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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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 240.14a-11(c) or 240.14a-12
LIBERTY PROPERTY TRUST
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee 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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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:
___________________________________________________________________________
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LIBERTY PROPERTY TRUST
65 Valley Stream Parkway
Malvern, Pennsylvania 19355
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held May 19, 1999
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The 1999 ANNUAL MEETING of the shareholders of Liberty Property Trust, a
Maryland real estate investment trust (the "Trust"), will be held at the
Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania, 19355 on
Wednesday, May 19, 1999 at 10:00 a.m., local time, for the following purposes:
1. To elect three Class II trustees to hold office until the Annual Meeting
of Shareholders to be held in 2002 and until their successors are duly
elected and qualified;
2. To consider and vote on an amendment to the Liberty Property Trust
Amended and Restated Share Incentive Plan to increase the number of
shares available for awards thereunder by 2,466,465 to 6,500,000; and
3. To transact such other business as may properly come before the
meeting.
The Board of Trustees has fixed the close of business on March 25, 1999 as
the record date for the meeting. Only shareholders of record as of that date
are entitled to notice of and to vote at the meeting and any adjournment and
postponement thereof.
The accompanying form of proxy is solicited by the Board of Trustees of
the Trust. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the meeting.
By Order of the Board of Trustees,
/s/ James J. Bowes
----------------------------------
James J. Bowes
Secretary
Malvern, Pennsylvania
April 7, 1999
Please Complete and Return Your Signed Proxy Card
Please complete and promptly return your proxy in the envelope provided.
Doing so will not prevent you from voting in person at the meeting. It will,
however, help to assure a quorum and to avoid added proxy solicitation costs.
<PAGE>
LIBERTY PROPERTY TRUST
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 19, 1999
GENERAL INFORMATION
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Trustees of Liberty Property Trust, a
Maryland real estate investment trust (the "Trust"), for use at the Trust's
1999 Annual Meeting of Shareholders (the "Meeting") to be held at the Desmond
Hotel, One Liberty Boulevard, Malvern, Pennsylvania, 19355 on Wednesday, May
19, 1999 at 10:00 a.m., local time, and any adjournment or postponement
thereof, for the purposes set forth in the foregoing notice and more fully
discussed herein. This proxy statement, the foregoing notice and the enclosed
form of proxy are first being mailed to shareholders of the Trust on or about
April 9, 1999. Only shareholders of record at the close of business on March
25, 1999 shall be entitled to notice of and to vote at the Meeting.
If the enclosed proxy is properly executed and received by the Trust prior
to voting at the Meeting, the common shares of beneficial interest, $0.001 par
value per share, of the Trust (the "common shares") represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, the common shares will be voted FOR the nominees of the Board of
Trustees in the election of trustees and FOR the proposal relating to the
amendment to the Amended and Restated Share Incentive Plan. Management does not
intend to bring any matter before the Meeting other than as indicated in the
notice and does not know of anyone else who intends to do so. If any other
matters properly come before the Meeting, however, the persons named in the
enclosed proxy, or their duly constituted substitutes acting at the Meeting,
will be authorized to vote or otherwise act thereon in accordance with their
judgment on such matters.
Any proxy may be revoked at any time prior to its exercise by notifying
the Secretary in writing prior to the time of the Meeting, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.
On the record date, the Trust had 66,294,961 common shares outstanding and
entitled to vote at the Meeting. There must be present at the Meeting in person
or by proxy shareholders entitled to cast a majority of all the votes entitled
to be cast to constitute a quorum for the Meeting. Common shares represented at
the Meeting in person or by proxy but not voted on one or more proposals will
be included in determining the presence of a quorum, but will not be considered
cast on any proposal on which they were not voted. Each holder of common shares
is entitled to one vote per share held of record by such holder on the record
date. Assuming a quorum is present at the Meeting, a plurality of all the votes
cast at the Meeting shall be sufficient to elect a trustee, and the votes of a
majority of all the votes cast at the Meeting shall be sufficient to approve
the proposal relating to the Amended and Restated Share Incentive Plan. There
is no cumulative voting in the election of trustees. The votes of a majority of
all the votes cast at the Meeting shall be sufficient to approve any other
matter that may properly come before the Meeting, unless more than a majority
of the votes cast is required by statute or by the Amended and Restated
Declaration of Trust of the Trust (the "Declaration of Trust").
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1999
(except as indicated below), regarding the beneficial ownership, as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of common shares by each trustee, each nominee for election as trustee,
each executive officer listed in the Summary Compensation Table appearing on
page 12, all trustees and executive officers as a group, and each person who is
known to the Trust to be the beneficial owner of more than five percent of the
outstanding common shares. Each person named in the table below has sole voting
and investment power with respect to the common shares listed opposite such
person's name, except as otherwise noted.
<TABLE>
<CAPTION>
Number of Shares Percent
Beneficial Owners Beneficially Owned of Class
- ---------------------------------------------------------------------- ---------------------- ---------
<S> <C> <C>
Willard G. Rouse III ................................................. 788,565 (1) 1.2%
Joseph P. Denny ...................................................... 499,149 (2) *
Robert E. Fenza ...................................................... 331,004 (3) *
George J. Alburger, Jr. .............................................. 125,593 (4) *
James J. Bowes ....................................................... 9,452 (5) *
Frederick F. Buchholz ................................................ 14,500 (6) *
Thomas C. DeLoach, Jr. ............................................... 2,000 *
J. Anthony Hayden .................................................... 63,500 (6) *
M. Leanne Lachman .................................................... 15,500 (6) *
David L. Lingerfelt .................................................. 40,161 (7) *
John A. Miller, CLU .................................................. 12,000 (8) *
Stephen B. Siegel .................................................... 9,500 (9) *
Wellington Management Company, LLP ................................... 6,041,000 (10) 9.1%
Vanguard Windsor Fund ................................................ 5,135,700 (11) 7.8%
New York State Teacher's Retirement System ........................... 4,200,020 (12) 6.3%
All trustees and executive officers as a group (12 persons) .......... 1,910,924 (13) 2.8%
</TABLE>
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* Represents less than one percent of class.
(1) Includes 261,520 common shares subject to options exercisable within 60
days of the record date for the Meeting, 4,000 common shares issuable upon
exchange of 8% Exchangeable Subordinated Debentures due 2001 (the
"Convertible Debentures") of Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company") (which, as of March 31, 1999, was
93.1% owned by the Trust), and 457,665 common shares issuable upon
exchange of units of limited partnership interest ("Units") of the
Operating Partnership.
(2) Includes 235,899 common shares subject to options exercisable within 60
days of the record date for the Meeting and 260,250 common shares issuable
upon exchange of Units.
(3) Includes 130,304 common shares subject to options exercisable within 60
days of the record date for the Meeting and 195,043 common shares issuable
upon exchange of Units. Also includes 700 common shares held by Mr. Fenza
as custodian for his children, or owned directly by such children, as to
which Mr. Fenza disclaims beneficial ownership.
(4) Includes 109,530 common shares subject to options exercisable within 60
days of the record date for the Meeting.
(5) Includes 7,500 common shares subject to options exercisable within 60 days
of the record date for the Meeting. Also includes 40 common shares held by
Mr. Bowes as custodian for his children, or owned directly by such
children, as to which Mr. Bowes disclaims beneficial ownership.
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(6) Includes 13,500 common shares subject to options exercisable within 60
days of the record date for the Meeting.
(7) Includes 8,500 common shares subject to options exercisable within 60
days of the record date for the Meeting, and 30,674 common shares
issuable upon exchange of Units. Also includes 987 common shares held by
trusts for the benefit of Mr. Lingerfelt's children, as to which Mr.
Lingerfelt disclaims beneficial ownership.
(8) Includes 7,000 common shares subject to options exercisable within 60
days of the record date for the Meeting.
(9) Includes 8,500 common shares subject to options exercisable within 60
days of the record date for the Meeting.
(10) As of December 31, 1998. Wellington Management Company, LLP
("Wellington"), in its capacity as investment adviser, may be deemed to
beneficially own 6,041,000 shares which are held of record by clients of
Wellington, including the Vanguard Windsor Fund ("Vanguard"), which
beneficially owns 5,135,700 shares. The information relating to
Wellington and Vanguard is based solely on a review of a Schedule 13G
filed by each of Wellington and Vanguard with the Securities and Exchange
Commission (the "Commission"). Wellington's address is 75 State Street,
Boston, MA 02109.
(11) All of these shares are beneficially owned by Vanguard. These shares have
also been reported by Wellington in its capacity as investment adviser to
Vanguard. Vanguard's address is P.O. Box 2600, V37, Valley Forge, PA
19482.
(12) As of March 15, 1999 the New York State Teacher's Retirement System
("NYSTRS") had sole dispositive power and sole voting power over
4,200,020 common shares. This information is based on data provided by
NYSTRS. NYSTRS' address is 10 Corporate Woods Drive, Albany, NY 12211.
(13) Includes 809,253 common shares subject to options exercisable within 60
days of the record date for the Meeting, 4,000 common shares issuable
upon exchange of Convertible Debentures, and 943,632 common shares
issuable upon exchange of Units.
3
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ELECTION OF TRUSTEES AND CONTINUING TRUSTEES
In accordance with the Declaration of Trust and By-laws, the Board of
Trustees has fixed the total number of trustees at nine. The Board is divided
into three classes serving staggered three-year terms, the term of one class of
trustees to expire in each successive year. Three Class II trustees will be
elected at the Meeting to serve until the Annual Meeting of Shareholders to be
held in 2002 and until their successors are duly elected and qualified. Two of
the present nominees for election as trustees currently serve as trustees of
the Trust. A proxy signed in the enclosed form will be voted FOR the election
of the nominees named below, unless a contrary instruction is given.
Management believes that all of its nominees are willing and able to serve
the Trust as trustees. If any nominee at the time of election is unable or
unwilling to serve or is otherwise unavailable for election, and as a
consequence thereof other nominees are designated, the persons named in the
proxy or their substitutes will have the discretion and authority to vote or to
refrain from voting for other nominees in accordance with their judgment.
The following is a brief description of the nominees for election as
trustees and of the other trustees of Trust.
Nominees for Election as Class II Trustees with Terms to Expire in 2002
Frederick F. Buchholz, age 53, has served as a trustee of the Trust since
June 1994. Mr. Buchholz has been affiliated with Lend Lease Real Estate
Investments or its predecessors since 1968, formally retiring in June 1998 and
continuing to serve as a consultant to that firm. He was appointed Senior Vice
President in December 1990 and Executive Vice President in 1992 of Equitable
Real Estate, and was prior to his retirement the officer in charge of the Lend
Lease Philadelphia region, supervising new business, asset management and
restructuring/workout activities on behalf of a total mortgage and equity
portfolio which exceeds $2.5 billion. Mr. Buchholz is a member of the Appraisal
Institute, the Philadelphia Board of Realtors, the Philadelphia Chamber of
Commerce and the Real Estate Advisory Committee of the University City Science
Center.
Stephen B. Siegel, age 54, has served as a trustee of the Trust since May
1995. Mr. Siegel is Chairman and Chief Executive Officer of Insignia/Edward S.
Gordon Co., Inc. ("ESG"), the fourth largest commercial real estate company in
the United States. Mr. Siegel became the President and Chief Executive Officer
of ESG in 1992. Prior to joining ESG, Mr. Siegel spent more than 27 years at
Cushman & Wakefield, ascending to Chief Executive Officer. Mr. Siegel left
Cushman & Wakefield in late 1988 and entered a joint venture with the Chubb
Corporation where he worked for several years to develop and acquire
investment-grade office buildings throughout the United States. Mr. Siegel
serves as a director of Tower Realty Trust, Inc. Mr. Siegel is also the general
chairman of the Association for the Help of Retarded Children and a trustee of
the National Jewish Center for Immunology and Respiratory Medicine. In
addition, he serves on the advisory board of the Wharton Business School's Real
Estate Center and New York University's Real Estate Council and is active in
the Urban Land Institute, the Real Estate Board of New York and the Young
Men's/Women's Real Estate Association.
Thomas C. DeLoach, Jr., age 51, has been nominated for election as a
trustee. In April 1998, Mr. DeLoach was appointed the Executive Vice President
of Mobil Oil Corporation and the President of Global Midstream, both wholly
owned subsidiaries of Mobil Corporation ("Mobil"), a global energy company.
Global Midstream focuses on worldwide supply, trading and transportion
activities relating to Mobil's crude oil and finished products and worldwide
marketing of natural gas, including liquified natural gas. Mr. DeLoach joined
Mobil in 1969 as a chemical engineer and advanced through various positions in
manufacturing, marketing, planning and supply. From December 1994 until his
election as President of Global Midstream, Mr. DeLoach served as Chief
Financial Officer and Senior Vice President of Mobil and Mobil Oil Corporation.
Since 1991 Mr. DeLoach has served as a director of Mobil Oil Corporation.
Continuing Class III Trustees with Terms to Expire in 2000
Joseph P. Denny, age 52, has served as the President, Chief Operating
Officer and a trustee of the Trust since its inception. Mr. Denny joined Rouse
& Associates, the Trust's predecessor, in 1979 and served as a
4
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Regional Manager. In this capacity, he was responsible for developing
approximately one billion dollars of projects, primarily large urban projects.
Mr. Denny is a Vice Chairman of the Industrial and Office Park Council of the
Urban Land Institute and serves on the Advisory Board of the Wharton Business
School's Real Estate Center.
David L. Lingerfelt, age 46, has served as a trustee of the Trust since
May 1995. Mr. Lingerfelt is an attorney in private practice specializing in
commercial transactions. Prior to re-entering private practice, Mr. Lingerfelt
was Director of Property Administration and Counsel for Best Products Co., Inc.
Mr. Lingerfelt has in the past been a partner in the Virginia law firms of
Coates & Davenport and, subsequently, the firm of Shewmake, Baronian and
Parkinson. Mr. Lingerfelt is a member of the American Bar Association and its
Real Property Section's Committee on Securitization and REITs.
John A. Miller, age 71, has served as a trustee of the Trust since May
1995. Mr. Miller is presently serving as Chairman of the Board of Guarantee
Reassurance Corp., and retired in July 1997 from the Board of Directors of the
Provident Mutual Life Insurance Company of Philadelphia after serving as
Director and Chairman of the Executive Committee. Mr. Miller served Provident
Mutual in many capacities over his 25 years there, including as its President,
Chief Operating Officer, Chief Executive Officer and Chairman of the Board. He
has been a member of various Board of Directors, including BetzDearborn, Bryn
Mawr Hospital, CoreStates Financial Corp. and CoreStates Bank N.A.
Continuing Class I Trustees with Terms to Expire in 2001
Willard G. Rouse III, age 56, has served as Chairman of the Board of
Trustees and Chief Executive Officer of the Trust since its inception. Mr.
Rouse had been a General Partner of Rouse & Associates since its founding in
1972. Mr. Rouse has served as Chairman of each of the Pennsylvania Convention
Center Authority, Foundation for Architecture, We the People 2000 and the
Philadelphia Children's Network and as President of the Fellowship Commission.
Mr. Rouse is currently Chair of the Regional Performing Arts Center, which is
constructing a performing arts center in Philadelphia, Pennsylvania.
M. Leanne Lachman, age 56, has served as a trustee of the Trust since June
1994. Ms. Lachman is a Managing Director of Boston Financial. In 1999, Boston
Financial acquired Ms. Lachman's prior employer Schroder Real Estate Associates
("Schroder"), which specialized in real estate management for institutional
investors, managing approximately one billion dollars invested in shopping
centers and office buildings across the country. Boston Financial has continued
the business of Schroder. Ms. Lachman is a director of Lincoln National
Corporation and Chicago Title Corporation, and is an Executive Committee Member
and Trustee of the Urban Land Institute and Urban Land Foundation.
J. Anthony Hayden, age 55, has served as a trustee of the Trust since June
1994. Mr. Hayden is the President of Hayden Real Estate, Inc. Prior to forming
Hayden Real Estate, Mr. Hayden spent more than 21 years at Cushman & Wakefield
where he was a member of the Board of Directors. When he resigned as Executive
Vice President in 1996 he was responsible for 10 offices in the
Mid-Atlantic/Mid-West region. Mr. Hayden is also a member of the Society of
Industrial & Office Realtors, serving in 1982 as President of the Philadelphia
Chapter. He is also a member of the Philadelphia Board of Realtors and was
President in 1985. He is a director of Pierce Leahy Corp. and The Founders'
Bank.
Committees of the Board of Trustees
The Board's Audit Committee makes recommendations concerning the
engagement of independent public accountants for the Trust, reviews with such
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants and fees
therefor and reviews the adequacy of the Trust's internal accounting controls.
The Audit Committee consists of at least two independent trustees, with the
independent trustees constituting a majority of the Committee members. The
Audit Committee currently includes no officers or employees of the Trust or the
Operating Partnership. Members of the Audit Committee are Messrs. Buchholz
(Chair), Hayden, Lingerfelt and Siegel. The Committee met one time during the
last fiscal year.
The Board's Compensation Committee is empowered to determine compensation
for the Trust's executive officers and to administer the Trust's Amended and
Restated Share Incentive Plan. Members of the Compensation Committee are
Messrs. Miller (Chair) and Buchholz and Ms. Lachman. See "Report of the
Compensation Committee on Executive Compensation." The Compensation Committee
met eight times during the last fiscal year.
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The Board's Corporate Governance and Nominating Committee consists of Ms.
Lachman (Chair) and Messrs. Rouse, Hayden and Miller. The Corporate Governance
and Nominating Committee meets to address matters regarding corporate
governance and makes recommendations to the Board regarding nominees for
positions on the Board. The Corporate Governance and Nominating Committee will
consider candidates for trustee proposed by shareholders in accordance with the
following procedure. Such nominations should be sent to the attention of the
Trust's Secretary at its principal executive office, describe the candidate's
qualifications and be accompanied by the candidate's written statement of
willingness and affirmative desire to serve representing the interest of all
shareholders. Shareholders may also make nominations directly by following the
procedure specified in the Trust's Bylaws. The Corporate Governance and
Nominating Committee met four times during the last fiscal year.
Trustees' Attendance at Meetings
The Board of Trustees held 12 meetings during the last fiscal year,
including seven teleconference board meetings. Each trustee of the Trust
attended at least 75% of the meetings of the Board of Trustees and meetings
held by all committees on which such trustee served, with the exception of Mr.
Siegel who attended 62% of such meetings.
Trustees' Compensation
Each trustee who is not also an officer and full-time employee of the
Trust or the Operating Partnership receives an annual trustee fee in the amount
of $18,000 plus a fee of $1,000 for each Board meeting in which such Trustee
participated; however, trustees receive a fee of $500 for teleconference Board
meetings if such meetings address only routine matters. Trustees receive a fee
of $500 for each committee meeting they attend. Additionally, all trustees are
reimbursed for travel and lodging expenses associated with attending Board and
committee meetings. Trustees who are officers and full-time employees of the
Trust or the Operating Partnership receive no separate compensation for service
as a trustee or committee member. On June 23 of each year, each non-employee
trustee is granted a 10-year option to purchase 5,000 common shares,
exercisable at a price equal to the fair market value of the common shares on
the date of the grant. Such options vest over a three-year period beginning
with the date of grant as follows: 20% after the first year; 50% after two
years; and 100% after three years.
6
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PROPOSAL TO AMEND THE LIBERTY PROPERTY TRUST
AMENDED AND RESTATED SHARE INCENTIVE PLAN
Summary of the Plan
The Trust's Board of Trustees has previously adopted the Liberty Property
Trust Amended and Restated Share Incentive Plan (the "Plan"). At a meeting held
on March 12, 1999, the Board of Trustees unanimously adopted, and recommended
for approval by the shareholders at the Meeting, an amendment to the Plan. Upon
adoption, this amendment will increase the number of common shares available
for awards under the Plan by 2,466,465, from 4,033,535 to 6,500,000. The
following is a brief summary of the Plan, as modified by the proposed
amendment, which is qualified in all respects by the text of the Plan, a copy
of which will be made available without charge to any person upon his or her
written request, which request should be directed to the Director of Investor
Relations at the address of the Trust appearing on the first page of this proxy
statement.
Under the Plan the Trust may grant options to purchase shares or may make
grants of restricted shares to certain participants. Options granted under the
Plan may be either non-qualified share options ("Non-Qualified Options") or
options intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986 (the "Code"), as amended ("Incentive Options"
and, together with the Non-Qualified Options, the "Options").
Purpose of the Plan
The purpose of the Plan is to advance the interests of the Trust, its
shareholders and its subsidiaries by providing selected trustees, employees,
consultants and advisors, upon whom the Trust's sustained growth and financial
success depend, to acquire or increase their proprietary interest in the Trust
through receipt of rights to acquire common shares and through transfers of
restricted shares.
Amount of Common Shares Subject to Options and Grants of Restricted Shares
Under the Plan
The Plan currently provides for the grant of Options and restricted shares
covering an aggregate of 4,033,535 shares. If the proposed amendment to the
Plan is approved by the shareholders, the maximum aggregate number of common
shares available for the grant of Options and restricted shares would increase
by 2,466,465 to 6,500,000. The number of common shares subject to Options and
grants of restricted shares is subject to adjustment to reflect changes in the
Trust's capitalization. Any shares subject to an Option that is not exercised
prior to expiration or that otherwise terminates and any restricted shares that
are forfeited will thereafter be available for further grants of Options or
restricted shares under the Plan. As of March 31, 1999, grants of Options and
restricted shares covering 3,873,878 shares had been made under the Plan.
Administration of the Plan
The Plan is administered by a committee or committees designated by the
Board of Trustees (the "Share Option Committee"). No Options or grants of
restricted shares may be granted under the Plan to members of the Share Option
Committee except as specifically provided under provisions of the Plan relating
to automatic grants under a specified formula stated in the Plan. Subject to
the conditions set forth in the Plan, the Share Option Committee has full and
final authority to determine the number of Options or restricted shares
granted, the individuals to whom and the time or times at which such Options or
restricted shares shall be granted and be exercisable, the exercise prices
(including vesting) and the terms and provisions of the respective agreements
to be entered into at the time of grant, which may vary; provided, that no more
than 250,000 common shares may be subject to Options granted to any individual
employee in any one calendar year. The Plan is intended to be flexible, and a
significant amount of discretion is vested in the Share Option Committee with
respect to all aspects of the Options and restricted shares to be granted under
the Plan.
Participants
Options and restricted shares may be granted under the Plan to any person
who is or who agrees to become a trustee, employee, consultant or advisor of
the Trust, its subsidiaries and designated affiliates. As of March 31, 1999,
the Trust had eight trustees and, together with its subsidiaries and designated
affiliates, had approximately 330 employees.
7
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Exercise Price
The exercise price of each Non-Qualified Option granted under the Plan
shall be determined by the Share Option Committee. The exercise price of each
Incentive Option granted under the Plan shall be determined by the Share Option
Committee and shall be 100% of the fair market value of a common share on the
date the Option is granted (or at least 110% if the recipient owns, directly or
by attribution under the Code, common shares having 10% of the total combined
voting power of all classes of shares of the Trust ("10% Shareholder") or any
subsidiary of the Trust). The payment of the exercise price of an Option may be
made in cash or shares, as more fully described under "Exercise of Options."
Fair market value shall be determined by the Share Option Committee in
accordance with the Plan and such determination shall be binding upon the Trust
and upon the holder. The closing sale price of the common shares on the New
York Stock Exchange on April 6, 1999 was $21 per share.
Term of Options
Incentive Options may be granted for a term of up to 10 years (five years
in the case of a grant to a 10% Shareholder), which may extend beyond the term
of the Plan.
Exercise of Options
The terms governing exercise of Options granted under the Plan shall be
determined by the Share Option Committee, which may limit the number of Options
exercisable in any period.
Payment of the exercise price upon exercise of an Option may be made in
any combination of cash and common shares, including the automatic application
of common shares received upon exercise of an Option to satisfy the exercise
price of additional Options (unless the Share Option Committee provides
otherwise). Where payment is made in common shares, such common shares shall be
valued for such purpose at the fair market value of such common shares on the
date of delivery. In no event shall an Option granted under the Plan be
exercisable prior to the date of shareholder approval of the Plan.
Non-transferability
Options granted under the Plan are not transferable other than by will or
the laws of descent and distribution or, in the case of a Non-Qualified Option,
pursuant to a "qualified domestic relations order" (as that term is defined in
the Code).
Termination of Relationship
Except as the Share Option Committee may expressly determine otherwise, if
the holder of an Option ceases to be employed by or to have another qualifying
relationship (such as that of trustee, employee, consultant or advisor) with
the Trust, any of its subsidiaries or a designated affiliate other than by
reason of the holder's death or permanent disability (as defined in the Plan),
all Options granted to such holder under the Plan shall terminate immediately,
except for Options that were exercisable on the date of such termination of
relationship, which Options shall terminate three months after the date of such
termination of relationship unless such Options expire or terminate earlier
pursuant to the stated expiration of the option term. In the event of the death
or permanent disability of the holder of an Option, except as the Share Option
Committee may expressly determine otherwise, Options may be exercised to the
extent that the holder might have exercised the Options on the date of death or
permanent disability until the stated expiration of the option term. In
addition, if the holder of Options is determined to have breached his or her
employment or service contract or is determined to have been engaged in acts of
disloyalty or to have revealed trade secrets or confidential information, all
such Options shall be forfeited immediately and any shares to be delivered
following a prior exercise of an Option which have not yet been delivered are
also forfeited upon refund to the holder of the exercise price paid.
8
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Amendment and Termination of the Plan
The Board of Trustees may at any time and from time to time amend, suspend
or terminate the Plan, but may not, without the approval of the shareholders of
the Trust representing a majority of the votes cast at a meeting of the
shareholders at which a quorum is present, increase the maximum number of
shares subject to Options that may be granted under the Plan or change the
class of individuals eligible to receive an Incentive Option. No amendment,
suspension or termination of the Plan by the Board of Trustees may alter or
impair any of the rights under any Option granted under the Plan without the
holder's consent.
The Plan makes it clear that the Share Option Committee may amend any
award under the Plan (provided that any such amendment that would impair the
rights or interests of a participant must have the written consent of the
participant, except if such amendment is to enable the Plan to qualify for an
exemption under Rule 16b-3 of the Exchange Act) to include any provision that,
at the time of such amendment, is authorized under the Plan.
Change in Control
In the event of a change in control, as defined in the Plan, Options to
the extent not then vested will be fully exercisable.
Effective Date and Term of the Plan
No Options may be granted after the date that is the tenth anniversary of
the earlier of the date on which the Plan is adopted or is approved by the
shareholders.
Terms of Restricted Shares
The Committee will determine the terms and conditions applicable to awards
of restricted shares, including a period during which the restricted shares may
not be sold, assigned, transferred, pledged or otherwise encumbered. Unless
otherwise determined by the Committee, a recipient of a restricted share award
will have the same rights as an owner of common shares, including the right to
receive cash distributions and to vote the common shares. Unless otherwise
specified in an award, upon termination of employment a participant will
forfeit all restricted shares as to which the restrictions had not lapsed at
time of the termination of employment.
Registration of Shares Subject to the Plan
Of the 4,033,535 common shares available under the Plan as currently
constituted, 2,100,000 were registered on a Form S-8 Registration Statement
under the Securities Act of 1933, as amended (the "Securities Act"), which was
filed with the Commission on June 28, 1995. The remaining 1,933,535 common
shares available under the Plan as currently constituted were registered on a
Form S-8 Registration Statement under the Securities Act, which was filed with
the Commission on January 13, 1998. Each of the Form S-8 Registration
Statements became effective on the respective date of its filing.
If the proposed amendment is adopted, the 2,466,465 additional common
shares that will be available under the Plan will be registered on a Form S-8
Registration Statement under the Securities Act, to be filed with the
Commission within 12 months after the date of the Meeting.
Certain Federal Income Tax Consequences
Incentive Options. The Trust believes that with respect to Incentive
Options granted under the Plan, no income generally will be recognized by an
optionee for federal income tax purposes at the time such an Option is granted
or at the time it is exercised. If the optionee makes no disposition of the
common shares so received within two years from the date the Incentive Option
was granted and one year from the receipt of the common shares pursuant to the
exercise of the Incentive Option, he will generally recognize long-term capital
gain or loss upon disposition of the common shares.
9
<PAGE>
If the optionee disposes of common shares acquired by exercise of an
Incentive Option before the expiration of the applicable holding period, any
amount realized from such a disqualifying disposition will be taxable as
ordinary income in the year of disposition generally to the extent that the
lesser of the fair market value of the common shares on the date the Option was
exercised or the fair market value at the time of such disposition exceeds the
exercise price. Any amount realized upon such a disposition in excess of the
fair market value of the common shares on the date of exercise generally will
be treated as long-term or short-term capital gain, depending on the holding
period of the common shares. A disqualifying disposition will include the use
of common shares acquired upon exercise of an Incentive Option in satisfaction
of the exercise price of another Option prior to the satisfaction of the
applicable holding period.
The Trust will not be allowed a deduction for federal income tax purposes
at the time of the grant or exercise of an Incentive Option. At the time of a
disqualifying disposition by an optionee, the Trust generally will be entitled
to a deduction for federal income tax purposes equal to the amount taxable to
the optionee as ordinary income in connection with such disqualifying
disposition (assuming that such amount constitutes reasonable compensation).
Non-qualified Options. The Trust believes that the grant of a
Non-Qualified Option under the Plan will not be subject to federal income tax.
Upon exercise, the optionee generally will recognize ordinary income in an
amount equal to the excess of the fair market value of the common shares on the
date of exercise over the exercise price. Gain or loss on the subsequent sale
of common shares received on exercise of a Non-Qualified Option generally will
be long-term or short-term capital gain or loss, depending on the holding
period of the common shares.
Upon exercise of a Non-Qualified Option, the Trust generally will be
entitled to a compensation deduction for federal income tax purposes in the
year and in the same amount as the optionee or grantee is considered to have
recognized ordinary income (assuming that such compensation is reasonable and
that provision is made for withholding of federal income taxes, where
applicable). In general, under Section 162(m) of the Code (the "Million Dollar
Cap"), no deduction is allowed for remuneration in excess of $1,000,000 paid by
the Trust during any taxable year to any of the Chief Executive Officer or the
four highest compensated executive officers (other than the Chief Executive
Officer). Remuneration for this purpose excludes certain performance-based
compensation. The Trust believes that all general requirements applicable to
the Plan under the performance-based compensation rules have been met in order
for specific Option grants to be treated as giving rise to performance-based
compensation. It is anticipated that the Plan will be administered so that all
Non-Qualified Options will in fact qualify as performance-based and any income
recognized on their exercise will be exempt from the Million Dollar Cap.
Awards of Restricted Shares. The Trust believes that the award of
restricted shares under the terms of the Plan, subject to certain restrictions
and possible forfeiture during a restricted period, will result in the
recipient of such an award being required to include in his or her federal
taxable income the value of the shares awarded (reduced by the purchase price,
if any, paid for the shares) at the time the restricted period ends, or, if the
recipient files an election under Section 83(b) of the Code (an "83(b)
Election"), at the time the award is made. On a subsequent sale of the shares,
the award recipient will have a long or short term capital gain or loss
depending upon the length of the period for which the shares were held. In
general, the holding period will be measured from the end of the restricted
period date unless an 83(b) Election was filed, in which case the holding
period will be measured from the date of the award. The determination of gain
or loss will be determined by reference to the recipient's basis in the shares,
which will be equal to the amount the recipient was required to include as
income as a result of the award, as described above.
Election under Section 83(b) of the Code. A recipient of an award of
restricted shares may make an 83(b) Election, which will require the inclusion
in income of the value of the restricted shares (reduced by the purchase price,
if any, paid for the shares) as of the date of the award, determined without
regard to the restrictions or possible forfeiture of those shares. In addition,
if the shares are forfeited, the employee will not be able to claim a loss
under applicable tax rules (other than a loss for the purchase price paid for
the shares to the extent that purchase price is not refunded on forfeiture). In
order to make an 83(b) Election, the award recipient must file a written
election no later than 30 days after the date of the award with the IRS office
where the recipient files his or her returns, and must provide a copy of that
filing to the Trust. A copy of the
10
<PAGE>
filing must also be included with the recipient's tax return for the year of
the award. The 83(b) election statement must contain the following information:
the name, address and taxpayer identification number of the taxpayer, a
description of the shares received, the date of the award and the taxable year
for which the election is made, the nature of the restrictions on the shares,
the fair market value of the shares as of the award date, the purchase price
paid for the shares, if any, and a statement indicating that copies of the
election have been furnished to other persons as required. The statement must
be signed and must indicate that it is made under Section 83(b) of the Code.
Accounting Consequences
The accounting treatment of Options selected by the Trust provides that no
amount is accrued as compensation and thus charged against earnings unless the
Options were granted at below the market price. In the latter circumstance, the
excess of such market price over the exercise price is fixed at the date of
grant and is charged against earnings over the vesting period of the Options.
Recommendation and Required Vote
The Board of Trustees recommends a vote FOR approval of the above
proposal. Approval of the above proposal requires the affirmative vote of the
holders of a majority of the common shares represented at the Meeting.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, for the years ended December 31, 1998, 1997 and
1996, the compensation paid or accrued by the Trust and its subsidiaries,
including the Operating Partnership, to the Trust's Chief Executive Officer and
to the four other most highly compensated executive officers, determined as of
December 31, 1998 (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------
Other
Annual
Compensa-
Name and Principal Positions Year Salary($) Bonus($) tion ($) (1)
- --------------------------------- ---- -------------- -------------- --------------------
<S> C> <C> <C> <C>
Willard G. Rouse III ............ 1998 $264,858 $147,000 --
Chairman and 1997 229,320 115,160 --
Chief Executive Officer 1996 220,470 104,850 --
Joseph P. Denny ................. 1998 $220,721 $243,500 --
President and 1997 191,100 162,935 --
Chief Operating Officer 1996 183,750 129,215 --
Robert E. Fenza ................. 1998 $208,108 $198,500 --
Executive Vice President 1997 180,180 126,626 --
1996 173,250 73,265 --
George J. Alburger, Jr. ......... 1998 $201,802 $ 500 --
Chief Financial Officer 1997 174,720 500 --
1996 168,000 500 --
James J. Bowes .................. 1998 $166,200 $108,500 --
General Counsel 1997 145,099 50,500 --
1996 (4) (4) --
<CAPTION>
Long-Term Compensation
--------------------------------------------
Awards Payouts
------------------------------ ------------
Securities All
Restricted Underlying Other
Stock Options/ LTIP Compen-
Name and Principal Positions Year Awards ($) (2) SARs(#) Payouts($) sation ($)
- -------------------------------- ----- ---------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Willard G. Rouse III ............ 1998 $ 175,800 146,500 -- --
Chairman and 1997 137,592 114,660 -- --
Chief Executive Officer 1996 60,000 77,175 -- --
Joseph P. Denny ................. 1998 -- 121,500 -- --
President and 1997 -- 81,218 -- --
Chief Operating Officer 1996 -- 64,313 -- --
Robert E. Fenza ................. 1998 $ 108,434(3) 55,100 -- --
Executive Vice President 1997 -- 63,063 -- --
1996 -- 36,383 -- --
George J. Alburger, Jr. ......... 1998 $ 230,400 96,000 -- --
Chief Financial Officer 1997 146,765 61,152 -- --
1996 100,800 42,000 -- --
James J. Bowes .................. 1998 $ 43,200 72,000 -- --
General Counsel 1997 30,000 37,500 -- --
1996 -- -- -- --
</TABLE>
<PAGE>
- ------------
(1) Did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for any Named Executive Officer.
(2) Consistent with a policy adopted by the Trust's Compensation Committee with
respect to employee annual performance bonus compensation, Messrs. Rouse,
Alburger and Bowes elected to receive common shares in lieu of cash for
all or part of their bonus compensation for 1998. By making such election,
such persons received shares equal to 120% of the cash value of such bonus
or portion thereof (the "Bonus Value"). See "Report of the Compensation
Committee on Executive Compensation." Each executive received the number
of common shares able to be purchased with the dollar amount of the Bonus
Value, less applicable withholding, based on the closing price per share
of the common shares on February 26, 1999. The dollar amounts of the Bonus
Values are reflected under the Restricted Stock Awards column. Pursuant to
such elections, in March 1999, Messrs. Rouse, Alburger and Bowes were
awarded 5,365, 6,906 and 1,222 common shares, respectively. Dividends will
be paid on the common shares issued pursuant to such awards, and the
restrictions on such common shares will expire on February 26, 2000.
(3) Consistent with a policy adopted by the Trust's Compensation Committee with
respect to long-term incentive compensation, Mr. Fenza elected to receive
common shares in lieu of options awarded as part of his long-term
incentive compensation award for 1998. See "Report of the Compensation
Committee on Executive Compensation." Pursuant to such election, in March
1999, Mr. Fenza was awarded 4,957 common shares. The dollar value of such
long-term incentive compensation award is reflected under the Restricted
Stock Award column. Dividends will be paid on such common shares issued
pursuant to such awards. Such shares will vest over a three-year period
beginning with the date of the grant as follows: 20% after the first year;
50% after two years and 100% after three years.
(4) Mr. Bowes joined the Trust in November 1996. His compensation for 1996,
which represents one-and-a-half month's compensation, was $17,500 in
salary and $500 in bonus.
12
<PAGE>
Share Option Grants, Exercises and Holdings
The following tables set forth certain information concerning options to
purchase common shares that were granted to the Named Executive Officers with
respect to the fiscal year ended December 31, 1998, options exercised by the
Named Executive Officers during such period and the number and value of options
held by such persons as of the end of such period. The Trust does not have any
outstanding stock appreciation rights.
Options/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of
Securities Options/SARs Share Price Appreciation
Underlying Granted to Exercise or for Option Term (3)
Options/SARs Employees in Base Price Expiration ----------------------------
Name Granted (#) (1) Fiscal Year ($ per Share) (2) Date 5% ($) 10% ($)
- ------------------------- ----------------- ------------------ ------------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Willard G. Rouse III 146,500 13.6% $ 21.875 2/26/09 $2,015,411 $5,107,447
Joseph P. Denny 121,500 11.3 21.875 2/26/09 1,671,484 4,235,869
Robert E. Fenza 55,100 9.2(4) 21.875 2/26/09 758,015 1,920,958
George J. Alburger, Jr. 96,000 8.9 21.875 2/26/09 1,320,679 3,346,859
James J. Bowes 72,000 6.7 21.875 2/26/09 990,509 2,510,144
</TABLE>
(1) Represents options granted on February 26, 1999 with respect to the fiscal
year ended December 31, 1998. Such options become exercisable up to 20%
after the first year, 50% after two years, and 100% after three years.
(2) Exercise price is equal to the fair market value of the common shares on
the date of grant.
(3) Potential realizable value is reported net of option exercise price but
before taxes associated with exercise. These amounts represent assumed
rates of appreciation only. Actual gains, if any, on the options are
dependent upon the future performance of the common shares, and the
amounts reflected in the table will not necessarily be achieved.
(4) Percent of total options granted for Mr. Fenza is calculated as if Mr.
Fenza had not elected to receive common shares in lieu of options for part
of his long-term incentive compensation for 1998.
Aggregated Option/SAR Exercises
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Acquired Value Fiscal Year-End (#) Fiscal Year-End ($) (1)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------- ----------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Willard G. Rouse III -- -- 215,435/176,400 $850,000/ --
Joseph P. Denny -- -- 200,363/132,668 801,563/ --
Robert E. Fenza -- -- 106,777/92,169 423,063/ --
George J. Alburger, Jr. -- -- 84,700/94,752 314,413/ --
James J. Bowes -- -- -- /37,500 -- / --
</TABLE>
- ------------
(1) Value is reported net of option exercise price, but before taxes associated
with exercise.
Severance Plan
The Trust has a severance plan for a group of senior officers of the
Trust, including Messrs. Rouse, Denny, Fenza, Alburger and Bowes. The severance
plan provides that, in the event of (i) the termination of the participant
other than "for cause" or (ii) the participant's voluntarily termination of his
or her employment other than for "good reason," in either case within two years
following a "change of control," the participant would receive
13
<PAGE>
the following: (a) an amount equal to the product of 2.99 and the sum of his or
her current annual base salary plus the largest annual performance bonus paid
to him or her over the previous five years; (b) the pro rata portion, through
the date of termination, of unpaid performance bonus for the year in which the
termination occurs; (c) immediate vesting of outstanding share options and
restricted shares; (d) an amount equal to the Trust's maximum contribution
under the 401(k) plan for a period of three years, including the year in which
the termination occurs; (e) immediate vesting of contributions previously made
by the Trust to the individual's account under the 401(k) plan; and (f)
continuation of employee group benefits coverage for a period of three years
after the date of termination. Amounts paid by the Trust pursuant to the
severance plan would be limited so as not to exceed the maximum amount
deductible as compensation expenses by the Trust or the maximum amount a
participant can receive without becoming subject to an excise tax, each as
determined in accordance with the rules and regulations of the Internal Revenue
Service.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, the Trust's executive
officers and trustees, and persons beneficially owning more than 10% of the
common shares, are required to file with the Commission reports of their
initial ownership and changes in ownership of common shares. The Trust believes
that for 1998, its executive officers and trustees who were required to file
reports under Section 16(a) complied with such requirements in all material
respects.
CERTAIN TRANSACTIONS
The founding partners of Rouse & Associates also owned all of The Norwood
Company ("Norwood"), a construction company that performed much but not all of
the construction for Rouse & Associates. In January 1995, the owners of Norwood
sold the company to certain of its employees, none of whom is a Trust employee,
taking back notes that are non-recourse to the buyers. One of the Named
Executive Officers and his wife hold certain of such notes, which have an
aggregate outstanding balance of approximately $1.0 million. Amounts paid by
the Trust to Norwood in 1998 were $17.9 million.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Trustees. The Compensation Committee,
composed of independent members of the Board of Trustees, reviews the
performance of the Trust's executive officers, fixes the base compensation of
executive officers, awards appropriate bonuses and makes long-term incentive
compensation awards, including grants of shares and options. Final compensation
determinations for each fiscal year are generally made after the end of the
fiscal year. At that time, base salaries for the following fiscal year are set,
cash bonuses, if any, are determined for the past year's performance, and
long-term incentive awards, if any, are generally made. At a meeting in
February 1999, the Compensation Committee fixed the base salaries for the Named
Executive Officers for the fiscal year ending December 31, 1999 and determined
incentive compensation awards for such officers in respect of the fiscal year
ended December 31, 1998. In making these determinations, the Compensation
Committee considered recommendations from management, along with other factors,
including independently prepared industry compensation information. In 1998,
the Compensation Committee engaged an independent compensation and benefits
consultant to advise the Compensation Committee regarding executive officer
compensation matters, including base salary, annual incentive compensation and
long-term incentive compensation. The Compensation Committee considered the
consultants' analysis in determining base salaries and incentive compensation.
Executive Officer Compensation Policies. The objectives of the
Compensation Committee are to (a) support the achievement by the Trust of
desired performance, (b) provide compensation and benefits that will attract,
motivate and retain superior talent, (c) reward individual performance and (d)
relate a significant portion of compensation to the Trust's actual performance,
including long-term performance. The Compensation Committee believes that a
significant portion of total executive officer compensation should consist of
variable, performance-based components. In order to achieve this objective, in
addition to annual base salaries, the executive compensation program utilizes a
combination of long-term incentives through equity-based compensation and
annual incentives through cash bonuses. The program is intended to align the
interests of executives with those of the Company's shareholders by linking a
portion of executive compensation directly to increases in shareholder value.
The Company seeks to provide total compensation to its executive officers which
is competitive with total compensation paid by REITs similar to the Company
(the "peer group"). The peer group was
14
<PAGE>
chosen by the Compensation Committee in consultation with the independent
compensation and benefits consultant. The Compensation Committee believes that
a peer group comparison enables the Company to determine a fair level of
compensation for executive officers, while assuring shareholders that executive
pay levels are reasonable.
In addition to the components noted above, the compensation program may
also include various benefits, such as health insurance plans and pension,
profit sharing and retirement plans in which substantially all of the Trust's
employees participate. At the present time, the only plans in effect are
health, life and disability insurance plans, a cafeteria plan, a 401(k) plan
and the severance plan for certain senior officers of the Trust described under
"Severance Plan."
Base Salary. Base salaries are set by the Compensation Committee and are
designed to be competitive with the salaries paid by peer group members.
Changes in individual base salaries are based in part on the review of the
report prepared by the independent benefits and compensation consultant, which
included a review of peer group practices, as well as the Trust's performance,
the individual's performance, experience and responsibility and increases in
cost of living indices. The weight given such factors by the Compensation
Committee may vary from individual to individual. Base salaries are reviewed
for adjustment annually.
Annual Incentive Compensation. The Named Executive Officers participate in
a bonus program whereby such officers are eligible for cash bonuses if certain
performance objectives are achieved. The annual cash bonus for the Named
Executive Officers is based upon the achievement of targeted objectives for
Funds from Operations per common share, which are reviewed and approved by the
Compensation Committee. The annual cash bonus is subject to adjustment by the
Compensation Committee in its discretion.
Consistent with a policy adopted by the Compensation Committee for all
employees, an executive officer has the option of taking shares in lieu of a
cash bonus at the rate of shares equal to 120% of the cash value of the bonus.
Long-Term Incentive Compensation. Long-term incentive compensation for the
Named Executive Officers is provided through the grant of share option and
restricted share awards. The options awarded to the Named Executive Officers
for 1998 were based on a formula which awarded one option for every two dollars
of annual bonus. The grant of share options and restricted share awards are
made under the Company's Amended and Restated Share Incentive Plan, which is
administered by the Compensation Committee.
The exercise price of options granted with respect to 1998 is the market
price of the common shares at the time of grant and, therefore, the options
will have value only if the Trust's share price increases over the exercise
price after the option is granted. The Compensation Committee believes that the
grant of share options provides a long-term incentive to the grantees to
contribute to the growth of the Trust and establishes a direct link between
compensation and shareholder return.
Consistent with a policy adopted by the Compensation Committee, executive
officers have the ability with respect to long-term incentive compensation to
receive restricted common shares in lieu of options. The number of restricted
common shares which an executive officer will receive if he or she chooses to
receive restricted common shares in lieu of options will be determined by
multiplying the number of options the executive officer has been awarded by the
binomial value of the options at the date of the award and dividing that
product by the market price of the common shares at the date of the award. In
this manner it is intended that the value of the option grant will be equal to
the value of a restricted stock grant. Distributions will be paid on the full
amount of the common shares without regard to the vesting schedule. The
Compensation Committee believes that the grant of restricted stock awards
provides a long term incentive to the grantees to contribute to the growth of
the Trust and establishes a direct link between compensation and shareholder
return.
The terms of options and restricted share awards, including vesting,
exercisability and term, are determined by the Compensation Committee, subject
to requirements imposed by the Plan. Options and restricted stock awards
generally vest over a three-year period beginning with the date of the grant.
The options and restricted share awards granted with respect to 1998 vest 20%
after the first year, 50% after two years and 100% after three years. The terms
set by the Compensation Committee are based upon the relative position and
responsibilities of each employee, historical and expected contributions of
each employee to the Trust, previous grants to each
15
<PAGE>
employee under the Plan and a review of competitive equity compensation for
employees of peer group members. For information regarding recent options and
restricted stock awards granted to the Trust's Named Executive Officers,
reference is made to the tables set forth under "Compensation of Executive
Officers."
In the event of a Change of Control (as defined in the Plan), all
outstanding options and restricted shares become fully vested.
After consultation with the independent compensation and benefits
consultant, consideration of independent compensation data and the objectives
of the compensation policy, the Compensation Committee has instituted a
long-term incentive compensation program that is linked directly to Funds from
Operations growth and total shareholder return. Going forward, it is intended
that long-term incentive compensation awards made to executive officers will be
derived from both Funds from Operations growth and the Company's total return
measured against a peer group determined by the Compensation Committee.
Section 162(m) of the Code imposes a limitation on the deductibility of
nonperformance based compensation in excess of $1.0 million paid to certain
executive officers. The Compensation Committee's policy with respect to Section
162(m) is to make every reasonable effort to ensure that compensation is
deductible to the extent permitted, while simultaneously providing executives
appropriate awards for their performance. The Company's long-term incentive
plans have been designed to comply with the performance-based requirements of
Section 162(m).
Chief Executive Officer Compensation. The base salary, annual incentive
compensation and long-term incentive compensation awarded to the Trust's Chief
Executive Officer, Mr. Rouse, are determined substantially in conformity with
the policies described above for all other Named Executive Officers of the
Trust. In 1998, Mr. Rouse was paid $264,858 in base salary and $322,800 in
performance bonus. Mr. Rouse was granted options to purchase 146,500 common
shares with respect to 1998.
Compensation Committee
John A. Miller (Chair)
Frederick F. Buchholz
M. Leanne Lachman
The foregoing report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act or under the Exchange Act, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such acts.
16
<PAGE>
SHARE PRICE PERFORMANCE GRAPH
The following table compares the cumulative total shareholder return on
the common shares for the period beginning June 30, 1994 and ending December
31, 1998 with the cumulative total return on the Standard & Poor's 500 Stock
Index ("S&P 500"), the NAREIT Equity REIT Total Return Index ("NAREIT Index")
and the Russell 2000 Index ("Russell 2000") over the same period. Total return
values for the S&P 500, the NAREIT Index, the Russell 2000 and the common
shares were calculated based on cumulative total return assuming the investment
of $100 in the NAREIT Index, the S&P 500, the Russell 2000 and the common
shares on June 30, 1994, and assuming reinvestment of dividends in all cases.
The shareholder return shown on the graph below is not necessarily indicative
of future performance.
Comparison of Cumulative Total Return
Liberty Property Trust Common Shares, NAREIT Equity REIT
Total Return Index, Russell 2000 Index and S&P 500 Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------- ---------------------------------------- ------------------------
June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liberty Property Trust $100.00 $ 99.38 $100.52 $101.19 $102.49 $113.18 $110.52 $109.86 $107.91
NAREIT Index (1) 100.00 97.95 97.97 97.80 103.56 108.43 112.93 115.50 120.63
S&P 500 100.00 104.92 104.90 115.11 126.03 136.05 144.16 151.90 158.71
Russell 2000 (2) 100.00 106.94 104.94 109.78 120.07 131.93 134.79 141.66 148.75
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
------------------ --------------------------------------- ----------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liberty Property Trust $120.47 $145.33 $140.48 $145.05 $159.52 $171.68 $164.04 $158.59 $150.22 $158.38
NAREIT Index (1) 128.53 152.75 153.82 161.47 180.55 183.70 182.84 174.46 156.10 151.55
S&P 500 163.62 177.26 182.01 213.79 229.81 236.41 269.38 278.29 250.60 303.97
Russell 2000 (2) 149.25 157.02 148.90 173.04 198.79 192.13 211.47 201.60 160.99 187.25
</TABLE>
- ------------
17
<PAGE>
(1) The NAREIT Index (consisting of 173 real estate investment trusts with a an
equity market capitalization of $126.9 billion at December 31, 1998) 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.
(2) The Russell 2000 Index is a popular measure of the stock price performance
of small companies. Russell Indexes are market capitalization weighted
indexes. The Russell 1000 Index is comprised of the 1,000 largest U.S.
stocks in terms of market capitalization. The Russell 2000 Index is
comprised of the next 2,000 largest U.S. stocks in terms of market
capitalization.
The share price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
acts.
PROPOSALS OF SECURITY HOLDERS
All proposals of any shareholder of the Trust that such holder wishes to
be presented at the 2000 Annual Meeting of Shareholders and included in the
proxy statement and form of proxy prepared for that meeting must be received by
the Trust at its principal executive offices no later than December 8, 1999 to
be considered for inclusion in such proxy statement and form of proxy. Any such
proposal must be submitted in writing to the Secretary of the Trust at the
address appearing on the notice accompanying this proxy statement. A proposal
which does not comply with the applicable requirements of Rule 14a-8 under the
Exchange Act will not be included in management's proxy soliciting material for
the 2000 Annual Meeting of Shareholders.
A shareholder of the Trust may wish to have a proposal presented at the
2000 Annual Meeting of Shareholders, but not to have such proposal included in
the Trust's proxy statement and form of proxy relating to that meeting.
Pursuant to the Trust's By-laws, notice of any such proposal must be received
by the Trust between January 7, 2000 and February 6, 2000. If it is not
received during this period, such proposal shall be deemed "untimely" for
purposes of Rule 14a-4(c) under the Exchange Act, and, therefore, the proxies
will have the right to exercise discretionary voting authority with respect to
such proposal. Any such proposal must be submitted in writing to the Secretary
of the Trust at the address appearing on the notice accompanying this proxy
statement.
INDEPENDENT AUDITORS
Ernst & Young LLP performed the customary auditing services for the fiscal
year ended December 31, 1998. The Trust has selected Ernst & Young LLP as its
independent auditors to perform these services for the next fiscal year. A
representative of Ernst & Young LLP is expected to be present at the Meeting.
Such representative will be available to respond to questions from the floor
and will be afforded an opportunity to make any statement which he or she may
deem appropriate.
SOLICITATION OF PROXIES
The cost of the solicitation of proxies will be borne by the Trust. In
addition to the use of the mails, solicitations may be made by telephone and
personal interviews by officers, directors and regularly engaged employees of
the Trust. The Trust has engaged Corporate Investor Communications, Inc.
("CIC") to distribute the Trust's shareholder materials and solicit proxies.
The Trust has agreed to pay CIC a fee of approximately $5,500 and reimburse CIC
for all reasonable disbursements. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward this proxy statement to the beneficial
owners of the stock held of record by such persons, and the Trust will
reimburse them for their charges and expenses in this connection.
ANNUAL REPORT ON FORM 10-K
The Trust will provide without charge to each person solicited by this
proxy statement, at the written request of any such person, a copy of the
Trust's Annual Report on Form 10-K (including the financial statements and the
schedules thereto) as filed with the Commission for its most recent fiscal
year. Such written requests should be directed to the Director of Investor
Relations at the address of the Trust appearing on the first page of this proxy
statement.
18
<PAGE>
Appendix A
PROXY
LIBERTY PROPERTY TRUST
65 Valley Stream Parkway
Malvern, Pennsylvania 19355
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned shareholder of LIBERTY PROPERTY TRUST (the "Trust")
hereby appoints Willard G. Rouse III and Joseph P. Denny, and each of them
acting individually, as the attorney and proxy of the undersigned, with the
powers the undersigned would possess if personally present, and with full power
of substitution, to vote all shares of beneficial interest of the Trust which
the undersigned would be entitled to vote if personally present at the annual
meeting of shareholders of the Trust to be held on Wednesday, May 19, 1999, at
10:00 a.m., local time, at the Desmond Hotel, 1 Liberty Boulevard, Malvern,
Pennsylvania 19355, and any adjournment or postponement thereof, upon all
subjects that may properly come before the meeting, including the matters
described in the proxy statement furnished herewith, subject to any directions
indicated on the reverse side.
The Board of Trustees recommends a vote "FOR" all of the nominees of the Board
of Trustees in the election of trustees and "FOR" the amendment of the Liberty
Property Trust Amended and Restated Share Incentive Plan.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE>
|X| Please mark
votes as in
this example.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder(s). If no direction is made, this proxy will be
voted "FOR" all of the nominees of the Board of Trustees in the election of
trustees and "FOR" the amendment of the Liberty Property Trust Amended and
Restated Share Incentive Plan. This proxy also delegates discretionary authority
to vote with respect to any other business that may properly come before the
meeting or any adjournment or postponement thereof.
1. Election of three Class II trustees to hold office until 2002.
Nominees: Frederick F. Buchholz, Stephen B. Siegel and
Thomas C. DeLoach, Jr.
FOR WITHHELD
|_| |_|
|_|
- ------------------------ ------------------------------
FOR ALL NOMINEES, EXCEPT AS NOTED ABOVE.
2. Amendment of the Liberty Property Trust Amended and Restated Share Incentive
Plan.
FOR AGAINST ABSTAIN
|_| |_| |_|
MARK HERE
FOR ADDRESS |_|
CHANGE AND
NOTE AT LEFT
The undersigned hereby acknowledges
receipt of the notice of annual
meeting, the proxy statement
furnished in connection therewith
and the annual report to
shareholders and hereby ratifies
all that the said attorneys and
proxies may do by virtue hereof.
NOTE: Please mark, date and sign
this proxy card and return it in
the enclosed envelope. Please sign
as your name appears hereon. If
shares are registered in more than
one name, all owners should sign.
If signing in a fiduciary or
representative capacity, please
give full title and attach evidence
of authority. Corporations please
sign will full corporate name by a
duly authorized officer and affix
corporate seal.
Signature:______________ Date:________ Signature:________________ Date:________
<PAGE>
Annex B
AMENDED AND RESTATED SHARE INCENTIVE PLAN
1. Purpose. Liberty Property Trust (the "Company") hereby amends and
restates the Liberty Property Trust Share Incentive Plan (the "Plan") as set
forth herein. The Plan is intended to recognize the contributions made to the
Company by key employees, consultants and advisors of the Company or an
Affiliate (including employees who are members of the Board of Trustees) of the
Company or any Affiliate, to provide such persons with additional incentive to
devote themselves to the future success of the Company or an Affiliate, and to
improve the ability of the Company or an Affiliate to attract, retain, and
motivate individuals upon whom the Company's sustained growth and financial
success depend, by providing such persons with an opportunity to acquire or
increase their proprietary interest in the Company through receipt of rights to
acquire common shares of beneficial interest, $.001 par value per share (the
"Shares"), in the Company, and through transfers of Shares subject to conditions
of forfeiture. In addition, the Plan is intended as an additional incentive to
members of the Board of Trustees (the "Trustees") who are not employees of the
Company or an Affiliate to serve on the Board of Trustees and to devote
themselves to the future success of the Company by providing them with an
opportunity to acquire or increase their proprietary interest in the Company
through the receipt of Options to acquire Shares.
2. Definitions. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code. In addition, "Affiliate" means any other entity in
which the Company owns an interest which would be an Affiliate as defined in the
preceding sentence but for the fact that such entity is not a corporation.
Employees of any such non-corporate affiliate shall not be granted ISOs under
the Plan.
(b) "Award" means a grant of Shares subject to conditions of forfeiture
made pursuant to the terms of the Plan.
(c) "Award Agreement" means the agreement between the Company and a
Grantee with respect to an Award made pursuant to the Plan.
(d) "Awardee" means a person to whom an Award has been granted pursuant to
the Plan.
(e) "Board of Trustees" means the Board of Trustees of the Company.
(f) "Change of Control" has the meaning as set forth in Section 10 of the
Plan.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(h) "Committee" has the meaning set forth in Section 3 of the Plan.
(i) "Company" means Liberty Property Trust, a Maryland real estate
investment trust.
(j) "Disability" has the meaning set forth in Section 22(e)(3) of the
Code.
(k) "Fair Market Value" has the meaning set forth in Subsection 8(b) of
the Plan.
(l) "Grantee" means a person to whom an Option or an Award has been
granted pursuant to the Plan.
(m) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b) of
the Code.
(n) "Non-employee Trustee " means a member of the Board of Trustees who is
not an employee of the Company or an Affiliate and who qualifies both as a
"non-employee director" as that term is used in Rule 16b-3 and as an "outside
director" as that term is used in applicable IRS regulations promulgated under
Code Section 162(m).
(o) "Non-qualified Stock Option" means an Option granted under the Plan
which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(p) "Option" means either an ISO or a Non-qualified Stock Option granted
under the Plan.
(q) "Optionee" means a person to whom an Option has been granted under the
Plan, which Option has not been exercised and has not expired or terminated.
(r) "Option Document" means the document described in Section 8 or Section
9 of the Plan, as applicable, which sets forth the terms and conditions of each
grant of Options.
(s) "Option Price" means the price at which Shares may be purchased upon
exercise of an Option, as calculated pursuant to Subsection 8(b) or Subsection
9(a) of the Plan.
(t) "Restricted Share" means a Share subject to conditions of forfeiture
and transfer granted to any person pursuant to an Award under the Plan.
(u) "Retirement" shall mean a termination of an Optionee's employment or
services for the Company or an Affiliate at any time after such Optionee has
reached age 65.
(v) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor rule.
<PAGE>
(w) "Section 16 Officer" means any person who is an "officer" within the
meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934,
as amended, or any successor rule.
(x) "Shares" means the shares of beneficial interest, $.01 par value per
share, of the Company.
(y) "Trustee" means a member of the Board of Trustees.
3. Administration of the Plan. The Plan shall be administered by the Board
of Trustees of the Company if all members of the Board of Trustees are
Non-employee Trustees; provided, however, that the Board of Trustees may
designate a committee or committee(s) of the Board of Trustees composed of two
or more of its Trustees to administer the Plan in its stead. If any member of
the Board of Trustees is not a Non-employee Trustee, the Board of Trustees shall
(i) designate a committee composed of two or more Trustees, each of whom is a
Non-employee Trustee (the "Non-employee Trustee Committee"), to operate and
administer the Plan in its stead, (ii) designate two committees to operate and
administer the Plan in its stead, one of such committees composed of two or more
of its Non-employee Trustees (the "Non-employee Trustee Committee") to operate
and administer the Plan with respect to the Company's Section 16 Officers and
the Trustees who are not members of the Non-employee Trustee Committee, and
another committee composed of two or more Trustees (which may include Trustees
who are not Non-employee Trustees) to operate and administer the Plan with
respect to persons other than Section 16 Officers or Trustees or (iii) designate
only one committee composed of two or more Non-employee Trustees (the
"Non-employee Trustee Committee") to operate and administer the Plan with
respect to the Company's Section 16 Officers and Trustees (other than those
Trustees serving on the Non-employee Trustee Committee) and itself operate and
administer the Plan with respect to persons other than Section 16 Officers or
Trustees. Any of such committees designated by the Board of Trustees, and the
Board of Trustees itself in its administrative capacity with respect to the
Plan, is referred to as the "Committee." With the exception of the timing of
grants of Options, the price at which Shares may be purchased, and the number of
Shares covered by Options granted to each member of the Non-employee Trustee
Committee, all of which shall be as specifically set forth in Section 9, the
other provisions set forth herein, as it pertains to members of the Non-employee
Trustee Committee, shall be administered by the Board of Trustees.
(a) Meetings. The Committee shall hold meetings at such times and places
as it may determine. Acts approved at a meeting by a majority of the members of
the Committee or acts approved in writing by the unanimous consent of the
members of the Committee shall be the valid acts of the Committee.
(b) Grants and Awards. Except with respect to Options granted under
Subsection 8(j) and to Non-employee Trustee Committee Members pursuant to
Section 9, the Committee shall from time to time at its discretion direct the
Company to grant Options and Awards pursuant to the terms of the Plan. The
Committee shall have plenary authority to (i) determine the persons to whom, and
the times at which Options and Awards are to be granted as well as the terms
applicable to Options and Awards, (ii) determine the type of Option to be
granted and the number
<PAGE>
of Shares subject thereto, (iii) determine the Awardees to whom, and the times
at which, Restricted Shares are granted, the number of Shares awarded, and the
purchase price per Share, if any, and (iv) approve the form and terms and
conditions of the Option Documents and Award Agreements; all subject, however,
to the express provisions of the Plan. In making such determinations, the
Committee may take into account the nature of the Grantee's services and
responsibilities, the Grantee's present and potential contribution to the
Company's success and such other factors as it may deem relevant.
Notwithstanding the foregoing, grants of Options to Non-employee Trustee
Committee Members shall be made exclusively in accordance with Section 9 and
such other provisions of the Plan that specifically apply to such Options. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option or Award granted under it shall be final, binding and
conclusive.
(c) Exculpation. No member of the Committee shall be personally liable for
monetary damages as such for any action taken or any failure to take any action
in connection with the administration of the Plan or the granting of Options or
Awards thereunder unless (i) the member of the Committee has breached or failed
to perform the duties of his office under applicable law and (ii) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness;
provided, however, that the provisions of this Subsection 3(c) shall not apply
to the responsibility or liability of a member of the Committee pursuant to any
criminal statute or to the liability of a member of the Committee for the
payment of taxes pursuant to local, state or federal law.
(d) Indemnification. Service on the Committee shall constitute service as
a member of the Board of Trustees. Each member of the Committee shall be
entitled without further act on his part to indemnity from the Company to the
fullest extent provided by applicable law and the Company's Declaration of Trust
and/or By-laws in connection with or arising out of any action, suit or
proceeding with respect to the administration of the Plan or the granting of
Options or Awards thereunder in which he or she may be involved by reason of his
or her being or having been a member of the Committee, whether or not he or she
continues to be such member of the Committee at the time of the action, suit or
proceeding.
4. Grants and Awards under the Plan. Options under the Plan may be in the
form of a Non-qualified Stock Option, an ISO, or Awards of Restricted Shares, or
any combination thereof, at the discretion of the Committee.
5. Eligibility. All key employees, consultants and advisors of the Company
or an Affiliate and members of the Board of Trustees shall be eligible to
receive Options and Awards hereunder. The Committee, in its sole discretion,
shall determine whether an individual qualifies as a key employee.
Notwithstanding anything to the contrary contained herein, consultants and
advisors shall only be eligible to receive Options or Awards provided bona fide
services shall be rendered by such persons, and such services are not in
connection with a capital raising transaction.
<PAGE>
6. Shares Subject to Plan. The aggregate maximum number of Shares for
which Options or Awards may be granted pursuant to the Plan (including Shares
for which Options or Awards were granted under the Plan prior to this
restatement) is Four Million Thirty-Three Thousand Five Hundred Thirty-Five
(4,033,535), subject to adjustment as provided in Section 11 of the Plan. The
Shares shall be issued from authorized and unissued Shares or Shares held in or
hereafter acquired for the treasury of the Company. If an Option terminates or
expires without having been fully exercised for any reason, or if Shares granted
pursuant to an Award have been conveyed back to the Company pursuant to the
terms of an Award Agreement, the Shares for which the Option was not exercised
or the Shares that were conveyed back to the Company may again be the subject of
one or more Options or Awards granted pursuant to the Plan.
7. Term of the Plan. The amended and restated Plan is effective as of
February 26, 1997, the date of its adoption by the Board of Trustees (the
"Approval Date"), subject to the approval of the amended and restated Plan
within twelve months of the Approval Date by a majority of the votes cast at a
duly called meeting of the shareholders at which a quorum representing a
majority of all outstanding voting interests of the Company is, either in person
or by proxy, present and voting, or by a method and in a degree that would be
treated as adequate under applicable state law in the case of an action
requiring shareholder approval. No Option or Award may be granted under the Plan
ten years after the Approval Date. If the Plan is not approved by shareholder
vote as described above, all Options and Awards granted under the Plan as
amended and restated that could not have been granted under the Plan as in
effect without regard to this Amended and Restated Plan shall be null and void.
8. Option Documents and Terms. Each Option granted under the Plan shall be
a Non-qualified Stock Option unless the Option shall be specifically designated
at the time of grant to be an ISO for federal income tax purposes. To the extent
any Option designated an ISO is determined for any reason not to qualify as an
incentive stock option within the meaning of Section 422 of the Code, such
Option shall be treated as a Non- qualified Stock Option for all purposes under
the provisions of the Plan. Options granted pursuant to the Plan shall be
evidenced by the Option Documents in such form as the Committee shall from time
to time approve, which Option Documents shall comply with and be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall from time to time require which are not inconsistent with the
terms of the Plan. However, the provisions of this Section 8 shall not be
applicable to Options granted to non-employee members of the Board of Trustees,
except as otherwise provided in Subsection 9(c).
(a) Number of Option Shares. Each Option Document shall state the number
of Shares to which it pertains. An Optionee may receive more than one Option,
which may include Options which are intended to be ISO's and Options which are
not intended to be ISO's, but only on the terms and subject to the conditions
and restrictions of the Plan. Notwithstanding anything to the contrary contained
herein, no employee shall be granted Options to acquire more than two hundred
fifty thousand (250,000) Shares during any calendar year.
<PAGE>
(b) Option Price. Each Option Document shall state the Option Price which,
for a Non-qualified Stock Option, may be less than, equal to, or greater than
the Fair Market Value of the Shares on the date the Option is granted and, for
an ISO, shall be at least 100% of the Fair Market Value of the Shares on the
date the Option is granted as determined by the Committee in accordance with
this Subsection 8(b); provided, however, that if an ISO is granted to an
Optionee who then owns, directly or by attribution under Section 424(d) of the
Code, interests in the Company or any parent or subsidiary corporation
possessing more than ten percent of the total combined voting power of all
classes of interests of the Company or such parent or subsidiary, then the
Option Price shall be at least 110% of the Fair Market Value of the Shares on
the date the Option is granted. If the Shares are traded in a public market,
then the Fair Market Value per Share shall be, if the Shares are listed on a
national securities exchange or included in the NASDAQ National Market System,
the last reported sale price thereof on the relevant date, or, if the Shares are
not so listed or included (or if there was no reported sale on the relevant
date), the mean between the last reported "bid" and "asked" prices thereof on
the relevant date, as reported on NASDAQ or by the exchange, as applicable, or,
if not so reported, as reported by the National Daily Quotation Bureau, Inc. or
as reported in a customary financial reporting service, as applicable, or, in
the event such method of determination of fair market value is determined to be
inaccurate or such information as is needed for such determination as set forth
above is not available, as the Committee determines in good faith.
(c) Exercise. No Option shall be deemed to have been exercised prior to
the receipt by the Company of written notice of such exercise and of payment in
full of the Option Price for the Shares to be purchased. Each such notice shall
specify the number of Shares to be purchased and shall (unless the Shares are
covered by a then current registration statement or qualified Offering Statement
under Regulation A under the Securities Act of 1933, as amended (the "Act"),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (a) such Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Shares have not been registered under the Act and are
"restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Shares under the Act or to take any action which would make
available to the Optionee any exemption from such registration, (c) such Shares
may not be transferred without compliance with all applicable federal and state
securities laws, and (d) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed on the certificates. Notwithstanding the foregoing, if
the Company determines that issuance of Shares should be delayed pending (A)
registration under federal or state securities laws, (B) the receipt of an
opinion of counsel satisfactory to the Company that an appropriate exemption
from such registration is available, (C) the listing or inclusion of the Shares
on any securities exchange or an automated quotation system or (D) the consent
or approval of any governmental regulatory body whose consent or
<PAGE>
approval is deemed necessary in connection with the issuance of such Shares, the
Company may defer exercise of any Option granted hereunder until any of the
events described in this sentence has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in cash, (ii)
by certified or cashier's check payable to the order of the Company, or (iii) by
such other mode of payment as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Furthermore, the Committee may provide in an Option
Document that payment may be made in whole or in part in Shares held by the
Optionee. If payment is made in whole or in part in Shares, then the Optionee
shall deliver to the Company certificates registered in the name of such
Optionee representing the Shares owned by such Optionee, free of all liens,
claims and encumbrances of every kind and having an aggregate Fair Market Value
on the date of delivery that is at least as great as the Option Price of the
Shares (or relevant portion thereof) with respect to which such Option is to be
exercised by the payment in Shares, endorsed in blank or accompanied by stock
powers duly endorsed in blank by the Optionee. In the event that certificates
for Shares delivered to the Company represent a number of Shares in excess of
the number of Shares required to make payment for the Option Price of the Shares
(or relevant portion thereof) with respect to which such Option is to be
exercised by payment in Shares, the certificate or certificates issued to the
Optionee shall represent (i) the Shares in respect of which payment is made, and
(ii) such excess number of Shares. Notwithstanding the foregoing, the Committee
may impose from time to time such limitations and prohibitions on the use of
Shares to exercise an Option as it deems appropriate.
(e) Termination of Options.
(i) No Option shall be exercisable after the first to occur of the
following:
(A) Expiration of the Option term specified in the Option Document,
which, in the case of an ISO, shall not occur after (1) ten years from the date
of grant, or (2) five years from the date of grant of an ISO if the Optionee on
the date of grant owns, directly or by attribution under Section 424(d) of the
Code, interests in the Company or any parent or subsidiary corporation
possessing more than ten percent (10%) of the total combined voting power of all
classes of interests of the Company or such parent or subsidiary;
(B) The third month anniversary of the date of termination of the
Optionee's services or employment with the Company or an Affiliate for any
reason other than death, Disability or Retirement.
<PAGE>
(C) A finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his or her employment or
service, or has disclosed trade secrets or confidential information of the
Company or an Affiliate. In such event, in addition to immediate termination of
the Option, the Optionee shall automatically forfeit all Shares for which the
Company has not yet delivered the Share certificates upon refund by the Company
of the Option Price. Notwithstanding anything herein to the contrary, the
Company may withhold delivery of Share certificates pending the resolution of
any inquiry that could lead to a finding resulting in a forfeiture;
(D) The date, if any, set by the Board of Trustees as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company; or
(E) The occurrence of such other event or events as may be set
forth in the Option Document as causing an accelerated expiration of the Option.
(ii) Notwithstanding the foregoing, the Committee may extend the
period during which all or any portion of an Option may be exercised to a date
no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection
8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be
made only with the consent of the Optionee.
(iii) The terms of an executive severance agreement or other agreement
between the Company and an Optionee, approved by the Committee, whether entered
into prior or subsequent to the grant of an Option, which provide for Option
exercise dates later than those set forth in Subsection 8(e)(i) but permitted by
this Subsection 8(e)(ii) shall be deemed to be Option terms approved by the
Committee and consented to by the Optionee.
(iv) Unless otherwise expressly permitted in the Option Document, no
Option granted pursuant to this Section 8 shall be exercisable following the
termination of the Optionee's services as a member of the Board of Trustees or
employment with the Company or any Affiliate with respect to any Shares in
excess of those which could have been acquired by exercise of the Option on the
date of such termination of services or employment.
(f) Transfers. No Option granted under the Plan may be transferred, except
by will or by the laws of descent and distribution. During the lifetime of the
person to whom an Option is granted, such Option may be exercised only by such
person. Notwithstanding the foregoing, (1) a Non-qualified Stock Option may be
transferred pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and (2) the Committee may provide, in an Option Document, that an
Optionee may transfer Options to his or her children, grandchildren or spouse or
to one or more trusts for the benefit of such family members or to partnerships
in which such family members are the only partners (a "Family Transfer"),
provided that the Optionee receives no consideration for such Family Transfer
and the Option Documents relating to Options transferred in such Family Transfer
continue to be subject to the same terms and conditions that were applicable to
such Options immediately prior to the Family Transfer.
<PAGE>
(g) Limitation on ISO Grants. In no event shall the aggregate Fair Market
Value of the Shares with respect to which ISOs issued under the Plan and
incentive stock options issued under any other incentive stock option plans of
the Company or its Affiliates which are exercisable for the first time by the
Optionee during any calendar year exceed $100,000. Any ISOs issued in excess of
this limitation shall be treated as Non-qualified Stock Options issued under the
Plan. For purposes of this subsection 8(g), the Fair Market Value of Shares
shall be determined as of the date of grant of the ISO or other incentive stock
option.
(h) Other Provisions. Subject to the provisions of the Plan, the Option
Documents shall contain such other provisions including, without limitation,
provisions authorizing the Committee to accelerate the exercisability of all or
any portion of an Option granted pursuant to the Plan, additional restrictions
upon the exercise of the Option or additional limitations upon the term of the
Option, as the Committee shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to an Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee, except
that the consent of the Optionee shall not be required for any amendment made
pursuant to Subsection 8(e)(i)(C) or Section 10 of the Plan, as applicable.
(j) No Options shall be granted under the Plan if, taking into account the
grant of such options, five or fewer individuals would own more than 50% of the
outstanding Shares, as computed for purposes of Code Section 856(h).
9. Special Provisions Relating to Grants of Options to Non-employee
Members of the Board of Trustees. Options granted pursuant to the Plan to
non-employee members of the Board of Trustees shall be granted, without any
further action by the Committee, in accordance with the terms and conditions set
forth in this Section 9. Options granted pursuant to this Section 9 shall be
evidenced by Option Documents in such form as the Committee shall from time to
time approve, which Option Documents shall comply with and be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall from time to time require which are not inconsistent with the
terms of the Plan and would not cause a Non-employee Trustee to lose his or her
status as a "non-employee director" (as that term is used for purposes of Rule
16b-3) due to the grant of Options to such person pursuant to this Section 9.
(a) Timing of Grants; Number of Shares Subject of Options; Exercisability
of Options; Option Price. Each non-employee member of the Board of Trustees
shall be granted annually, commencing on the date of the initial public offering
of Shares, and on each anniversary of such date thereafter, an Option to
purchase five thousand (5,000) Shares provided such person is a member of the
Board of Trustees on such grant date. Each such Option shall be a Non-qualified
Stock Option exercisable with respect to twenty percent (20%) of the Shares
subject to such Option after the first anniversary of the date of grant,
<PAGE>
exercisable with respect to fifty percent (50%) of the Shares after the second
anniversary of the date of grant, and fully exercisable after the third
anniversary of the date of grant. The Option Price shall be equal to the Fair
Market Value of the Shares on the date the Option is granted.
(b) Termination of Options Granted Pursuant to Section 9. No Option
granted pursuant to this Section 9 shall be exercisable after the first to occur
of the following:
(i) The tenth anniversary of the date of grant.
(ii) The third month anniversary of the date of termination of the
Optionee's services as a member of the Board of Trustees for any reason other
than death, Disability or Retirement.
Notwithstanding anything to the contrary contained herein, no Option
granted pursuant to this Section 9 shall be exercisable following the
termination of the Optionee's services as a member of the Board of Trustees with
respect to any Shares in excess of those which could have been acquired by
exercise of the Option on the date of such termination of services.
(c) Applicability of Section 8 to Options Granted Pursuant to Section 9.
The following provisions of Section 8 shall be applicable to Options granted
pursuant to this Section 9: Subsection 8(a) (provided that all Options granted
pursuant to this Section 9 shall be Non-qualified Stock Options); the last
sentence of Subsection 8(b); Subsection 8(c); Subsection 8(d) (provided that
Option Documents relating to Options granted pursuant to this Section 9 shall
provide that payment may be made in whole or in part in Shares); and Subsection
8(f) (provided that Option Documents relating to Options granted pursuant to
this Section 9 shall not permit Family Transfers).
10. Change of Control. In the event of a Change of Control, the Committee
may take whatever action it deems necessary or desirable with respect to the
Options and Awards outstanding (other than Options granted pursuant to
Subsection 8(j) and Section 9), including, without limitation, accelerating the
expiration or termination date in the respective Option Documents to a date no
earlier than thirty (30) days after notice of such acceleration is given to the
Optionees. In addition to the foregoing, in the event of a Change of Control,
Options granted pursuant to the Plan and held by Optionees who are employees of
the Company or an Affiliate or members of the Board of Trustees at the time of a
Change of Control shall become immediately exercisable in full and the
restrictions applicable to Restricted Shares awarded to Awardees who are
employees of the Company or an Affiliate or members of the Board of Trustees at
the time of a Change of Control shall immediately lapse. Any amendment to this
Section 10 which diminishes the rights of Optionees, shall not be effective with
respect to Options outstanding at the time of adoption of such amendment,
whether or not such outstanding Options are then exercisable.
A "Change of Control" shall be deemed to have occurred upon the earliest
to occur of the following events: (i) the date the shareholders of the Company
(or the Board of Trustees, if shareholder action is not
<PAGE>
required) approve a plan or other arrangement pursuant to which the Company will
be dissolved or liquidated, or (ii) the date the shareholders of the Company (or
the Board of Trustees, if shareholder action is not Required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the shareholders of the Company (or the
Board of Trustees, if shareholder action is not required) and the shareholders
of the other constituent corporation or entity (or its board of directors or
trustees if shareholder action is not required) have approved a definitive
agreement to merge or consolidate the Company with or into such other
corporation or other entity, other than, in either case, a merger or
consolidation of the Company in which holders of Shares immediately prior to the
merger or consolidation will have at least a majority of the ownership of
interests of the surviving corporation or entity (and, if one class of common
stock or other equity interest is not the only class of voting securities
entitled to vote on the election of directors or trustees of the surviving
entity, a majority of the voting power of the surviving entity's voting
securities) immediately after the merger or consolidation, which equity interest
(and, if applicable, voting securities) is to be held in the same proportion as
such holders' ownership of Shares immediately before the merger or
consolidation, or (iv) the first day, after the date this Plan is effective on
which there has occurred a change in the Majority of the positions on the Board
of Trustees or if any person (or any group of associated persons acting in
concert) acquires, directly or indirectly, more than a percentage of the voting
stock of the Trust in excess of that held by the "Senior Executives" (as defined
in the Registration Statement) in the aggregate as of the date of the closing of
the initial public offering of the Common Shares, in either case without the
advance written consent of the current Board of Trustees.
11. Adjustments on Changes in Capitalization.
(a) Corporate Transactions. In the event that the outstanding Shares are
changed by reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the like
(not including the issuance of Shares on the conversion of other securities of
the Company which are outstanding on the date of grant and which are convertible
into Shares) or dividends payable in Shares, an equitable adjustment shall be
made by the Committee in the aggregate number of Shares available under the Plan
and in the number of Shares and price per Share subject to outstanding Options.
Unless the Committee makes other provisions for the equitable settlement of
outstanding options, if the Company shall be reorganized, consolidated, or
merged with another corporation, or if all or substantially all of the assets of
the Company shall be sold or exchanged, an Optionee shall at the time of
issuance of the Shares under such corporate event be entitled to receive upon
the exercise of his or her Option the same number and kind of shares or the same
amount of property, cash or securities as he or she would have been entitled to
receive upon the occurrence of any such corporate event as if he or she had
been, immediately prior to such event, the holder of the number of shares
covered by his or her Option.
(b) Proportionate Application. Any adjustment under this Section 11 in the
number of Shares subject to Options shall apply
<PAGE>
proportionately to only the unexercised portion of any Option granted hereunder.
If fractions of a Share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of Shares.
(c) Committee Authority. The Committee shall have authority to determine
the adjustments to be made under this Section, and any such determination by the
Committee shall be final, binding and conclusive.
12. Terms and Conditions of Awards. Awards granted pursuant to the Plan
shall be evidenced by written Award Agreements in such form as the Committee
shall from time to time approve, which Award Agreements shall comply with and be
subject to the following terms and conditions and such other terms and
conditions which the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. The Committee may, in its sole
discretion, shorten or waive any term or condition with respect to all or any
portion of any Award. Notwithstanding the foregoing, all restrictions shall
lapse or terminate with respect to Restricted Shares upon the death or
Disability of the Awardee.
(a) Number of Shares. Each Award Agreement shall state the number of
Shares to which it pertains.
(b) Purchase Price. Each Award Agreement shall specify the purchase price,
if any, which applies to the Award. If the Board of Trustees specifies a
purchase price, the Awardee shall be required to make payment on or before the
date specified in the Award Agreement. An Awardee shall pay for such Shares (i)
in cash, (ii) by certified check payable to the order of the Company, or (iii)
by such other mode of payment as the Committee may approve.
(c) Restrictions on Transfer and Forfeitures. A share certificate
representing the Restricted Shares granted to an Awardee shall be registered in
the Awardee's name but shall be held in escrow by the Company or an appropriate
officer of the Company, together with an undated share transfer power executed
by the Awardee with respect to each share certificate representing Restricted
Shares in such Awardee's name. The Awardee shall generally have the rights and
privileges of a shareholder as to such Restricted Shares including the right to
vote such Restricted Shares and to receive and retain all cash dividends with
respect to such Shares, except that the following restrictions shall apply: (i)
the Awardee shall not be entitled to delivery of the certificate until the
expiration or termination of any period designated by the Committee ("Restricted
Period") and the satisfaction of any other conditions prescribed by the
Committee; and (ii) all distributions with respect to the Restricted Shares
other than cash dividends, such as share dividends, share splits or
distributions of property, and any distributions (other than cash dividends)
subsequently made with respect to other distributions, shall be delivered to the
Company or an appropriate officer of the Company, together with appropriate
share transfer powers or other instruments of transfer signed and delivered to
the Company or appropriate officer of the Company by the Awardee, to be held by
the Company or appropriate officer of the Company and released to either the
Awardee or the Company, as the case may be, together with the Shares to which
they relate; (iii) the Awardee will have no right to
<PAGE>
sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any of the
Restricted Shares or distributions (other than cash dividends) with respect
thereto; and (iv) all of the Restricted Shares shall be forfeited and all rights
of the Awardee with respect to such Restricted Shares shall terminate without
further obligation on the part of the Company unless the Awardee has remained a
regular full-time employee of the Company or an Affiliate, any of its
subsidiaries or any parent or any combination thereof until the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee applicable to such Restricted Share. Upon
the forfeiture of any Restricted Share, such forfeited shares shall be
transferred to the Company without further action by the Awardee.
(d) Lapse of Restrictions. Upon the expiration or termination of the
Restricted Period and the satisfaction of any other conditions prescribed by the
Committee as provided for in the Plan, the restrictions applicable to the
Restricted Share shall lapse and a stock certificate for the number of shares of
Common Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, except any that may be imposed by law,
to the Awardee or the beneficiary or estate, as the case may be. The Company
shall not be required to deliver any fractional share of Common Stock but will
pay, in lieu thereof, the fair market value (determined as of the date the
restrictions lapse) of such fractional share to the Awardee or the Awardee's
beneficiary or estate, as the case may be. The Award may provide for the lapse
of restrictions on transfer and forfeiture conditions in installments.
Notwithstanding the foregoing, unless the Shares are covered by a then current
registration statement or a Notification under Regulation A under the Act, the
Company may require as a condition to the transfer of Share certificates to an
Awardee under this Subsection 12(d) that the Awardee provide the Company with an
acknowledgment in form and substance satisfactory to the Company that (a) such
Shares are being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that
(i) the Shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer and (ii) the Company is under no obligation to register
the Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (c) such Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer may be endorsed on the certificates. Notwithstanding the foregoing, if
the Company determines that the transfer of Share certificates should be delayed
pending (A) registration under federal or state securities laws, (B) the receipt
of an opinion of counsel satisfactory to the Company that an appropriate
exemption from such registration is available, (C) the listing or inclusion of
the Shares on any securities exchange or an automated quotation system or (D)
the consent or approval of any governmental regulatory body whose consent or
approval is necessary in connection with the issuance of such Shares, the
Company may defer transfer of Share certificates hereunder until any of the
events described in this sentence has occurred.
<PAGE>
(e) Section 83(b) Election. An Awardee who files an election with the
Internal Revenue Service to include the fair market value of any Restricted
Share in gross income while they are still subject to restrictions shall
promptly furnish the Company with a copy of such election together with the
amount of any federal, state, local or other taxes required to be withheld to
enable the Company to claim an income tax deduction with respect to such
election.
(f) Rights as Shareholder. Upon payment of the purchase price, if any, for
Shares covered by an Award and compliance with the acknowledgment requirement of
subsection 12(d), the Grantee shall have all of the rights of a shareholder with
respect to the Shares covered thereby, including the right to vote the Shares
and receive all dividends and other distributions paid or made with respect
thereto, except to the extent otherwise provided by the Committee or in the
Award Agreement.
(g) Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Awards issued to an Awardee, subject to the Awardee's
consent if such amendment is not favorable to the Awardee, except that the
consent of the Awardee shall not be required for any amendment made pursuant to
Section 10 of the Plan.
13. Amendment of the Plan. The Board of Trustees of the Company may amend
the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Trustees of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of Shares
as to which Options or Awards may be granted without obtaining approval, within
twelve months before or after such action, by vote of a majority of the votes
cast at a duly called meeting of the shareholders at which a quorum representing
a majority of all outstanding voting interests of the Company is, either in
person or by proxy, present and voting on the matter, or by a method and in a
degree that would be treated as adequate under applicable state law in the case
of an action requiring shareholder approval. No amendment to the Plan shall
adversely affect any outstanding Option or Award, however, without the consent
of the Grantee.
14. No Commitment to Retain. The grant of an Option or an Award pursuant
to the Plan shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Affiliate to
retain the Grantee in the employ of the Company or an Affiliate and/or as a
member of the Company's Board of Trustees or in any other capacity.
15. Withholding of Taxes. Whenever the Company proposes or is required to
deliver or transfer Shares in connection with an Award or the exercise of an
Option, the Company shall have the right to (a) require the recipient to remit
or otherwise make available to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for such Shares or (b) take
whatever other action it deems necessary to protect its interests with respect
to its tax liabilities. The Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the Grantee's compliance, to the
Company's satisfaction, with any withholding requirement.
16. Interpretation. The Plan is intended to enable transactions under the
Plan with respect to Trustees and officers (within the meaning of Section 16(a)
under the Securities Exchange Act of 1934, as amended) to satisfy the conditions
of Rule 16b-3; to the extent that any provision of the Plan would cause a
conflict with such conditions or would cause the administration of the Plan as
provided in Section 3 to fail to satisfy the conditions of Rule 16b-3, such
provision shall be deemed null and void to the extent permitted by applicable
law. This section shall not be applicable if no class of the Company's equity
securities is then registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended.
