an employee of Arthur Andersen
LLP. Mr. McKenna is a Certified Public Accountant.
MS. PANCOAST has served as Vice President of the Company since
December 1997 with responsibility for the Company's leasing activities related
to office properties. Since January 2000, she is responsible for leasing
activities associated with the Company's industrial portfolio. Prior to
rejoining Penn Square in October 1995, she spent two years with Bell Atlantic
Properties, the real estate subsidiary of Bell Atlantic, where she was director
of property management for over 600,000 square feet of properties located in the
Philadelphia region. From September 1990 until September 1993 she was
responsible for leasing over 600,000 square feet of office properties located in
Philadelphia for Penn Square. From September 1986 until September 1990, she
worked as a real estate broker for The Flynn Company, a manager and developer of
office and industrial properties in the Philadelphia region.
MR. ANDERSON has served as Vice President of the Company since August 1998
with primary responsibility for the operations and management of the properties
located in New York state. Mr. Anderson was previously employed by Pioneer
Management Services Company, an affiliate of Pioneer Development LLC from
March 1996 until August 1998 as director of property management where he managed
over five million square feet of office and retail properties located in the
northeastern region of the United States. From March 1993 until March 1996, he
was vice president of property management for United Properties, Inc., a
developer and manager of commercial properties located in Minneapolis,
Minnesota. Prior to March 1993, he was director of property management for the
Trammell Crow Company's Milwaukee, Wisconsin office for three years and managed
over 6.0 million square feet of office and industrial properties. He has over
twenty years of property management experience.
MR. MARSHALL has served as Vice President of the Company since October 1999
with responsibility for the Company's leasing activities related to industrial
properties. Mr. Marshall was previously employed by Trammell Crow Company in
Wayne, Pennsylvania from August 1998 to October 1999 where he was Senior
Associate and was responsible for leasing and advisory services for
institutional and corporate clients. Prior to joining Trammell Crow Company, he
was employed by the Staubach Company in Palo Alto, California from March 1995 to
July 1998 where he was responsible for business development in Silicon Valley
and the northwest United States. He began his career in real estate in 1989 with
the Binswanger Company in Philadelphia, Pennsylvania where he remained as a
commercial broker until March 1995. Mr. Marshall has
11
<PAGE>
11 years experience in the commercial real estate industry, specializing in
project leasing and tenant advisory services.
MR. HASENECZ joined the Company in October 1999 as a senior analyst before
being promoted to Vice President in January 2000. Mr. Hasenecz was previously
employed by Brandywine Realty Trust as the marketing and leasing director of
central New Jersey region since December 1998. Prior to that, Mr. Hasenecz
served as the senior acquisition analyst at Brandywine since December 1997
overseeing the acquisition of over 3.0 million square feet of office and
industrial properties with 71 acres of additional developable land at a total
purchase price of $362 million. He joined Brandywine in April 1997 as an
acquisition analyst and handled the acquisition of 4.0 million square feet of
office and industrial properties and 200 acres of developable land. Prior to
that time, Mr. Hasenecz served as a senior accountant for Jackson-Cross*ONCOR
International, a Philadelphia-based private real estate company, from
April 1994 until April 1997.
MS. GENTNER joined Penn Square in November 1997 as property administrator
and remained in such position after the 1997 Reorganization. She was promoted to
Vice President-Property Operations in January 2000. Ms. Gentner is responsible
for oversight of all the Company's property managers, as well as risk
management. She was previously employed by Renaissance Properties beginning in
1992 as senior property manager responsible for overseeing and coordinating the
day-to-day facilities management of a diverse portfolio of assets, including
commercial office, residential, and industrial complexes aggregating over
3.0 million square feet and stretching from Maine to Delaware. Ms. Gentner began
her management career with Kevin F. Donohoe Company in 1988 in Philadelphia as
property manager responsible for 1.3 million square feet of office space.
MS. RICHARDSON joined the Company in May 1998 as leasing director for the
office portfolio managed for third parties. She was promoted to Vice President
in February 2000. Currently, Ms. Richardson's responsibilities include the
leasing activities for the Company's office portfolio and the office assets
managed for third parties. She was previously employed by Compass, an Equitable
Real Estate affiliate, since May 1996 and Heitman Financial Services, a national
pension fund advisor, from May 1989 to May 1996 where she was responsible for
institutional leasing management and asset management. Prior to that, she worked
with a brokerage firm in Washington, D.C. beginning in November 1986 handling
leasing on several accounts for national institutional investors.
MS. KREWSON joined the Company as Vice President and Treasurer in
April 2000. Her primary responsibilities include capital planning, lender
relations and financial analysis. Prior to joining the Company, Ms. Krewson was
an equity analyst at Salomon Smith Barney since 1997, where she provided
coverage of industrial and triple-net REITs. Prior to that, she was a senior
associate in Prudential Securities' Real Estate Investment Banking group
beginning 1994. Ms. Krewson is a candidate for Level II of the Chartered
Financial Analyst Program.
MR. HAGAN joined the Company in April 2000 as Vice President-Development
with primary responsibility for the Company's development projects. Mr. Hagan is
based in our Indianapolis office. was previously employed by First Industrial
Realty Trust, Inc. from March 1998 until April 2000 as a regional vice president
where he was responsible for land acquisition, due diligence, market reviews,
construction, and leasing in the mid-central part of the country. From
February 1997 until March 1998, he served as Vice President for Mericle
Commercial Real Estate Services where he was responsible for marketing and
development for Eastern Pennsylvania. Prior to that, Mr. Hagan served as
Director of Marketing for Liberty Property Trust from June 1994 to
February 1997 where he directed all leasing and marketing activities on a
5.0 million square foot portfolio consisting of industrial and office
properties.
12
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth, for the three years ended December 31, 1999,
the compensation earned by or paid to the Company's chief executive officer who
served in such capacity during such fiscal year, as well as the four (4) most
highly compensated executive officers of the Company serving as an executive
officer of the Company on December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- ------------------------
(A) (B) (C) (D) (E) (F) (G) (I)
RESTRICTED
SHARE SECURITIES ALL OTHER
NAME AND OTHER ANNUAL AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS (1)($) COMPENSATION ($) ($)(2) OPTIONS (#) (3) ($)
- ------------------ -------- ---------- ------------ ---------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey E. Kelter......... 1999 $240,885 $353,000 $ 12,100(4) $ -- -- $2,500
President and Chief 1998 $200,000 $ -- $ 9,600(5) $110,000 -- $ --
Executive Officer 1997 $ 7,692 $ -- $ -- $ -- -- $ --
John B. Begier............ 1999 $155,000 $200,000 $282,528(6) $ -- -- $2,500
Executive Vice President 1998 $125,000 $ -- $205,257(7) $103,124 102,500 $ --
1997 $ 1,538 $ -- $ -- $ -- -- $ --
Charles C. Lee............ 1999 $155,000 $ -- $377,455(6) $ -- -- $2,500
Senior Vice 1998 $125,000 $ -- $126,486(8) $ 55,000 87,500 $ --
President(12) 1997 $ -- $ -- -- $ -- -- $ --
Timothy A. Peterson....... 1999 $210,000 $140,000 $103,186(9) $ -- -- $2,500
Executive Vice President 1998 $ 71,837 $ -- $ 32,171(10) $ 55,000 90,000 $ --
& Chief Financial 1997 $ -- $ -- $ -- $ -- -- $ --
Officer(13)
Stephen J. Butte.......... 1999 $155,000 $140,000 $ 28,785(5),(6) $ -- -- $2,500
Senior Vice President 1998 $125,000 $ -- $ 5,000(11) $ 55,000 87,500 $ --
And Secretary 1997 $ 4,038 $ -- $ -- $ -- -- $ --
</TABLE>
- ------------------------------
(1) Includes cash bonuses paid in the fiscal year following the fiscal year for
which they were earned.
(2) Restricted shares were granted at $14.50 per share and vest over a two-year
period from the issuance date. These restricted shares pay dividends as
declared payable by the Company at the prevailing dividend rate payable to
all shareholders of the Company.
(3) Consists of matching contributions to the Company's 401(k) Savings and
Retirement Plan.
(4) The Company leases an automobile for Mr. Kelter's use and has made monthly
lease payments that aggregated $14,212 in 1999. Mr. Kelter reimbursed the
Company for $2,112 of the cost of this lease.
(5) Consists of an auto allowance paid to these executives.
(6) Consists of transaction-based compensation paid by Keystone Realty
Services, Inc. for services provided to the Management Company under an
arrangement which was terminated effective December 31, 1999.
(7) Comprised of (i) $200,257 paid for leasing and property brokerage services
provided by Mr. Begier to the Management Company under an arrangement that
was terminated effective December 31, 1999, and (ii) a $5,000 automobile
allowance. Does not include $567,900 paid by the Management Company to
Mr. Begier in 1998 for commissions earned by Mr.Begier as an employee of
Penn Square Properties, Inc. Prior to becoming an executive officer of the
Company as part of the 1997 Reorganization.
(8) Comprised of (i) $121,486 paid for transaction-based compensation provided
by Mr. Lee to the Management Company under an arrangement which was
terminated effective December 31, 1999 and (ii) a $5,000 automobile
allowance.
(9) Comprised of (i) $33,333 in forgiveness of indebtedness to purchase Common
Shares of the Company, (ii) tax equalization payments of $12,373 for
reimbursement of relocation expenses, (iii) $53,000 in relocation expenses
and (iv) a $4,457 auto allowance.
(10) Mr. Peterson was reimbursed for relocation expenses of $32,171.
13
<PAGE>
(11) Comprised of a $5,000 automobile allowance in 1998. Does not include
$86,930 paid by the Management Company to Mr. Butte in 1998 for commissions
earned by Mr. Butte as an employee of Penn Square Properties, Inc. prior to
becoming an executive officer of the Company as part of the 1997
Reorganization.
(12) Mr. Lee became an executive officer of the Company in March 1998.
(13) Mr. Peterson was hired as an executive officer of the Company in
August 1998 at an initial annual salary of $200,000.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
During the year ended December 31, 1999 no options were granted to the
Company's chief executive officer or the four (4) most highly paid executive
officers. Additionally, none of the executive officers exercised any stock
options or SARs.
EMPLOYMENT AGREEMENTS
On December 17, 1997, the Company entered into employment agreements with
each of David F. McBride and Jeffrey E. Kelter to serve as the Chairman and
President of the Company, respectively. The initial term of each such agreement
is for three years with successive one-year renewal terms thereafter until
terminated. Each of Mr. Kelter's and Mr. McBride's agreements provided for an
initial annual base salary of $200,000 together with such additional
compensation as may be awarded from time to time by the Board of Trustees and
further provided that each of Messrs. McBride and Kelter shall devote
substantially all of their working time to the Company's business activities. In
February 1999, the Compensation Committee approved an increase in Mr. Kelter's
annual compensation to $250,000. Effective January 1, 2000 Mr. McBride's
employment agreement was terminated and Mr. McBride was hired by the Company as
a consultant pursuant to a consulting agreement pursuant to which he agrees to
serve as Chairman of the Board and to advise the Company on the sale of certain
assets originally contributed to the Company by the McBride family. Otherwise,
the consulting agreement has substantially the same terms as his prior
employment agreement. In the event of a Termination With Cause (as defined in
the respective agreements) or a Voluntary Termination (as defined in the
respective agreements) the executive or consultant, as the case may be, shall
not be entitled to any compensation after the effective date of such Termination
With Cause or Voluntary Termination. In the event of the death, disability,
Termination Without Cause (as defined in the respective agreements) or
Involuntary Termination (as defined in the respective agreements), the executive
or the consultant, as the case may be, is entitled to receive a lump sum payment
equal to the executive's or consultant's, as the case may be, base salary plus,
with respect to the executive, the prior year's bonus times the longer of one
year or the remainder of the term of his employment agreement. In the event of a
Termination Without Cause for the executive, to the extent the executive has
options which have not vested at such time and which would have vested at the
next option vesting date but for such termination, then an amount of Current
Unvested Options (as defined in his employment agreement) will vest upon
termination equal to the following: the total Current Unvested Options
multiplied by a fraction of which the numerator equals the number of days
elapsed from the previous option vesting date up to and including the date of
termination and the denominator equals the total number of days between option
vesting dates. In the event of a Termination Without Cause for the consultant,
all of his unvested options shall vest. Each agreement also restricts such
executive or consultant, as the case may be, from engaging in activities in
competition with the Company in the ownership, development, construction,
management or operation of office or industrial properties (except that David F.
McBride may continue to be a director of certain McBride-family real estate
related companies) during his term of employment or during his consulting term,
as the case may be, and during the period during which he serves as a trustee of
the Company and ending one year after the later of the termination of his
employment or consulting arrangement.
On August 15, 1998, the Company entered into an employment agreement with
Timothy A. Peterson to serve as the Senior Vice President and Chief Financial
Officer of the Company for an initial term of two years with successive one-year
renewal terms thereafter until terminated. The agreement provides for an initial
annual base salary of $200,000 together with such additional compensation as may
be awarded from
14
<PAGE>
time to time by the Board of Trustees, including a minimum bonus of $100,000 in
the second year of the term, and further provides that Mr. Peterson receive
stock options with respect to 50,000 Common Shares. Under the agreement, the
Company has loaned $392,600 to Mr. Peterson on an interest-free, recourse basis
to enable him to purchase 25,000 Common Shares of which, $33,333.33 will be
forgiven on each of the first three anniversaries of his employment, if he is
employed by the Company on such date. The Company has also agreed to reimburse
Mr. Peterson for certain costs he incurred in connection with his relocation. In
the event of a Termination With Cause (as defined in the agreement) or a
Voluntary Termination (as defined in the agreement) the executive shall not be
entitled to any compensation after the effective date of such Termination With
Cause or Voluntary Termination. In the event of the death or disability of
Mr. Peterson, the stock options initially granted to him under the employment
agreement would become immediately vested. In the event of a termination of
Mr. Peterson's employment without cause or for good reason or an involuntary
termination of such employment, Mr. Peterson is entitled to receive a lump sum
payment equal to his base salary plus the prior year's bonus, or, if greater,
$100,000. In addition, upon such a termination, the stock options initially
granted under the agreement become immediately vested and $300,000 of the loan
made to Mr. Peterson by the Company to permit his purchase of Company shares
will be forgiven. The agreement provides that, in the event that Mr. Peterson's
employment with the Company terminates for any reason other than death,
disability, Termination with Cause (as defined in the agreement) or Voluntary
Termination (as defined in the agreement) within the one-year period to follow a
Change in Control (as defined in the agreement) of the Company, Mr. Peterson is
entitled to receive a lump sum equal to two times the sum of his base salary and
the prior year's bonus, all outstanding unvested options held by Mr. Peterson
will become vested and exercisable, and the loan described above will be
forgiven. The agreement also restricts Mr. Peterson from engaging in activities
in competition with the Company in the ownership, development, construction,
management or operation of office or industrial properties during his term of
employment and during the period during which he serves as a trustee of the
Company and ending one year after the later of the termination of his employment
and the date he ceases to be a trustee of the Company.
OTHER
ISSUANCE OF SHARES AND LOANS TO CERTAIN EXECUTIVES AND OTHER EMPLOYEES. In
April 2000, the Company issued an aggregate of 190,826 Common Shares to certain
executives and other employees in return for promissory notes in the aggregate
amount of approximately $2.5 million pursuant to an executive loan program
approved by the Compensation Committee on April 18, 2000. The purchase price of
$12.839 per share represented the average market price of the Common Shares for
a sixty-day period prior to the date of the grant by the Compensation Committee.
The promissory notes are interest-free recourse demand notes which are
forgivable by the Company over a five-year period beginning with the third year
after the date of such promissory notes. In addition, the promissory notes will
be forgiven if the executives or employees are no longer employed by the Company
after a change of control. If the executives' or employees' employment is
terminated for any reason other than a change of control, such executives or
employees must repay the loan or surrender Common Shares to the Company (at a
value of $12.839 per share) sufficient to repay the outstanding principal
balance of the promissory note. The Company granted certain registration rights
to these executives and employees in connection with the issuance of these
Common Shares.
BOARD OF TRUSTEES COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, INCLUDING PREVIOUS FILINGS THAT MIGHT INCORPORATE
FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THIS REPORT
AND THE PERFORMANCE GRAPH FOLLOWING IT SHALL NOT BE INCORPORATED BY REFERENCE
INTO ANY SUCH FILINGS.
15
<PAGE>
THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Trustees was formed in
January 1998 and is composed of Messrs. David F. McBride and Mulvihill, both of
whom are independent trustees. The Compensation Committee is responsible for
administering the policies which govern the Company's executive compensation.
The members of the Compensation Committee are not eligible to participate in any
of the Company's administered compensation programs or plans.
OBJECTIVES OF EXECUTIVE COMPENSATION
The Compensation Committee strives to provide the proper incentives to
management to maximize the Company's performance and to attract, retain and
motivate talented executives in order to serve the best interests of its
shareholders. The Compensation Committee utilizes a pay for performance
philosophy which focuses on annual and long-term incentive awards. In
establishing compensation for executive officers the Compensation Committee
considers industry data, the recommendations of third-party consultants and the
Company's financial performance and industry position.
The Compensation Committee based compensation levels for each executive on a
number of factors, including:
- the increase in the Company's net asset value per share;
- the growth in the Company's funds from operations per share, property
portfolio, and market capitalization during 1999;
- compensation levels of executive officers of other office and industrial
real estate investment trusts, based in part on a compensation study
prepared by FPL Associates;
- the impact of compensation arrangements on the Company's earnings and
funds from operations; and
- individual and functional performance based on both qualitative and
quantitative factors.
BASE SALARIES
The Compensation Committee takes into account competitive market practices,
individual performance and each executive's role and responsibility within the
organization when establishing base salary levels. In setting salary levels the
Compensation Committee compares the base salaries of the Company's executives to
the base salaries of executive officers of other publicly-held REIT's of
comparable size and asset focus.
ANNUAL INCENTIVES
The Company awards executive officers and employees with annual incentive
cash bonus awards which are based on both the Company's and individual's
performance. Performance goals are established annually and link the key
functions of the Company to the Company's overall financial and strategic
objectives. The Compensation Committee meets prior to the beginning of each
fiscal year to establish base salary and performance targets for the upcoming
year and meets again at the beginning of each year to review performance and
approve incentive awards for the preceding fiscal year.
LONG-TERM INCENTIVES
To align the financial interests of the executive officers and managers with
those of shareholders, the Compensation Committee strives to facilitate equity
ownership among executive and managers. The Compensation Committee grants stock
option and other incentive awards to the executive officers under the Company's
Amended and Restated 1993 Omnibus Incentive Plan (the "Omnibus Plan"). No such
16
<PAGE>
awards were granted in 1999. In addition, the Company awards executive officers
and employees with annual incentive cash bonus awards which are based on the
Company's and the respective individual's performance. However, the Company has
also granted certain interest-free loans to certain executive officers of the
Company, and has agreed to guarantee loans obtained by certain executive
officers of the Company, in order for these executive officers to acquire the
Company's Common Shares. Such loans and guarantees are granted to provide
incentive to improve shareholder value over the long-term and to encourage and
promote executive share ownership. Stock options are granted at the market price
of the Common Shares at the date of grant to ensure that executive officers can
only be rewarded for appreciation in the price of the Common Shares when the
Company's shareholders are similarly benefited. The Compensation Committee
determines those executive officers who will receive incentive award grants and
the size of such awards.
CHAIRMAN AND CEO COMPENSATION
The salaries paid to David F. McBride (Chairman) and Jeffrey E. Kelter
(President and Chief Executive Officer) in 1999 were set by their respective
employment agreements and, with respect to Mr. Kelter, modified by the
Compensation Committee. The compensation of the Chairman and Jeffrey E. Kelter
was based on a number of factors, including: (i) growth in the Company's net
asset value per share, the significant growth in the Company's funds from
operations per share, property portfolio, and market capitalization during 1999;
(ii) compensation levels of chief executive officers of other office and
industrial real estate investment trusts, based in part on a peer group survey
prepared by FPL Associates; and (iii) the impact of the compensation
arrangements on the Company's earnings and funds from operations. The
Compensation Committee did not separately rank the importance of each of those
factors and did not follow a formula in arriving at the compensation
arrangements that were approved.
$1 MILLION LIMIT ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility on the Company's tax return of compensation over $1 million to any
of the named executive officers of the Company unless, in general, the
compensation meets certain "performance-based" requirements. The Company does
not expect any compensation in excess of the Section 162(m) limitations to be
paid in the foreseeable future, and has generally not endeavored to structure
compensation to be eligible for an exception under Section 162(m). However,
option grants under the Omnibus Plan have generally been structured with the
intent that such grants be qualified for an exemption from Section 162(m).
The Compensation Committee believes that it has designed and implemented a
compensation structure which provides appropriate awards and incentives for the
Company's executive officers as they work to sustain and improve the Company's
overall performance.
Submitted by the Compensation Committee:
David F. McBride
James R. Mulvihill
SHARE PRICE PERFORMANCE GRAPH
The Company's Common Shares first commenced public trading on November 10,
1993 in connection with the Company's underwritten initial public offering of
common shares. The graph set forth below compares, for the period of
November 10, 1993 through December 31, 1999, the cumulative total return to
holders of Common Shares with the cumulative total return of the Standard &
Poor's 500 Stock Index ("S&P 500") and the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") Equity REIT Total Return Index ("NAREIT
Index") and index of equity REITS (including the Company). Total return values
for the S&P 500, the NAREIT Index and the Common Shares were calculated based on
17
<PAGE>
cumulative total return assuming the investment of $100 on November 10, 1993,
and assuming reinvestment of dividends. The shareholder return shown on the
graph below is not necessarily indicative of future performance. Equity REITs
are defined as those with 75% or more of their gross invested book value of
assets invested directly or indirectly in the equity ownership of real estate.
Upon written request, the Company will provide any stockholder with a list of
the REITs included in the Equity REIT Index. The historical information set
forth below is not necessarily indicative of future performance. Data for the
Equity REIT Index and the S&P 500 Index was provided to the Company by NAREIT.
The data shown is based on the share prices or index values, as applicable, at
the end of each month shown.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
KEYSTONE PROPERTY TRUST COMMON SHARES,
S&P 500 AND THE NAREIT INDEX*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KEYSTONE PROPERTY TRUST S&P 500 INDEX NAREIT EQUITY (IN%)
<S> <C> <C> <C>
Dec-93 100 100 100
Jan-94 109.55 103.35 102.91
Feb-94 102.82 100.56 107.38
Mar-94 96.18 96.19 103.4
Apr-94 97.84 97.44 105.16
May-94 92.23 99.02 107.5
Jun-94 88.82 96.58 105.31
Jul-94 99.07 99.77 104.79
Aug-94 103.56 103.84 105.11
Sep-94 100.05 101.33 103.15
Oct-94 107.96 103.65 99.58
Nov-94 102.93 99.85 96.15
Dec-94 99.32 101.31 103.17
Jan-95 99.32 103.94 100.92
Feb-95 104.1 107.97 103.41
Mar-95 105.96 111.17 103
Apr-95 105.96 114.41 102.97
May-95 105.96 118.92 107.35
Jun-95 117.41 121.72 109.05
Jul-95 127.9 125.77 110.93
Aug-95 122.17 126.11 112.26
Sep-95 125.99 131.4 114.19
Oct-95 129.81 130.94 111.74
Nov-95 121.23 136.7 112.76
Dec-95 123.47 139.23 118.92
Jan-96 129.35 143.97 120.88
Feb-96 135.23 145.3 122.29
Mar-96 134.62 146.7 121.63
Apr-96 138.64 148.86 122.24
May-96 138.64 152.7 125.4
Jun-96 140.05 153.28 127.04
Jul-96 133.87 146.51 128
Aug-96 135.93 149.6 133.03
Sep-96 131.22 158.02 135.35
Oct-96 134.4 162.38 139.37
Nov-96 137.57 174.65 145.72
Dec-96 151.79 171.19 160.86
Jan-97 160.46 181.89 162.66
Feb-97 164.8 183.31 162.33
Mar-97 164.21 175.78 161.98
Apr-97 166.43 186.28 157.52
May-97 161.99 197.62 162.16
Jun-97 174.72 206.47 170.04
Jul-97 178.13 222.9 175.29
Aug-97 218.98 210.42 174.87
Sep-97 292.15 221.94 190.13
Oct-97 266.85 214.53 184.99
Nov-97 277.21 224.46 188.99
Dec-97 358.31 228.32 193.45
Jan-98 317.61 230.84 192.43
Feb-98 328.07 247.49 189.16
Mar-98 376.37 260.16 192.55
Apr-98 374.02 262.8 186.28
May-98 369.9 258.28 184.97
Jun-98 328.75 268.77 183.72
Jul-98 328.75 265.91 171.79
Aug-98 285.89 227.46 155.58
Sep-98 279.02 242.03 164.39
Oct-98 286.28 261.71 161.35
Nov-98 259.88 277.57 163.72
Dec-98 314.33 293.57 159.59
Jan-99 267.31 305.84 156.26
Feb-99 267.31 296.33 152.59
Mar-99 270.27 308.18 151.9
Apr-99 300.57 320.11 166.32
May-99 298.05 312.55 169.97
Jun-99 344.69 329.9 167.22
Jul-99 311.25 319.6 161.9
Aug-99 298.4 318 159.84
Sep-99 339.55 309.29 153.77
Oct-99 314.52 328.86 149.99
Nov-99 322.39 335.54 147.55
Dec-99 325.01 355.3 152.22
</TABLE>
Indexed Values
- ------------------------
* The NAREIT Index (consisting of 203 REITs with a total market capitalization
of approximately $124.3 billion at December 31, 1999) is maintained by the
National Association of Real Estate Investment Trusts, Inc., is published
monthly, and is based on the last closing prices of the preceding month.
18
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 19, 2000, information with
respect to each person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act of 1934, as amended) who is known to the
Company to be the beneficial owner of more than 5% of the Company's Common
Shares as well as Common Shares and shares of Convertible Preferred Stock
beneficially owned by all trustees and executive officers of the Company and all
trustees and executive officers of the Company as a group. The table also
includes the number of OP Units and preferred units of limited partnership of
the Operating Partnership ("Preferred Units") owned, as of April 19, 2000, by
such persons. Any owner of OP Units may convert its OP Units into Common Shares
or, at the election of the Company, the cash equivalent thereof (the "Conversion
Right"). As of April 19, 2000, the Company had 9,283,935 shares of Common Shares
outstanding, not including 7,652,577 shares reserved for issuance upon
conversion of OP Units, 454,545 shares reserved for issuance upon conversion of
Series B Convertible Preferred Units ("Series B Units"), 2,240,838 shares
reserved for issuance upon conversion of Series C Convertible Preferred Units
("Series C Units"), 682,939 shares reserved for issuance upon conversion of
Series D Convertible Preferred Units ("Series D Units"), 1,212,121 shares
reserved for issuance upon conversion of outstanding shares of Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Shares") 2,500,000 shares reserved for issuance upon conversion of outstanding
shares of Series B Convertible Preferred Stock, par value $.001 per share
("Series B Preferred Shares"), 1,269,841 shares reserved for issuance upon
conversion of outstanding shares of Series C Convertible Preferred Stock, par
value of $.001 per share ("Series C Preferred Shares"), and 620,550 shares
reserved for issuance upon conversion of outstanding options.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
HOLDER OR IDENTITY OF GROUP BENEFICIAL OWNER (1) PERCENT OF CLASS OWNERSHIP OF OP UNITS
- --------------------------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C>
Jeffrey E. Kelter...................... 1,229,953(2) 7.97% 505,005(2)
c/o Keystone Property Trust
200 Four Falls Corporate Center
Suite 208
West Conshohocken, PA 19428
James R. Mulvihill..................... 364,576(3) 2.39% 216,402(3)
c/o Black Creek Capital, LLC
518 Seventeenth Street
17(th) Floor
Denver, CO 80202
David H. Lesser........................ 300,953(4) 1.98% 89,602(4)
c/o Hudson Bay Partners, Inc.
237 Park Avenue, Suite 900
New York, NY 10017
David F. McBride....................... 325,215(5) 2.13% 183,439(5)
c/o Keystone Property Trust
200 Four Falls Corporate Center
Suite 208
West Conshohocken, PA 19428
Francesco Galesi....................... 900,435(6) 5.91% 829,795(6)
c/o Galesi Management Corporation
100 State Street
Albany, NY 12207-1800
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
HOLDER OR IDENTITY OF GROUP BENEFICIAL OWNER (1) PERCENT OF CLASS OWNERSHIP OF OP UNITS
- --------------------------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C>
Michael J. Falcone..................... 360,425(7) 2.37% 233,280(7)
250 South Clinton Street
Syracuse, NY 13202-1258
Timothy A. Peterson.................... 102,721(8) * 0
c/o Keystone Property Trust
200 Four Falls Corporate Center
Suite 208
West Conshohocken, PA 19428
Reckson Operating Partnership, L.P..... 2,603,878(9) 17.09% 0
225 Broad Hollow Road
Melville, New York 11747
Scott H. Rechler....................... 2,603,878(9) 17.09% 0
c/o Reckson Associates Realty Corp.
225 Broad Hollow Road
Melville, New York 11747
Russell C. Platt....................... 3,664 *
c/o J.E. Robert Companies
630 Fifth Avenue
Suite 2300
New York, NY 10111
Joseph D. Morris....................... 0 0% 655,108(10)
c/o The Morris Companies
535 Secaucus Road
Secaucus, New Jersey 07094
Stephen J. Butte....................... 55,326(11) * 6,496
c/o Keystone Property Trust
200 Four Falls Corporate Center
Suite 208
West Conshohocken, PA 19428
Timothy E. McKenna..................... 31,716(12) * 0
c/o Keystone Property Trust
200 Four Falls Corporate Center
Suite 208
West Conshohocken, PA 19428
CRA Real Estate Securities, L.P........ 653,245(13) 4.29% 0
259 Radnor-Chester Road
Suite 200
Radnor, PA 19087
New York State Common Retirement Fund.. 720,743 4.73% 0
633 Third Avenue, 31st Floor
New York, NY 10017
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
HOLDER OR IDENTITY OF GROUP BENEFICIAL OWNER (1) PERCENT OF CLASS OWNERSHIP OF OP UNITS
- --------------------------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C>
AEW Targeted Securities Fund, L.P...... 1,529,580(14) 10.04% 0
225 Franklin Street
Boston, MA 02109
Attn: AEW TSF, L.L.C.
Crescent Real Estate Equities.......... 2,459,278 16.14% 765,807
Limited Partnership
777 Main Street
Suite 2100
Ft. Worth, TX 76102
All Officers and Trustees as a group... 6,278,862 40.70% 2,719,127
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes shares issuable on exercise of the Conversion Right if such right
is exercisable within 60 days of December 31, 1999.
(2) Includes 504,189 OP Units owned directly by Mr. Kelter and 816 OP Units
owned beneficially through a corporation in which Mr. Kelter is the sole
shareholder.
(3) Includes 76,389 OP Units and 190 Common Shares held by Mr. Mulvihill's
wife, as to which Mr. Mulvihill disclaims any beneficial interest. Includes
128,456 and 2,194 OP Units held by Mr. Mulvihill's parents and siblings,
respectively, and 57,359 Common Shares directly and indirectly owned by
Mr. Mulvihill's parents, as to which Mr. Mulvihill disclaims any beneficial
interest.
(4) Includes 1,049 Common Shares and 474 OP Units owned by Hudson Bay
Partners, Inc. Mr. Lesser is President, sole director and sole shareholder
of Hudson Bay Partners, Inc., and as a result of such affiliation, may be
deemed to have shared voting and dispositive power over the Common Shares
and OP Units owned by Hudson Bay Partners, Inc.; however, Mr. Lesser
expressly disclaims beneficial ownership of any Common Shares and OP Units
not directly owned by him.
(5) Includes 1,031 Common Shares owned by a limited liability corporation in
which Mr. McBride has an ownership interest and 101 Common Shares owned by
a trust, in the name of Mr. McBride's deceased father, for which
Mr. McBride is a trustee. Also includes 46,379 Common Shares issuable on
exercise of the Conversion Right held directly by Mr. McBride, 132,190 OP
Units beneficially owned through ownership interests in various limited
partnerships and corporations in which Mr. McBride is an officer, and 4,870
OP Units owned by a trust, in the name of Mr. McBride's deceased father,
for which Mr. McBride is the sole trustee.
(6) Includes 829,795 Common Shares issuable upon exercise of the Conversion
Right on such OP Units. All of Mr. Galesi's ownership is held through
various corporations in which Mr. Galesi owns a controlling ownership
interest.
(7) Includes 117,557 Common Shares issuable upon exercise of the Conversion
Right on such OP Units owned by Mr. Falcone, and 5,391 OP Units
beneficially owned through a limited partnership interest in Pioneer
Partners I, L.P. Also includes 167,170 Common Shares issuable upon
conversion of 108,222 Series D Units owned by Mr. Falcone, and 2,110
Series D Units beneficially owned through a limited partnership interest in
Pioneer Properties Company of Syracuse. The Series D Units have a
conversion price of $16.50 per unit.
(8) Includes 46,667 Common Shares issuable upon the exercise of vested stock
options at an exercise price ranging from $14.50 to $15.75 per Common
Share.
21
<PAGE>
(9) Includes 103,878 Common Shares and 2.5 million Common Shares issuable upon
conversion of 1.6 million Series B Preferred Shares issued to Reckson
Morris Industrial Trust which was later merged into Reckson Operating
Partnership, LP. Mr. Rechler is an executive officer of Reckson Associates
Realty Corp., the general partner of Reckson Morris Operating Partnership,
LP, and, as a result of such affiliation, may be deemed to have shared
voting power and dispositive power over any Common Shares or the Series B
Preferred Shares; however, Mr. Rechler expressly disclaims any beneficial
ownership of any Common Shares or any Series B Preferred Shares not
directly owned by him. The Series B Preferred Shares have a conversion
price of $16.00 per share.
(10) Includes 654,918 Series C Units owned directly by Mr. Morris, and 190
Series C Units owned indirectly by Mr. Morris through a limited partnership
in which Mr. Morris has an ownership interest. The Series C Units are not
convertible until September 27, 2001 and have a conversion price of $16.00
per unit.
(11) Includes 16,667 Common Shares issuable upon the exercise of vested stock
options with an exercise price of $14.50 per share.
(12) Includes 10,000 Common Shares issuable upon the exercise of vested stock
options with an exercise price of $14.50 per share.
(13) These Common Shares are beneficially owned by accounts managed by CRA Real
Estate Securities, L.P. and CRA Real Estate Securities, L.P. expressly
disclaims beneficial ownership of any shares of Common Shares not directly
owned by it.
(14) Includes 1,212,120 Common Shares issuable upon conversion of 800,000
Series A Preferred Shares and 317,460 Common Shares issuable upon
conversion of 200,000 Series C Preferred Shares which are beneficially
owned by accounts managed by AEW Targeted Securities Fund, L.P. AEW
Targeted Securities Fund, L.P. expressly disclaims beneficial ownership of
any Common Shares not directly owned by it. The Series A Preferred Shares
are convertible at $16.50 per share and the Series C Preferred Shares are
convertible at $15.75 per share.
22
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCE OF COMMON SHARES TO CERTAIN TRUSTEES AND MAJOR SHAREHOLDERS. For a
discussion of such transactions, please refer to "Compensation Committee
Interlocks and Insider Participation" on pages 7 and 8 hereof.
RECKSON/MORRIS TRANSACTION. On September 27, 1999, the Company consummated
our acquisition of Reckson Morris Operating Partnership, L.P. ("RMOP") from
Reckson Morris Industrial Trust, Reckson Morris Industrial Interim GP, LLC,
Reckson Operating Partnership, L.P., Robert Morris, Joseph D. Morris and certain
related entities (collectively, the "Contributors") pursuant to a Contribution
and Exchange Agreement (the "Contribution Agreement"). Pursuant to the
Contribution Agreement, entities owning 28 "big box" industrial facilities will
be contributed in three stages to the Company in exchange for approximately
$300,000,000 in a combination of Common Shares and Series B Preferred Shares,
Series C Preferred Units, the assumption of mortgage indebtedness and cash (the
"Reckson/Morris Transaction").
In the first stage, the Company acquired RMOP, which owns 22 warehouses
comprising approximately 3.9 million square feet and 105 acres of land, which
will accommodate an additional 1.5 million square feet of development. The total
consideration for this stage was approximately $205 million, including closing
costs, consisting of the issuance to the Contributors of 103,878 Common Shares,
1.6 million Series B Preferred Shares, 1,434,136 Series C Preferred Units, the
assumption of approximately $16.4 million in assumed mortgage indebtedness and
approximately $105.5 million in cash. The Company financed the cash portion of
the consideration through approximately $98 million of mortgage financing and
from part of the proceeds of a private placement of 800,000 Series C Preferred
Shares to three institutional investors. In the second and third stages, the
Company will acquire entities owning three buildings containing 1.1 million
square feet for a total of six buildings aggregating 2.2 million square feet.
The second and third stages are expected to close in April of 2000 for a total
consideration of approximately $50 million and $48 million, respectively.
Neither Joseph D. Morris (a trustee and Contributor) nor Scott H. Rechler (a
trustee and the President and Co-Chief Executive Officer of Reckson Associates
Realty Corp., the general partner of a Contributor) were affiliated with the
Company or the Operating Partnership prior to the Reckson/Morris Transaction.
The Company based its determination of the purchase price on the expected cash
flow, physical condition, location, competitive advantages, existing tenancies
and opportunities to retain and attract additional tenants. The Company arrived
at the purchase price through arm's length negotiation with the Contributors.
Each of Joseph D. Morris and Scott H. Rechler were appointed to the Company's
Board of Trustees on September 27, 1999, concurrently with the closing of the
first stage of the Reckson/ Morris Transaction.
In connection with this transaction, the Company agreed to guarantee a
$12.5 million loan from Reckson Associates Realty Corp. ("Reckson") to certain
shareholders and executives of the Morris Companies (the "Morris Shareholders"),
including Joseph Morris. The Morris Shareholders have pledged $25.0 million of
Series C Units as collateral for this loan which bears interest payable monthly
at 15% per annum. Under the terms of the loan agreement, the Morris Shareholders
are obligated to pay to Reckson monthly interest at the prime rate plus .50%
(the "Morris Interest") and the Company is obligated to pay the difference in
interest cost between the Morris Interest and 15% per annum. During 1999 the
Company incurred $198,000 related to this obligation. The maturity of this loan
is the earlier of September 27, 2001 or the date upon which the Morris
Shareholders are able to consummate a refinancing of this obligation with a
commercial lender. The Company has also loaned an affiliate of the Morris
Shareholders approximately $800,000 under the terms of a note which matures on
October 1, 2001. This note requires monthly interest payments equal to the prime
rate plus 1%.
In connection with the Reckson/Morris transaction, the Company is obligated
to pay for the twelve-month period beginning January 1, 2000, a monthly
construction management fee to an affiliate of Reckson equal to $308,000. In
addition, the Company is obligated to pay the Morris Companies additional
23
<PAGE>
purchase price related to the Reckson/Morris transaction in an amount equal to
1.5% of the monthly rent collected from the tenants in the acquired buildings.
These payments are required to be made monthly during the period of
October 1999 until October 2002.
ISSUANCE OF SERIES C PREFERRED SHARES. On September 27, 1999, the Company
sold in a private placement 800,000 Series C Preferred Shares to three
institutional investors, including 200,000 Series C Preferred Shares to
AEW Targeted Securities, L.P., at $25 per share. The Series C Preferred Shares
are convertible into Common Shares at $15.75 per share. The market price of the
Common Shares on September 27, 1999, was $14.25 per share (based upon the
closing price on September 24, 1999). The purchase price and terms of the
Series C Preferred Shares were determined through arm's length negotiation
between the Company and the purchasers. The purchasers have the right to approve
the issuance by the Company of any shares senior to or on parity with the
Series C Preferred Shares. The Company granted certain registration rights to
the purchasers.
ISSUANCE OF OP UNITS AND SERIES D PREFERRED UNITS. On July 21, 1999, the
Operating Partnership acquired an office property ("One Park Place"), located in
Syracuse, New York, and containing approximately 290,000 square feet, for
approximately $22.6 million, including the issuance of 450,700 Series D Units
and the assumption of $11.2 million in debt, from One Park Place Associates.
Michael J. Falcone, a trustee of the Company, had a 24.4% interest in One Park
Place Associates on the date the Company acquired One Park Place.
At the 1998 Annual Meeting, the shareholders approved the issuance of
OP Units in exchange for a portfolio of properties owned by Mr. Falcone (a
trustee of the Company) and certain of his affiliates (the "Falcone Group"). On
August 19, 1998, the Company, through the Operating Partnership, acquired a
portfolio of 11 office properties and one industrial property (the "Pioneer
Portfolio") from the Falcone Group. The purchase price of the Pioneer Portfolio,
including closing costs, was approximately $87.6 million and was funded through
the assumption of approximately $5.5 million in debt, $51.0 million from the
Company's senior secured revolving credit facility, the issuance of the
OP Units and the issuance of 720,743 Common Shares for an aggregate purchase
price of $11.4 million to the New York State Common Retirement Fund as a partial
repayment of certain indebtedness encumbering certain properties in the Pioneer
Portfolio. In addition, the Company agreed to purchase three other properties
(including One Park Place) and was granted the option to purchase two other
properties (collectively, the Additional Properties). After the closing of the
Pioneer Portfolio, the Company and the Falcone Group agreed that the only
Additional Property that the Company would only acquire would be One Park Place.
The consideration payable by the Company for One Park Place was also changed
from (a) $8.7 million in cash, the assumption of $11.2 million in debt and the
issuance of $2.7 million in OP Units to (b) the assumption of $11.2 million in
debt and the issuance of 450,700 Series D Preferred Units (with a liquidation
value of approximately $11.3 million).
Neither the Falcone Group nor Michael J. Falcone were affiliated with the
Company or the Operating Partnership prior to the acquisition of the Pioneer
Portfolio. Michael J. Falcone became a trustee of the Company as part of the
closing of the Pioneer Portfolio. The Company based its determination of the
purchase price of the Pioneer Portfolio and One Park Place on the expected cash
flow, physical condition, location, competitive advantages, existing tenancies
and opportunities and opportunities to retain and attract additional tenants.
The purchase price for the Pioneer Portfolio and the Additional Properties was
determined was by arm's length negotiation between the Company and American
General which owned a 50% interest in One Park Place and was not affiliated with
Mr. Falcone. The Series D Units were issued at an agreed upon value of $16.50
(on an as-converted basis). At the time the OP Units and the Series D Units were
issued, the market value of the Common Shares (based on the prior day's closing
price of the Common Shares) was $15.875 and $15.6875, respectively, and the
OP Units and Series D Units equaled approximately 13.7% and 8.3% of the then
outstanding Common Shares (assuming conversion of such OP Units or Series D
Units to Common Shares), respectively.
24
<PAGE>
ISSUANCE OF SHARES AND LOAN TO MR. KELTER. In April 1999, the Company
issued 100,000 Common Shares to Mr. Kelter in return for a promissory note in
the amount of $1.3 million. The purchase price of $13 per share represented the
market price of the Common Shares on the date of the grant by the Compensation
Committee. The note is an interest-free demand note which is forgivable by the
Company over a seven-year period beginning on January 1, 2000. In addition, the
loan will be forgiven if Mr. Kelter is no longer employed by the Company after a
change of control of the Company. If Mr. Kelter's employment is terminated for
any reason other than a change of control, Mr. Kelter must repay the loan or
surrender Common Shares to the Company (at a value of $13 per share) sufficient
to repay the outstanding principal balance of the note. The Company granted
certain registration rights to Mr. Kelter.
EMPLOYMENT AGREEMENT. In connection with his employment as Chief Financial
Officer of the Company in August of 1998, Mr. Peterson entered into an
employment agreement with the Company. As part of the conditions of his
employment agreement, the Company has loaned $392,600 to Mr. Peterson in order
for him to acquire 25,000 shares of the Company's Common Shares on an
interest-free, recourse basis and the Company agreed to reimburse him for
certain costs he incurred in connection with his relocation. In August 1999,
$33,333 of this loan was forgiven in accordance with his employment agreement.
EMPLOYEE LOAN GUARANTEES BY COMPANY. The Company has agreed to guarantee
loans obtained by certain executive officers of the Company in order for these
executive officers to acquire the Company's Common Shares. As of December 31,
1999, the Company has guaranteed approximately $687,000 of such loans.
OP UNITS. On April 30, 1998, the Company, through the Operating
Partnership, issued 1,362,940 OP Units to the Galesi Group and its affiliates,
which includes Francesco Galesi, a trustee of the Company, as part of the
Company's acquisition of a ten building portfolio of office and industrial
facilities in Albany, New York (collectively, the "Galesi Portfolio"). The
purchase price of the Galesi Portfolio of approximately $58 million was funded
through the assumption of approximately $18.0 million in debt, $18.5 million
from our senior secured revolving credit facility and the issuance of the
OP Units. The sellers of the Galesi Portfolio were not affiliated with the
Company or the Operating Partnership prior to the transaction. The Company based
its determination of the purchase price of the Galesi Portfolio on the expected
cash flow, physical condition, location, competitive advantages, existing
tenancies and opportunities to retain and attract additional tenants. The
purchase price was determined through arm's length negotiation between the
Company and the sellers. Francesco Galesi became a trustee of the Company on
May 5, 1998, as part of the acquisition of the Galesi Portfolio.
COMMON SHARES. On July 9, 1998, the Company sold in a private placement
1,092,051 Common Shares for an aggregate purchase price of $18,018,841 ($16.50
per share) to several institutional purchasers including 102,051 Common Shares
which were sold to certain accounts managed by CRA Real Estate Securities, L.P.
and 990,000 shares of Common Stock which were sold to certain accounts managed
by Morgan Stanley Asset Management, Inc. Russell Platt, a Class II trustee,
served as a Managing Director of Morgan Stanley Asset Management, Inc. at the
time. Mr. Platt currently serves as Principal and President of JER
International. The purchase price was determined through arm's-length
negotiations between the Company and the purchasers. The Company granted certain
registration rights to the purchasers. This private placement includes a
provision for a purchase price adjustment on July 9, 2000 if the Company fails
to consummate a Qualifying Offering, as defined in the subscription agreement
for such shares, with net proceeds to the Company of at least $150.0 million and
a per share price of at least $16.50. This purchase price adjustment is equal to
2.5% of the Common Shares outstanding on July 9, 2000 multiplied by the average
price of the Company's Common Shares during the 30-day period ending on the
third business day prior to July 9, 2000.
SPIN-OFF. For a discussion of such transactions, please refer to
"Compensation Committee Interlocks and Insider Participation" on pages 7
and 8 hereof.
25
<PAGE>
LEASES. For a discussion of such transactions, please refer to
"Compensation Committee Interlocks and Insider Participation" on pages 7 through
9 hereof.
SUBLEASES. For a discussion of such transactions, please refer to
"Compensation Committee Interlocks and Insider Participation" on pages 7 through
9 hereof.
PURCHASE OF AN INTEREST IN A LIMITED PARTNERSHIP. In December of 1999, the
Company acquired an 89% interest (and escrowed OP Units to purchase the
remaining 11%) in a limited partnership which owns a 407,100 square foot
industrial building in Carlisle, Pennsylvania. Jeffrey E. Kelter was the general
partner and certain other executives were limited partners in this limited
partnership prior to the Company acquiring the limited partnership. After the
Company's acquisition of the 89% ownership interest, Jeffery Kelter and certain
other executives remain as limited partners. The purchase price for this
building was $16,000,000 and the consideration consisted of $14,600,000 in cash
and $1,400,000 in OP Units in the Operating Partnership at a price of $15.26,
which was the 30-day average price of the Company's Common Shares prior to the
acquisition date.
PAYMENTS FOR SERVICES TO AFFILIATES OF TRUSTEES. For a discussion of such
transactions, please refer to "Compensation Committee Interlocks and Insider
Participation" on pages 7 through 9 hereof.
MANAGEMENT COMPANY. For a discussion of such transactions, please refer to
"Compensation Committee Interlocks and Insider Participation" on pages 7 through
9 hereof.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
trustees and executive officers of the Company and persons, or "groups" of
persons, who own more than 10% of a registered class of the Company's equity
securities (collectively, "Covered Persons") to file with the Securities and
Exchange Commission and the American Stock Exchange, within specified time
periods, initial reports of beneficial ownership, and subsequent reports of
changes in ownership, of certain equity securities of the Company. Based solely
on its review of copies of such reports furnished to it and upon written
representations of Covered Persons that no other reports were required. The
Company believes that all such filing requirements applicable to Covered Persons
with respect to 1999 have been complied with on a timely basis other than the
following:
<TABLE>
<CAPTION>
NUMBER OF REPORT
NAME LATE REPORTS FILED LATE TRANSACTION(S)
- ---- ------------ ---------- --------------
<S> <C> <C> <C>
Michael J. Falcone...... 1 Form 4 Issuance of 110,332 Series D Preferred
Units in July 1999.
Russell Platt........... 1 Form 4 Purchase of 3,000 Common Shares in
December 1999.
David Lesser............ 1 Form 4 Purchase of 203 Common Shares in
July 1999.
</TABLE>
INDEPENDENT AUDITORS
It is not the Company's practice to submit to shareholders a proposal for
the selection or ratification of the Company's independent certified public
accountants, and no such proposal is submitted hereby. The Board of Trustees has
selected Arthur Andersen LLP as the Company's independent auditors for 2000. The
Company expects representatives of that firm to be present at the Meeting. They
will be given an opportunity to make a statement if they wish to do so, and are
expected to be available to respond to appropriate questions.
26
<PAGE>
SOLICITATION OF PROXIES
The cost of soliciting the proxies will be paid by the Company. Trustees,
officers and employees of the Company may solicit proxies in person, or by mail,
telephone, electronic mail or otherwise, but no such person will be compensated
for such services. The Company will request banks, brokers and other nominees
and fiduciaries to forward proxy materials to beneficial owners of Common Shares
held of record by them and will, upon request, reimburse them for their
reasonable out-of-pocket expenses in so doing.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material for
the 2001 Annual Meeting of Shareholders, shareholders' proposals to take action
at such meeting must comply with applicable Securities and Exchange Commission
rules and regulations and must be received by the Secretary of the Company at
its principal executive offices set forth above no later than January 1, 2001.
In addition, any shareholder who wishes to propose a nominee to the Board of
Trustees or submit any other matter to a vote at a meeting of shareholders
(other than a shareholder proposal included in the Company's proxy materials
pursuant to Rule 14a-8 of the rules promulgated under the Securities Exchange
Act of 1934, as amended), must comply with the advance notice provisions and
other requirements of Section 2.08 of the Company's By-laws (i.e., delivery of
such proposal to the Secretary of the Company at the address herein indicated
not before March 4, 2001 and not later than April 3, 2001, which are on file
with the Securities and Exchange Commission and may be obtained from the
Secretary of the Company upon request.
ANNUAL REPORT ON FORM 10-K
UPON REQUEST, THE COMPANY WILL FURNISH FREE OF CHARGE TO RECORD AND
BENEFICIAL OWNERS OF ITS COMMON SHARES A COPY OF ITS 1999 ANNUAL REPORT ON
FORM 10-K (INCLUDING FINANCIAL STATEMENTS AND SCHEDULES BUT WITHOUT EXHIBITS).
COPIES OF EXHIBITS TO THE FORM 10-K ALSO WILL BE FURNISHED UPON REQUEST AND THE
PAYMENT OF A REASONABLE CHARGE. ALL REQUESTS SHOULD BE DIRECTED TO THE SECRETARY
OF THE COMPANY AT THE ADDRESS AND TELEPHONE NUMBER OF THE COMPANY'S PRINCIPAL
EXECUTIVE OFFICERS SET FORTH ABOVE.
OTHER MATTERS
A copy of the Company's 1999 Annual Report to Shareholders is enclosed but
is not to be regarded as proxy solicitation material.
At the date of this Proxy Statement, management was not aware that any
matters not referred to in this Proxy Statement would be presented for action at
the meeting. If any other matters should come before the meeting, the persons
named in the accompanying form of proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
By Order of the Board of Trustees,
Stephen J. Butte,
Secretary
Dated: April 28, 2000
27
<PAGE>
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER, SUITE 200
WEST CONSHOHOCKEN, PA 19428
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 1, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned, revoking all previous proxies, hereby appoints Jeffrey E.
Kelter, David F. McBride and Timothy A. Peterson, or any of them, as proxies,
each with full power of substitution and all of the powers which the undersigned
would possess if present in person, and hereby authorizes them to represent and
vote, as designated on the reverse side of this proxy, all of the shares of
Common Shares of Keystone Property Trust (the "Company") registered in the name
of the undersigned on April 19, 2000 at the Annual Meeting of Shareholders of
the Company to be held on June 1, 2000, and at any adjournment or postponement
thereof.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR
TRUSTEES LISTED UNDER PROPOSAL ONE. IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO VOTE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
Receipt of the Company's Notice of Annual Meeting of Shareholders, Proxy
Statement and the Annual Report to Shareholders is acknowledged.
(IMPORTANT--TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. ELECTION OF TRUSTEE NOMINEES: For Withheld FOR, except vote withheld from the I plan to
all from all following nominee(s): attend
nominees nominees the
meeting.
Franceso Galesi (Class III Trustee) / /
James R. Mulvihill (Class I Trustee)
David F. McBride (Class III Trustee)
David M. Sherman (Class III Trustee)
/ / / / ------------------------------------
2. In their discretion, the proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
/ / / / / /
FOR AGAINST ABSTAIN
</TABLE>
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. Executors, administrators, trustees and other
fiduciaries should so indicate when signing. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person. This proxy may be mailed,
postage-free, in the enclosed envelope.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------, 2000 --------------------------- --------------------------- PLEASE MARK, SIGN, DATE AND
Signature Title Signature (if held jointly) RETURN THIS PROXY CARD
(if required) PROMPTLY USING THE ENCLOSED
ENVELOPE
</TABLE>
