-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IXpIOEvK9l74mYenanOTOq6CUwgUdljYjyJWWSQhw4af4xDfq4M/WDgH1p55lxli hK9C3cr7Sf7skslxuloEfQ== 0000950168-99-001323.txt : 19990503 0000950168-99-001323.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950168-99-001323 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990603 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KONOVER PROPERTY TRUST INC CENTRAL INDEX KEY: 0000899757 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561819372 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-11998 FILM NUMBER: 99605827 BUSINESS ADDRESS: STREET 1: 11000 REGENCY PARKWAY 3RD FLOOR STREET 2: EAST TOWER SUITE 300 CITY: CARY STATE: NC ZIP: 27511 BUSINESS PHONE: 9194628787 MAIL ADDRESS: STREET 1: 11000 REGENCY PKWY 3RD FLOOR STREET 2: EAST TOWER SUITE 300 CITY: CARY STATE: NC ZIP: 27511 FORMER COMPANY: FORMER CONFORMED NAME: FAC REALTY TRUST INC DATE OF NAME CHANGE: 19980217 FORMER COMPANY: FORMER CONFORMED NAME: FAC REALTY INC DATE OF NAME CHANGE: 19970618 FORMER COMPANY: FORMER CONFORMED NAME: FACTORY STORES OF AMERICA INC DATE OF NAME CHANGE: 19930403 DEF 14A 1 KONOVER PROPERTY TRUST, INC. PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [ ] 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 Section 240.14a-11(c) or Section 240.14a-12 KONOVER PROPERTY TRUST, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------------ 2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------------ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------------ 4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------------ 5) Total fee paid: ------------------------------------------------------------------------------ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ------------------------------------------------------------------------------ 2) Form, Schedule, or Registration Statement No.: ------------------------------------------------------------------------------ 3) Filing Party: ------------------------------------------------------------------------------ 4) Date Filed: ------------------------------------------------------------------------------ KONOVER PROPERTY TRUST, INC. 11000 Regency Parkway, Suite 300 Cary, North Carolina 27511 ---------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held June 3, 1999 ---------------------------------------- NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of Konover Property Trust, Inc., a Maryland corporation (the "Company"), will be held at 11000 Regency Parkway, Atrium level, Cary, North Carolina 27511, on June 3, 1999, at 10:00 a.m. to elect directors to serve until the 2000 annual meeting of stockholders or until their successors are duly elected and qualified and to transact such other business as may properly come before the meeting and any adjournment thereof. Only stockholders of record at the close of business on March 15, 1999 will be entitled to notice of and to vote at the meeting or any adjournment thereof. By Order of the Board of Directors /s/ Robin W. Malphrus ----------------------------- ROBIN W. MALPHRUS, Esq. Secretary Dated: April 30, 1999 KONOVER PROPERTY TRUST, INC. --------------- PROXY STATEMENT --------------- ANNUAL MEETING OF STOCKHOLDERS To Be Held on June 3, 1999 This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Konover Property Trust, Inc., a Maryland corporation (the "Company"), of proxies from the holders of the Company's common stock for use at the 1999 Annual Meeting of Stockholders to be held at 11000 Regency Parkway, Atrium level, Cary, North Carolina 27511, on June 3, 1999 at 10:00 a.m., and at any adjournments or postponements thereof (the "Annual Meeting"). At the Annual Meeting, the stockholders will consider and vote upon the election of directors to serve until the 2000 annual meeting of stockholders or until their successors are duly elected and qualified and such other business as may properly come before the meeting and any adjournment thereof. This Proxy Statement and the accompanying form of proxy are first being sent to stockholders on or about April 30, 1999. This solicitation is made on behalf of the Board of Directors of the Company. Costs of the solicitation will be borne by the Company. The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to stockholders. Directors, officers and employees of the Company may also solicit proxies by telephone, telegraph, fax or personal interview. Holders of record of common stock of the Company (the "Common Stock") as of the close of business on March 15, 1999 are entitled to receive notice of, and to vote at, the Annual Meeting. The outstanding Common Stock constitutes the only class of securities of the Company entitled to vote at the Annual Meeting, and each share of Common Stock entitles the holder thereof to one vote. At the close of business on March 15, 1999, there were 30,916,240 shares of Common Stock issued and outstanding. Unless contrary instructions are indicated on the proxy, all shares represented by valid proxies received pursuant to this solicitation (and not revoked before they are voted) will be voted at the Annual Meeting FOR the election of the nine nominees. A stockholder may revoke his or her proxy at any time before exercise by delivering to the Secretary of the Company a written notice of such revocation, by filing with the Secretary of the Company a duly executed proxy bearing a later date, or by voting in person at the Annual Meeting. The election of the directors of the Company requires the vote of a plurality of all of the votes cast at the Annual Meeting provided a quorum is present. For purposes of the election of directors, abstentions will not be counted as votes cast and will have no effect on the result of the vote. 1 PROPOSAL ONE: ELECTION OF DIRECTORS The Company's bylaws authorize the Board of Directors to set the number of directors at no less than three nor more than fifteen. The number of directors is currently set at nine. The nine nominees named below have been nominated for election for one-year terms expiring at the 2000 annual meeting of stockholders or until their successors are duly elected and qualified. Unless marked otherwise, proxies received will be voted for the election of each of the nominees named below. If any nominee becomes unable or unwilling to serve before the Annual Meeting, the shares represented by proxy will be voted for a substitute nominee designated by the Board of Directors. Alternatively, the vacancy may be filled by the Board after the Annual Meeting. The Board of Directors has no reason to believe that any of the nominees will be unwilling or unable to serve if elected as a director. The nominees for election at the Annual Meeting are set forth below.
Name Age Principal Occupation Director Since - ------------------------- ----- ------------------------------------------------------------- --------------- Simon Konover 76 Chairman of the Board 1998 C. Cammack Morton 47 President and Chief Executive Officer of the Company 1996 Patrick M. Miniutti 51 Executive Vice President and Chief Financial Officer of the 1996 Company William D. Eberle 75 Chairman of Manchester Associates, Ltd. 1997 J. Richard Futrell, Jr. 68 Former Chairman and Chief Executive Officer of Centura 1993 Banks, Inc. John W. Gildea 55 Managing Director of Gildea Management Company and 1996 Advisor for The Network Funds Klaus P. Kretschmann 46 Principal of Lazard Fr-res Real Estate Investors LLC 1998 Jonathan O'Herron 69 Managing Director of Lazard Fr-res & Co. LLC NA Mark S. Ticotin 50 Chief Operating Officer of Lazard Fr-res Real Estate NA Investors LLC
Simon Konover is the founder of Konover & Associates, a $500 million-plus real estate enterprise located in West Hartford, Connecticut. The organization includes shopping centers, office buildings, hotels and residential communities. The shopping center portfolio includes over 100 centers and 11 million square feet. In the mid-1960s, Mr. Konover began developing retail centers in South Florida and in late 1989 founded Konover & Associates South, located in Boca Raton, Florida. The Company purchased Konover & Associates South in 1998 and, in connection with the acquisition, committed to appoint Mr. Konover as Chairman of the Board. Mr. Konover's nomination for election to the Board at the Annual Meeting was also agreed to as part of the acquisition. For a discussion of the transaction with Mr. Konover, see "Certain Relationships and Related Transactions -- Konover Transaction" below. C. Cammack Morton joined the Company in December 1995 as Chief Operating Officer and was elected President and a Director in January 1996. Effective January 1, 1997, Mr. Morton became the Company's Chief Executive Officer. Prior to his affiliation with the Company, Mr. Morton served as Managing Director of Rothschild Realty, Inc. ("Rothschild") and President and Chief Executive Officer of the Charter Oak Group, Ltd., a subsidiary of Rothschild engaged in the development and management of factory outlet centers. He joined Rothschild in 1987 as Vice President, was promoted to Senior Vice President in 1989 and to Managing Director in 1991. Patrick M. Miniutti joined the Company as Executive Vice President, Chief Financial Officer and Director in August 1996. Prior to his affiliation with the Company, Mr. Miniutti served for three years as Executive Vice President, Chief Financial Officer and Trustee of Crown American Realty Trust, a public REIT that owns regional shopping malls. Prior thereto, Mr. Miniutti held senior financial positions for a combined 12 years with New Market Companies, Inc., Western Development Corporation (predecessor to The Mills Corporation) and Cadillac Fairview Corporation Limited, which was preceded by ten years in public accounting, principally with national firms. Mr. Miniutti is a member of the American Institute of Certified Public Accountants and a former member of its Real Estate Accounting Committee, which was responsible for promulgating most of the real estate accounting rules in practice today. William D. Eberle was a founder of Boise Cascade and is Chairman of Manchester Associates, Ltd., a venture capital and international consulting firm and Of Counsel to the law firm of Kaye, Scholer, Fierman, Hays & Handler. Mr. Eberle 2 also serves as a director of the Board of America Service Group Inc., a health care services company, Showscan Entertainment, Inc., a movie-based software and technology company, Ampco Pittsburgh Corporation, a steel fabrication equipment company, Mitchell Energy & Development Corp., a gas and oil company, and Sirrom Capital Corporation, a venture financing company. J. Richard Futrell, Jr. is the retired Chairman of Centura Banks, Inc., a position he held from 1989 to 1993. John W. Gildea has been Managing Director of Gildea Management Company, an investment advisory firm, since 1990. From 1986 to 1990, he was Senior Vice President of Donaldson, Lufkin & Jenrette Securities Corporation. He is a director of America Service Group, Inc. and The General Chemical Group, Inc. Klaus P. Kretschmann is a principal of Lazard Fr-res Real Estate Investors, LLC ("LFREI"), which manages several realty investment funds including Prometheus Southeast Retail, LLC, which indirectly owns a controlling interest in the Company. Prior to joining LFREI, Mr. Kretschmann was Senior Vice President of Hyperian Credit Services Corporation where he was responsible for a loan workout portfolio totaling $435 million. Mr. Kretschmann also serves as chairman of The Fortress Group, Inc., a publicly traded national homebuilding company. Jonathan O'Herron is a Managing Director in the Banking Group of Lazard Fr-res & Co. LLC. He is a leading investment banker, serving as financial advisor to major U.S. and multinational corporations. Prior to joining Lazard in 1971, Mr. O'Herron was Executive Vice President - Finance for the Penn Central Company. Mr. O'Herron is a Trustee Emeritus of Middlebury College, a Trustee of St. Vincent's Hospital and Medical Center and Chairman of the Board of Trustees of the American Red Cross in Greater New York. Mark S. Ticotin is acting Chief Operating Officer of LFREI. Before joining Lazard, he was Senior Executive Vice President of Simon Property Group, Inc., a publicly traded real estate investment trust ("SPG"), after SPG acquired Corporate Property Investors ("CPI") in September 1998. Mr. Ticotin had been President and Chief Operating Officer of CPI when it merged with SPG. The portfolios of CPI and SPG consisted primarily of regional shopping centers. From 1988 to 1997, Mr. Ticotin was Senior Vice President of CPI and responsible for its Leasing, Legal and Marketing Departments. Prior to joining CPI in 1983, he was an attorney with the law firm of Cravath, Swaine & Moore. Messrs. Kretschmann, O'Herron and Ticotin are nominated for election at the Annual Meeting pursuant to the Company's Stockholder's Agreement with Prometheus Southeast Retail, LLC entered into in connection with the issuance of a controlling interest in the Company to Prometheus in 1998. See "Certain Relationships and Related Transactions -- Prometheus Transaction" below. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE ABOVE-LISTED NOMINEES FOR ELECTION AS DIRECTORS. Information Regarding Meetings and Committees of the Board of Directors The Board of Directors has an Audit Committee, an Executive Compensation Committee and a Nominating Committee. During the year ended December 31, 1998, the Board of Directors held nine meetings, the Audit Committee held four meetings, the Executive Compensation Committee held four meetings and the Nominating Committee held one meeting. Each director attended at least 75% of the Board of Directors meetings and assigned committee meetings held during 1998. AUDIT COMMITTEE. The Audit Committee, which consists of Messrs. Eberle (Chairman), Kretschmann and Futrell, makes recommendations concerning the engagement of independent public accountants, reviews the plans and results of the audit engagement, approves professional services provided and fees charged by the independent public accountants, reviews the independence of the independent public accountants and determines the adequacy of the Company's internal accounting controls. EXECUTIVE COMPENSATION COMMITTEE. The Executive Compensation Committee, which consists of Mr. Murry N. Gunty and Messrs. Gildea (Chairman) and Eberle, determines the compensation of the executive officers and administers the Company's 1993 Employee Stock Incentive Plan, its 1996 Restricted Stock Plan and its 1995 Outside Directors' Stock Award Plan. NOMINATING COMMITTEE. The Nominating Committee, which consist of Mr. Arthur P. Solomon and Messrs. Futrell (Chairman) and Miniutti, determines the slate of nominees for election to the Board of Directors by vote of the stockholders. The Nominating Committee does not generally consider nominees recommended by security holders. 3 Compensation of Directors The Company pays an annual fee of $12,000 to directors who are not employees of the Company, plus a fee of $1,000 for each Board of Directors or assigned committee meeting attended. The annual fee is payable in equal installments semi-annually. Under the Company's 1995 Outside Directors' Stock Award Plan, as amended by the Board, up to $20,000 of a director's annual compensation is paid in shares of Common Stock or options to purchase shares of Common Stock and the remainder paid in cash, at the direction of the director. The shares are issued semiannually at a purchase price equal to 85% of the lower of the market price on the date of issuance or six months earlier. Each non-employee director also is reimbursed for expenses incurred in attending meetings of the Board of Directors and assigned committees. Employees of the Company who are directors receive no additional compensation for their service as directors. In addition, Mr. Konover receives $10,000 per month during his term on the board pursuant to the Company's acquisition agreement relating to the Konover & Associates South portfolio. See "Certain Relationships and Related Transactions - -- Konover Transaction" below. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information with respect to the current executive officers of the Company.
Name Age Position - --------------------------- ----- --------------------------------------------------------- C. Cammack Morton 47 President and Chief Executive Officer Patrick M. Miniutti 51 Executive Vice President and Chief Financial Officer William H. Neville 54 Executive Vice President and Chief Operating Officer Christopher G. Gavrelis 45 Executive Vice President - Management and Administration Connell L. Radcliff 44 Executive Vice President - Development Fred P. Steinmark 51 Executive Vice President Robin Malphrus 38 Senior Vice President, General Counsel and Secretary Linda M. Swearingen 34 Senior Vice President - Finance/Investor Relations Sona A. Thorburn 33 Vice President and Chief Accounting Officer
See the biographical information for Messrs. Morton and Miniutti under "Proposal One: Election of Directors." William H. Neville, has served as Executive Vice President and Chief Operating Officer since September 1997. Before joining the Company, Mr. Neville was Regional President of Horizon Group Realty, a real estate investment trust specializing in outlet centers, from January 1996 to July 1997. Prior to joining Horizon, Mr. Neville held various positions with Charter Oak Partners, a privately held outlet center developer, from January 1993 to December 1995, at which time he was the President of the company. Christopher G. Gavrelis joined the Company in December 1995. Mr. Gavrelis was named Senior Vice President of Management and Administration in January 1996 and promoted to Executive Vice President in January 1998. Prior to his affiliation with the Company, Mr. Gavrelis was Vice President - Property Management of the Charter Oak Group for approximately four years. From 1989 to 1991, Mr. Gavrelis served as regional property manager for McArthur/Glen Realty Corp. (now HGI Realty, Inc.), a company engaged in the development and operation of factory outlet centers. Mr. Gavrelis is responsible for the Company's management and administration activities. Connell L. Radcliff has served as Senior Vice President of Development since its organization in April 1993 and was promoted to Executive Vice President in January 1999. Mr. Radcliff joined North-South Management Corporation (a predecessor company) as Vice President - Leasing in 1989. From 1987 to 1989, Mr. Radcliff was a real estate broker for The Shopping Center Group, a real estate brokerage firm specializing in national tenant representation. Mr. Radcliff is responsible for the Company's development activities. Fred P. Steinmark was named Executive Vice President in July 1998 in connection with the Company's acquisition of Konover & Associates South, of which he served as President and Chief Operating Officer since 1990. The acquisition agreement for Konover & Associates South provided for Mr. Steinmark's appointment as Executive Vice President. See "Certain Relationships and Related Transactions -- KONOVER TRANSACTION" below. 4 Linda M. Swearingen was promoted from Vice President to Senior Vice President in January 1998. Prior to being named Vice President of Finance/Investor Relations in May 1996, Ms. Swearingen was Director of Leasing for the Company, a position she had held since July 1993. From 1990 to 1993, Ms. Swearingen served as Assistant Vice President - Commercial Real Estate for Bank One Dayton. Robin W. Malphrus was promoted from Vice President, Secretary and General Counsel to Senior Vice President, Secretary and General Counsel in January 1999. Prior to being named Vice President, Secretary and General Counsel in August 1998, Ms. Malphrus was Vice President and Secretary, a position she had held since June 1996. Ms. Malphrus joined the Company in August 1994 as Corporate Counsel, and prior to joining the Company, Ms. Malphrus was Corporate Counsel for North Hills, Inc. for five years. Sona A. Thorburn has served as Vice President and Chief Accounting Officer since joining the Company in 1997. Prior to joining the Company, Ms. Thorburn was a manager with the accounting firm of Ernst & Young LLP, where she was employed for eight years. At Ernst & Young, Ms. Thorburn supervised audits for a variety of clients, including the Company. EXECUTIVE COMPENSATION The following table sets forth the compensation of the Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers at December 31, 1998 (collectively, the "Named Executive Officers"). Summary Compensation Table
Annual Long-Term Compensation Compensation Awards ---------------------------------- ----------------------------------- Restricted Securities Stock Underlying All Other Name and Principal Position Year Salary ($) Bonus ($) Awards($)(4) Options(#)(10) Compensation ($) - -------------------------------- ------ --------------- ----------- ------------------ ---------------- ----------------- C. Cammack Morton 1998 330,826 (3) 726,133(5) -- 4,280(11) President and Chief 1997 336,072 (3) 670,538(5) -- 33,467(12) Executive Officer 1996 287,692 (3) 1,019,250(5) 300,000 3,570(13) Patrick M. Miniutti 1998 233,858 (3) 426,532(6) -- 4,464(11) Executive Vice President and 1997 230,871 (3) 346,726(6) -- 19,000(12) Chief Financial Officer 1996 70,769(1) (3) 819,313(6) 200,000 50,000(13) William H. Neville 1998 237,203 (3) 196,425(7) -- 4,227(11) Executive Vice President and 1997 65,059(2) (3) 205,800(7) 50,000 -- Chief Operating Officer 1996 -- -- -- -- -- Christopher G. Gavrelis 1998 173,996 (3) 134,156(8) -- 2,645(11) Executive Vice President 1997 160,962 (3) 94,163(8) -- 11,915(12) 1996 129,742 (3) 214,750(8) 35,000 1,163(13) Connell L. Radcliff 1998 193,979 (3) 105,806(9) 50,000 4,527(11) Executive Vice President 1997 185,555 (3) 101,138(9) -- 13,712(12) 1996 181,923 (3) 39,750(9) -- 3,750(13)
- --------- (1) Mr. Miniutti joined the Company in August 1996 and, therefore, his salary for 1996 represents only a portion of the year. (2) Mr. Neville joined the Company in September 1997 and, therefore, his salary for 1997 represents only a portion of the year. (3) Bonuses for all of the officers of the Company for 1998, 1997 and 1996 were paid in the form of shares of restricted Common Stock ("Restricted Stock") and are reported under the Restricted Stock Award column of this table. The shares of Restricted Stock paid as bonuses vest all at once ("cliff vesting") after three years. The number of shares awarded is based on the market price of a share of Common Stock on the last day of the applicable calendar year. In consideration of the three-year vesting period, Restricted Stock bonus amounts are set at 150% of an equivalent cash bonus determined under the Company's MBO Plan. See " -- Executive Compensation Committee Report -- BONUSES." 5 (4) Unless otherwise indicated, all Restricted Stock reported here has been exchanged for options to purchase shares of Restricted Stock at a purchase price equal to 10% of the market value of a share on the date of grant ("Repurchase Rights"). The vesting schedule for all Repurchase Rights mirrors that of the exchanged Restricted Stock. (5) Mr. Morton receives a portion of his base annual salary, his periodic increases in base annual salary, his annual bonus and his long-term incentive compensation in the form of Restricted Stock as follows: (a) 18,000 shares, with a value of $119,250 ($6.625 per share), were granted as of December 31, 1996, subject to a three-year cliff vest, as Mr. Morton's 1996 bonus; (b) 90,000 shares, with a value of $900,000 ($10.00 per share), were granted in 1996 to Mr. Morton as long-term incentive compensation. These shares were replaced with a grant of 150,000 shares, with a value of $993,750 ($6.625 per share), on March 1, 1997. The difference in value is reported as 1997 compensation. These shares vest in ten equal installments commencing March 1, 1997; (c) 30,000 shares, with a value of $198,750 ($6.625 per share), were granted on March 1, 1997, subject to a one-year cliff vest, as part of Mr. Morton's base annual salary; (d) 6,000 shares, with a value of $39,750 ($6.625 per share), were granted on March 1, 1997, subject to a three-year cliff vest, as an increase in Mr. Morton's base annual salary; (e) On November 11, 1997, Mr. Morton was awarded an additional 21,000 shares of Restricted Stock, and each unvested share of Restricted Stock then owned by Mr. Morton was exchanged for a Repurchase Right. The additional 21,000 shares of Restricted Stock were awarded so that, after taking into account the exercise price of the Repurchase Rights, the value of such options would equal the value of Mr. Morton's unvested Restricted Stock prior to the exchange. See " -- Executive Compensation Committee Report -- RESTRICTED STOCK"; (f) 48,500 shares, with a value of $338,288 ($7.75 per share) net of a 10% exercise price, were granted as of December 31, 1997, subject to a three-year cliff vest, as Mr. Morton's 1997 bonus; (g) 12,550 shares, with a value of $87,537 ($7.75 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 1998 as an increase in Mr. Morton's base salary; (h) 28,700 shares, with a value of $200,183 ($7.75 per share) net of a 10% exercise price, subject to a one-year cliff vest, were awarded March 1, 1998 as part of Mr. Morton's base salary; (i) 86,600 shares, with a value of $438,413 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded February 22, 1999 as Mr. Morton's 1998 bonus. As of December 31, 1998, Mr. Morton owned 307,250 shares of Restricted Stock (or Repurchase Rights) worth $1,942,897 ($7.0625 per share, net of a 10% exercise price for the Repurchase Rights). Dividends or dividend equivalents are payable on such Restricted Stock and shares underlying such Repurchase Rights. (6) Mr. Miniutti receives a portion of his base annual salary, his periodic increases in base annual salary, his annual bonus and his long-term incentive compensation in the form of Restricted Stock as follows: (a) 6,500 shares, with a value of $43,063 ($6.625 per share), were granted as of December 31, 1996, subject to a three-year cliff vest, as Mr. Miniutti's 1996 bonus; (b) 90,000 shares, with a value of $776,250 ($8.625 per share), were granted in 1996 to Mr. Miniutti as long-term incentive compensation. These shares were replaced with a grant of 120,000 shares, with a value of $795,000 ($6.625 per share), on March 1, 1997. The difference in value is reported as 1997 compensation. These shares vest in ten equal installments commencing March 1, 1997; (c) 15,000 shares, with a value of $99,375 ($6.625 per share), were granted on March 1, 1997, subject to a one-year cliff vest, as part of Mr. Miniutti's base annual salary; (d) 4,500 shares, with a value of $29,813 ($6.625 per share), were granted on March 1, 1997, subject to a three-year cliff vest, as an increase in Mr. Miniutti's base annual salary; (e) On November 11, 1997, Mr. Miniutti was awarded an additional 15,000 shares of Restricted Stock, and each unvested share of Restricted Stock then owned by Mr. Miniutti was exchanged for a Repurchase Right. The additional 15,000 shares of Restricted Stock were awarded so that, after taking into account the exercise price 6 of the Repurchase Rights, the value of such options would equal the value of Mr. Miniutti's unvested Restricted Stock prior to the exchange. See " -- Executive Compensation Committee Report -- RESTRICTED STOCk"; (f) 28,500 shares, with a value of $198,788 ($7.75 per share) net of a 10% exercise price, were granted as of December 31, 1997, subject to a three-year cliff vest, as Mr. Miniutti's 1997 bonus; (g) 9,350 shares, with a value of $65,216 ($7.75 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 1998 as an increase in Mr. Miniutti's base salary; (h) 14,350 shares, with a value of $100,091 ($7.75 per share) net of a 10% exercise price, subject to a one-year cliff vest, were awarded March 1, 1998 as part of Mr. Miniutti's base salary; (i) 51,600 shares, with a value of $261,225 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded February 22, 1999 as Mr. Miniutti's 1998 bonus. As of December 31, 1998, Mr. Miniutti owned 207,200 shares of Restricted Stock (or Repurchase Rights) worth $1,311,145 ($7.0625 per share, net of a 10% exercise price for the Repurchase Rights). Dividends or dividend equivalents are payable on such Restricted Stock and shares underlying such Repurchase Rights. (7) Mr. Neville receives his annual bonus and his long-term incentive compensation in the form of Restricted Stock as follows: (a) 20,000 shares, with a value of $150,000 ($7.50 per share), were granted on September 8, 1997 to Mr. Neville as long-term incentive compensation. These shares vest in three equal installments commencing March 1, 1998; (b) On November 11, 1997, Mr. Neville was awarded an additional 2,250 shares of Restricted Stock, and each unvested share of Restricted Stock then owned by Mr. Neville was exchanged for a Repurchase Right. The additional 2,250 shares of Restricted Stock were awarded so that, after taking into account the exercise price of the Repurchase Rights, the value of such options would equal the value of Mr. Neville's unvested Restricted Stock prior to the exchange. See " -- Executive Compensation Committee Report -- RESTRICTED STOCK"; (c) 8,000 shares, with a value of $55,800 ($7.75 per share) net of a 10% exercise price, were granted as of December 31, 1997, subject to a three-year cliff vest, as Mr. Neville's 1997 bonus; (d) 38,800 shares, with a value of $196,425 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded February 22, 1999 as Mr. Neville's 1998 bonus. As of December 31, 1998, Mr. Neville owned 30,250 Repurchase Rights worth $190,753 ($7.0625 per share, net of a 10% exercise price). Dividend equivalents are payable on all of the shares underlying Mr. Neville's Repurchase Rights. (8) Mr. Gavrelis receives his annual bonus and his long-term incentive compensation in the form of Restricted Stock as follows: (a) 16,667 shares, with a value of $175,000 ($10.50 per share), were granted on February 28, 1996 to Mr. Gavrelis as long-term incentive compensation. These shares vest in three equal installments commencing January 1, 1997; (b) 6,000 shares, with a value of $39,750 ($6.625 per share), were granted as of December 31, 1996, subject to a three-year cliff vest, as Mr. Gavrelis' 1996 bonus; (c) On November 11, 1997, Mr. Gavrelis was awarded an additional 1,350 shares of Restricted Stock, and each unvested share of Restricted Stock then owned by Mr. Gavrelis was exchanged for a Repurchase Right. The additional 1,350 shares of Restricted Stock were awarded so that, after taking into account the exercise price of the Repurchase Rights, the value of such options would equal the value of Mr. Gavrelis' unvested Restricted Stock prior to the exchange. See " -- Executive Compensation Committee Report -- RESTRICTED STOCK"; (d) 13,500 shares, with a value of $94,163 ($7.75 per share) net of a 10% exercise price, were granted as of December 31, 1997, subject to a three-year cliff vest, as Mr. Gavrelis' 1997 bonus; (e) 26,500 shares, with a value of $134,156 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded February 22, 1999 as Mr. Gavrelis' 1998 bonus. 7 As of December 31, 1998, Mr. Gavrelis owned 31,961 shares of Restricted Stock (or Repurchase Rights) worth $205,583 ($7.0625 per share, net of a 10% exercise price for the Repurchase Rights). Dividends or dividend equivalents are payable on all of such Restricted Stock and the shares underlying Mr. Gavrelis' Repurchase Rights. (9) Mr. Radcliff receives his annual bonus in the form of Restricted Stock as follows: (a) 6,000 shares, with a value of $39,750 ($6.625 per share), were granted as of December 31, 1996, subject to a three-year cliff vest, as Mr. Radcliff's 1996 bonus; (b) On November 11, 1997, Mr. Radcliff was awarded an additional 700 shares of Restricted Stock, and each unvested share of Restricted Stock then owned by Mr. Radcliff was exchanged for a Repurchase Right. The additional 700 shares of Restricted Stock were awarded so that, after taking into account the exercise price of the Repurchase Rights, the value of such options would equal the value of Mr. Radcliff's unvested Restricted Stock prior to the exchange. See " -- Executive Compensation Committee Report -- RESTRICTED STOCK"; (c) 14,500 shares, with a value of $101,138 ($7.75 per share) net of a 10% exercise price, were granted as of December 31, 1997 subject to a three-year cliff vest, as Mr. Radcliff's 1997 bonus; (d) 20,900 shares, with a value of $105,806 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded February 22, 1999 as Mr. Radcliff's 1998 bonus. As of December 31, 1998, Mr. Radcliff owned 21,200 Repurchase Rights worth $133,463 ($7.0625 per share, net of a 10% exercise price). Dividend equivalents are payable on all of the shares underlying Mr. Radcliff's Repurchase Rights. (10) In November 1998 the Company exchanged all options reported in this column for Repurchase Rights (with an identical exercise price and vesting schedule). The only economic effect of such exchange is the dividend equivalent right associated with the Repurchase Rights. All amounts reported in 1996 were replaced in 1997. This table excludes shares underlying Repurchase Rights that have a 10% exercise price, the value of which shares are reported under the Restricted Stock Award column. (11) Amounts shown represent matching contributions to the Company's 401(k) Retirement and Savings Plan. (12) In 1997 Messrs. Morton, Miniutti, Gavrelis and Radcliff received distributions from the cancellation of a Split Dollar Insurance Plan in the amounts of $29,746, $15,000, $10,000 and $10,000, respectively, as well as matching contributions to the Company's 401(k) Retirement and Savings Plan of $3,721, $4,000, $1,915 and $3,712, respectively. (13) In 1996 Messrs. Morton, Gavrelis and Radcliff received matching contributions to the Company's 401(k) Retirement and Savings Plan of $3,570, $1,163 and $3,750, respectively. In addition, in 1996, Mr. Miniutti received an allowance for relocation expenses of $50,000. The following table provides information regarding the stock options granted during 1998 to the Named Executive Officers: Option Grants in Last Fiscal Year(1)
Individual Grants - ---------------------------------------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Number of Percent of Total Annual Rates of Stock Securities Underlying Options Granted Price Appreciation for Options to Employees Exercise Option Term ($)(2) Granted in Fiscal Year Price -------------------------- Expiration Name (#) (%) ($) Date 5%($) 10%($) - ------------------------- ----------------------- ----------------- --------- ------------- --------- ---------- C. Cammack Morton -- -- -- -- -- -- Patrick M. Miniutti -- -- -- -- -- -- William H. Neville -- -- -- -- -- -- Christopher G. Gavrelis 50,000(3) 33% $ 7.50 11/11/2008 235,835 597,653
- --------- (1) Excludes Repurchase Rights, which are reported under the "Restricted Stock Awards" column of the Summary Compensation Table. 8 (2) In accordance with SEC rules, these columns show gains that might exist for the respective options, assuming the market price of the Company's Common Stock appreciates from the date of grant over a period of ten years at annualized rates of five and ten percent, respectively. The actual value, if any, on stock option exercises will depend on the future performance of the Company's Common Stock, as well as the option holders' continued employment through the four-year vesting period. There can be no assurance that the value, if any, ultimately realized by the executive will be at or near the values shown above. (3) 20% vested upon grant with the remainder at 25% per year. The Named Executive Officer is entitled to an amount equal to the dividends that would have been paid on the shares underlying such options had they been outstanding. The following table sets forth certain information concerning the number of shares of Common Stock underlying options held by each of the Named Executive Officers and the value of such options at December 31, 1998: Fiscal Year-End Option Values(1)
Number of Value of Unexercised Securities Underlying In-the-money Unexercised Options Options at at Fiscal Fiscal Year-End Year-End (#) ($) Exercisable/ Exercisable/ Name Unexercisable (2) Unexercisable (3) - ---- ----------------------- --------------------- C. Cammack Morton 150,000/150,000 215,625/215,625 Patrick M. Miniutti 80,000/120,000 115,000/172,500 William H. Neville 20,000/30,000 -- / -- Christopher G. Gavrelis 14,000/21,000 20,125/30,188 Connell L. Radcliff 10,000/59,650 -- / --
- --------- (1) Excludes Repurchase Options, which are reported under the "Restricted Stock Awards" column of the Summary Compensation Table. (2) Future exercisability is subject to vesting and the optionee remaining employed by the Company. (3) Value is calculated by subtracting the exercise price from the fair market value of the securities underlying the option at fiscal year-end and multiplying the results by the number of in-the-money options held. Fair market value was based on closing market price of the Common Stock at December 31, 1998 ($7 1/16th). Employment Agreements ANNUAL COMPENSATION AND BASIC TERMS. The Company is a party to employment agreements with Messrs. Morton, Miniutti, Gavrelis and Neville. The agreements with Messrs. Morton, Miniutti and Neville currently continue through February 29, 2004. These agreements originally had a three-year term, but were extended to five years in connection with the change in control of the Company as a result of the issuance of a controlling interest in the Company to Prometheus Southeast Retail Trust in 1998 (see "Certain Relationships and Related Transactions -- PROMETHEUS TRANSACTION" below). The agreement with Mr. Gavrelis currently continues through February 28, 2002. The term of each of the four employment agreements is automatically extended for an additional year on March 1, 2000 and each year thereafter, subject to the right of either party to terminate as of the end of the then-existing term by giving written notice at least 30 days before the March 1 extension date. If the employment of any executive is terminated due to the change of control of the Company, an additional two years will be added to the unexpired term of the respective agreements. Pursuant to their respective agreements, each executive is required to devote his entire business time to the Company and is prohibited from competing with the Company for a period of one year following termination of employment. The employment agreements provide for base annual cash salaries as follows: Mr. Morton -- $330,000; Mr. Miniutti -- $225,000; Mr. Neville -- $225,000; and Mr. Gavrelis -- $185,700. In addition, Messrs. Morton and Miniutti receive Restricted Stock as part of their base annual compensation, based on an equivalent cash value of approximately $200,000 and $100,000, respectively. The number of restricted shares issued annually is adjusted on March 1st of each year based on the previous year-end market price of the stock. Such Restricted Stock is subject to a one-year cliff vest. The base annual salaries are subject to periodic increases based upon the performance of the Company and the executive. Messrs. Morton and Miniutti agreed to take all raises in the form of Restricted Stock subject to a three-year cliff vest. If the employment of any executive is terminated without cause (as defined in the respective agreements), such executive will be entitled to (i) the greater of the base salary payable to the executive for the remainder of the then-existing employment term or one year's base salary, (ii) the product of the number of years 9 representing the unexpired term of the agreement and an amount equal to the average bonus paid to such executive over the three years immediately prior to termination and (iii) certain other accrued benefits. LONG-TERM COMPENSATION. As of March 1, 1997, in recognition of the increases in their responsibilities and after consultation with an independent executive compensation consultant, the Independent Directors replaced the previous long-term incentive plan awards of 90,000 shares of Restricted Stock for Messrs. Morton and Miniutti with grants of 150,000 shares and 120,000 shares, respectively. These grants were issued pursuant to the Company's 1996 Restricted Stock Plan. These restricted shares vest in ten equal annual installments commencing on March 1, 1997, provided each executive continues to be employed by the Company. If the Company terminates the executive without cause (as defined in their respective employment agreements) all unvested shares of Restricted Stock will become fully vested. Mr. Neville was awarded 20,000 shares of Restricted Stock, which vests in three equal annual installments commencing March 1, 1998, provided he continues to be employed by the Company. Mr. Gavrelis was awarded 16,667 shares of Restricted Stock, which vest in three equal annual installments commencing December 14, 1996, provided that he continues to be employed by the Company. In addition, the employment agreements for Messrs. Morton, Miniutti, Neville and Gavrelis provide for the grant of options to purchase 300,000, 200,000, 50,000 and 35,000 shares of Common Stock, respectively. For information regarding such options as well as the Restricted Stock described in the preceding paragraph, see the Summary Compensation Table above. Change in Control Arrangements Under the employment agreements, termination without cause includes any termination resulting from a change in control of the Company. The term "change in control" generally is defined under the employment agreements to include the first to occur of the following: (i) any person or group owns or controls 50% or more of the outstanding Common Stock, (ii) any person or group who owned less than 5% of the outstanding Common Stock on the date of the agreement owns 50% or more of the outstanding Common Stock or (iii) the stockholders of the Company approve a business combination that will result in a change in ownership of 50% or more of the outstanding Common Stock. Upon the occurrence of a change in control of the Company, all non-vested Restricted Stock will become immediately vested. In addition, upon the occurrence of a change in control of the Company (as defined in the Stock Incentive Plan), all non-vested stock options granted thereunder become immediately vested and exercisable in full. "Change in control" generally is defined under the Stock Incentive Plan to occur at such time as any person or group beneficially owns at least 25% of the outstanding Common Stock. Executive Compensation Committee Report EXECUTIVE OFFICER COMPENSATION POLICIES. The goals of the Executive Compensation Committee (the "Committee") with respect to the compensation of the Company's executive officers are to (i) provide a competitive total compensation package that enables the Company to attract and retain qualified executives, (ii) align the compensation of such executives with the Company's overall business strategies and (iii) provide each executive officer with a significant equity stake in the Company, which serves to align compensation with the interests of stockholders. To this end, the Committee determines executive compensation consistent with a philosophy of compensating executive officers based on their responsibilities and the Company's performance in attaining financial and non-financial objectives. The primary components of the Company's executive compensation program are: (i) base salaries, (ii) performance-based annual bonuses, (iii) stock options and (iv) Restricted Stock. The more senior the position, the greater the compensation that varies with performance and the greater the portion that is in the form of options or Restricted Stock. BASE SALARIES. Base salaries for the Company's Named Executive Officers, as well as changes in such salaries, are based upon recommendations of the Chief Executive Officer, taking into account such factors as competitive industry salaries; a subjective assessment of the nature of the position; the contribution and experience of the officer; and the length of the officer's service. Under the Chief Executive Officer's direction, the Chief Operating Officer reviews all salary recommendations with the Committee, which then approves or disapproves such recommendations. The Chief Executive Officer reviews any salary recommendations for the Chief Operating Officer with the Committee. The Committee has engaged a national executive compensation consultant for the purpose of obtaining comparative information and advice on each of the components of executive compensation. The Committee believes that the majority of the Company's executive officers are at or near the average for base salaries and total compensation as compared to that of the Company's peers. The Committee would like to increase base salaries to the 75th percentile level in the future. See " -- Employment Agreements -- ANNUAL COMPENSATION AND BASIC TERMS." BONUSES. Annual bonuses are determined under a Management By Objectives (MBO) plan based on Company and individual performance. The weighting between Company performance and individual performance is determined on the 10 basis of position and responsibilities. Performance targets are determined for both Company performance and individual performance. Achieving the targets would ordinarily result in bonuses ranging from 5% to 60% of base salary, with maximum bonuses ranging from 10% to 70% of base salary for performance achievements greater than the targets. All officers of the Company receive 100% of their bonus in the form of Restricted Stock with a three-year cliff vest. In consideration therefor, each officer receives shares of Restricted Stock equal to 150% of the value of the appropriate cash bonus. STOCK OPTIONS. The Company established an Employee Stock Incentive Plan (the "Stock Incentive Plan") in 1993 for the purpose of attracting and retaining the Company's executive officers and other employees. A maximum of 2,800,000 shares of Common Stock are issuable under the Stock Incentive Plan. The Stock Incentive Plan allows for the grant of incentive and nonqualified options (within the meaning of the Internal Revenue Code) that are exercisable at a price equal to the closing price of the Common Stock on the New York Stock Exchange on the trading day immediately preceding the date of grant. All of the Company's executive officers are eligible to receive options to purchase shares of Common Stock granted under the Stock Incentive Plan. The Committee believes that stock option grants are a valuable motivating tool and provide a long-term incentive to management. The Committee also believes that issuing stock options to executives benefits the Company's stockholders by encouraging executives to own the Company's stock, thus aligning executive compensation with stockholder interests. Options for 150,000 shares were granted during 1998. In November 1998, certain holders exchanged 735,000 options for Repurchase Rights (with identical exercise prices and vesting schedules). The only economic effect of such exchange is the dividend equivalent right associated with the Repurchase Rights. See " -- RESTRICTED STOCK AND REPURCHASE RIGHTS" below. RESTRICTED STOCK AND REPURCHASE RIGHTS. The Company established a restricted stock plan (the "Restricted Plan") in 1996, reserving 350,000 shares of Common Stock for issuance thereunder, to give the Committee more flexibility in designing equity-based compensation arrangements to attract, motivate and retain executives and other key employees. Such equity-based compensation is designed to align more closely the financial interests of management with that of the stockholders. In 1997 and 1998, the Company reserved in the aggregate an additional 1,900,000 shares of Common Stock for issuance under the Restricted Plan. The Restricted Plan, which is administered by the Committee, provides for the grant of Restricted Stock awards to any new or existing employee of the Company, including executive officers. Awards under the Restricted Plan typically will be subject to various vesting schedules ranging from one to ten years from the date of grant. The Restricted Plan permits the Committee to customize the vesting schedule by deferring the commencement date, lengthening the vesting period and/or conditioning vesting upon the achievement of specified performance goals. During 1998, the Company granted 338,052 shares of Restricted Stock to officers and other key employees. In 1997, the Company supplemented the Restricted Plan so that officers would not have to sell their shares of Restricted Stock to meet their tax obligations incurred upon the vesting of such shares. The Restricted Plan as supplemented provides that Restricted Stock may be replaced by Repurchase Rights, which entitle the holder to purchase Restricted Stock at an exercise price equal to 10% of the value of a share on the date of grant of the Repurchase Right. The Repurchase Rights vest on the same schedule as the shares of Restricted Stock that they replaced. Under the supplemented Restricted Plan, holders of Repurchase Rights will also be entitled to cash payments equal to the value of the dividends that would have been paid on the shares underlying the Repurchase Rights. The executives may exercise the Repurchase Rights at any time after vesting and within 15 years of the date of grant. CHIEF EXECUTIVE OFFICER'S COMPENSATION. C. Cammack Morton's compensation for 1998 as the Company's President and Chief Executive Officer consisted of an annual base salary, pursuant to his above-described employment agreement, of $617,720 ($287,720 of which was paid in the form of Restricted Stock, subject to one-year and three-year cliff vesting), which is subject to periodic increases to be determined by the Committee in its discretion based upon the Committee's or the Board's subjective determination of the performance of the Company and Mr. Morton. Mr. Morton's base salary was increased effective March 1, 1998 by $47,787, paid in the form of Restricted Stock with a three-year cliff vest. The increase was based in part on Mr. Morton's successful negotiation of the Prometheus and Konover transactions (see "Certain Relationships and Related Transactions" below). In addition, consistent with the intent of the bonus plan discussed above, the Committee granted a bonus to Mr. Morton for 1998 in the form of 86,600 Repurchase Rights subject to a three-year cliff vest, which had a market value at date of grant of $438,413, net of a 10% exercise price. Eighty percent of the bonus was based on the Company's exceeding the target increase in FFO for 1998; the remaining 20% was not based on any specific criteria but was awarded in the subjective discretion of the Committee. SECTION 162(M) OF THE INTERNAL REVENUE CODE. The Company does not expect Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), to affect the deductibility for federal income tax purposes of the compensation of the Company's executive officers in 1998. In the future, the Company intends to review periodically the applicability of Section 162(m) to the Company's compensation programs, including its potential impact on stock options and Restricted 11 Stock awarded to executive officers, and, if considered appropriate, to develop a policy with respect to the Company's compliance with Section 162(m). The Executive Compensation Committee is pleased to submit this report to the stockholders. John W. Gildea, Chairman Murry N. Gunty William D. Eberle THE FOREGOING REPORT SHOULD NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1998, the following individuals (none of whom was or had been an officer or employee of the Company) served on the Executive Compensation Committee: Messrs. Gildea, Gunty and Eberle. No member of the Executive Compensation Committee was or is an officer or employee of the Company. Mr. Gunty was (until recently) a principal of the general partner of the parent entities of Prometheus Southeast Trust ("Prometheus") and was also on the Board of Trustees of Prometheus. The Company sold 21,052,631 shares of common stock to Prometheus during 1998 for $200 million. See "Certain Relationships and Related Transactions -- PROMETHEUS TRANSACTION" below. BENEFICIAL OWNERSHIP The following table sets forth certain information regarding the beneficial ownership of Common Stock of the Company as of March 19, 1999 by: (a) each Named Executive Officer; (b) each director and nominee; (c) current executive officers and directors as a group; and (d) each person or group known by the Company to beneficially own more than five percent of the Common Stock. Except as otherwise described in the notes below, the following beneficial owners have sole voting power and sole investment power with respect to all shares of Common Stock set forth opposite their name.
Amount and Nature of Percent Beneficial Ownership(1) of Class(2) ------------------------- ------------ C. Cammack Morton ........................................... 312,016(3) 1.0% Patrick M. Miniutti ......................................... 189,921(4) * William H. Neville .......................................... 46,216(5) * Christopher G. Gavrelis ..................................... 36,034(6) * Connell L. Radcliff ......................................... 154,791(7) * William D. Eberle ........................................... 6,095 * J. Richard Futrell, Jr. ..................................... 5,044(8) * John W. Gildea .............................................. 914,877(9) 2.9% Murry N. Gunty .............................................. 21,052,631(10) 68.1% Simon Konover ............................................... --(11) -- Klaus P. Kretschmann ........................................ 21,052,631(10) 68.1% Jonathan O'Herron ........................................... 21,052,631(10) 68.1% Arthur P. Solomon ........................................... 21,052,631(10) 68.1% Mark S. Ticotin ............................................. 21,052,631(10) 68.1% All current executive officers and directors as a group (16) 22,747,542(12) 70.1% Prometheus Southeast Retail Trust ........................... 21,052,631(10) 68.1%
- --------- (1) Includes shares issuable upon exercise or conversion of other securities within the next 60 days. (2) An asterisk (*) indicates less than one percent. Shares issuable upon exercise or conversion of other securities within the next 60 days are deemed outstanding for the purpose of computing the percentage of outstanding securities owned by the person or group named but are not deemed to be outstanding for the purpose of computing the percentage of the class by any other person. 12 (3) Includes 295,400 shares issuable upon exercise of vested Repurchase Rights. See " -- Executive Compensation -- Summary Compensation Table" and " -- Executive Compensation Committee Report" for a discussion of Repurchase Rights. (4) Includes 177,700 shares issuable upon exercise of vested Repurchase Rights. (5) Includes 44,834 shares issuable upon exercise of vested Repurchase Rights. (6) Includes 30,172 shares issuable upon exercise of vested Repurchase Rights. (7) Includes 10,000 shares issuable upon exercise of vested Repurchase Rights and 59,650 shares issuable upon exercise of vested stock options. (8) Includes 2,000 shares issuable upon exercise of vested stock options. (9) Includes (i) 4,000 shares held by Mr. Gildea's spouse as custodian for their children as to which Mr. Gildea has sole voting power only and as to which he disclaims beneficial ownership, (ii) 111,111 shares of Common Stock presently issuable upon conversion of Preferred Stock as to which Mr. Gildea has sole voting and dispositive power, (iii) 20,000 shares issuable upon exercise of warrants as to which Mr. Gildea has sole voting power and sole dispositive power, (iv) 766,666 shares of Common Stock presently issuable upon conversion of Preferred Stock and warrants owned by Network Fund III, Ltd. ("Network"), with respect to which Mr. Gildea has shared dispositive power only and (v) 18,100 shares of Common Stock owned by Network, with respect to which Mr. Gildea has shared dispositive power only. Mr. Gildea is a director of Network and a Managing Director of Gildea Management Company, which has an investment advisory agreement with Network. (10) Prometheus Southeast Retail Trust ("Prometheus") is the direct owner of this interest in the Company. Prometheus Southeast Retail LLC owns all of the common equity interests in Prometheus. Prometheus Southeast Retail LLC has three managing members: LF Strategic Realty Investors II L.P. ("LFSRI II") is a 86.1% managing member, LFSRI II Alternative Partnership L.P. ("Alternative") is a 10.4% managing member and LFSRI II-CADIM Alternative Partnership L.P. ("CADIM") is a 3.5% managing member. Lazard Fr-res Real Estate Investors LLC ("LFREI"), which is controlled by Lazard Fr-res & Co. LLC, is the general partner of each of LFSRI II, Alternative and CADIM. Mr. O'Herron is a Managing Director of Lazard Fr-res & Co. LLC, Mr. Kretschmann is a principal of LFREI and Mr. Ticotin is the Chief Operating Officer of LFREI. (Until recently, Messrs. Gunty and Solomon were also principals of LFREI.) As a consequence of the foregoing, Messrs. Gunty, Kretschmann, O'Herron, Solomon and Ticotin each have (or had) an indirect beneficial ownership interest in the Company, as well as indirect shared investment power and indirect shared voting power. Messrs. Gunty, Kretschmann, O'Herron, Solomon and Ticotin hereby disclaim beneficial ownership of the shares of the Company held by Prometheus except to the extent of their pecuniary interests therein. (11) Excludes (i) shares issuable upon exercise of warrants owned by adult children living outside of Mr. Konover's home and (ii) shares issuable (at the Company's option) upon redemption of partnership interests in KPT Properties, L.P., which partnership interests are not redeemable within the next 60 days. (12) In addition to the information set forth at footnotes 3-9 of this table, the Company's executive officers who are not separately listed in this table beneficially own 19,027 shares, of which 16,029 are issuable upon exercise of vested Repurchase Rights. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PROMETHEUS TRANSACTION. Prometheus Southeast Retail Trust, which is indirectly controlled by LFREI, acquired its interest in the Company during 1998 pursuant to the shareholder-approved Stock Purchase Agreement with the Company. The purchases were made on the dates and in the amounts set forth below:
No. of Shares -------------- March 23, 1998 2,350,000 August 10, 1998 2,913,157 August 28, 1998 5,263,158 September 29, 1998 10,526,316 ---------- 21,052,631 ==========
All issuances were at $9.50 per share for an aggregate purchase price of $200 million. The Company believes that Prometheus used its own funds for the purchase. 13 Pursuant to a Stockholders Agreement entered into between Prometheus and the Company, the Company is obligated to take all actions necessary to cause the Board of Directors to consist of at least nine members, three of which are designated by Prometheus (the "Prometheus Nominees"). Two of the Prometheus Nominees are chosen at the sole discretion of Prometheus; the third is subject to the reasonable approval of the Company. Of the nine individuals nominated for election at the Annual Meeting, the Prometheus Nominees are Messrs. Kretschmann, O'Herron and Ticotin. The number of Prometheus Nominees that Prometheus is entitled to nominate decreases as the value of its ownership interest in the Company decreases, as set forth below:
Investment Value Number of Prometheus Nominees - ---------------- ----------------------------- $50 million or more Three or proportional one-third share of the Board if Board size over nine $25 million to $50 million Two or proportional two-ninths share of the Board if Board size over nine $10 million to $25 million One or proportional one-ninth share of the Board if Board size over nine Less than $10 million None
Mr. Kretschmann is, and Messrs. Gunty and Solomon were, principals of LFREI, the general partner of the parent entities of Prometheus, and Mr. Ticotin is an executive officer of LFREI. Mr. O'Herron is a Managing Director of Lazard Fr-res & Co. LLC, which indirectly controls LFREI and Prometheus. Until recently, Mr. Gunty was a member of the Board of Trustees and the Vice President of Prometheus; Mr. Kretschmann is a member of the Board of Trustees of Prometheus. (See footnote 10 under "Beneficial Ownership.") The Company and Prometheus Southeast Retail L.L.C. also entered into (i) a Registration Rights Agreement with respect to such shares, (ii) a Stockholders Agreement pursuant to which, among other things, Messrs. Gunty, Kretschmann and Solomon were appointed to the Board of Directors of the Company and (iii) a Contingent Value Right Agreement, which provides that if Prometheus Southeast Retail L.L.C. has not doubled its investment (through stock appreciation, dividends, or both) by January 1, 2004, the Company will pay it in cash or stock, an amount necessary to achieve such a return, subject to a maximum payment of 4,500,000 shares or the cash value thereof. KONOVER TRANSACTION. Between August 13, 1998 and January 12, 1999 the Company purchased nine community shopping centers from affiliates of Konover & Associates South, a privately held real estate development firm based in Boca Raton, Florida (the "Konover Transaction"). Simon Konover, who became Chairman of the Board of Directors in connection with the Konover Transaction, and Fred Steinmark, who became an Executive Vice President, were affiliates of the sellers in the transaction. The purchase price for the Konover Transaction consisted of the assumption of $55.2 million of fixed rate indebtedness, $26.8 million in cash and the issuance of 369,073 limited partnership units ("Units") of KPT Properties, L.P. The purchase price for the acquisition was determined as a result of arms-length negotiation between the Company and the sellers, with the Units being valued at $9.50 per share. The price to be paid was determined by the Company's board of directors. Only one of the acquired shopping centers, Lake Point Centre, was developed or acquired by the sellers within two years of its sale to the Company. The total development cost (including land acquisition) was approximately $13.9 million. The amount paid by the Company for the property was $14.5 million; however, the sellers are obligated to repay up to approximately $1.8 million of the purchase price to the extent the property fails to meet certain leasing percentages. Mr. Konover, his immediate family members and entities with which they have a direct or indirect material interest (the "Simon Konover Entities") have received approximately $8,630,756 in cash, $1,109,410 in Units (116,780 Units valued at $9.50 each). In addition, Mr. Konover and his immediate family members have received a total of 400,000 warrants in consideration for the use of Mr. Konover's name and also as consideration for his agreeing to serve as Chairman. The warrants vest and are exercisable as set forth below: --100,000 warrants exercisable at $9.50 per share with 20,000 warrants vesting on July 1 of 1999, 2000, 2001, 2002 and 2003; --100,000 warrants exercisable at $12.50 per share with 20,000 warrants vesting on July 1 of 1999, 2000, 2001, 2002 and 2003; --200,000 warrants exercisable at $9.50 per share that were fully vested on issuance. 14 Additionally, as part of the assumption of debt, certain of the Simon Konover Entities have been released from guaranties and other obligations relating to the assumed debt. Mr. Steinmark received approximately $115,586 in cash and $256,016 in Units (26,949 Units valued at $9.50 each) for his interests in two of the community shopping centers acquired in the transaction. LOAN TO AFFILIATE OF SIMON KONOVER. In December 1997 the Company issued an $8.5 million note to Davie Plaza Limited Partnership, a Florida limited partnership, of which Simon Konover, Chairman of the Company, is a 49% owner. The loan is secured by a first mortgage position on a 299,778-square foot retail shopping center located in Davie, Florida. In January 1999 the Company received a $2 million paydown. The outstanding balance of $6.5 million carries interest at 8.0% payable monthly and matures on June 30, 1999. The loan was made in anticipation of the Company's acquisition of the center in connection with the Konover Transaction and to take advantage of the ability to repay the previous debt instrument at a discount. The center was ultimately not acquired by the Company. LOAN TO PATRICK M. MINIUTTI. On June 12, 1998, the Company issued a $125,000 note to Patrick M. Miniutti, Executive Vice President, Chief Financial Officer and Director. The loan matures June 30, 2003 and carries an interest rate of 7.75%. The loan is secured by his vested Restricted Stock. The purpose was to allow Mr. Miniutti to raise funds without selling his Restricted Stock. INFORMATION REGARDING INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors, upon the recommendation of the Audit Committee, has appointed the accounting firm of Arthur Andersen LLP ("Arthur Andersen") to serve as independent auditors of the Company for the fiscal year ending December 31, 1999. Arthur Andersen has served as independent auditors of the Company since September 1997 and is considered by management of the Company to be well qualified. The Company has been advised by that firm that neither it nor any member thereof has any financial interest, direct or indirect, in the Company or any of its subsidiaries in any capacity. Representatives of Arthur Andersen will be present at the Annual Meeting, will have the opportunity to make a statement if they so desire, and will be available to respond to appropriate questions. Effective September 9, 1997, the Company retained Arthur Andersen LLP as its new certifying accountants, replacing its prior certifying accountants, Ernst & Young LLP ("Ernst & Young"). Ernst & Young's reports on the Company's financial statements during the two most recent fiscal years contained no adverse opinion or disclaimer of opinion, nor were qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years and all subsequent interim periods preceding September 9, 1997, there were no disagreements between the Company and Ernst & Young on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young, would have caused Ernst & Young to make reference to the subject matter of disagreement in connection with Ernst & Young's reports. 15 PERFORMANCE GRAPH Set forth below is a line graph comparing the yearly percentage change in the Company's cumulative total return on the Common Stock with the cumulative total return of a hypothetical investment in each of the Standard & Poor's Composite - 500 Index and the index of equity real estate investment trusts prepared by the National Association of Real Estate Investment Trusts ("NAREIT") based on the respective market prices of each such investment on the dates shown below, assuming an initial investment of $100 in the Common Stock on December 31, 1993 and the reinvestment of dividends. Equity real estate investment trusts are defined as those which derive more than 75% of their income from equity investments in real estate assets. The NAREIT equity index includes all tax qualified real estate investment trusts listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System. [GRAPH APPEARS HERE]
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 ------ ------ ------ ------ ------ ------ Konover Property Trust 100 94 65 36 42 38 S&P 500 Index 100 101 139 171 229 294 NAREIT Equity Index 100 103 119 161 193 160
THE STOCK 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 OF 1933, OR AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Each director and officer of the Company and each beneficial owner of 10% or more of the Company's Common Stock is required to file with the Securities and Exchange Commission and the New York Stock Exchange, by a specified date, reports of Common Stock ownership and changes in Common Stock ownership. To the Company's knowledge, based solely on copies of such filings furnished to the Company and written representations that no reports on Form 5 were required, during the fiscal year ended December 31, 1998, all such filings were timely made, except that (i) Messrs. Morton, Miniutti, Neville, Gavrelis, Radcliff and Ms. Swearingen and Ms. Thorburn each filed or amended late a report disclosing one transaction; (ii) Mr. Neville additionally amended late a report disclosing one transaction; (iii) Mr. Morton additionally filed late a report disclosing one transaction; (iv) Mr. Steinmark filed late a report disclosing one transaction; (v) Mr. Konover filed 16 late a report disclosing one transaction; (v) and each of Messrs. Gunty, Kretschmann and Soloman reported late an indirect beneficial ownership in the Company. ADDITIONAL INFORMATION The Board of Directors knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, including matters incident to the Annual Meeting, the persons named in the accompanying proxy will vote proxies as they deem appropriate with respect to such matters if permitted by the rules promulgated under the Securities Exchange Act of 1934. STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING Any stockholder proposals intended to be presented at the Company's 2000 annual meeting of stockholders must be received by the Company at 11000 Regency Parkway, Suite 300, Cary, North Carolina 27511, on or before January 1, 2000 for inclusion in the Company's proxy statement and form of proxy relating to the 2000 annual meeting of stockholders. Under the Company's bylaws, no shareholder proposal may be presented at the annual meeting, whether or not included in the proxy statement, unless written notice of the proposal is received by the Secretary of the Company not later than March 5, 2000 nor prior to December 6, 1999. If, however, the annual meeting is postponed or advanced so that it is not held between May 4 and August 2, 2000, notice must be received not earlier than 180 days prior to the 2000 annual meeting and not later than the later of (i) 90 days before the 2000 annual meeting and (ii) the tenth day following the day on which public announcement of the postponement or advancement of the date of the meeting is first made by the Company. By Order of the Board of Directors /s/ Robin W. Malphrus ------------------------------ ROBIN W. MALPHRUS, ESQ. Secretary Dated: April 30, 1999 17 APPENDIX Dear Shareholder: 1998 was a year of outstanding achievements for our Company. We have done what we said we would do. In 1998, we continued to pursue our growth strategy by: o adding nearly $163 million in community shopping center assets to our portfolio, o increasing our capital by raising $200 million, o reducing our exposure to the interest rate market with a lower percentage of floating rate debt (only 10% of our total debt outstanding), and o increasing Funds From Operations (FFO) by 7.6 million. In addition, we reinstated the dividend. Clearly, we are on track to become the preeminent consolidator of neighborhood and community shopping centers in the Southeast. We owe our success in large part to our willingness to change and improve -- not only as a Company, but also as a team of individual players, all equally determined to advance the goals of Konover Property Trust. You can be certain that we are building something of enduring value for the future. Your vote is of the greatest importance to us, and on behalf of the Board of Directors, I thank you for your participation. Sincerely, /s/ C. Cammack Morton - ---------------------------- C. Cammack Morton President and Chief Executive Officer {FOLD AND DETACH HERE] KONOVER PROPERTY TRUST, INC. For Annual Meeting of Stockholders, June 3, 1999 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned hereby appoints C. Cammack Morton and Patrick M. Miniutti, or either of them, with full power of substitution, the attorney and proxy of the undersigned, to appear and to vote all of the shares of common stock of Konover Property Trust, Inc. (the "Company") which the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders of the Company to be held at 11000 Regency Parkway, Aturim Level, Cary, North Carolina, 27511, on June 3, 1999 at 10:00 a.m., and any adjournment thereof. Receipt of copies of the Annual Report to Stockholders, the Notice of the Annual Meeting of Stockholders and the Proxy Statement is hereby acknowledged. This Proxy will be voted in accordance with the Instructions marked herein, and in accordance with the recommendation of the Board of Directors if no instructions to the contrary are marked herein. If any other business is transacted at the Annual Meeting (including matters incident to the conduct of the Annual Meeting), this Proxy wil be voted in the discretion of, and in accordance with, the best judgement of the proxies (no other business is currently known). 1. Election of nine directors to serve until the 2000 annual meeting or until their successors are duly elected and qualified (Proposal One); Nominees: Simon Konover, C. Cammack Morton, Patrick M. Miniutti, William D. Eberle, J. Richard Futrell, Jr., John W. Gildea, Klaus P Kretschmann, Jonathan O'Herron and Mark S. Ticotin. [ ] FOR ALL (except as noted below) [ ] WITHHOLD AUTHORITY AS TO ALL (Instruction: To withhold authority to vote for any individual nominee, print the nominee's name for which authority is withheld below.) [MAP APPEARS HERE] FROM THE AIRPORT Take 1-40 East to Exit 293 (HWY 64 West). Continue to Exit 98A (Tryon Road). Then Turn Right at First Light. FROM RALEIGH Take U.S. 1 South to Exit 98A (Tryon Road). Then Turn Right at First Light. Note: Please date and sign exactly as the name appears on this proxy. Joint owners should each sign. If the signer is a corporation, please sign full corporate name by a duly authorized officer. Executors, trustees, etc. should give full title as such. Dated:_______________________________ Signature:__________________________ Signature:__________________________ Please mark boxes in blue or black ink. Please return promptly in the enclosed envelope which requires no postage if mailed in the U.S.A. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE. -----END PRIVACY-ENHANCED MESSAGE-----