================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Saul Centers, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee 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:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO OF SAUL CENTERS, INC.]
7501 Wisconsin Avenue, Suite 1500
Bethesda, Maryland 20814-6522
(301) 986-6200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 23, 2004
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of SAUL
CENTERS, INC., a Maryland corporation, will be held at 11:00 a.m. local time, on
April 23, 2004, at the Hyatt Regency Bethesda, One Bethesda Metro Center,
Bethesda, MD (at the southwest corner of the Wisconsin Avenue and Old Georgetown
Road intersection, adjacent to the Bethesda Metro Stop on the Metro Red Line),
for the following purposes:
1. To elect four directors to serve until the annual meeting of
stockholders in 2007, or until their successors are duly elected and qualified.
2. To approve the amendment to the First Amended and Restated Articles of
Incorporation of Saul Centers, Inc. to conform the definition of "independent"
directors to recent developments in applicable law, rules and regulations
relating to independence requirements for the composition of the Board and any
committee thereof.
3. To approve the 2004 Stock Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Common stockholders of record at the close of business on February 27,
2004 will be entitled to notice of and to vote at the annual meeting or at any
adjournment thereof. Holders of depositary shares representing interests in
preferred stock are not entitled to receive notice of, and to vote at, the
annual meeting.
Stockholders are cordially invited to attend the meeting in person.
WHETHER OR NOT YOU NOW PLAN TO ATTEND THE MEETING, YOU ARE ASKED TO COMPLETE,
DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY CARD FOR WHICH A POSTAGE PAID
RETURN ENVELOPE IS PROVIDED. If you decide to attend the meeting, you may revoke
your proxy and vote your shares in person. It is important that your shares be
voted.
By Order of the Board of Directors
/s/ Scott V. Schneider
--------------------------------------
Scott V. Schneider
Chief Financial Officer and Secretary
March 26, 2004
Bethesda, Maryland
[LOGO] Saul Centers
7501 Wisconsin Avenue, Suite 1500
Bethesda, Maryland 20814-5522
(301) 986-6200
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 2004
GENERAL
This Proxy Statement is furnished by the Board of Directors of Saul
Centers, Inc. (the "Company") in connection with the solicitation by the Board
of Directors of proxies to be voted at the annual meeting of stockholders to be
held on April 23, 2004, and at any adjournment or adjournments thereof, for the
purposes set forth in the accompanying notice of such meeting. All common
stockholders of record at the close of business on February 27, 2004 will be
entitled to vote.
Any proxy, if received in time, properly signed and not revoked, will be
voted at such meeting in accordance with the directions of the stockholder. If
no directions are specified, the proxy will be voted for the Proposal set forth
in this Proxy Statement. Any stockholder giving a proxy has the power to revoke
it at any time before it is exercised. A proxy may be revoked (i) by delivery of
a written statement to the Secretary of the Company stating that the proxy is
revoked, (ii) by presentation at the annual meeting of a subsequent proxy
executed by the person executing the prior proxy, or (iii) by attendance at the
annual meeting and voting in person.
Votes cast in person or by proxy at the annual meeting will be tabulated
and a determination will be made as to whether or not a quorum is present. The
Company will treat abstentions as shares that are present for purposes of
determining the presence or absence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders. If a
broker submits a proxy indicating that it does not have discretionary authority
as to certain shares to vote on a particular matter (broker non-votes), those
shares will be considered as present for purposes of determining the presence or
absence of a quorum.
For Proposal 1, the four nominees for director who receive the most votes
will be elected. If a stockholder indicates "withhold authority to vote" for a
particular nominee on the stockholder's proxy card, the stockholder's vote will
not count either for or against the nominee. For Proposal 2, the affirmative
vote of the holders of two-thirds of the common shares outstanding as of the
record date is required to approve the amendment to the First Amended and
Restated Articles of Incorporation. For Proposal 3, the affirmative vote of a
majority of the votes cast on the proposal is required to approve the 2004 Stock
Plan, provided that the total vote cast on the proposal represents common shares
outstanding as of the record date.
For Proposal 1, any shares not voted as a result of an abstention or a
broker non-vote will have no impact on the vote. For Proposal 2, any shares not
voted as a result of an abstention or a broker non-vote will effectively be
treated as a vote against the proposal. For Proposal 3, any shares not voted as
a result of an abstention or a broker non-vote will effectively be treated as a
vote against the proposal, unless holders of a majority of the common shares
outstanding as of the record date cast votes, in which event a broker non-vote
will have no impact on the vote.
Solicitation of proxies will be primarily by mail. However, directors and
officers of the Company also may solicit proxies by telephone or telegram or in
person. All of the expenses of preparing, assembling, printing and mailing the
materials used in the solicitation of proxies will be paid by the Company.
Arrangements may be made with brokering houses and other custodians, nominees
and fiduciaries to forward soliciting materials, at the expense of the Company,
to the beneficial owners of shares held of record by such persons. In addition,
the Company has engaged Georgeson and Company to assist in the solicitation of
proxies. The Company anticipates that it will incur total fees of $6,000 plus
out-of-pocket expenses. Neither the number of phone calls nor the out-of-pocket
expenses can be estimated at this time. It is anticipated that this Proxy
Statement and the enclosed proxy card first will be mailed to common
stockholders on or about March 26, 2004.
2
As of the record date, February 27, 2004, 15,988,877 shares of common stock
of the Company, $0.01 par value per share ("Common Stock"), were outstanding.
Each share of Common Stock entitles the holder thereof to one vote on each of
the matters to be voted upon at the annual meeting. Holders of depository shares
representing interests in preferred stock are not entitled to receive notice of,
and to vote at, the annual meeting. As of the record date, officers and
directors of the Company had the power to vote approximately 30.8% of the
outstanding shares of Common Stock, excluding 7.9% of the outstanding Common
Stock held by the B. F. Saul Company Employees' Profit Sharing Retirement Trust,
two of four trustees of which are officers and/or directors of the Company. The
Company's officers and directors have advised the Company that they intend to
vote their shares of Common Stock in favor of the Proposals set forth in this
Proxy Statement.
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
The Company will present the following proposals at the annual meeting. The
Company has described in this proxy statement all the proposals that it expects
will be made at the annual meeting. If a stockholder or the Company properly
presents any other proposal to the meeting after March 24, 2004, the Company
will, to the extent permitted by applicable law, use the stockholder's proxies
to vote shares on the proposal in the Company's best judgment.
1. Election of Directors
The First Amended and Restated Articles of Incorporation and the
Amended and Restated Bylaws of the Company provide that there shall be no fewer
than three, nor more than 15 directors, as determined from time to time by the
directors in office. The Board of Directors of the Company currently consists of
12 directors. The Board of Directors is divided into three classes with
staggered three-year terms. The term of each class expires at the annual meeting
of stockholders, which is expected to be held in April of each year. The
directors elected at the annual meeting of stockholders in 2004 will serve until
the annual meeting of stockholders in 2007 or until his replacement is elected
and qualifies or until his earlier resignation or removal.
The nominees for election to the Board of Directors are:
General Paul X. Kelley
Charles R. Longsworth
Patrick F. Noonan
B. Francis Saul III
Each of the directors is presently a member of the Board of Directors
and has consented to serve as a director if re-elected. More detailed
information about each of the nominees is available in the section of this proxy
statement titled "The Board of Directors," which begins on page 8. If any of the
nominees cannot serve for any reason (which is not anticipated), the Board of
Directors may designate a substitute nominee or nominees. If a substitute is
nominated, the Company will vote all valid proxies for the election of the
substitute nominee or nominees. The Board of Directors may also decide to leave
the board seat or seats open until a suitable candidate or candidates are
located, or it may decide to reduce the size of the Board. Proxies for the
annual meeting may not be voted for more than four nominees.
The Board of Directors unanimously recommends that you vote FOR these
directors.
2. Approval of Amendment to the First Amended and Restated Articles of
Incorporation to Require that the Composition of the Board of Directors and
any Committee Thereof Satisfy all Independence Requirements of the Federal
Securities Laws and the Rules and Regulations of any Stock Exchange or
Automated Interdealer Quotation System on which the Company's Stock is
Listed
Background
In the wake of the corporate scandals that have impacted Wall Street
over the past few years, President Bush, the U.S. Congress, the Securities and
Exchange Commission, the New York Stock Exchange and the National Association of
Securities Dealers have adopted various corporate governance reforms, including
the passage of the Sarbanes-Oxley Act in July 2002. The Act requires that all
members of the Audit Committee of a public company be "independent" as defined
in the Act and the rules promulgated by the SEC thereunder. In addition, both
the NYSE and NASD have issued rules that would require a majority of the board
of directors of a listed or quoted company to be "independent," as defined in
the respective rules of the NYSE and NASD. The rules of the NYSE and NASD
contain independence requirements for Audit Committee membership in addition to
those adopted by the SEC.
3
In response to these developments, the Company has adopted a series of
"best practice" corporate governance procedures and documents, consisting of:
. the adoption of disclosure controls and procedures,
. the formation of a Nominating and Corporate Governance Committee and
the adoption of a charter for such committee,
. the adoption of an amended Audit Committee charter,
. the adoption of a Compensation Committee charter,
. the adoption of corporate governance guidelines,
. the adoption of a whistleblower procedure for the reporting of
accounting-related concerns, and
. the adoption of a code of ethics covering the Company's senior
financial officers, including B. Francis Saul II, the Company's
Chairman and Chief Executive Officer.
In keeping with new SEC, NYSE and NASD rules, these documents provide that
a majority of the Company's directors be "independent" and that all of the
members of the Compensation Committee, Audit Committee and Nominating and
Corporate Governance Committee be "independent" directors. When defining the
term "independent," in order to conform with current "best practices," the
Company referred to the definition of that term in the federal securities laws,
the NYSE Listed Company Manual and the rules and regulations of the NYSE, which
are referred to as the NYSE listing standards, and other laws and regulations
applicable to the Company.
The Company also reviewed the definition of "independent" contained in the
Company's First Amended and Restated Articles of Incorporation, which is
referred to as the Articles. That definition, which was adopted in 1993 in
connection with the Company's initial public offering, is inconsistent with the
newly adopted NYSE and SEC guidelines and requirements and, as a result, is not
consistent with current "best practices."
Under the Articles, a director is not independent if the director is
affiliated with Mr. Saul II or his family members or is affiliated with various
entities that are controlled by Mr. Saul II. This definition is inconsistent
with the approach taken by the NYSE regarding the role and responsibility of the
Board of Directors in reviewing the independence of each director. Currently,
the Board of Directors is obligated by the Articles to determine whether or not
any of the directors would fail to satisfy a specific objective test set forth
in the Articles. If a director satisfies the specified tests, the director must
be classified as "independent." The Board has no obligation to make additional
inquiries or to take into account other relationships with the Company in order
to classify a director as "independent." In contrast, the NYSE listing standards
specifically require the Board of Directors to make an affirmative determination
that each "independent" director does not have a relationship that would
interfere with the exercise of independent judgment in carrying out the
responsibilities of the director.
In addition, the NYSE listing standards, which have been incorporated into
the Company's recently adopted governance documents, require that the members of
specified committees of the Board of Directors qualify as "independent." As
indicated, the Company has complied with these listing standards in defining
"independent" in the governance documents. The current definition in the
Articles does not apply to the determination of independence of a director in
his capacity as a member of a committee. As a result, a director who is not
"independent" under the Articles may still qualify as an "independent" member of
a committee.
After careful consideration of the definitions contained in the Articles,
the recently adopted SEC rules and the recently adopted NYSE listing standards,
and the purposes for each definition, the Board of Directors has determined that
it is advisable and in the best interest of the stockholders of the Company that
a single, consistent definition of "independent" be used to determine the
independence of a director. The Board believes that it would be, at best,
confusing, and possibly unworkable, to have different definitions of
independence governing its directors. The Board of Directors also determined
that the definitions recently adopted by the SEC and the NYSE are more
appropriate than the definition in the Articles because they require, before a
director may be considered to be "independent," an in-depth analysis by the full
Board of Directors of all relationships between that director and the Company
and the Board's determination that these relationships are unlikely to affect
the director's ability to exercise independent judgment in acting as one of the
Company's directors.
Accordingly, the Board of Directors is recommending that the Articles be
amended, as set forth below under "Proposed Amendment," to eliminate any
conflict between the definition of "independent" and the definition used in the
governance documents that the Board recently adopted in order to comply with
current "best practices" and the laws and regulations currently applicable to
the Company.
Please note that, regardless of whether the amendment to the Articles is
adopted, the Company currently satisfies all applicable independence
requirements, including those established by the SEC, the NYSE and the Articles.
4
Proposed Amendment
The Board of Directors, for the reasons described above under "Background,"
believes it is in the best interests of the Company and its stockholders to
amend the First Amended and Restated Articles of Incorporation to require that
the composition of the Board and any committee thereof satisfy all independence
requirements of the federal securities laws and the rules and regulations of any
stock exchange or automated interdealer quotation system on which the Company's
stock is listed. The Board of Directors has unanimously approved an amendment to
the First Amended and Restated Articles of Incorporation deleting in its
entirety Article V. Section 3. thereof and substituting as Article V. Section 3.
the following:
Section 3. Independent Directors. Notwithstanding anything herein to
the contrary, at all times (except during a period of vacancy or
vacancies on the Board of Directors), the Board of Directors and any
committee thereof shall have such number of directors with such
characteristics as may be necessary to satisfy all independence
requirements set forth in the Securities Exchange Act of 1934 and the
rules and regulations promulgated by the Securities and Exchange
Commission thereunder, and the rules and regulations of any stock
exchange or automated interdealer quotation system on which any equity
securities of the Company are listed or quoted.
The Board of Directors unanimously recommends that you vote FOR the
amendment to the First Amended and Restated Articles of Incorporation.
3. Approval of 2004 Stock Plan
What is the Company's 2004 Stock Plan?
The Company's 2004 Stock Plan, which we refer to as the Plan, was
originally adopted by the Board of Directors on March 3, 2004.
Section 162(m) of the Internal Revenue Code, which we refer to as the
Code, limits a corporation's tax deduction for compensation paid to executive
officers unless the compensation qualifies as "performance-based compensation."
Qualification of options granted under the Plan depends upon obtaining approval
of the Plan by the Company's stockholders.
Additionally, Section 421 of the Code permits a corporation to grant
"incentive stock options" to an employee of the corporation or an employee of a
parent or subsidiary corporation. Incentive stock options are subject to
favorable tax rules for the recipient- employee if certain
conditions are met. Qualification of options granted under the Plan as incentive
stock options depends upon obtaining approval of the Plan by the Company's
stockholders.
We are asking you to approve the Plan, as described below. The purpose
of the Plan is to promote the growth and success of the Company by aligning the
personal interests of directors, employees and consultants to those of the
Company's stockholders. The closing price of the Common Stock on the NYSE as of
February 27, 2004 was $27.88.
Set forth below is a summary of some of the material terms of the Plan.
For a more complete description of such terms, however, you should read a copy
of the Plan, a copy of which is attached hereto as Annex A.
Who administers the Plan?
The Compensation Committee of the Board of Directors is responsible for
administering the Plan and taking all action authorized by the Plan or
reasonably necessary to carry out its purposes. The Compensation Committee has
sole authority to select employees, consultants and directors to whom awards are
granted, to determine the size and type of award and to determine the terms and
conditions of such awards in a manner consistent with the Plan. The Compensation
Committee is authorized to interpret the Plan and its decisions, determinations
and interpretations are final and binding.
Who is eligible to receive an award under the Plan?
Under the Plan, all directors, consultants, and employees of the
Company or an "affiliate" are eligible to receive option awards under the Plan.
An affiliate is (i) any "subsidiary corporation" or "parent corporation" of the
Company, or (ii) an entity in which the Company or any of its affiliates have a
material equity interest. The employees, consultants and directors of an entity
that becomes an affiliate after the adoption of the Plan are eligible to receive
awards under the Plan. A subsidiary corporation is any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations (other than the last in the chain) owns stock
possessing at least fifty percent (50%) of the total combined voting power of
all classes of stock in one of the other corporations in the chain. A parent
corporation is any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company that owns at least fifty percent (50%) of
the total combined voting power of classes of stock in one of the other
corporations in the chain. Additionally, directors of the Company are eligible
to receive stock awards under the Plan.
5
How many shares of Common Stock are available under the Plan?
The maximum number of shares of Common Stock that may be issued under the
Plan pursuant to awards of stock options is 500,000 shares. No individual may
receive awards of stock options representing more than 500,000 shares of Common
Stock in any one calendar year. The maximum number of shares of Common Stock
that may be issued under the Plan to directors of the Company pursuant to stock
awards is 100,000 shares. The number of shares available and the calendar year
award limit are subject to adjustment without stockholder approval in the event
of a change in corporate capitalization, such as a reorganization,
reclassification, stock split, stock dividend, or merger. If a stock award
terminates or an option terminates, expires or becomes unexercisable prior to
exercise, the shares subject to such option or stock award are available
respectively under the first and third sentences of this paragraph for future
awards under the Plan. In addition, shares issued under an option or stock award
that are withheld or surrendered to pay withholding taxes or in full or partial
payment of the exercise price of an option are added to the aggregate shares of
Common Stock available for issuance under the Plan.
What type of awards can be made under the Plan?
Awards under the Plan consist of options to purchase Common Stock.
Additionally, directors of the Company may receive stock awards under the Plan.
The recipient of an award is referred to as a "participant."
What are the terms of the awards under the Plan?
Stock Awards. Stock awards consist of either a grant of shares of Common
Stock or shares of phantom stock. Each share of phantom stock is equivalent in
value to a share of Common Stock. The Compensation Committee has absolute
discretion to determine the terms and conditions of stock awards. The
Compensation Committee may also establish a deferred compensation program under
which fees payable by the Company to directors may be deferred in the form of a
stock award.
Options. The terms and conditions of each option award, including the
exercise price, are established at the time of the award. The options that may
be granted under the Plan may either be "incentive stock options" intended to
qualify under Section 422 of the Code or non-qualified stock options. Incentive
stock options may only be granted to an employee of the Company or an employee
of a subsidiary or parent corporation. Options granted under the Plan will have
an exercise price of not less than the fair market value on the date of grant,
except that in the case of an incentive stock option granted to a participant
who is deemed to be a ten percent (10%) owner of the Company (or a ten percent
(10%) owner of a subsidiary or parent corporation), the exercise price of such
option cannot be less than 110% of the common stock's fair market value on the
date of grant. No participant may be granted incentive stock options that are
exercisable for the first time in any calendar year for common stock having a
total fair market value (determined as of the option grant) in excess of
$100,000. Without approval of the stockholders of the Company, the Compensation
Committee may not cancel an outstanding option with an option price above the
then fair market value of shares covered by the option and issue replacement
options. This limitation, however, does not prevent adjustments resulting from
stock dividends, stock splits, reclassifications of stock or similar events.
Options granted under the Plan may not expire any later than ten (10) years
after the date of grant, provided that an incentive stock option granted to a
participant who is deemed to be a ten percent (10%) owner of the Company (or a
ten percent (10%) owner of a subsidiary or parent corporation) may not expire
any later than five (5) years after the date of grant.
Options vest as determined by the Compensation Committee. Options are only
exercisable to the extent vested. If a participant ceases continuous service as
an employee, director or consultant while holding an exercisable option, other
than by reason of death or disability or a termination for cause, the option
will generally terminate if not exercised within the ninety (90) day period
following such termination (or if earlier, the expiration date of the option
under the terms of the option agreement). The right to exercise an option will
expire immediately upon termination if the termination is for cause (as defined
under the Plan or in an applicable employment or services agreement). Upon death
or disability, the option exercise period is extended to the earlier of (i) one
year from the participant's termination of service or (ii) the expiration date
under the terms of the stock option agreement. The Plan permits the Compensation
Committee to provide for alternative option exercise periods in an eligible
person's option agreement.
Except as determined by the Compensation Committee and set forth in an
option agreement, accelerated vesting automatically occurs in the case of a
"change in control" of the Company. Subject to certain exceptions, a change in
control occurs when (i) a person acquires beneficial ownership of 20% or more of
the outstanding Common Stock or the combined voting power of then outstanding
voting securities, (ii) a change in the composition of the Board compared to its
composition as of the date of the adoption of the Plan, (iii) approval by the
stockholders of the Company of a merger, reorganization or sale of, or other
disposition of all or substantially all the assets of, the Company; or (iv) the
approval of the stockholders of the Company of a complete dissolution or
liquidation of the Company.
Unless provision is made for the continuation of the Plan or the assumption
or substitution of options outstanding under the Plan, if the Company is merged
or consolidated and the Company is not the surviving corporation, or if the
Company is liquidated or sells substantially all of its assets to another
corporation (a "corporate event"), all outstanding options under the Plan are
automatically canceled as of the date of the corporate event, subject, however,
to the condition that thirty days prior
6
to the corporate event all outstanding options are immediately vested and
participants are provided a thirty day period in which to exercise such options.
If the exercise of options during the before-described thirty day exercise
period would result in a violation of federal securities laws, each participant
is to be paid a cash amount equal to the difference between the fair market
value of the common stock underlying the option and the exercise price. The
Compensation Committee has discretion to cancel an option if the foregoing
acceleration of vesting (or the cash payment in settlement of the option) would
result in an excess parachute payment for purposes of the Code.
Full payment for shares purchased upon exercise of any option, along with
payment of any required tax withholding, must be made at the time of such
exercise. In the discretion of the Compensation Committee, payment may be made
(i) in cash, (ii) through the surrender of previously-acquired shares, (iii)
through withholding by the Company of shares otherwise issuable upon exercise of
the option, (iv) through sale on the open market through a broker-dealer of
shares issuable upon exercise of the option, or (v) any other manner permitted
by the Compensation Committee in its discretion. A participant may satisfy his
or her tax withholding obligations by (i) cash payment, (ii) surrendering shares
previously-acquired by the participant, (iii) by having the Company withhold
shares of Common Stock otherwise deliverable under the Plan, or (iv) by having
funds withheld from payments of wages, salary or other cash compensation due the
participant. The Compensation Committee is authorized to establish a default
form of payment for tax withholding purposes.
No participant shall have any rights as a stockholder with respect to
shares subject to an option until the participant exercises the option and the
certificate for the shares has been issued by the Company.
Have employees received awards under the Plan?
The Compensation Committee has not yet made awards under the Plan. All
future awards under the Plan will be discretionary and therefore are not
determinable at this time.
Under what circumstances will the Plan terminate?
The Plan shall automatically terminate ten years after the date the Plan is
adopted by the Board. Prior to such time, the Board may terminate the Plan at
any time and for any reason or for no reason, except that such termination may
not impair any right of a holder of an outstanding award.
Who can amend the plan?
The Board can amend the Plan, provided, however, that stockholder approval
is required in the case of (i) an amendment that increases the aggregate number
of shares of Common Stock which may be issued under the Plan, (ii) a change in
the class of employees eligible to receive incentive stock options, and (iii) to
the extent stockholder approval is required for any amendment by the terms of
any applicable law, regulation or rule, including without limitation, the NYSE.
Are the rights awarded under the Plan transferable?
Awards granted under the Plan are generally not transferable, except by
will or the laws of descent and distribution. The Compensation Committee in its
discretion may authorize the assignment or transfer of nonqualified stock
options and stock awards.
What are the Federal income tax consequences of the Plan?
The tax consequences of options granted under the Plan depend upon the type
of option granted and, if the option is to an executive officer, whether the
option qualifies as performance-based compensation under Section 162(m) of the
Code.
Non-Qualified Stock Options. The recipient of non-qualified stock options
generally will not be taxed upon the grant of the option. Federal income taxes
are generally due from a recipient of non-qualified stock options when the stock
options are exercised. The difference between the exercise price of the option
and the fair market value of the stock purchased on the exercise date is taxed
as ordinary income. Thereafter, the tax basis for the acquired stock is equal to
the amount paid for the stock plus the amount of income recognized by the
recipient upon exercise. The Company will take a tax deduction equal to the
amount of income realized by the option recipient on the exercise date.
Incentive Stock Options. Federal regular income taxes are generally not
imposed upon either the grant or the exercise of incentive stock options; taxes
are imposed only when the shares of stock from exercised options are disposed
of, by sale or otherwise. The amount by which the fair market value of the stock
on the date of exercise exceeds the exercise price is, however, included in
determining the option recipient's liability for the alternative minimum tax. If
the incentive stock option recipient does not sell or dispose of the stock until
more than one year after the receipt of the stock and two years after the option
was granted, then, upon sale or disposition of the stock, the difference between
the exercise price and the market value of the stock as of the date of exercise
will be treated as a capital gain, and not ordinary income. If a recipient fails
to hold the stock for the minimum required time, at the time of the sale or
disposition of the stock, taxes will be assessed on the gain as ordinary income.
The Company will not receive a tax deduction for incentive stock options which
are taxed to a recipient as capital gains; however, the Company will receive a
tax deduction if the sale of the stock does not qualify for capital gains tax
treatment.
7
Section 162(m). Section 162(m) of the Code would render non-deductible to
the Company certain compensation in excess of $1,000,000 in any year to certain
executive officers of the Company unless such excess compensation is
"performance-based" (as defined in the Code) or is otherwise exempt from Section
162(m) of the Code. Options granted under the plan are designed to qualify as
performance-based compensation.
The Board of Directors unanimously recommends that you vote FOR the
adoption of the 2004 Stock Plan.
THE BOARD OF DIRECTORS
The following table and biographical descriptions set forth the name, age
and principal occupations during the past five years for each nominee and
director, current directorships held and the positions they currently hold with
the Company. The information is as of March 1, 2004 unless otherwise indicated.
Name Age Principal Occupation and Current Directorships
---- --- ---------------------------------------------------------------------
Class Two Directors-Term Ends at 2007 Annual Meeting (if elected)
General Paul X. Kelley 75 Director since June 1993. Chairman of American Battle Monuments
Commission since 2001. Partner of J.F. Lehman & Company since 1998.
Commandant of the Marine Corps and member of the Joint Chiefs of
Staff from 1983 to 1987. Director of Sturm Ruger & Company, Inc.*,
OAO Technology Solutions, Inc. and London Life Reinsurance Company.
Charles R. Longsworth 74 Director since June 1993. Chairman Emeritus of Colonial
Williamsburg Foundation. President and Trustee of Colonial
Williamsburg Foundation from 1977 through 1994. President Emeritus,
Hampshire College. Chairman Emeritus, Trustees of Amherst College.
Director of the Center for Public Resources.
Patrick F. Noonan 61 Director since June 1993. Chairman Emeritus of The Conservation
Fund. Chairman of The Conservation Fund from 1985 through 2003.
Trustee of the National Geographic Society. On the Board of
Advisors of Duke University School of the Environment. Director of
Ashland Inc.* Member of the President's Commission on White House
Fellows.
B. Francis Saul III 42 President and Director since June 1997. Vice Chairman of the
Company from 1997 to 2003. Senior Vice President of the B.F. Saul
Company. President of the B.F. Saul Property Company. Senior Vice
President and a Trustee of the B.F. Saul Real Estate Investment
Trust*. Vice Chairman of Chevy Chase Bank, F.S.B.*, Emeritus
Chairman of the Boys & Girls Clubs of Greater Washington. Vice
Chairman and Director of Children's National Medical Center and
Director of The Conservation Fund.
Class Three Directors-Term Ends at 2005 Annual Meeting
B. Francis Saul II 71 Chairman, Chief Executive and Director since June 1993. President
and Chairman of the Board of Directors of the B.F. Saul Company
since 1969. Chairman of the Board of Trustees of the B.F. Saul Real
Estate Investment Trust* since 1969 and a Trustee since 1964.
Chairman of the Board and Chief Executive Officer of Chevy Chase
Bank, F.S.B.* since 1969. Member of National Gallery of Art
Trustees Council. Trustee of the National Geographic Society,
Trustee of the Johns Hopkins Medicine Board and an Honorary Trustee
of the Brookings Institution.
8
Name Age Principal Occupation and Current Directorships
---- --- ---------------------------------------------------------------------
Class Three Directors-Term Ends at 2005 Annual Meeting (continued)
John E. Chapoton 67 Director since October 2002. Partner, Brown Investment Advisory
since 2001. Partner in the law firm of Vinson & Elkins L.L.P. from
1994 to 2000. Director of Stancorp Financial Group*.
James W. Symington 76 Director since June 1993. Of Counsel in the law firm of O'Connor &
Hannan since 1986. Member of Congress from 1969 to 1977. U.S. Chief
of Protocol from 1966 to 1968. Chairman Emeritus of National
Rehabilitation Hospital.
John R. Whitmore 70 Director since June 1993. Senior Advisor to the Bessemer Group,
Inc. since 1998. Formerly President and Chief Executive Officer of
the Bessemer Group and its Bessemer Trust Company subsidiaries (a
financial management and banking group) and director of Bessemer
Securities Corporation from 1975 to 1998. Director of Old Westbury
Funds, Inc.*, the B.F. Saul Company, Chevy Chase Bank, F.S.B.* and
Chevy Chase Property Company. Trustee of the B.F. Saul Real Estate
Investment Trust*. Chairman of the Board of Directors of ASB
Capital Management, Inc. and Chevy Chase Trust Company.
Class One Directors-Term Ends at 2006 Annual Meeting
Philip D. Caraci 65 Vice Chairman since March 2003, Director since June 1993. President
from 1993 to March 2003. Senior Vice President and Secretary of the
B.F. Saul Real Estate Investment Trust from 1987 to 2003. Executive
Vice President of the B.F. Saul Company from 1987 to 2003, with
which he had been associated since 1972. President of B.F. Saul
Property Company from 1986 to 2003. Trustee of the B.F. Saul Real
Estate Investment Trust*.
Gilbert M. Grosvenor 72 Director since June 1993. President (1980 through 1996) and
Chairman of the Board of Trustees since 1987 of the National
Geographic Society, with which he has been associated since 1954.
Director of Chevy Chase Bank, F.S.B.*, Marriott International
Corporation*, and a Trustee of the B.F. Saul Real Estate Investment
Trust*.
Philip C. Jackson, Jr. 75 Director since June 1993. Adjunct Professor Emeritus at
Birmingham-Southern College from 1989 to 1999. Member of the Thrift
Depositors' Protection Oversight Board from 1990 until 1993. Vice
Chairman and a Director of Central Bancshares of the South (Compass
Bancshares, Inc.) from 1980 to 1989. Member of the Board of
Governors of the Federal Reserve System from 1975 to 1978. Director
of International Realty Corp*.
David B. Kay 47 Director since October 2002. Chief Financial Officer of J.E. Robert
Companies from 2002 to present. Partner at Arthur Andersen LLP from
1990 to 2002. Director of Chevy Chase Bank, F.S.B.*
* Directorship in a publicly held company (i.e., a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 (the "Exchange Act"), or subject to the requirements of Section
15(d) of the Exchange Act) or a company registered as an investment company
under the Investment Company Act of 1940.
9
Compensation Committee Interlocks and Insider Participation
B. Francis Saul II, Chairman of the Board and Chief Executive Officer of
the Company, served on the Board of Trustees and the Compensation Committee of
the National Geographic Society during 2003. Gilbert M. Grosvenor, a director of
the Company and a member of the Company's Compensation Committee during 2003,
serves as Chairman of the Board of Trustees of the National Geographic Society.
CORPORATE GOVERNANCE
Board of Directors
General. The Company is currently managed by a 12-member Board of
Directors. The Board has adopted a set of corporate governance guidelines,
which, along with the written charters for the Board committees described below,
provide the framework for the Board's governance of the Company. The corporate
governance guidelines are available on the Company's website at
www.saulcenters.com.
Independence and Composition. As discussed in Proposal 2 above, the
Articles and the NYSE listing standards each require that a majority of the
Board of Directors be "independent" directors, as that term is defined in the
Articles and the NYSE listing standards.
The Board of Directors, upon the unanimous recommendation of the Nominating
and Corporate Governance Committee, has determined that Messrs. Chapoton,
Jackson, Kay, Kelley, Longsworth, Noonan and Symington, representing a majority
of the Board of Directors, are "independent" as that term is defined in the NASD
listing standards and the Articles, and as that term is proposed to be defined
in the amendment to the Articles described in Proposal 2 above.
Meetings and Attendance. The Board of Directors met five times in the year
ended December 31, 2003. Each of the directors currently serving on the Board of
Directors, including the nominees, attended at least 79% of the aggregate of the
total number of meetings of (i) the Board of Directors and (ii) the committees
of the Board of Directors that he was eligible to attend. The corporate
governance guidelines provide that it is the responsibility of individual
directors to make themselves available to attend scheduled and special Board
meetings on a consistent basis. All of the 12 directors as of the date of the
2003 annual meeting were in attendance for the 2003 annual meeting.
Shareholder Communications. The Board of Directors has adopted a process
whereby its stockholders can send communications directly to the directors. Any
stockholder wishing to communicate directly with one or more directors may do so
in writing addressed to the director or directors, c/o Saul Centers, Inc., 7501
Wisconsin Avenue, Suite 1500, Bethesda, Maryland 20815-6522. All correspondence
will be reviewed by the Company and forwarded to the director or directors.
Audit Committee
General. The Board of Directors has established an Audit Committee, which
is governed by a written charter, a copy of which is attached hereto as Annex B
and is also available on the Company's website at www.saulcenters.com. Among the
duties, powers and responsibilities of the Audit Committee as provided in the
Audit Committee charter, the Audit Committee:
. has sole power and authority concerning the engagement and fees of
independent public accountants,
. reviews with the independent accountants the plans and results of the
audit engagement,
. pre-approves all audit services and permitted non-audit services
provided by the independent public accountants,
. reviews the independence of the independent public accountants,
. reviews the adequacy of the Company's internal control over financial
reporting, and
. reviews accounting, auditing and financial reporting matters with the
Company's independent accountants and management.
Independence and Composition. The composition of the Audit Committee is
subject to the independence and other requirements of the Securities Exchange
Act of 1934 and the rules and regulations promulgated by the SEC thereunder,
which is referred to as the Exchange Act, and the NYSE listing standards. In
2003, Messrs. Kelley, Longsworth, Noonan and Symington, were, and they currently
are, the members of the Audit Committee, with General Kelley serving as
chairman. Mr. Kay was appointed to the committee in April 2003.
The Board of Directors, upon the unanimous recommendation of the Nominating
and Corporate Governance Committee, has determined that all current members of
the Audit Committee meet the audit committee composition requirements of the
Exchange Act and the NYSE listing standards and that Mr. Kay is an "audit
committee financial expert" as that term is defined in the Exchange Act.
Meetings. The Audit Committee met nine times in the year ended December 31,
2003.
10
Nominating and Corporate Governance Committee
General. The Board of Directors has established a Nominating and Corporate
Governance Committee, which is governed by a written charter, a copy of which is
available on the Company's website at www.saulcenters.com. As provided in the
Nominating and Corporate Governance Committee charter, the Nominating and
Corporate Governance Committee:
. identifies and recommends to the Board of Directors individuals to
stand for election and reelection to the Board at the annual meeting
of stockholders and to fill vacancies that may arise from time to
time,
. develops and makes recommendations to the Board for the creation and
ongoing review and revision of a set of effective corporate governance
guidelines that promote the competent and ethical operation of the
Company and any policies governing ethical business conduct of the
Company's employees or directors, and
. makes recommendations to the Board of Directors as to the structure
and membership of committees of the Board of Directors.
Selection of Director Nominees. The corporate governance guidelines provide
that the Nominating and Corporate Governance Committee endeavor to identify
individuals to serve on the Board who have expertise that is useful to the
Company and complementary to the background, skills and experience of other
Board members. The Nominating and Corporate Governance Committee's assessment of
the composition of the Board includes: (a) skills - knowledge of corporate
governance, business and management experience and background, real estate
experience and background, accounting experience and background, finance
experience and background, and an understanding of regulation and public policy
matters, (b) characteristics - ethical and moral standards, leadership
abilities, sound business judgment, independence and innovative thought, and (c)
composition - diversity, age and public company experience. The principal
qualification for a director is the ability to act in the best interests of the
Company and its stockholders.
The Nominating and Corporate Governance Committee also considers director
nominees recommended by stockholders. In accordance with the Company's Amended
and Restated Bylaws, which is referred to as the Bylaws, and the Exchange Act,
any proposal from stockholders regarding possible director candidates to be
elected at a future annual meeting must be received by the Company at 7501
Wisconsin Avenue, Suite 1500, Bethesda, Maryland 20815-6522, Attn: Secretary not
less than 60 nor more than 90 calendar days before the first anniversary of the
Company's previous year's annual meeting, provided, that in the event that the
date of the upcoming annual meeting is advanced by more than 30 days or delayed
by more than 60 days from the first anniversary date, to be timely delivered,
the proposal must be received not earlier than the 90th day prior to the
upcoming annual meeting and not later than the close of business on the later of
the 60th day prior to the upcoming annual meeting or the 10th day following the
day on which public announcement of the date of the upcoming annual meeting is
first made. The deadline for submissions of proposals for the 2005 annual
meeting can be found under the section captioned "Proposals for Next Annual
Meeting."
Please note that proposals must comply with all of the requirements of Rule
14a-8 under the Exchange Act. In addition, any proposals must include the
following:
. the name and address of the stockholder submitting the proposal, as it
appears on the Company's stock transfer records, and of the beneficial
owner thereof,
. the number of each class of the Company's stock which is owned
beneficially and of record by the stockholder and the beneficial
owner,
. the date or dates upon which the stockholder acquired the stock,
. the reasons for submitting the proposal and a description of any
material interest the stockholder or beneficial owner has in
submitting the proposal, and
. all information relating to the director nominee that is required to
be disclosed in solicitations of proxies for election of directors in
an election contest, or is otherwise required, in each case pursuant
to Regulation 14A under the Exchange Act (including such person's
written consent to being named in the proxy statement as a director
nominee and to serving as a director if elected).
The chairman of the annual meeting shall have the power to declare that any
proposal not meeting these requirements is defective and shall be discarded.
The Nominating and Corporate Governance Committee evaluates director
candidates recommended by stockholders in the same manner that it evaluates
director candidates recommended by the directors, management or employees.
11
Independence and Composition. The NYSE listing standards require that the
Nominating and Corporate Governance Committee consist solely of independent
directors. From January 1, 2003 through December 4, 2003, Messrs. Grosvenor,
Whitmore and Jackson were the members of the Nominating and Corporate Governance
Committee. On December 4, 2003, upon making a determination that Mr. Whitmore
was not an "independent" director of the Company under the Exchange Act and the
NYSE listing standards, the Nominating and Corporate Governance Committee
recommended, and the Board of Directors approved, the removal of Mr. Whitmore
from the Nominating and Corporate Governance Committee. Messrs. Grosvenor and
Jackson are the current members of the Nominating and Corporate Governance
Committee, with Mr. Grosvenor serving as chairman.
The Board of Directors, upon the unanimous recommendation of the Nominating
and Corporate Governance Committee, has determined that all current members of
the Nominating and Corporate Committee are "independent" as that term is defined
in the NASD listing standards.
Meetings. The Nominating and Corporate Governance Committee met once in the
year ended December 31, 2003.
Compensation Committee
General. The Board of Directors has established a Compensation Committee,
which is governed by a written charter, a copy of which is available on the
Company's website at www.saulcenters.com. The Compensation Committee is
responsible for:
. approving and evaluating the compensation plans, policies and programs
for the Company's officers,
. making recommendations to the Board with respect to the compensation
of directors, and
. approving all awards to any officer under the Company's stock option
and equity incentive plans.
Independence and Composition. The NYSE listing standards require that the
Compensation Committee consist solely of independent directors. From January 1,
2003 through December 4, 2003, Messrs. Grosvenor and Whitmore were the members
of the Compensation Committee. On December 4, 2003, upon making a determination
that Mr. Whitmore was not an "independent" director of the Company under the
Exchange Act and the NYSE listing standards, the Nominating and Corporate
Governance Committee recommended, and the Board of Directors approved, the
removal of Mr. Whitmore from the Compensation Committee and the appointment of
Mr. Jackson as a member of the Compensation Committee. Messrs. Grosvenor and
Jackson are the current members of the Compensation Committee, with Mr.
Grosvenor serving as chairman.
The Board of Directors, upon the unanimous recommendation of the Nominating
and Corporate Governance Committee, has determined that all current members of
the Compensation Committee are "independent" as that term is defined in the NYSE
listing standards.
Meetings. The Compensation Committee met two times in the year ended
December 31, 2003.
Executive Committee
General. The Board of Directors has established an Executive Committee. The
Executive Committee, which is not governed by a written charter, has such
authority as it is delegated by the Board of Directors and advises the Board of
Directors from time to time with respect to such matters as the Board of
Directors directs.
Independence and Composition. The Exchange Act and the NYSE listing
standards do not require that the Executive Committee consist of any independent
directors. In year 2003, Messrs. Caraci, Jackson and Saul II, were, and they
currently are, the members of the Executive Committee, with Mr. Saul II serving
as chairman. Mr. Saul III was appointed to the committee in June 2003.
Meetings. The Executive Committee met once in the year ended December 31,
2003.
Code of Ethics
The Company's Chairman and Chief Executive Officer, Senior Vice
President-Chief Financial Officer, Treasurer and Secretary, Vice President and
Chief Accounting Officer and Controller are also governed by the recently
adopted code of ethics for senior financial officers. The code of ethics is
available on the Company's website at www.saulcenters.com. Amendments to, or
waivers from, a provision of the code of ethics will be posted to the Company's
website within five business days following the date of the amendment or waiver.
12
Compensation of Directors
Directors of the Company are currently paid an annual retainer of $18,000
and a fee of $1,000 for each Board or Committee meeting attended, and are
annually awarded 100 shares of the Company's Common Stock. The shares are issued
on the date of each annual meeting of stockholders to each director serving on
the Board of Directors as of the record date of such meeting, and their issuance
may not be deferred and transfer of the shares is restricted for a period of 12
months following the date of issue. Directors from outside the Washington, D.C.
area also are reimbursed for out-of-pocket expenses in connection with their
attendance at meetings. For the year ended December 31, 2003, the Company paid
its directors total compensation of $350,280, of which $47,750 was paid in cash,
$273,250 was paid in deferred stock compensation (as described below), and
$29,280 was paid through annual Common Stock awards.
In addition, directors may elect to participate in the Deferred
Compensation and Stock Plan discussed below. For the year ended December 31,
2003, 19,769 shares were credited to the directors' deferred fee accounts.
Upon his resignation as President in March 2003, Philip D. Caraci entered
into a consulting arrangement with the Company. The arrangement, which is
terminable by either party at any time, provides that Mr. Caraci shall receive
$100,000 per annum for consulting services provided to the Company. In 2003, Mr.
Caraci received $75,886 in consulting fees pursuant to this arrangement.
Deferred Compensation Plan
A Deferred Compensation and Stock Plan for Directors, which we refer to as
the Directors Plan, was established by the Company, for the benefit of its
directors and their beneficiaries. Before the beginning of any calendar year, a
director may elect to defer all or part of his or her director's fees to be
earned in that year and the following years. A director has the option to have
deferred fees paid in cash, in shares of Common Stock or in a combination of
cash and Common Stock. If the director elects to have the deferred fees paid in
stock, the number of shares allocated to the director is determined based on the
market value of the Common Stock on the day the deferred director's fees were
earned.
In connection with the Company's initial public offering of its Common
Stock in 1993, 20,000 shares of Common Stock were authorized for the Directors
Plan and were reserved for listing with the New York Stock Exchange upon
issuance. Between 1996 and 2001, the Company authorized and reserved for listing
with the New York Stock Exchange an additional 150,000 shares of Common Stock in
connection with the Directors Plan. Through February 27, 2004, 153,420 of these
170,000 shares have been credited to the directors' deferred fee accounts.
The following table sets forth fees deferred into shares of Common Stock by
directors under the Directors Plan.
Number of Shares Credited to
Stock Deferred Fee Account
Name 2003 Total
-------------------------- ------------ ---------------
Philip D. Caraci 1,609 11,375
John E. Chapoton 963 1,379
Gilbert Grosvenor 2,409 23,281
Philip C. Jackson, Jr. 908 14,843
David B. Kay 1,135 1,345
General Paul X. Kelley 1,520 4,916
Charles R. Longsworth 2,708 25,023
Patrick F. Noonan 1,952 18,476
B. Francis Saul II 1,581 10,913
B. Francis Saul III 1,569 10,725
James W. Symington 1,094 8,213
John R. Whitmore 2,321 22,931
------------ ---------------
Total 19,769 153,420
============ ===============
13
REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy. The goal of the Compensation Committee (the
"Compensation Committee") is to design and administer a compensation program to
(i) attract and retain qualified officers, (ii) reward officers for superior
performance in achieving Company business objectives and enhancing stockholder
value and (iii) provide incentives for the creation of long-term stockholder
value. The key elements of executive compensation are base salary, annual
performance bonuses and incentive stock options. The Compensation Committee
reviews and approves the Company's policies and practices regarding executive
compensation, including (a) base salary levels, (b) annual performance bonuses,
and (c) long-term incentives, including awards of stock options.
Base Salary and Bonus Awards. As part of its review of compensation, the
Committee considers a variety of factors, including each individual's tenure,
level and scope of responsibility and performance, contribution to the Company's
achievement of its long-term goals, as well as factors relating to the overall
performance of the Company and management's recommendations regarding
compensation.
The Committee believes that base salary levels and annual bonus awards are
reasonably related to the base salary levels and annual bonus awards of officers
of comparable real estate investment trusts and other real estate companies. The
Committee also believes that the current base salary levels and annual bonus
awards of the Company's officers take into account the unique talents and skills
of its officers.
Stock Option Grants. While not a key element in compensation, the
Compensation Committee believes that the prudent use of equity incentives aligns
the interest of officers with those of stockholders and promotes long-term
stockholder value. The 1993 Stock Option Plan, which expired in 2003 provided
for, and the 2004 Stock Plan if approved by the Company's stockholders, will
provide for grants of nonqualified and incentive stock options to employees,
including officers. The Compensation Committee administers the plans and
determines the participants who receive stock option grants, the terms of the
grants, the schedule for exercisability or nonforfeitability, and the time and
conditions for expiration of the grants. The Compensation Committee will
continue to look at the total compensation package for each officer, and the
policies underlying the Company's long-term compensation goals when granting
awards under the plans.
On May 23, 2003, the Compensation Committee awarded 220,000 stock options
to officers of the Company. Of the 220,000 stock options, 80,000 were incentive
stock options and 140,000 were nonqualified stock options. The options vest 25%
per year over a four-year period and are exercisable at $24.91 per share,
representing that fair market value of the Company's Common Stock on the date of
grant.
Compensation of the Chief Executive Officer. The Compensation Committee
uses the same procedures described above in setting the annual salary, bonus and
stock option awards of the Chief Executive Officer. In 2003, Mr. Saul received a
base salary of $125,000 and a bonus award of $10,000. In doing so, the
Compensation Committee considered the Company's 2003 performance and additional
subjective factors such as Mr. Saul's continued success in maintaining a stable
and creditworthy tenant base and income stream, retaining a team of
highly-qualified professionals, as well as maintaining overall stockholder
confidence.
Members of the Compensation Committee
Gilbert M. Grosvenor, Chair
Philip C. Jackson, Jr.
14
Executive Officers Who Are Not Directors
The following list sets forth the name, age, position with the Company,
present principal occupation or employment and material occupations, positions,
offices or employment during the past 10 years of each executive officer who is
not a director of the Company. With the exception of M. Laurence Millspaugh and
Kenneth D. Shoop, who joined the Company in 1996 and 2003, respectively, each
listed individual has held an office with the Company since its inception in
June 1993.
Name Age Position and Background
---- --- ----------------------------------------------------------------------
Christopher H. Netter 49 Senior Vice President - Leasing since 1998. Vice President - Leasing
of the Company from 1993 to 1998. Vice President of the B.F. Saul
Company and B.F. Saul Property Company and Assistant Vice President of
the B.F. Saul Real Estate Investment Trust from 1987 to 1993.
Scott V. Schneider 46 Senior Vice President - Chief Financial Officer, Treasurer and
Secretary since 1998. Vice President - Chief Financial Officer,
Treasurer and Secretary of the Company from 1993 to 1998. Vice
President of the B.F. Saul Company and B.F. Saul Property Company
and Assistant Vice President of the B.F. Saul Real Estate Investment
Trust from 1985 to 1993.
Charles W. Sherren, Jr. 50 Senior Vice President - Management since 2000. Vice President -
Management of the Company from 1993 to 2000. Vice President of the
B.F. Saul Company and B.F. Saul Property Company and Assistant Vice
President of the B.F. Saul Real Estate Investment Trust from 1981 to
1993.
John F. Collich 44 Senior Vice President - Retail Development since 2000. Vice President
- Retail Development of the Company from 1993 to 2000. Vice President
of the B.F. Saul Company and B.F. Saul Property Company in 1993.
M. Laurence Millspaugh 46 Senior Vice President - Acquisitions and Development since 2002. Senior
Vice President - Acquisitions and Development of the B.F. Saul Company
from 2002 to present. Vice President of Development of the Company and
the B.F. Saul Company from 1996 to 2002. Senior Vice President of
Buchanan Companies from 1989 to 1996.
Kenneth D. Shoop 44 Vice President and Chief Accounting Officer since December 2003. Vice
President, Treasurer and Chief Accounting Officer of the B.F. Saul Real
Estate Investment Trust since January 2004. Vice President of the B.F.
Saul Company and B.F. Saul Property Company since September 2003. Vice
President and Controller of Federal Realty Investment Trust from 2000
to September 2003. Assistant Controller of Federal Realty Investment
Trust from 1992 to 2000.
15
EXECUTIVE COMPENSATION
Annual Compensation
The Company pays compensation to its executive officers for their services
in such capacity. The following Summary Compensation Table sets forth the annual
and long-term compensation paid by the Company to the Company's Chief Executive
Officer and each of its four other most highly compensated executive officers
who were serving as of December 31, 2003, ("named executive officers") for, or
with respect to, the periods ended December 31, 2003, 2002, and 2001.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation All
------------
Annual Compensation Stock Option Other
Name and Principal Position Year Salary Bonus Awards (Shs) Compensation (1)
--------------------------- ---- --------- -------- ------------ ----------------
B. Francis Saul II 2003 $ 125,000 $ 10,000 -- --
Chairman and 2002 125,000 10,000 -- --
Chief Executive Officer 2001 125,000 10,000 -- --
B. Francis Saul III 2003 286,462 24,000 -- --
President (2) 2002 260,000 18,200 -- --
2001 226,667 16,450 -- --
Christopher H. Netter 2003 251,108 17,897 -- $ 20,048
Senior Vice President 2002 243,500 17,045 -- 23,114
Leasing 2001 226,667 16,100 -- 15,615
Scott V. Schneider 2003 246,400 17,724 -- 20,720
Senior Vice President 2002 233,500 16,345 -- 19,767
Chief Financial Officer 2001 216,667 15,400 -- 15,415
John F. Collich 2003 213,615 32,603 -- 17,386
Senior Vice President 2002 202,985 31,050 -- 14,818
Retail Development 2001 198,807 13,650 -- 20,727
(1) Amounts paid represent Company's contribution to Employees' Profit Sharing
Retirement Trust and Company's payment of life insurance premiums for the
benefit of the named executive officers.
(2) Served as Vice Chairman until March 20, 2003.
16
Stock Option Grants in Last Year
The following table sets forth the options to purchase Common Stock granted
to the named executive officers in 2003.
Individual Grants Potential Realizable Value
---------------------------------------- at Assumed Annual Rates
Number Percent of of Stock Price
of Shares Total Options Appreciation for Option
Underlying Granted to Exercise or Term
Options Employees Base Price Expiration ---------------------------
Name Granted (#) in Year ($/Sh) Date (1) 5% ($)(2) 10% ($)(2)
---- ----------- ------------- ----------- ---------- ----------- ----------
B. Francis Saul II -- -- -- -- -- --
Chairman and Chief
Executive Officer
B. Francis Saul III 80,000 57.1% 24.91 5/23/13 1,253,600 3,176,000
President
Christopher H. Netter 30,000 21.4% 24.91 5/23/13 470,100 1,191,000
Senior Vice President
Leasing
Scott V. Schneider 30,000 21.4% 24.91 5/23/13 470,100 1,191,000
Senior Vice President
Chief Financial Officer
John F. Collich 30,000 21.4% 24.91 5/23/13 470,100 1,191,000
Senior Vice President
Retail Development
(1) The expiration date of the options is ten years after the date of the grant.
(2) The potential realizable value is reported net of the option price, but
before the income taxes associated with exercise. These amounts represent
assumed compounded rates of appreciation at 5% and 10% from the date of the
grant to the expiration date of the options. These assumed annual rates of
stock price appreciation are specified by the SEC. No assurance can be
given that such rates will be achieved.
Aggregated Options Exercised in Last Year, and Year-End Share Option Values
The following table provides information regarding option exercises during
2003 by the named executive officers and the value of such officers' unexercised
options at December 31, 2003.
Number of Securities
Underlying Unexercised Value of Unexercised
Shares/Units Options at In-the-Money Options at
Acquired on Value Year-End (#) Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
---- ------------ ------------ ------------------------- -----------------------------
B. Francis Saul II -- -- --/-- --/--
Chairman and Chief
Executive Officer
B. Francis Saul III -- -- --/80,000 --/--
President
Christopher H. Netter 5,000 14,830 --/30,000 --/--
Senior Vice President
Leasing
Scott V. Schneider 15,100 40,479 --/30,000 --/--
Senior Vice President
Chief Financial Officer
John F. Collich -- -- --/30,000 --/--
Senior Vice President
Retail Development
(1) None of the unexercised options are vested. All of the unexercised options
have an exercise price of $24.91 per share and expire on May 23, 2013, with
earlier expiration to occur at employment termination.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of February 27, 2004 regarding
equity compensation plans approved by the shareholders and equity compensation
plans that were not approved by the shareholders.
Number of securities to Number of securities
be issued upon exercise Weighted average exercise remaining available for future
of outstanding options, price of outstanding issuance (excluding securities
warrants and rights options, warrants and rights reflected in column (a)
Plan category (a) (b) (c)
---------------- ------------------------- ----------------------------- -------------------------------
Equity compensation plans
approved by security holders (1) 220,000 $ 24.91 --
Equity compensation plans not
approved by security holders (2) 153,000 (3) $ 18.44 17,000
Total
(1) Consists entirely of common shares authorized for issuance under the 1993
Stock Option Plan.
(2) Consists entirely of common shares authorized for issuance under the
Directors Plan.
(3) Shares are issued upon deferral of directors' compensation fees, at the
time directors' fee are earned. Shares may not be transferred or sold until
the director no longer serves on the Company's Board of Directors.
AUDIT COMMITTEE REPORT
The information contained in the report shall not be deemed to be
"soliciting material" or to "filed" with the SEC, nor shall such information be
incorporated by reference into any previous or future filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company incorporates it by specific
reference.
Duties, Powers and Responsibilities. The Audit Committee is governed by a
charter, a copy of which is attached hereto as Annex B and which is also
available on the Company's website at www.saulcenters.com. The Audit Committee
charter is designed to assist the Audit Committee in complying with applicable
provisions of the Exchange Act and the NYSE listing standards, all of which
relate to corporate governance and many of which directly or indirectly affect
the duties, powers and responsibilities of the Audit Committee. Among the
duties, powers and responsibilities of the Audit Committee as provided in the
Audit Committee charter, the Audit Committee:
. has sole power and authority concerning the engagement and fees of
independent public accountants,
. reviews with the independent accountants the plans and results of the
audit engagement,
. pre-approves audit and permitted non-audit services provided by the
independent public accountants,
. reviews the independence of the independent public accountants,
. reviews the adequacy of the Company's internal accounting controls, and
. reviews accounting, auditing and financial reporting matters with the
Company's independent accountants and management.
Review and Discussion with Management. The Audit Committee has reviewed and
discussed the Company's financial statements for the year ended December 31,
2003 with management.
Review and Discussion with Independent Auditors. The Audit Committee has
discussed with the independent auditors those items required by SAS 61, which
includes among other things, matters related to the conduct of the audit of the
Company's financial statements. The Audit Committee has received a written
report required by Independence Standards Board Standard No. 1 from the auditors
regarding their independence, and has discussed this report with the auditors.
Change in Auditor. On June 21, 2002, the Board of Directors, following the
recommendation of the Audit Committee, approved the dismissal of Arthur Andersen
LLP as the Company's principal independent accountant. On the same date, the
Board approved, in accordance with the Audit Committee's recommendation, the
engagement of Ernst & Young LLP to serve as the Company's principal independent
accountant to audit the Company's financial statements for the year ended
December 31, 2002.
Arthur Andersen LLP did not report on the Company's consolidated financial
statements for either of the Company's two most recent years ended December 31,
2003 and 2002. Between January 1, 2002 and June 21, 2002, there were no
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or
18
auditing scope or procedure which, if not resolved to Arthur Andersen LLP's
satisfaction, would have caused them to make reference to the subject matter in
connection with their reports. During that period and through the date hereof,
there were no "reportable events," as defined in Item 304(a)(1)(v) of Regulation
S-K.
Prior to Ernst & Young LLP's engagement on June 21, 2002, the Company did
not consult Ernst & Young LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events required to be disclosed
under Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Audit Committee currently believes that the Company should continue its
relationship with Ernst & Young LLP and has appointed Ernst & Young LLP to
continue as its independent accountants for the year ending December 31, 2004.
One or more representatives of Ernst & Young LLP will be available at the
annual meeting to answer questions and make a statement if they desire.
2003 and 2002 Audit Firm Fee Summary. During years 2003 and 2002, the
Company retained Ernst & Young LLP and Arthur Andersen LLP to provide services
in the following categories and amounts:
Year 2003 Year 2002
----------------- -----------------------------------------
Ernst & Young LLP Ernst & Young LLP Arthur Andersen LLP
----------------- ----------------- -------------------
Audit Fees (1) $ 296,900 $ 155,750 --
Audit Related & Consultation Fees (2) 8,000 2,500 $ 9,084
Tax Fees (3) 114,000 108,500 --
Other -- -- --
----------------- ----------------- -------------------
Total Fees $ 418,900 $ 266,750 $ 9,084
================= ================= ===================
(1) Audit fees include the audit fee and fees for comfort letters, attest
services, consents and assistance with and review of documents filed with
the SEC.
(2) Audit related fees consist of fees incurred for consultation concerning
financial accounting and reporting standards, performance of agreed-upon
procedures, and other audit or attest services not required by statute or
regulation.
(3) Tax fees consist of fees for tax consultation and tax compliance services.
The Audit Committee has determined that the provision of audit related and
tax services by Ernst & Young LLP during 2003 is compatible with maintaining
Ernst & Young LLP's independence.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditor. Consistent with SEC policies regarding auditor
independence, the Audit Committee has responsibility for appointing, setting
compensation and overseeing the work of the independent auditor. In recognition
of this responsibility, the Audit Committee has established a policy to
pre-approve all audit and permissible non-audit services provided by the
independent auditor.
Prior to engagement of the independent auditor for the next year's audit,
management will submit to the Audit Committee for approval an aggregate of
services expected to be rendered during that year for each of the categories of
services listed in the table above.
Prior to engagement, the Audit Committee pre-approves these services by
category of service. The fees are budgeted and the Audit Committee requires the
independent auditor and management to report actual fees versus the budget
periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval.
In those instances, the Audit Committee requires specific pre-approval before
engaging the independent auditor.
Conclusion. Based on the review and discussions referred to above, the
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Annual Report of the Company on Form
10-K for the year ended December 31, 2003 for filing with the SEC.
General Paul X. Kelley, Committee Chairman
David B. Kay
Charles R. Longsworth
Patrick F. Noonan
James W. Symington
19
PERFORMANCE GRAPH
Rules promulgated under the Exchange Act require the Company to present a
graph comparing the cumulative total stockholder return on its Common Stock with
the cumulative total stockholder return of (i) a broad equity market index, and
(ii) a published industry index or peer group. The graph compares the cumulative
total stockholder return of the Company's Common Stock, based on the market
price of the Common Stock and assuming reinvestment of dividends, with the
National Association of Real Estate Investment Trust Equity Index ("NAREIT
Equity"), the S&P 500 Index ("S&P 500") and the Russell 2000 Index ("Russell
2000"). The graph assumes the investment of $100 on January 1, 1998.
Comparison of Cumulative Total Return
[GRAPH]
Dec. 1998 Dec. 1999 Dec. 2000 Dec. 2001 Dec. 2002 Dec. 2003
Saul Centers $100 $101 $149 $186 $222 $286
Russell 2000 $100 $121 $110 $ 97 $ 76 $ 97
NAREIT Equity $100 $ 95 $121 $137 $143 $196
S&P 500 $100 $121 $118 $121 $ 96 $144
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
SEC and the NYSE. Officers, directors and greater than 10% stockholders are
required by SEC regulations to furnish the Company with copies of all Forms 3, 4
and 5 which they file.
To the best of the Company's knowledge, based upon copies of forms
furnished to it and written representations from officers, directors and 10%
beneficial holders, no person was late filing SEC Forms 3, 4 or 5 during the
year ended December 31, 2003, except on May 15, 2003, Charles W. Sherren Jr.,
Senior Vice President - Management, reported one day later than required, that
he sold 100 shares of Saul Centers common stock on May 12, 2003 at a price of
$24.62 per share and sold 1,100 shares of Saul Centers common stock on May 12,
2003 at a price of $24.50 per share.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 27, 2004,
concerning shares of Common Stock beneficially owned by all persons (if any)
known by the Company to own more than 5% of the Company's outstanding Common
Stock, by each director and nominee, by each named executive officer and by all
directors and executive officers as a group, according to information provided
to the Company by each such person. Unless otherwise noted, each person named
has sole voting and sole investment power with respect to all shares
beneficially owned by such person. For purposes of this table, "beneficially
owned" includes securities redeemable or exercisable for Common Stock that are
currently redeemable or exercisable or that will become redeemable or
exercisable within 60 days of February 27, 2004. As a result, the number of
shares set forth below includes the number of shares of Common Stock the person
holds and shares of Common Stock the person could receive on exercise of options
for shares held by the person that are exercisable within 60 days of February
27, 2004.
Name of Aggregate Number of Percent of
Beneficial Owner (1) Shares Beneficially Owned (2) Class (2)
---------------------- ----------------------------- -----------
B. Francis Saul II 4,587,438 (3) 28.7%
Philip D. Caraci 106,931 (4) *
John E. Chapoton 1,483 *
Gilbert Grosvenor 23,781 *
Philip C. Jackson, Jr. 61,143 (5) *
David B. Kay 3,536 *
General Paul X. Kelley 19,671 *
Charles R. Longsworth 27,223 *
Patrick F. Noonan 30,597 (6) *
B. Francis Saul III 23,884 (7) *
James W. Symington 8,965 *
John R. Whitmore 25,181 *
John F. Collich 3,640 (8) *
Christopher H. Netter 468 (9) *
Scott V. Schneider 3,893 (10) *
All directors and officers as a group (20 persons) 4,928,831 30.8%
* Less than 1 percent
(1) The address of each beneficial owner listed is c/o Saul Centers, Inc., 7501
Wisconsin Avenue, Suite 1500, Bethesda, MD 20814-6522.
(2) Beneficial ownership and percent of class are calculated pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended. Includes
153,420 shares earned by directors in the Directors Plan. (See page 13,
Deferred Compensation Plan.)
(3) Includes 3,612,157 shares owned by the B. F. Saul Real Estate Investment
Trust, 284,497 shares owned by Dearborn LLC, 221,476 shares owned by B. F.
Saul Property Co., 374,030 shares owned by Westminster Investing
Corporation, 105 shares owned by Van Ness Square Corporation, 23,014 shares
owned by various family trusts for which Mr. Saul II is either the sole
trustee or sole custodian for a child, and 60,631 shares owned by Mr. Saul
II's spouse. Mr. Saul II disclaims beneficial ownership of 60,631 shares
owned by his spouse. Pursuant to Rule 13d-3, the Common Stock described
above is considered to be beneficially owned by Mr. Saul II because he has
or may be deemed to have sole or shared voting and/or investment power in
respect thereof. Excludes 1,265,337 shares owned by the B. F. Saul Company
Employees' Profit Sharing Retirement Trust, (the "Employee Trust"). Mr.
Saul II is one of four Trustees for the Employee Trust and has an interest
in the Employee Trust as one of the participating employees. Excludes
2,437,859 units in Saul Holdings Limited Partnership (the "Partnership")
owned by B. F. Saul Real Estate Investment Trust, 1,735,475 units in the
Partnership owned by Dearborn LLC, 200,443 units in the Partnership owned
by the B. F. Saul Property Company, 574,111 units in the Partnership owned
by Van Ness Square Corporation, 229,420 units in the Partnership owned by
Westminister Investing Corporation, and 10,483 units in the Partnership
owned by Avenel Executive Park Phase II, LLC. In general, these units are
convertible into shares of Common Stock on a one-for-one basis. However,
under the terms of the limited partnership agreement of the Partnership, at
the current time, these units may not be converted into shares of Common
Stock because the conversion would cause Mr. Saul II and his affiliates to
beneficially own collectively greater than 24.9% of the outstanding shares
of Common Stock.
(4) Includes 49,615 shares owned in trust by Mr. Caraci's spouse for which Mr.
Caraci is a co-trustee with his spouse and 2,570 shares owned by Mr.
Caraci's spouse in an individual retirement account. Mr. Caraci disclaims
beneficial ownership of 52,185 shares owned by his spouse. Excludes
1,265,337 shares owned by the Employee Trust. Mr. Caraci is one of four
Trustees for the Employee Trust.
(5) Mr. Jackson disclaims beneficial ownership of 2,800 shares owned by his
spouse.
(6) Mr. Noonan disclaims beneficial ownership of 6,016 shares owned by his
spouse.
(7) Excludes 80,000 shares subject to options held by Mr. Saul III, but not
currently exercisable.
(8) Excludes 30,000 shares subject to options held by Mr. Collich, but not
currently exercisable.
(9) Excludes 30,000 shares subject to options held by Mr. Netter, but not
currently exercisable, and includes 329 shares owned by his spouse. Mr.
Netter disclaims beneficial ownership of the 329 shares owned by his
spouse.
(10) Excludes 30,000 shares subject to options held by Mr. Schneider, but not
currently exercisable, and includes 1,319 shares owned by Mr. Schneider's
children.
21
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Certain relationships existing between (i) the Company and its
subsidiaries, including Saul Holdings Limited Partnership (the "Partnership")
and two subsidiary limited partnerships (the "Subsidiary Partnerships", and
collectively with the Partnership, the "Partnerships"), and (ii) B.F. Saul Real
Estate Investment Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and
certain other affiliated entities, each of which is controlled by B. Francis
Saul II and his family members (collectively, "The Saul Organization") are
discussed below.
Management of the Current Portfolio Properties. The Company and its
subsidiaries share with The Saul Organization certain ancillary functions, such
as computer and payroll services, benefits administration and in-house legal
services. The Saul Organization also subleases office space to the Company (see
below for description of terms of corporate headquarters lease). The terms of
all sharing arrangements, including payments related thereto, are reviewed
periodically by the Audit Committee of the Company, which consists entirely of
independent directors under the Company's Articles and NYSE rules. Billings by
The Saul Organization for the Company's share of these ancillary costs and
expenses for the year ended December 31, 2003 totaled $2,628,000, of which
$2,313,000 was paid prior to December 31, 2003. Although the Company believes
that the amounts allocated to it for such shared services represent a fair
allocation between it and The Saul Organization, the Company has not obtained a
third party appraisal of the value of these services.
Related Party Rents. Chevy Chase Bank leases space in 15 of the shopping
centers owned by the Company and its subsidiaries. The total rental income from
Chevy Chase Bank from January 1, 2003 through December 31, 2003 was $1,495,000.
Although the Company believes that these leases have comparable terms to leases
it has entered into with third-party tenants, the terms of these leases were not
set as a result of arm's-length negotiation. The terms of any lease with Chevy
Chase Bank are approved in advance by the Audit Committee, which is comprised
solely of independent directors.
The Company's corporate headquarters lease commenced in March 2002. The
Company leases space from a member of The Saul Organization. The 10-year lease
provides for an annual rental payment for the year ended December 31, 2003 of
$526,000, escalated at 3% per year, with payment of a pro-rata share of
operating expenses over a base year amount. The lease also provides for annual
adjustments of rent based on the square footage used by the Company during the
year. The total rental expense reflected in the Company's financial statements,
in accordance with generally accepted accounting principles, for the year ended
December 31, 2003 was $584,000. Although the Company believes that this lease
has comparable terms to what would have been obtained from a third party
landlord, it did not seek bid proposals from any independent third parties when
entering into its new corporate headquarters lease.
Management Personnel. The Company's Chief Executive Officer, Chief
Accounting Officer and President are also officers of various members of The
Saul Organization. Although the Company believes that these officers spend
sufficient management time to meet their responsibilities as its officers, the
amount of management time devoted to the Company will depend on its specific
circumstances at any given point in time. As a result, in a given period, these
officers may spend less than a majority of their management time on the
Company's matters. Over extended periods of time, the Company believes that its
Chief Executive Officer will spend less than a majority of his management time
on Company matters, while the Chief Accounting Officer and President may or may
not spend less than a majority of their management time on the Company's
matters.
Exclusivity and Right of First Refusal Agreements. The Company will
acquire, develop, own and manage shopping center properties and will own and
manage other commercial properties subject to certain exclusivity agreements and
rights of first refusal to which it is a party. The Saul Organization will
continue to develop, acquire, own and manage commercial properties and own land
suitable for development as, among other things, shopping centers and other
commercial properties. The agreement relating to exclusivity and the right of
first refusal between the Company and The Saul Organization (other than Chevy
Chase Bank, F.S.B.) (the "Exclusivity and Right of First Refusal Agreement")
generally requires The Saul Organization to conduct its shopping center business
exclusively through the Company and to grant the Company a right of first
refusal to purchase commercial properties and development sites in certain
market areas that become available to The Saul Organization. The Saul
Organization has granted the right of first refusal to the Company, acting
through the Company's independent directors, in order to minimize potential
conflicts with respect to commercial properties and development sites. The
Company and The Saul Organization have entered into this agreement in order to
minimize conflicts with respect to shopping centers and certain of the Company's
commercial properties.
22
Reimbursement Agreement. Pursuant to a reimbursement agreement among the
partners in the Partnerships, The Saul Organization and those of its
subsidiaries that are partners in the Partnerships have agreed to reimburse the
Company and the other partners in the event the Partnerships fail to make
payments with respect to certain portions of the Partnerships' debt obligations
and the Company or any such other partners personally make payments with respect
to such debt obligations. As of December 31, 2003, the maximum potential
obligation of The Saul Organization and its subsidiaries under the agreement was
$166,876,000. The Company believes that the Partnerships will be able to make
all payments due with respect to their debt obligations.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at
the annual meeting other than those stated above. If any other business should
come before the annual meeting, the persons named in the enclosed proxy will
vote thereon as they determine to be in the best interests of the Company.
PROPOSALS FOR NEXT ANNUAL MEETING
It is presently contemplated that the 2005 annual meeting of stockholders
will be held in mid-April 2005. Any stockholder proposal to be considered for
inclusion in the Company's proxy statement and form of proxy for the annual
meeting of stockholders to be held in 2005, including a proposal relating to
director nominations, must be received at the Company's office at 7501 Wisconsin
Avenue, Suite 1500, Bethesda, Maryland 20814-6522, no later than November 20,
2004.
Please note that proposals must comply with all of the requirements of
Rule 14a-8 under the Exchange Act, as well as the requirements of the Company's
Bylaws. In addition, proposals relating to director nominations must comply with
the policy of the Nominating and Corporate Governance Committee set forth under
the section captioned "Board of Directors - Corporate Governance - Nominating
and Corporate Governance Committee - Selection of Director Nominees."
In addition, the form of proxy that the Board of Directors will solicit
in connection with the Company's 2005 annual meeting of stockholders will confer
discretionary authority to vote on any proposal, unless the Secretary of the
Company receives notice of that proposal no earlier than January 26, 2005 and no
later than February 25, 2005, and the notice complies with the other
requirements described in the preceding paragraph.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 2003 accompanies this Proxy Statement.
By order of the Board of Directors
/s/ Scott V. Schneider
-------------------------------------------
Scott V. Schneider
Chief Financial Officer and Secretary
March 26, 2004
Bethesda, Maryland
23
ANNEX A
THE SAUL CENTERS, INC. 2004 STOCK PLAN
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the Company
to attract, retain and reward corporate officers, managerial and other
significant employees, directors, and non-employees who have an ongoing
consultant or advisor relationship with the Company, by offering such
individuals an opportunity to have a greater proprietary interest in and a
closer identity with the Company and its financial success.
SECTION 2. DEFINITIONS.
(a) Affiliate. An entity that qualifies as a Subsidiary Corporation with
respect to the Company, or a "parent corporation" with respect to the Company
within the meaning of Section 424(e) of the Code, whether such entity qualifies
as a parent corporation or a subsidiary corporation as of the initial adoption
of the plan or thereafter. Except for purposes of determining a Participant's
eligibility to receive an Incentive Stock Option, the term "Affiliate" shall
also include any other entity in which the Company or any of its Affiliates has
a material equity interest.
(b) Board. The Board of Directors of the Company.
(c) Code. The Internal Revenue Code of 1986, as amended from time to time.
(d) Committee. The Compensation Committee of the Board (or subcommittee
thereof) or such other committee (or subcommittee thereof) as shall be appointed
by the Board to administer the Plan pursuant to Section 3. The Committee shall
consist solely of two (2) or more directors who are (i) "non-employee directors"
(within the meaning of Rule 16b-3 under the Exchange Act) for purposes of
exercising administrative authority with respect to Options granted to
Participants who are subject to Section 16 of the Exchange Act; (ii) to the
extent required by the rules of the New York Stock Exchange or any national
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted, "independent" within the meaning of such rules; and (iii) at
such times as an Option granted under the Plan by the Company is subject to
Section 162(m) of the Code (to the extent relief from the limitation of Section
162(m) of the Code is sought with respect to Options and administration of the
Options by a committee of "outside directors" is required to receive such
relief) "outside directors" within the meaning of Section 162(m) of the Code.
(e) Common Stock. The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 8.
(f) Company. Saul Centers, Inc., a Maryland corporation, and any successor
thereto.
(g) Continuous Service. The Participant's service with the Company or an
Affiliate, whether as an employee, director or consultant, is not interrupted or
terminated. A Participant's Continuous Service shall not be deemed to have been
interrupted or terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate or a change in
the entity for which the Participant renders such service. The Participant's
Continuous Service shall be deemed to have terminated either upon actual
termination or the entity for which the Participant performs service ceases to
be an Affiliate. The Committee shall determine whether Continuous Service shall
be considered interrupted in the case of a leave of absence approved by the
Company or an Affiliate, including sick leave, military leave or any other
personal leave.
(h) Disabled or Disability. Permanent and total disability, as defined in
Section 22(e)(3) of the Code. A Participant shall not be considered Disabled
unless the Committee determines that the Disability arose before such
Participant's termination of employment or, in the case of a director or a
non-employee Participant, before the termination of the director, consulting or
advisor relationship between such Participant and the Company or an Affiliate.
(i) Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, as such law, rules and regulations may be
amended from time to time.
(j) Fair Market Value. On any given date, the current fair market value of
the shares of Common Stock as determined as follows. (i) if the Common Stock is
traded on New York Stock Exchange, is listed on a national securities exchange
or is quoted on an automated quotation system, the closing price for the day of
determination as quoted on such market or exchange which is the primary market
or exchange for trading of the Common Stock or if no trading occurs on such
date, the last day on which trading occurred, or such other appropriate date as
determined by the Committee in its discretion, as reported in The Wall Street
Journal or such other source as the Committee deems reliable; (ii) if the Common
Stock is regularly quoted by a recognized securities dealer but selling prices
are not reported, its Fair Market Value shall be the mean between the high and
the low asked prices for the Common Stock for the day of determination; or (iii)
in the absence of an established market for the Common Stock, Fair Market Value
shall be determined by the Committee in good faith.
24
(k) Incentive Stock Option. An Option that is intended to qualify as an
"incentive stock option" under Section 422 of the Code.
(l) Nonqualified Stock Option. An Option that is not an Incentive Stock
Option.
(m) Operating Partnership Units. The interest held by The Saul Organization
in the Saul Holdings Limited Partnership.
(n) Option. An option to purchase shares of Common Stock granted to a
Participant pursuant to Section 6.
(o) Participant. An employee of the Company (including any employee who is
a member of the Board) or an Affiliate, a director of the Company or an
Affiliate, or any non-employee consultant or advisor to the Company (including
non-employee members of the Board) or an Affiliate, whose participation in the
Plan is determined by the Committee to be in the best interest of the Company.
(p) Plan. The Saul Centers, Inc. 2004 Stock Plan, as amended from time to
time.
(q) The Saul Organization. The B.F. Saul Company, the B.F. Saul Real Estate
Investment Trust and Chevy Chase Bank, F.S.B., as well as other affiliated
entities and any successor entities.
(r) Stock Award. An award of shares of Common Stock or phantom share units
described in Section 5(b) of the Plan.
(s) Subsidiary Corporation. An entity that qualifies as a "subsidiary
corporation" with respect to the Company within the meaning of Section 424(f) of
the Code.
SECTION 3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have the authority to approve individuals for
participation; to construe and interpret the Plan; to establish, amend or waive
rules and regulations for its administration; and to accelerate the
exercisability of any Option or the termination of any restriction under any
Option or Stock Award. Options and Stock Awards may be subject to such
provisions as the Committee shall deem advisable, and may be amended by the
Committee from time to time; provided that no such amendment may adversely
affect the rights of the holder of an Option or Stock Award without such
holder's consent.
(b) Powers of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
(c) Indemnification. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option or Stock Award awarded under it. To the maximum extent permitted by
applicable law, each member of the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including legal fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members may have as members of the Board or under the by-laws of the Company.
(d) Fractional Shares. The Company shall not be required to issue
fractional shares pursuant to the Plan. The Committee may provide for
elimination of fractional shares or the settlement of such fraction shares in
cash.
(e) No Repricing of Options. The Committee may not without the approval of
the stockholders of the Company lower the exercise price of an outstanding
Option, whether by amending the exercise price of the outstanding Option or
through cancellation of the outstanding Option and issuance of a replacement or
substitute Option; provided that stockholder approval shall not be required for
adjustments made in connection with an event described in Section 8 in order to
prevent enlargement, dilution or diminishment of rights.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
pursuant to Options shall not exceed 500,000, subject to adjustment in
accordance with Section 8. The aggregate shares of Common Stock that may be
issued under the Plan pursuant to Stock Awards shall not exceed 100,000, subject
to adjustment in accordance with Section 8. Common Stock issued under the Plan
may be shares of authorized and unissued Common Stock or previously issued
Common Stock reacquired by the Company.
25
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option or Stock Award granted under the Plan without the
issuance of shares, the Common Stock subject to or reserved for such Option or
Stock Award may be used again for new grants of Options or Stock Awards
hereunder; provided that in no event may the number of shares of Common Stock
issued hereunder exceed the total number of shares reserved for issuance. Any
shares of Common Stock withheld or surrendered to pay withholding taxes pursuant
to Section 11(e) or withheld or surrendered in full or partial payment of the
exercise price of an Option pursuant to Section 6(e) shall be added to the
aggregate shares of Common Stock available for issuance.
Notwithstanding any other provision of the Plan, during any single calendar
year, no Participant shall be granted Options which permit such Participant to
purchase more than 500,000 shares of Common Stock, subject to adjustment in
accordance with Section 8.
SECTION 5. ELIGIBILITY.
(a) Options. Options may be granted under the Plan to any Participants. The
Committee shall have absolute discretion to determine, within the limits of the
express provisions of the Plan, those Participants to whom and the time or times
at which Options shall be granted. The Committee shall also determine, within
the limits of the express provisions of the Plan, the number of shares to be
subject to each Option, the duration of each Option, the exercise price under
each Option, the time or times within which (during the term of the Option) all
or portions of each Option may become vested and exercisable, and whether an
Option shall be an Incentive Stock Option, a Nonqualified Stock Option or a
combination thereof. In making such determination, the Committee may take into
account the nature of the services rendered by the Participant, his or her
present and potential contributions to the Company's success and such other
factors as the Committee in its discretion shall deem relevant.
Notwithstanding the foregoing, no Incentive Stock Option shall be granted
to any Participant who is not an employee of the Company or an Affiliate.
Options may be granted under this Plan from time to time in substitution
for stock options held by employees of other corporations who become employees
of the Company or a Subsidiary Corporation as a result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary
Corporation, the acquisition by the Company or a Subsidiary Corporation of the
employing corporation, the acquisition by the Company or a Subsidiary
Corporation of the assets of the employing corporation, or the acquisition by
the Company or a Subsidiary Corporation of at least fifty percent (50%) of the
issued and outstanding stock of the employing corporation as the result of which
it becomes a Subsidiary Corporation of the Company. The terms and conditions of
the substitute options so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Committee at the time of grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to stock
options which are Incentive Stock Options, no such variation shall be such as to
affect the status of any such substitute option as an "incentive stock option"
under Section 422 of the Code.
(b) Stock Awards. Stock Awards may be granted under the Plan only to
directors of the Company. A Stock Award may be in the form of either (i) shares
of Common Stock, or (ii) phantom stock, each share of which is equivalent in
value to a share of Common Stock. The Committee shall have absolute discretion
to determine the terms and conditions of Stock Awards, including but not limited
to, any restrictions on the shares of Common Stock issued pursuant to a Stock
Award and the terms of any agreement evidencing a Stock Award. The Committee in
its discretion may establish a deferred compensation program under which fees
payable by the Company to directors may be deferred in the form of a Stock
Award.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an agreement, in a
form approved by the Committee, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the Committee may
deem appropriate:
(a) Option Period. Each Option agreement shall specify the period for which
the Option thereunder is granted, which shall not exceed ten (10) years from the
date of grant, and shall provide that the Option shall expire at the end of such
period.
(b) Exercise Price. The per share exercise price of each Option shall be
determined by the Committee at the time the Option is granted, and shall not be
less than the Fair Market Value of Common Stock on the date the Option is
granted.
(c) Vesting of Options. No part of any Option may be exercised until the
Participant shall have satisfied the vesting conditions (i.e., such as remaining
in the employ of or continuing services for the Company and/or an Affiliate for
a certain period of time), if any, as the Committee may specify in the
applicable Option agreement. Subject to the provisions of Section 6(d), any
Option may be exercised, to the extent exercisable by its terms, at such time or
times as may be determined by the Committee.
26
(d) Exercise. An Option, if exercisable, shall be exercised by completion,
execution and delivery of notice (written or electronic) to the Company of
exercise of the Option which states (i) the Participant's intent to exercise the
Option, (ii) the number of shares of Common Stock with respect to which the
Option is being exercised, (iii) such other representations and agreements as
may be required by the Company and (iv) the method for satisfying any applicable
tax withholding as provided in Section 11(e). Such notice of exercise shall be
provided on such form or by such method as the Committee may designate, and
payment of the exercise price shall be made in accordance with Section 6(e).
Subject to the provisions of the Plan and the applicable Option agreement, an
Option may be exercised to the extent vested in whole at any time or in part
from time to time at such times and in compliance with such requirements as the
Committee shall determine. A partial exercise of an Option shall not affect the
right to exercise the Option from time to time in accordance with the Plan and
the applicable Option agreement with respect to the remaining shares subject to
the Option. An Option may not be exercised with respect to fractional shares of
Common Stock.
(e) Payment. The exercise price of an Option shall be paid in full at the
time of exercise (i) in cash, (ii) through the surrender of previously-acquired
shares of Common Stock having a Fair Market Value equal to the exercise price of
the Option provided that such previously-acquired shares have been held by the
Participant for at least six months, unless the Committee in its discretion
permits the use of shares held less than six months, (iii) through the
withholding by the Company (at the election of the Participant) of shares of
Common Stock having a Fair Market Value equal to the exercise price, provided
that the Participant attests in a manner acceptable to the Committee that he or
she holds previously-acquired shares equal in number to the number of shares
withheld by the Company and has held such previously-acquired shares for at
least six months, (iv) through the withholding by the Company (at the discretion
of the Committee) of shares of Common Stock having a Fair Market Value equal to
the exercise price, (v) if the Common Stock is traded on an established
securities market, the Committee may approve payment of the exercise price by a
broker-dealer or by the Participant with cash advanced by the broker-dealer if
the exercise notice is accompanied by the Participant's written irrevocable
instructions to delver the Common Stock acquired upon exercise of the Option to
the broker-dealer, (vi) in any other manner permitted by the Committee in its
discretion, or (vii) by a combination of (i), (ii), (iii), (iv), (v) and (vi),
in the discretion of the Committee.
(f) Other Rules Applicable to Incentive Stock Options. No Option that is
intended to be an Incentive Stock Option shall be invalid for failure to qualify
as an Incentive Stock Option.
(i) Grant Period. Consistent with Section 9, an Incentive Stock Option
must be granted within ten years of the date this Plan is adopted or the
date the Plan is approved by the stockholders of the Company, whichever is
earlier.
(ii) Ten Percent Owner. If a Participant, on the date that an
Incentive Stock Option is granted, owns, directly or indirectly, within the
meaning of Section 424(d) of the Code, stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Affiliate that qualifies as a "parent corporation" or "subsidiary
corporation" under Sections 424(e) and 424(f) of the Code, then the
exercise price per share shall in no instance be less than one hundred
percent (110%) of the Fair Market Value per share of Common Stock at the
time the Incentive Stock Option is granted, and no Incentive Stock Option
shall be exercisable by such Participant after the expiration of five years
from the date it is granted.
(iii) Value of Shares. The aggregate Fair Market Value (determined at
the date of grant) of the Incentive Stock Options exercisable for the first
time by a Participant during any calendar year shall not exceed $100,000 or
any other limit imposed by the Code.
(iv) Transfer of Incentive Stock Option Shares. Upon exercise of an
Incentive Stock Option, Participant agrees that he or she will notify the
Company within fifteen (15) days after the date of any disposition of
Common Stock issued upon exercise of such Option that occurs within two (2)
years after the date of grant of the Option or within one (1) year after
such Common Stock is transferred upon exercise of the Option. The Company
may require that certificates evidencing shares of Common Stock purchased
upon exercise of an Incentive Stock Option be endorsed with a legend in
substantially the following form:
The shares evidenced by this certificate may not be sold or
transferred prior to [insert applicable date] in the absence of a
written statement from Saul Centers, Inc. to the effect that the
Company is aware of the fact of such sale or transfer.
The blank contained in such legend shall be filled in with the date that is
the later of (i) one (1) year and one (1) day after the date of exercise of such
Incentive Stock Option or (ii) two (2) years and one (1) day after the date of
grant of such Incentive Stock Option. Upon delivery to the Company, at its
principal executive office, of a written statement to the effect that such
shares have been sold or transferred prior to such date, the Company does hereby
agree to promptly deliver to the transfer agent for such shares a written
statement to the effect that the Company is aware of the fact of such sale or
transfer. The Company may also require the inclusion of any additional legend
which may be necessary or appropriate.
27
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) Termination due to Disability or Death. Except as otherwise determined
by the Committee in its sole discretion and set forth in the relevant grant
agreement, upon termination of the Participant's Continuous Service by reason of
Disability or death, such Participant's Options shall become or remain fully
vested and shall be exercisable by such Participant (or, in the case of death,
by his or her estate) for not later than the earlier of one year after the
termination date or the expiration of the term of the Options.
(b) Termination Other than For Cause. Except as otherwise determined by
the Committee in its sole discretion and set forth in the relevant grant
agreement, upon termination of the Participant's Continuous Service for any
reason other than for Cause (as defined in Section 7(c)), Disability or death,
such Participant's Options (to the extent vested before such termination) may be
exercised by such Participant during the ninety-day period commencing on the
date of termination, but not later than the expiration of the term of the
Options. If a Participant dies during such ninety-day period, his or her estate
may exercise the Options (to the extent such Options were vested and exercisable
before death), but not later than the earlier of one year after the date of
death or the expiration of the term of the Options.
(c) Termination for Cause. Upon termination of a Participant's Continuous
Service for Cause, the Participant's right to exercise his or her Options shall
terminate immediately and without notice. For purposes of this provision, Cause
shall mean:
(i) The commission of an action against or in derogation of the
interests of the Company or an Affiliate which constitutes an act of fraud,
dishonesty or moral turpitude or which, if proven in a court of law, would
constitute a violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed
upon the Participant by the Company or an Affiliate;
(iii) Divulging the Company or an Affiliate's confidential
information; or
(iv) The performance of any similar action that the Committee, in its
sole discretion, may deem to be sufficiently injurious to the interests of
the Company or an Affiliate so as to constitute substantial cause for
termination.
Notwithstanding the foregoing, if a Participant performs services for the
Company or an Affiliate pursuant to a written agreement and such agreement
defines "cause" for purposes of the Company or Affiliate's right to terminate
such agreement for "cause," then such definition of "cause" set forth in the
agreement shall apply for purposes of the Plan.
SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a recapitalization, reclassification or combination of
shares, stock split, stock dividend, merger, sale of assets or similar event,
the Committee shall adjust equitably (a) the number and class of shares or other
securities that are reserved for issuance under the Plan, (b) the number and
class of shares or other securities that are subject to outstanding Options
and/or Stock Awards, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options and/or Stock Awards. The Committee shall
make all determinations under this Section 8, and all such determinations shall
be conclusive and binding.
The existence of outstanding Options and/or Stock Awards shall not affect
in any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
SECTION 9. EFFECTIVE DATE AND TERM OF PLAN.
The Plan is effective upon adoption by the Board, subject to approval
within twelve (12) months by the stockholders holding of a majority of the
shares of entitled to vote thereon. Unless and until the Plan has been approved
the stockholders of the Company, no Option may be exercised, no Stock Award may
be granted, and no shares of Common Stock may be issued under the Plan. In the
event that the stockholders of the Company do not approve the Plan within such
twelve (12) month period, the Plan and any previously granted Option shall
terminate. Unless previously terminated, the Plan will terminate ten (10) years
after the earlier of (i) the date the Plan is adopted by the Board, or (ii) the
date the Plan is approved by the stockholders, except that Options and/or Stock
Awards that are granted under the Plan before its termination will continue to
be administered under the terms of the Plan until the Options terminate or are
exercised or the Stock Awards terminate or fully vest and are settled.
28
SECTION 10. CHANGE IN CONTROL.
(a) Effect of a Change in Control. Except as otherwise determined by the
Committee in its sole discretion, and set forth in the relevant grant agreement,
in the event of a Change in Control, all outstanding Options shall fully vest in
each Participant. The Committee, in its discretion, may also provide in any
Option agreement for adjustment of certain terms of such Option upon the
occurrence of a Change in Control.
(b) Definition of Change in Control. "Change in Control" shall mean the
occurrence of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person"),
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the then outstanding shares
of Common Stock (the "Outstanding Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Voting
Securities"); excluding, however, the following: (I) any acquisition
directly from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (II) any acquisition by the
Company, B. Francis Saul II, members of the Company's management, or any
combination thereof, (III) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any entity
controlled by the Company, (IV) any acquisition by any Person pursuant to a
transaction which complies with subsections 10(b)(iii)(A), (B) and (C) of
the Plan, (V) any acquisition by The Saul Organization as a result of a
conversion by The Saul Organization of all or any portion of its Operating
Partnership Units to shares of Common Stock, (VI) any acquisition by
affiliates of The Saul Organization, or (VII) any acquisition pursuant to a
transaction described in Section 10(b)(v) of the Plan.
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 10, that any individual who
becomes a member of the Board subsequent to such effective date, whose
election, or nomination for election, by the Company's shareholders was
approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this provision) shall be considered as though
such individual was a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board;
(iii) The approval by shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Corporate Transaction");
excluding, however, such a Corporate Transaction pursuant to which (A) all
or substantially all of the individuals and entities who are the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively,
the outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Corporate Transaction of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may
be; (B) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or any entity
controlled by the Company or such corporation resulting from such Corporate
Transaction) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of
the outstanding voting securities of such corporation entitled to vote
generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Corporate
Transaction, and (C) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction;
(iv) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
29
(v) Notwithstanding the preceding, a Change in Control will not
result from a (A) transfer of the Outstanding Common Stock by a person who is
the beneficial owner, directly or indirectly, of 20% or more of the outstanding
Common Stock of the Company (a "Twenty Percent Owner") to (I) a member of such
Twenty Percent Owner's immediate family (within the meaning of Rule 16a-1(e) of
the Exchange Act) either during such Twenty Percent Owner's lifetime or by will
or the laws of descent and distribution; (II) any trust to which the Twenty
Percent Owner or a member of his immediate family (within the meaning of Rule
16(a)-1(e) of the Exchange Act) is the beneficiary; (III) any trust to which the
Twenty Percent Owner is the settlor with sole power to revoke; (IV) any
charitable trust, foundation or corporation under Section 501(c)(3) of the Code
which is funded by the Twenty Percent Owner.
(vi) Notwithstanding the preceding, a Change in Control will not
result from (A) the pledge of the Operation Partnership Units held by The Saul
Organization or (B) the foreclosure on such Operating Partnership Units by a
creditor of The Saul Organization if the creditor does not convert the Operating
Partnership Units to shares of Common Stock of the Company.
(c) Cancellation of Options upon Merger. If the Company is merged into
---------------------------------------
or consolidated with another corporation under circumstances where the Company
is not the surviving corporation, or if the Company is liquidated, or sells or
otherwise disposes of substantially all of its assets to another corporation
while unexercised Options remain outstanding under the Plan, unless provisions
are made in connection with such transaction for the continuance of the Plan
and/or the assumption or substitution of such Options with new options covering
the stock of the successor corporation, or parent or subsidiary thereof, with
the appropriate adjustments as to the number and kind of shares and prices, then
all outstanding Options shall be cancelled as of the effective date of any such
merger, consolidation or sale provided that (i) notice of such cancellation
shall be given to each Participant and (ii) each Participant shall have the
right to exercise such Option in full (without regard to vesting or other
limitations on exercise imposed on such Option) during the thirty day period
preceding the effective date of such merger, consolidation, liquidation, or sale
(the "Corporate Event"). Notwithstanding the foregoing, if no provisions are
made for the continuance, assumption or substitution of Options and if exercise
of any then-outstanding Options during the thirty day period preceding the
effective date of the Corporate Event would not be in conformity with all
applicable federal securities laws, the Participant will be paid a cash amount
equal to the difference between the Fair Market Value of the shares of Common
Stock subject to the Option as of the Corporate Event and the exercise price of
the Option, or if in the opinion of counsel to the Company the immediate
exercisability of such Options (or cash payment), when taken into consideration
with all other "parachute payments" within the meaning of Section 280G of the
Code, would result in an "excess parachute payment" as defined in such section
of the Code, such Option shall not become immediately exercisable and shall be
cancelled as of the effective date of the Corporate Event, except and to the
extent that the Committee in its discretion shall otherwise determine.
SECTION 11. GENERAL PROVISIONS.
(a) Employment. Nothing in the Plan or in any related instrument shall
--------------
confer upon any Participant any right to continue in the employ of the Company
or an Affiliate, to continue service as a director or consultant for the Company
or an Affiliate, or shall affect the right of the Company or an Affiliate to
terminate the employment or services of any Participant with or without cause.
(b) Legality of Issuance of Shares. No Option shall be exercisable, no
----------------------------------
Common Stock shall be issued, no certificates for shares of Common Stock shall
be delivered, and no payment shall be made under the Plan except in compliance
with all applicable federal and state laws and regulations (including, without
limitation, withholding tax requirements), any listing agreement to which the
Company is a party, and the rules of all domestic stock exchanges or quotation
systems on which the Company's shares may be listed. The Company shall have the
right to rely on an opinion of its counsel as to such compliance. Any share
certificate issued pursuant to a Stock Award or the exercise of an Option may
bear such legends and statements as the Committee may deem advisable to assure
compliance with federal and state laws and regulations. No Option shall be
exercisable, no Common Stock shall be issued, no certificate for
shares shall be delivered, and no payment shall be made under the Plan until the
Company has obtained such consent or approval as the Committee may deem
advisable from regulatory bodies having jurisdiction over such matters. The
Company may, but shall in no event be obligated to, register any securities
covered by this Plan pursuant to the Securities Act of 1933, as amended.
(c) Ownership of Common Stock Allocated to Plan. No Participant
-----------------------------------------------
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
30
(d) Governing Law. The Plan, and all agreements hereunder, shall be
-----------------
construed in accordance with and governed by the laws of the State of Maryland.
(e) Withholding of Taxes. The Company or Affiliate shall withhold, or
------------------------
allow a Participant to remit to the Company or Affiliate, any federal, state or
local taxes required by law to be withheld with respect to any event giving rise
to tax liability with respect to an Option or Stock Award. In order to satisfy
all or any portion of such tax liability, a Participant may elect (i) to
surrender Common Stock previously acquired by the Participant, (ii) to have the
Company withhold Common Stock that would otherwise have been issued to the
Participant pursuant to the exercise of an Option, provided that the number of
shares of such withheld or surrendered Common Stock shall not be greater than
the amount that is necessary to satisfy the minimum withholding obligation of
the Company that arises with respect to the Option, (iii) have funds withheld
from payments of wages, salary or other cash compensation due the Participant or
(iv) pay the Company or Affiliate in cash. Notwithstanding the preceding
sentence, the Committee may adopt a default rule with respect to the payment of
taxes described in this section, in which case the Participant shall have no
election right with respect to the form of the payment.
(f) Transferability of Awards. Except as otherwise determined by the
-----------------------------
Committee in its sole discretion, and set forth in the relevant grant agreement,
Options and Stock Awards shall be nonassignable and nontransferable by the
Participant other than by will or the laws of descent and distribution. During a
Participant's lifetime, Options shall be exercisable only by the Participant or
the Participant's agent, attorney-in-fact or guardian, or by a transferee
permitted by the relevant grant agreement. Incentive Stock Options shall be
nonassignable and nontransferable by the Participant other than by will or the
laws of descent and distribution, and shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's agent,
attorney-in-fact or guardian.
(g) Compliance with Securities Laws. The Committee may require that a
-----------------------------------
Participant, as a condition to exercise of an Option or the grant or settlement
of a Stock Award, execute and deliver to the Company a written statement, in
form satisfactory to the Committee, in which the Participant represents and
warrants that the shares are being acquired for such person's own account, for
investment only and not with a view to the resale or distribution thereof. The
Participant shall, at the request of the Committee, be required to represent and
warrant in writing that any subsequent resale or distribution of shares of
Common Stock by the Participant shall be made only pursuant to either (i) a
registration statement on an appropriate form under the Securities Act of 1933,
which registration statement has become effective and is current with regard to
the shares being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act of 1933, but in claiming such
exemption the Participant shall, before any offer of sale or sale of such
shares, obtain a prior favorable written opinion of counsel, in form and
substance satisfactory to counsel for the Company, as to the application of such
exemption thereto.
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board may amend or terminate the Plan from time to time; provided,
however, that with respect to any amendment that (i) increases the aggregate
number of shares of Common Stock that may be issued under the Plan, (ii) changes
the class of employees eligible to receive Incentive Stock Options or (iii)
stockholder approval is required by the terms of any applicable law, regulation,
or rule, including, without limitation, any rule of New York Stock Exchange, or
any national securities exchange or automated quotation system on which the
Common Stock is publicly traded or quoted, each such amendment shall be subject
to the approval of the stockholders of the Company within twelve (12) months of
the date such amendment is adopted by the Board. Except as specifically
permitted by a provision of the Plan, the applicable Option agreement or Stock
Award agreement, or as required to comply with applicable law, regulation or
rule, no amendment to the Plan or an Option or Stock Award agreement shall,
without a Participant's consent, adversely affect any rights of such Participant
under any Option or Stock Award outstanding at the time such amendment is made;
provided, however, that an amendment that may cause an Incentive Stock Option to
become a Nonqualified Stock Option, and any amendment that is required to comply
with the rules applicable to Incentive Stock Options, shall not be treated as
adversely affecting the rights of the Participant.
31
Saul Centers, Inc.
-------------------------------------------------------------------------------
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to
assist the Board of Directors in fulfilling its oversight
responsibilities relating to: (a) the integrity of the financial
reports and other financial information provided by Saul Centers, Inc.
(the "Company") to the public; (b) the Company's compliance with legal
and regulatory requirements, (c) the systems of internal controls which
management has established; (d) the performance of the Company's
internal audit function; (e) the independence, qualifications and
performance of the Company's independent auditor; (f) the Company's
auditing, accounting and financial reporting processes generally; and
(g) the duties set forth below and such other responsibilities as may
be delegated to the Committee by the Board from time to time. The
Committee is responsible for appointment, compensation and oversight of
the Company's independent auditors and internal auditors who shall
report directly to the Committee and are ultimately accountable to the
Board and the Committee. Consistent with this function, the Committee
should encourage continuous improvement of, and should foster adherence
to, the Company' s policies, procedures and practices at all levels.
II. COMPOSITION
The Committee shall be composed of three or more directors as
determined by the Board, each of whom shall be "independent," as such
term is defined from time to time in the Securities Exchange Act of
1934 (the "Exchange Act"), the New York Stock Exchange's Listed Company
Manual (the "NYSE Manual") and other laws and regulations applicable to
the Company and the Committee. All members of the Committee shall have
a working familiarity with basic finance and accounting practices.
Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the
Company or an outside consultant.
Prior to approving a director's appointment to the Committee, the Board
shall have determined, upon the advice of the Nominating and Corporate
Governance Committee of the Company ("Nominating Committee"), (a) that
such director satisfies the foregoing independence requirements as well
as any additional independence requirements established from time to
time by the Nominating Committee in the Company's Corporate Governance
Guidelines (the "Guidelines"); (b) in the exercise of its business
judgment, that such director has the requisite financial and accounting
knowledge to serve on the Committee; and (c) whether such director
qualifies as an "audit committee financial expert."
No member of the Committee shall simultaneously serve on the audit
committee of more than three public companies, including the Company,
unless the Board has made a determination that such simultaneous
service would not impair the ability of such member to effectively
serve on the Committee.
The Nominating Committee, after consultation with the Chairman of the
Board, shall recommend to the full Board for its approval which
directors should serve on the Committee and shall
recommend who shall serve as chairman of the Committee. In addition,
from time to time as it sees fit, the Nominating Committee, after
consultation with the Chairman of the Board, shall recommend to the
full Board for its approval the removal of directors from the Committee
or the appointment of additional directors to the Committee. In making
those recommendations, the Nominating Committee shall take into account
any factors identified in the Guidelines. If a chairman is not elected
by the Board, the members of the Committee may designate a chairman by
majority vote of the full Committee.
III. COMPENSATION
The chairman of the Committee and each member of the Committee shall be
entitled to compensation for being the chairman or member of the
Committee, as applicable, and for meeting attendance as such fees are
established from time to time by the Board. Each member of the
Committee shall be entitled to be reimbursed for reasonable
out-of-pocket expenses incurred by such member in attending meetings of
the Committee and in performing his/her duties as a member of the
Committee. No member of the Committee shall receive from the Company
any compensation other than his or her fees for serving as a director
and a member of the Committee or any other committee of the Board.
IV. MEETINGS
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. As part of its job to foster open communication,
the Committee should meet at least annually with management and the
independent accountants in separate sessions to discuss any matters
that the Committee or either of these groups believe should be
discussed privately.
Meetings of the Committee shall be called by the chairman of the
Committee upon his request or upon the request of the Chairman of the
Board or a majority of the members of the Committee. Except for the
regular quarterly meetings of the Committee, notice of any meeting of
the Committee shall be given in the manner provided for in the Bylaws
of the Company for meetings of the Board and its committees.
The provisions set forth in the Company's Bylaws for meetings of the
Board and its committees shall govern the quorum and voting
requirements for all meetings of the Committee.
The Committee shall be required to keep a record of its actions and
proceedings and shall report to the Board at the next meeting of the
Board following the Committee meeting with such report to include
recommendations for Board actions when appropriate.
V. RESPONSIBILITIES AND DUTIES
The Committee's specific powers and responsibilities in carrying out
its oversight role are delineated in the Audit Committee Powers and
Responsibilities Checklist. The checklist will be updated annually to
reflect changes in regulatory requirements, authoritative guidance, and
evolving oversight practices. As the compendium of Committee powers and
responsibilities, the most recently updated checklist will be
considered to be an addendum to this charter.
This charter, including the most recently updated Audit Committee Powers and
Responsibilities Checklist, shall be made available on the Company's website at
www.saulcenters.com.
- 2 -
SAUL CENTERS, INC.
------------------
AUDIT COMMITTEE POWERS AND RESPONSIBILITIES CHECKLIST
-----------------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
-----------------------------------------
1Q 2Q 3Q 4Q A/N
-----------------------------------------
-----------------------------------------
P T P T P T P T
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
A. INDEPENDENT AUDITORS
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
1. In the sole discretion of the Committee, retain or terminate the
Company's independent auditor and pre-approve all fees and terms of the
audit engagement X X
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
2. Approve in advance all tax and non-audit services which may legally be X X
provided to the Company by its independent auditor, including the fees
and terms for such services in accordance with Section 10A(i) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated by the Securities and Exchange Commission
(the "SEC") thereunder.
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
3. Meet with the independent auditor to review the scope of the annual audit
and the audit procedures to be utilized. X
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
4. At the conclusion of the audit, review the audit, including any
comments or recommendations of the independent auditor. The review
will cover any audit problems or difficulties encountered by the
independent auditors and management's response to those items.
Items to be reviewed would include: any restrictions on the scope of the
independent auditor's activities or on access to requested information,
any significant disagreements between the independent auditor and
management, any accounting adjustments that were noted or proposed by the
independent auditor, but were passed (as immaterial or otherwise); any
communications between the audit team and the independent auditor's
national office respecting auditing or accounting issues presented by
the engagement; and any "management" or "internal control" letter issued,
or proposed to be issued, by the independent auditor to the Company, and
management's responses to such letters; and relevant current accounting
rules and developments X
-------------------------------------------------------------------------------------------------------------------------------
- 3 -
-----------------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
-----------------------------------------
1Q 2Q 3Q 4Q A/N
-----------------------------------------
P T P T P T P T
-------------------------------------------------------------------------------------------------------------------------
5. Review with the independent auditor and the Company's financial
management the adequacy and effectiveness of the Company's internal
control over financial reporting, and management's report on any
significant deficiencies and material weaknesses in internal control
over financial reporting which are reasonably likely to adversely
affect the Company's ability to record, process, summarize and report
involves management or other employees who have a significant role in X X X X X
the Company's internal control over financial reporting
-------------------------------------------------------------------------------------------------------------------------
6. Review the annual management recommendation letter prepared by the
independent auditor and management's responses to such letter X
-------------------------------------------------------------------------------------------------------------------------
7. Review the independent auditor's ability to attest to and report on
management's assessment of the Company's internal control structure
and its financial reporting procedures in its Annual Report on Form
10-K X
-------------------------------------------------------------------------------------------------------------------------
8. Obtain and review, at least annually, a report by the independent
auditor describing the auditor's internal quality-control procedures,
and any material issues raised by the most recent internal quality-
control review or peer review of the auditor, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried
out by the auditor and any steps taken to deal with any such issues X
-------------------------------------------------------------------------------------------------------------------------
9. Review with the Company's financial management and the independent
auditor at least annually the Company's critical accounting policies. X X
-------------------------------------------------------------------------------------------------------------------------
-10. Confirm quarterly that the Company's independent auditor has no conflict
of interest with the Company under Section 10A(l) of the Exchange Act or
any rules promulgated thereunder X X X X
-------------------------------------------------------------------------------------------------------------------------
11. Review the annual written statement from the independent auditor
delineating all relationships between the independent auditor and the
Company, and discussing any relationships which may impact the
continued objectivity and independence of the independent auditors X
-------------------------------------------------------------------------------------------------------------------------
12. Evaluating the independent auditor and the lead audit partner on an
annual basis, taking into account the opinions of the Company's
management and internal auditors or others performing similar
functions X
-------------------------------------------------------------------------------------------------------------------------
13. Report the Committee's conclusions to the full Board with respect to the
independent auditor's qualifications, performance and independence X X
-------------------------------------------------------------------------------------------------------------------------
-----------------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
-----------------------------------------
1Q 2Q 3Q 4Q A/N
-----------------------------------------
P T P T P T P T
-------------------------------------------------------------------------------------------------------------------------
B. Annual and Quarterly Financial Results and Statements and Public
Announcements of Financial Information
-------------------------------------------------------------------------------------------------------------------------
1. Review the annual and quarterly financial results and statements,
including the disclosure in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" with management and
the independent auditors prior to any filing with the SEC. The review
will include the following items:
- any material accounting issues identified by management or the
independent auditor and their impact on the financial statements
- any audit problems or difficulties encountered by the
independent auditor and management's response to those items
- the independent auditor's evaluation of the quality of the
disclosure and the content of the financial statements
- any changes in accounting principles
- the effect of any regulatory and accounting initiatives, such as
off-balance sheet activities, on the financial statements
- any related party transactions
- any pending litigation and other contingent liabilities
- all off-balance sheet arrangements that either have, or are
reasonably likely to have a current or future effect on financial
condition, results of operations, liquidity, capital
expenditures, capital resources or significant components of
revenue or expenses
- the report of the independent auditor required by Section 10A(k)
of the Exchange Act, including the critical accounting policies
and practices used, all alternative methods of financial
accounting within GAAP that have been discussed with management,
the treatment preferred by the independent auditor, and other
material written communications with management X X X X
- other matters required to be communicated by the independent
auditor to the Committee under generally accepted auditing
standards
-------------------------------------------------------------------------------------------------------------------------
2. Review, prior to announcement or distribution to analysts or rating
agencies, Company earnings releases and earnings guidance for the
purpose of ensuring that such press releases and guidance properly
disclose financial information presented in accordance with GAAP and,
to the extent non-GAAP or pro forma information is included,
adequately disclose how such non-GAAP or pro forma information
differs from the comparable GAAP information and that such non-GAAP X X X X
or pro forma information is not given undue prominence, and to ensure
that such press releases and guidance for not otherwise provide
misleading presentations of the Company's results of operations or
financial condition
--------------------------------------------------------------------------------------------------------------------------
-5-
--------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
--------------------------------
1Q 2Q 3Q 4Q A/N
P T P T P T P T
-----------------------------------------------------------------------------------------------------------------------------------
C. Financial Reporting Process
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
1. In consultation with the independent auditor, review the integrity
of the Company's financial reporting process and controls, both
internal and external X
-----------------------------------------------------------------------------------------------------------------------------------
2. Consider the independent auditor's judgments about the quality and
appropriateness (not just acceptability) of the Company's accounting
principles and the clarity of financial disclosure practices as applied in X
its financial reporting
-----------------------------------------------------------------------------------------------------------------------------------
3. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
independent auditors or the Company's financial management X
-----------------------------------------------------------------------------------------------------------------------------------
4. Discuss, at least annually, with the independent auditors and the
Company's financial management any significant judgments or estimates
made in management's preparation of the financial statements and the
view of each as to appropriateness of such judgments or estimates X X
-----------------------------------------------------------------------------------------------------------------------------------
5. Review with the independent auditors and the Company's financial
management the extent to which changes or improvements in financial
or accounting practices, as approved by the Committee, have been
implemented X
-----------------------------------------------------------------------------------------------------------------------------------
D. Internal Audit Function
-----------------------------------------------------------------------------------------------------------------------------------
1. Oversee the internal audit function, including the retention,
evaluation and termination of the internal auditor and the approval
of all fees and terms of engagement X
-----------------------------------------------------------------------------------------------------------------------------------
2. Meet with the internal auditor to develop the annual internal audit
plan X
-----------------------------------------------------------------------------------------------------------------------------------
3. Meet, at least annually, with the internal auditor to review the
results of the work performed, the adequacy and effectiveness of the
controls tested, and any recommendations or problems encountered and
management's response to those items X X
-----------------------------------------------------------------------------------------------------------------------------------
4. Report the Committee's conclusions to the full Board with respect to
the performance of the internal audit function X X
-----------------------------------------------------------------------------------------------------------------------------------
E. Other Reports and Certifications
-----------------------------------------------------------------------------------------------------------------------------------
1. Report to the entire Board, annually, or more often as deemed
necessary, on the activities and findings of the Committee, including
its recommendation on inclusion of the Company's audited financial
statements into the Company's Annual Report on Form 10-K X X
-----------------------------------------------------------------------------------------------------------------------------------
- 6 -
------------------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
------------------------------------------
1Q 2Q 3Q 4Q A/N
------------------------------------------
P T P T P T P T
-----------------------------------------------------------------------------------------------------------------------------------
2. Prepare the annual report of the Committee's oversight
responsibilities for inclusion in the Company's annual proxy
statement X
-----------------------------------------------------------------------------------------------------------------------------------
3. Review the Company's proxy statement disclosure concerning the
independence of the members and the charter of the Committee X
-----------------------------------------------------------------------------------------------------------------------------------
4. Review and approve the Company's certification to the New York Stock
Exchange (the "NYSE") concerning the meetings, membership requirements
and charter of the Committee X
-----------------------------------------------------------------------------------------------------------------------------------
5. Review the annual certification of the Chief Executive Officer of the
Company ("CEO") to the NYSE that he is not aware of any violation of
the NYSE's listing standards, which certification is to be included in
the Company's Annual Report delivered to shareholders X
-----------------------------------------------------------------------------------------------------------------------------------
6. Include a copy of the Committee charter and most recent checklist as an
appendix to the proxy statement at least once every three years X
-----------------------------------------------------------------------------------------------------------------------------------
F. Other Powers and Responsibilities
-----------------------------------------------------------------------------------------------------------------------------------
1. Review with management, the independent auditor and the internal
auditors significant risks or exposures, discussing guidelines and
policies to govern this process and assessing steps management has
taken to minimize such risks to the Company X
-----------------------------------------------------------------------------------------------------------------------------------
2. Review management's monitoring of the Company's compliance with
applicable laws and regulations and ensure that the Company's
disclosure controls and procedures ensure that the Company's
financial statements, reports and other financial information
disseminated to the SEC and the public satisfy legal requirements. X X X X
------------------------------------------------------------------------------------------------------------------------------------
3. Review the Company's REIT regulatory compliance X X X X
------------------------------------------------------------------------------------------------------------------------------------
4. Review and/or reassess the Committee charter and checklist periodically,
at least annually, and amend the charter and checklist as conditions
dictate. X X
-----------------------------------------------------------------------------------------------------------------------------------
5. Obtain advice and assistance from outside legal, accounting or other
advisors, as appropriate. The Committee has full power and authority
to retain, at the Company's expense, such outside legal, accounting and
other advisors as the Committee deems necessary or appropriate X
-----------------------------------------------------------------------------------------------------------------------------------
6. Meet separately with management, with those responsible for internal
audit function and with the independent auditors to identify issues
warranting Committee attention X
-----------------------------------------------------------------------------------------------------------------------------------
7. Set, and review on a periodic basis, clear policies for hiring employees
or former employees of the Company's independent auditors X
-----------------------------------------------------------------------------------------------------------------------------------
-7-
-------------------------------------------
MEETINGS AT WHICH ITEMS ARE
ANTICIPATED TO BE PERFORMED
A/N - As necessary
P - In person
T - By telephone
-------------------------------------------
1Q 2Q 3Q 4Q A/N
-------------------------------------------
P T P T P T P T
-------------------------------------------------------------------------------------------------------------------------
8. Establish, and review on a periodic basis, procedures for the
receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or
auditing matters and the confidential, anonymous submission by employees
of concerns regarding questionable accounting and auditing matters X
-------------------------------------------------------------------------------------------------------------------------
9. Investigate any matter relating to the Company's accounting,
auditing, internal control, or financial reporting practices brought
to its attention, with full access to all of the Company's books, records,
facilities and personnel X
-------------------------------------------------------------------------------------------------------------------------
10. Review and approve any transactions between (i) the Company and its
officers or directors or their affiliates, and (ii) the Company and
its affiliates X X
--------------------------------------------------------------------------------------------------------------------------
11. Meet quarterly with the Company's chief financial officer (the "CFO")
to ascertain the ability of the CFO and the CEO to sign the
certifications required by Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002, including the reports of the effectiveness of disclosure
controls and procedures and any changes in internal control over
financial reporting X X X X
--------------------------------------------------------------------------------------------------------------------------
12. Conduct an evaluation of the Committee's performance on an annual basis X
--------------------------------------------------------------------------------------------------------------------------
- 8 -
[LOGO OF SAUL CENTERS]
7501 Wisconsin Avenue, Suite 1500
Bethesda, Maryland 20814-6522
[LOGO] Saul Centers
The Annual Meeting of Shareholders
will be held at 11:00 a.m., local time,
on April 23, 2004, at the
Hyatt Regency Bethesda,
One Bethesda Metro Center,
Bethesda, MD
(at the southwest corner of
the Wisconsin Avenue and
Old Georgetown Road
intersection, adjacent to the Bethesda
Metro Stop on the Metro Red Line.)
. FOLD AND DETACH HERE AND READ THE REVERSE SIDE .
--------------------------------------------------------------------------------
SAUL CENTERS, INC.
A Proxy for Annual Meeting of Stockholders
April 23, 2004
This Proxy is solicited by the Board of Directors
The undersigned hereby appoints B. Francis Saul II and B. Francis Saul III,
and each of them, as proxies, with full power of substitution in each, to vote
all shares of the common stock of Saul Centers, Inc. (the "Company") which the
undersigned is entitled to vote, at the Annual Meeting of Stockholders of the
Company to be held on April 23, 2004, at 11:00 a.m. local time, and at any
adjournment thereof, on all matters set forth in the Notice of Meeting and Proxy
Statement, dated March 26, 2004, a copy of which has been received by the
undersigned as follows:
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTIONS
GIVEN, WILL BE VOTED "FOR" THE MATTERS STATED.
(Continued, and to be marked, dated and signed, on the other side)
. FOLD AND DETACH HERE AND READ THE REVERSE SIDE .
------------------------------------------------------------------------------------------------------------------------------------
PROXY Please mark
your votes [X]
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" like this
THE PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
WITHHOLD
FOR AUTHORITY FOR AGAINST ABSTAIN
1. Election of four directors to serve until [_] [_] 2. To approve an amendment to the [_] [_] [_]
the annual meeting of stockholders in 2007: Company's Articles of Incorporation to
conform the definition of "independent"
(To withhold authority to vote for any directors to recent developments
individual nominee, strike a line through in applicable law, rules and regulations.
that nominee's name in the list below)
3. To approve the 2004 Stock Plan FOR AGAINST ABSTAIN
1- General Paul X. Kelley 2- Charles R. Longsworth
3- Patrick F. Noonan 4- B. Francis Saul III [_] [_] [_]
4. To transact such other business as may FOR AGAINST ABSTAIN
properly come before the meeting or any
adjournment or adjournments thereof. [_] [_] [_]
COMPANY ID:
PROXY NUMBER:
ACCOUNT NUMBER:
Signature __________________________________________ Signature ______________________________________________ Date _________________
NOTE: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney,
executor, administrator, trustee or quardian, please give title as such. If a corporation, please sign full corporate name by
President or other authorized officer. If a partnership, please sign in partnership name by authorized person.