def14a
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.__)
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to § 240.14a-12
GLADSTONE COMMERCIAL CORPORATION
(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)
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was
determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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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. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
GLADSTONE COMMERCIAL CORPORATION
1521 Westbranch Drive, Suite 200
McLean, Virginia 22102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 25, 2005
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Gladstone Commercial Corporation, a
Maryland corporation (the Company). The meeting will
be held on Wednesday, May 25th at 11:00 a.m. local
time in the Hilton McLean at 7920 Jones Branch Drive, McLean, VA
22102 for the following purposes:
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1. To elect two directors to hold office until the
2008 Annual Meeting of Stockholders. |
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2. To conduct any other business properly brought
before the meeting. |
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the Annual Meeting is April 4, 2005.
Only stockholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
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By Order of the Board of Directors |
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Terry Lee Brubaker |
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Secretary |
McLean, Virginia
April 20, 2005
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy as promptly
as possible in order to ensure your representation at the
meeting. A return envelope (which is postage prepaid if mailed
in the United States) is enclosed for your convenience. Even if
you have voted by proxy, you may still vote in person if you
attend the meeting. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must obtain a proxy issued in
your name from that record holder.
GLADSTONE COMMERCIAL CORPORATION
1521 Westbranch Drive, Suite 200
McLean, Virginia 22102
PROXY STATEMENT
FOR THE 2005 ANNUAL MEETING OF STOCKHOLDERS
May 25, 2005
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I receiving these materials?
We sent you this proxy statement and the enclosed proxy card
because the Board of Directors of Gladstone Commercial
Corporation (sometimes referred to as the Company)
is soliciting your proxy to vote at the 2005 Annual Meeting of
Stockholders. You are invited to attend the annual meeting to
vote on the proposals described in this proxy statement.
However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the
enclosed proxy card.
The Company intends to mail this proxy statement and
accompanying proxy card on or about April 20, 2005 to all
stockholders of record entitled to vote at the annual meeting.
Who can vote at the annual meeting?
Only stockholders of record at the close of business on
April 4, 2005 will be entitled to vote at the annual
meeting. On this record date, there were 7,667,000 shares of
common stock outstanding and entitled to vote.
Stockholder of Record: Shares
Registered in Your Name
If on April 4, 2005 your shares were registered directly in
your name with Gladstone Commercial Corporations transfer
agent, The Bank of New York, then you are a stockholder of
record. As a stockholder of record, you may vote in person at
the meeting or vote by proxy. Whether or not you plan to attend
the meeting, we urge you to fill out and return the enclosed
proxy card to ensure your vote is counted.
Beneficial Owner: Shares
Registered in the Name of a Broker or Bank
If on April 4, 2005 your shares were held, not in your
name, but rather in an account at a brokerage firm, bank,
dealer, or other similar organization, then you are the
beneficial owner of shares held in street name and
these proxy materials are being forwarded to you by that
organization. The organization holding your account is
considered to be the stockholder of record for purposes of
voting at the annual meeting. As a beneficial owner, you have
the right to direct your broker or other agent on how to vote
the shares in your account. You are also invited to attend the
annual meeting. However, since you are not the stockholder of
record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or
other agent.
What am I voting on?
The only matter scheduled for a vote is the election of two
directors to serve until the 2008 Annual Meeting of Stockholders.
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How do I vote?
You may either vote For all the nominees to the
Board of Directors or you may Withhold your vote for
any nominee you specify. The procedures for voting are fairly
simple:
Stockholder of Record: Shares
Registered in Your Name
If you are a stockholder of record, you may vote in person at
the annual meeting or vote by proxy using the enclosed proxy
card. Whether or not you plan to attend the meeting, we
urge you to vote by proxy to ensure your vote is counted. You
may still attend the meeting and vote in person if you have
already voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive. |
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct. |
Beneficial Owner: Shares
Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Gladstone Commercial
Corporation. Simply complete and mail the proxy card to ensure
that your vote is counted. To vote in person at the annual
meeting, you must obtain a valid proxy from your broker, bank,
or other agent. Follow the instructions from your broker or bank
included with these proxy materials, or contact your broker or
bank to request a proxy form.
What if I return a proxy card but do not make specific
choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted For the
election of both nominees for director. If any other matter is
properly presented at the meeting, your proxy (one of the
individuals named on your proxy card) will vote your shares
using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these mailed proxy materials, our directors and
employees and Georgeson Shareholder Communications Company
(Georgeson) may also solicit proxies in person, by
telephone, or by other means of communication. Directors and
employees will not be paid any additional compensation for
soliciting proxies,but Georgeson will be paid its customary fee
of approximately $6,000 plus out-of-pocket expenses if it
solicits proxies. We may also reimburse brokerage firms, banks
and other agents for the cost of forwarding proxy materials to
beneficial owners.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy
card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. If you are the record holder of your shares, you
may revoke your proxy in any one of three ways:
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You may submit another properly completed proxy card with a
later date. |
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You may send a written notice that you are revoking your proxy
to Gladstone Commercial Corporations Secretary at 1521
Westbranch Drive, Suite 200, McLean, Virginia. |
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy. |
If your shares are held by your broker or bank as a nominee or
agent, you should follow the instructions provided by your
broker or bank.
When are stockholder proposals due for next years
annual meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
January 25, 2006, to our Secretary at the address set forth
on the cover of this proxy statement. If you wish to submit a
proposal that is not to be included in next years proxy
materials or nominate a director, you must do so not later than
the close of business on March 26, 2006 nor earlier than
the close of business on February 24, 2006. You are also
advised to review our Bylaws, which contain additional
requirements about advance notice of stockholder proposals and
director nominations.
How are votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and
Withhold and, with respect to proposals other than
the election of directors, if any, Against votes,
abstentions and broker non-votes. Abstentions will be counted
towards the vote total for each proposal, and will have the same
effect as Against votes. Broker non-votes have no
effect and will not be counted towards the vote total for any
proposal.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
form from the institution that holds your shares and follow the
instructions included on that form regarding how to instruct
your broker to vote your shares. If you do not give instructions
to your broker, your broker can vote your shares with respect to
discretionary items, but not with respect to
non-discretionary items. Discretionary items are
proposals considered routine under the rules of the New York
Stock Exchange (NYSE) on which your broker may vote
shares held in street name in the absence of your voting
instructions including the election of directors. On
non-discretionary items, if any, for which you do not give your
broker instructions, the shares will be treated as broker
non-votes.
How many votes are needed to approve the election of
directors?
Each nominee for election as a director must receive a
For vote from the majority of shares present and
entitled to vote, either in person or by proxy. Broker non-votes
will have no effect.
What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A
quorum will be present if at least a majority of the outstanding
shares are represented by stockholders present at the meeting or
by proxy. On the record date, there were 7,667,000 shares
outstanding and entitled to vote. Thus 3,833,501 shares must be
represented by stockholders present at the meeting or by proxy
to have a quorum.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or if you vote in person at the
meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum, a
majority of the votes present at the meeting may adjourn the
meeting to another date.
How can I find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published in the
Companys quarterly report on Form 10-Q for the second
quarter of 2005.
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PROPOSAL 1
ELECTION OF DIRECTORS
Gladstone Commercial Corporations Board of Directors is
divided into three classes. Each class consists, as nearly as
possible, of one-third of the total number of directors, and
each class has a three-year term. Vacancies on the Board of
Directors may be filled only by persons elected by a majority of
the remaining directors. A director elected by the Board of
Directors to fill a vacancy in a class shall serve for the
remainder of the full term of that class, and until the
directors successor is elected and qualified. This
includes vacancies created by an increase in the number of
directors.
The Board of Directors presently has eight members. There are
two directors in the class whose term of office expires in 2005.
Each of the nominees listed below was recommended to the Board
of Directors by the Companys CEO to fill a vacancy on the
Board of Directors in August 2003 immediately prior to the
Companys initial public offering, and is standing for
election by the stockholders for the first time. If elected at
the annual meeting, each of these nominees would serve until the
2008 annual meeting and until his or her successor is elected
and has qualified, or until the directors death,
resignation or removal. It is the Companys policy to
encourage directors and nominees for director to attend the
Annual Meeting. Two of the Companys directors attended the
2004 Annual Meeting of Stockholders.
Nominees for Election for a three-year term expiring at the
2008 annual meeting
Michela A. English. Ms. English, age 55, has served
as a director of the Company since August 2003. Ms. English
is currently a private investor. From March 1996 to March 2004,
Ms. English held several positions with Discovery
Communications, Inc., including president of Discovery Consumer
Products, president of Discovery Enterprises Worldwide and
president of Discovery.com. From 1991 to 1996, Ms. English
served as senior vice president of the National Geographic
Society and was a member of the National Geographic
Societys Board of Trustees and Education Foundation Board.
Prior to 1991, Ms. English served as vice president,
corporate planning and business development for Marriott
Corporation and as a senior engagement manager for McKinsey
& Company. Ms. English currently serves as a director of the
Educational Testing Service (ETS), as a director of D.C.
Preparatory Academy, as a member of the Virginia Institute of
Marine Science Council and as chairman of the board of Sweet
Briar College. Ms. English is also a director of Gladstone
Capital Corporation. Ms. English holds a Bachelor of Arts in
International Affairs from Sweet Briar College and a Master of
Public and Private Management degree from Yale Universitys
School of Management.
Anthony W. Parker. Mr. Parker, age 59, has served as
a director of the Company since August 2003. In 1997,
Mr. Parker founded Medical Funding Corporation, a company
which purchases medical receivables, and has served as its
chairman from inception to the present. In the summer of 2000,
Medical Funding Corporation purchased a Snelling Personnel
Agency franchise in Washington, DC which provides full staffing
services for the local business community. From 1992 to 1996,
Mr. Parker was chairman of, and a 50% stockholder of,
Capitol Resource Funding, Inc. (CRF), a commercial
finance company with offices in Dana Point, California and
Arlington, Virginia. Mr. Parker joined CRF shortly after
its inception and was instrumental in growing the company from a
startup to one that by 1996 was purchasing receivables at the
rate of $150 million per year, with over 40 employees.
Mr. Parker practiced corporate and tax law for over
15 years from 1980 to 1983 at Verner, Liipfert,
Bernhard & McPherson, and from 1983 to 1992 in private
practice. Mr. Parker is currently the sole shareholder of
Parker & Associates, P.C., a law firm. From 1973 to 1977
Mr. Parker served as executive assistant to the
administrator of the US Small Business Administration.
Mr. Parker is also a director of Gladstone Capital
Corporation. Mr. Parker received his J.D. and Masters in
Tax Law from Georgetown Law Center and his undergraduate degree
from Harvard College.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH
NAMED NOMINEE.
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Directors Continuing In Office Until The 2006 Annual
Meeting
David A.R. Dullum. Mr. Dullum, age 57, has served as
a director of the Company since August 2003. From 1995 to the
present, Mr. Dullum has been a partner of New England
Partners, a venture capital firm focused on investments in small
and medium-sized businesses in the Mid-Atlantic and New England
regions. From 1976 to 1990, Mr. Dullum was the managing
general partner of Frontenac Company, a Chicago-based venture
capital firm. Mr. Dullum is also a director of Gladstone
Capital Corporation. Mr. Dullum holds a MBA from Stanford
Graduate School of Business and a BME from the Georgia Institute
of Technology.
Maurice W. Coulon. Mr. Coulon, age 61, has served as
a director of the Company since August 2003. Since 2000,
Mr. Coulon has been a private investor in real estate. From
1991 through his retirement in 2000, Mr. Coulon served as
director of portfolio management for the Morgan Stanley Real
Estate Fund. From 1980 to 1991, Mr. Coulon served as senior
vice president of asset management for the Boston Company Real
Estate Counsel, Inc. Mr. Coulon was a founder of the
National Association of Real Estate Investment Managers and is a
past president of the National Council of Real Estate Investment
Fiduciaries. Mr. Coulon is also a director of Gladstone Capital
Corporation. Mr. Coulon holds a MBA from Harvard University
and a BSE from the University of Missouri.
Terry Lee Brubaker. Mr. Brubaker, age 61, has served
as the Companys president, secretary, chief operating
officer and a director since its inception. Mr. Brubaker
has also served as president and a director of the Adviser since
its inception. Mr. Brubaker has served as the secretary and
a director of Gladstone Capital Corporation since May 2001. He
also served as president of Gladstone Capital Corporation from
May 2001 through April 2004, when he assumed the duties of vice
chairman. In March 1999, Mr. Brubaker founded and, until
May 1, 2003, served as chairman of Heads Up Systems, a
company providing processing industries with leading edge
technology. From 1996 to 1999, Mr. Brubaker served as vice
president of the paper group for the American Forest & Paper
Association. From 1992 to 1995, Mr. Brubaker served as
president of Interstate Resources, a pulp and paper company.
From 1991 to 1992, Mr. Brubaker served as president of IRI,
a radiation measurement equipment manufacturer. From 1981 to
1991, Mr. Brubaker held several management positions at
James River Corporation, a forest and paper company, including
vice president of strategic planning from 1981 to 1982, group
vice president of the Groveton Group and Premium Printing Papers
from 1982 to 1990 and vice president of human resources
development in 1991. From 1976 to 1981, Mr. Brubaker was
strategic planning manager and marketing manager of white papers
at Boise Cascade. Previously, Mr. Brubaker was a senior
engagement manager at McKinsey & Company from 1972 to 1976.
Prior to 1972, Mr. Brubaker was a U.S. Navy fighter pilot.
Mr. Brubaker holds a MBA from the Harvard Business School
and a BSE from Princeton University.
Directors Continuing In Office Until The 2007 Annual
Meeting
David Gladstone. Mr. Gladstone, age 62, is the
Companys founder and has served as its chief executive
officer and chairman of the Companys Board of Directors
since its inception. Mr. Gladstone is also the founder of
the Companys investment adviser, Gladstone Management
Corporation (the Adviser) and has served as chief
executive officer and chairman of the Board of Directors of the
Adviser since its inception. Mr. Gladstone also founded and
serves as the chief executive officer and chairman of the Board
of Directors of the Companys affiliate Gladstone Capital
Corporation (NASDAQ: GLAD). Prior to founding Gladstone Capital,
Mr. Gladstone served as either chairman or vice chairman of
the Board of Directors of American Capital Strategies (NASDAQ:
ACAS), a publicly traded leveraged buyout fund and mezzanine
debt finance company, from June 1997 to August 2001. From 1974
to February 1997, Mr. Gladstone held various positions,
including chairman and chief executive officer, with Allied
Capital Corporation (NYSE: ALD), Allied Capital Corporation II,
Allied Capital Lending Corporation and Allied Capital Advisers,
Inc., a registered investment adviser that managed the Allied
companies. The Allied companies were the largest group of
publicly-traded mezzanine debt funds in the United States and
were managers of two private venture capital
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limited partnerships. From 1991 to 1997, Mr. Gladstone
served as either chairman of the Board of Directors or president
of Allied Capital Commercial Corporation, a publicly traded REIT
that invested in real estate loans to small and medium-sized
businesses, managed by Allied Capital Advisers, Inc. He managed
the growth of Allied Capital Commercial from no assets at the
time of its initial public offering to $385 million in
assets at the time it merged into Allied Capital Corporation in
1997. From 1992 to 1997, Mr. Gladstone served as a
director, president and chief executive officer of Business
Mortgage Investors, a privately held mortgage REIT managed by
Allied Capital Advisers, which invested in loans to small and
medium-sized businesses. Mr. Gladstone is also a past
director of Capital Automotive REIT, a real estate investment
trust that purchases and net leases real estate to automobile
dealerships. Mr. Gladstone served as a director of The Riggs
National Corporation (the parent of Riggs Bank) from 1993 to May
1997 and of Riggs Bank from 1991 to 1993. He has served as a
trustee of The George Washington University and currently is a
trustee emeritus. He is a past member of the Listings and
Hearings Committee of the National Association of Securities
Dealers, Inc. He is a past member of the Advisory committee to
the Womens Growth Capital Fund, a venture capital firm
that finances women-owned small businesses. Mr. Gladstone
was the founder and managing member of The Capital Investors,
LLC, a group of angel investors, and is currently a member
emeritus. He is also the chairman and sole stockholder of
Gladstone Land Corporation, a privately held company that has
substantial farmland holdings in agricultural real estate in
California. Mr. Gladstone holds a MBA from the Harvard Business
School, a MA from American University and a BA from the
University of Virginia. Mr. Gladstone has co-authored two
books on financing for small and medium-sized businesses,
Venture Capital Handbook and Venture Capital Investing.
Paul W. Adelgren. Mr. Adelgren, age 62, has been a
director of the Company since August 2003. From 1997 to the
present, Mr. Adelgren has served as the pastor of
Missionary Alliance Church. From 1991 to 1997, Mr. Adelgren
was pastor of New Life Alliance Church. From 1988 to 1991,
Mr. Adelgren was a vice president for finance and materials
of Williams & Watts, Inc., a logistics management and
procurement business located in Fairfield, NJ. Prior to joining
Williams & Watts, Mr. Adelgren served in the United
States Navy, where he served in a number of capacities,
including as the director of the Strategic Submarine Support
Department, as an executive officer at the Naval Supply Center
and as the director of the Joint Uniform Military Pay System.
Mr. Adelgren is also a director of Gladstone Capital
Corporation. Mr. Adelgren holds a MBA from Harvard
University and a BA from University of Kansas.
John H. Outland. Mr. Outland, age 59, has been a
director of the Company since December 2003. From March 2004 to
present, he has served as vice president of Genworth Financial.
From 2002 to March 2004, Mr. Outland served as a managing
director for 1789 Capital Advisors, where he provided market and
transaction structure analysis and advice on a consulting basis
for multifamily commercial mortgage purchase programs. From 1999
to 2001, Mr. Outland served as vice president of
mortgage-backed securities at Financial Guaranty Insurance
Company where he was team leader for bond insurance
transactions, responsible for sourcing business, coordinating
credit, loan files, due diligence and legal review processes,
and negotiating structure and business issues. From 1993 to
1999, Mr. Outland was senior vice president for Citicorp
Mortgage Securities, Inc., where he securitized non-conforming
mortgage product. From 1989 to 1993, Mr. Outland was vice
president of real estate and mortgage finance for Nomura
Securities International, Inc., where he performed due diligence
on and negotiated the financing of commercial mortgage packages
in preparation for securitization. Mr. Outland is also a
director of Gladstone Capital Corporation. Mr. Outland
holds a MBA from Harvard Business School and a bachelors
degree in Chemical Engineering from Georgia Institute of
Technology.
Executive Officers Who Are Not Directors
George Stelljes III. Mr. Stelljes, age 43, has
served as the Companys executive vice president and chief
investment officer since its inception. Mr. Stelljes has also
served as executive vice president of the Adviser since its
inception and as a director of the Adviser since May 2003. In
addition, Mr. Stelljes has served as chief investment officer of
Gladstone Capital Corporation since September 2002. He also
served as Gladstone Capitals executive vice president from
September 2002 through April 2004, when he assumed the duties of
president. He was a director of Gladstone Capital from August
2001 to September 2002 and rejoined the
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Board of Directors of Gladstone Capital in July 2003. Prior to
joining Gladstone Capital, Mr. Stelljes also served as a
managing member of St. Johns Capital, a vehicle used to
make private equity investments. From 1999 to 2001,
Mr. Stelljes was a co-founder and managing member of Camden
Partners, a private equity firm which finances high growth
companies in the communications, education, healthcare and
business services sectors. From 1997 to 1999, Mr. Stelljes
was a managing director and partner of Columbia Capital, a
venture capital firm focused on investments in communications
and information technology. From 1989 to 1997, Mr. Stelljes
held 7 various positions, including executive vice president and
principal, with Allied Capital and its affiliates.
Mr. Stelljes currently serves as a general partner and
investment committee member of Patriot Capital, a private equity
fund and on the Board of Directors of Intrepid Capital
Management, a money management firm. He is also a former member
of the Board of Directors and regional president of the National
Association of Small Business Investment Companies.
Mr. Stelljes holds a MBA from the University of Virginia
and a BA in Economics from Vanderbilt University.
Harry Brill. Mr. Brill, age 56, has served as the
Companys treasurer and chief financial officer since its
inception. Mr. Brill has also served as chief financial
officer of the Adviser since its inception. Since May 2001,
Mr. Brill has also served as treasurer and chief financial
officer of Gladstone Capital Corporation. From 1995 to April
2001, Mr. Brill served as a personal financial advisor.
From 1975 to 1995, Mr. Brill held various positions,
including treasurer, chief accounting officer and controller,
with Allied Capital Corporation, where Mr. Brill was
responsible for all of the accounting work for Allied Capital
and its family of funds. Mr. Brill received his degree in
accounting from Ben Franklin University.
Independence Of The Board Of Directors
As required under the Nasdaq Stock Market (Nasdaq)
listing standards, a majority of the members of a listed
companys Board of Directors must qualify as
independent, as affirmatively determined by the
Board of Directors. The Board of Directors consults with the
Companys counsel to ensure that the determinations of the
Board of Directors are consistent with all relevant securities
and other laws and regulations regarding the definition of
independent, including those set forth in pertinent
listing standards of the Nasdaq, as in effect time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director, or
any of his or her family members, and the Company, its senior
management and its independent registered public accounting
firm, the Board of Directors affirmatively has determined that
all of the Companys directors are independent directors
within the meaning of the applicable Nasdaq listing standards
except for Mr. Gladstone, the Chief Executive Officer of the
Company and Mr. Brubaker, the President, Chief Operating
Officer and Secretary of the Company.
Information Regarding The Board Of Directors And Its
Committees
As required under applicable Nasdaq listing standards, in fiscal
2004 the Companys independent directors met one time in a
regularly scheduled executive session at which only independent
directors were present. Persons interested in communicating with
the independent directors with their concerns or issues may
address correspondence to a particular director, or to the
independent directors generally, in care of Gladstone Commercial
Corporation at 1521 Westbranch Drive, Suite 200, McLean,
Virginia 22102. If no particular director is named, letters will
be forwarded, depending on the subject matter, to the
Chairperson of the Audit, Compensation, or Ethics, Nominating
and Corporate Governance Committee.
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The Board of Directors has four committees: an Executive
Committee, Audit Committee, a Compensation Committee, and an
Ethics, Nominating and Corporate Governance Committee. The
following table provides membership and meeting information for
fiscal 2004 for each of the committees of the Board of Directors:
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Ethics, Nominating and | |
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Corporate Governance | |
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Paul W. Adelgren
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Terry Lee Brubaker
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|
|
|
|
|
|
|
|
|
Maurice W. Coulon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
David A.R. Dullum
|
|
|
|
|
|
|
X |
|
|
|
X |
* |
|
|
|
|
Michela A. English
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
David Gladstone
|
|
|
X |
* |
|
|
|
|
|
|
|
|
|
|
|
|
John H. Outland
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
Anthony W. Parker
|
|
|
X |
|
|
|
X |
* |
|
|
X |
|
|
|
|
|
Total Meetings in fiscal year 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below is a description of each committee of the Board of
Directors. The Board of Directors has determined that each
member of each committee meets the applicable rules and
regulations regarding independence and that each
member is free of any relationship that would interfere with his
or her individual exercise of independent judgment with regard
to the Company (other than with respect to the Executive
Committee, for which there are no applicable independence
requirements).
Executive Committee
The Executive Committee, which is comprised of
Messrs. Gladstone (Chairman), Brubaker and Parker, has the
authority to exercise all powers of the Companys Board of
Directors except for actions that must be taken by the full
Board of Directors under Maryland General Corporation Law. The
Executive Committee did not meet during the fiscal year ended
December 31, 2004.
Audit Committee
The Audit Committee of the Board of Directors oversees the
Companys corporate accounting and financial reporting
process. For this purpose, the Audit Committee performs several
functions. The Audit Committee evaluates the performance of and
assesses the qualifications of the independent registered public
accounting firms; determines and approves the engagement of the
independent registered public accounting firms; determines
whether to retain or terminate the existing independent
registered public accounting firm or to appoint and engage a new
independent registered public accounting firm; reviews and
approves the retention of the independent registered public
accounting firm to perform any proposed permissible non-audit
services; monitors the rotation of partners of the independent
registered public accounting firm on the Companys audit
engagement team as required by law; confers with management and
the independent registered public accounting firm regarding the
effectiveness of internal controls over financial reporting;
establishes procedures, as required under applicable law, for
the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls
or auditing matters and the confidential and anonymous
submission by employees of concerns regarding questionable
accounting or auditing matters; and meets to review the
companys annual audited financial statements and quarterly
financial statements with management and the independent
registered public accounting firm, including reviewing the
Companys disclosures under Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Three directors comprise the Audit Committee:
Messrs. Parker (Chairman) and Dullum and Ms. English.
The Audit Committee met eight times during the fiscal year.
8
The Board of Directors annually reviews the Nasdaq listing
standards definition of independence for Audit Committee members
and has determined that all members of the Companys Audit
Committee are independent (as independence is currently defined
in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq
listing standards). The Board of Directors has determined that
each of Messrs. Parker and Dullum and Ms. English
qualifies as an audit committee financial expert, as
defined in applicable SEC rules.
Compensation Committee
The Compensation Committee of the Board of Directors reviews and
approves the overall compensation strategy and policies for the
Company. The Compensation Committee reviews and approves
corporate performance goals and objectives relevant to the
compensation of the Companys executive officers and other
senior management, negotiates the terms of the Companys
advisory agreement with Gladstone Management Corporation (the
Adviser), recommends to the Board for approval the
compensation and other terms of employment of the Companys
Chief Executive Officer; recommends to the Board for approval
the compensation and other terms of employment of the other
executive officers; and administers the Companys 2003
Equity Incentive Plan (as amended, the 2003 Plan).
Three directors comprise the Compensation Committee:
Messrs. Dullum (Chairman), Parker and Outland. All members
of the Companys Compensation Committee are independent (as
independence is currently defined in Rule 4200(a)(15) of
the Nasdaq listing standards). The Compensation Committee met
eight times during the fiscal year ended December 31, 2004.
Ethics, Nominating and Corporate Governance Committee
The Ethics, Nominating and Corporate Governance Committee of the
Board of Directors is responsible for identifying, reviewing and
evaluating candidates to serve as directors of the Company
(consistent with criteria approved by the Board), reviewing and
evaluating incumbent directors, recommending to the Board for
selection candidates for election to the Board of Directors,
making recommendations to the Board regarding the membership of
the committees of the Board, assessing the performance of the
Board, and developing a set of corporate governance principles
for the Company. The Companys Ethics, Nominating and
Corporate Governance Committee charter can be found on the
Companys corporate website at
www.GladstoneCommercial.com. Two directors comprise the
Ethics, Nominating and Corporate Governance Committee: Messrs.
Adelgren (Chairman) and Coulon. All members of the Ethics,
Nominating and Corporate Governance Committee are independent
(as independence is currently defined in Rule 4200(a)(15)
of the Nasdaq listing standards). The Ethics, Nominating and
Corporate Governance Committee met eight times during the fiscal
year.
The Ethics, Nominating and Corporate Governance Committee
believes that candidates for director should have certain
minimum qualifications, including being able to read and
understand basic financial statements, being over 21 years of
age and having the highest personal integrity and ethics. The
Ethics, Nominating and Corporate Governance Committee also
intends to consider such factors as possessing relevant
expertise upon which to be able to offer advice and guidance to
management, having sufficient time to devote to the affairs of
the Company, demonstrated excellence in his or her field, having
the ability to exercise sound business judgment and having the
commitment to rigorously represent the long-term interests of
the Companys stockholders. However, the Ethics, Nominating
and Corporate Governance Committee retains the right to modify
these qualifications from time to time. Candidates for director
nominees are reviewed in the context of the current composition
of the Board, the operating requirements of the Company and the
long-term interests of stockholders. In conducting this
assessment, the Ethics, Nominating and Corporate Governance
Committee considers diversity, age, skills, and such other
factors as it deems appropriate given the current needs of the
Board and the Company, to maintain a balance of knowledge,
experience and capability. In the case of incumbent directors
whose terms of office are set to expire, the Ethics, Nominating
and Corporate Governance Committee reviews such directors
overall service to the Company during their term, including the
number of meetings attended, level of participation, quality of
performance, and any other relationships and transactions that
might impair such directors independence. In the case of
new director candidates, the Ethics, Nominating and Corporate
Governance Committee also determines whether the nominee must be
independent for Nasdaq purposes, which determination is based
upon applicable Nasdaq
9
listing standards, applicable SEC rules and regulations and the
advice of counsel, if necessary. The Ethics, Nominating and
Corporate Governance Committee then uses its network of contacts
to compile a list of potential candidates, but may also engage,
if it deems appropriate, a professional search firm. The Ethics,
Nominating and Corporate Governance Committee conducts any
appropriate and necessary inquiries into the backgrounds and
qualifications of possible candidates after considering the
function and needs of the Board. The Ethics, Nominating and
Corporate Governance Committee meets to discuss and consider
such candidates qualifications and then selects a nominee
for recommendation to the Board by majority vote. To date, the
Ethics, Nominating and Corporate Governance Committee has not
paid a fee to any third party to assist in the process of
identifying or evaluating director candidates. To date, the
Ethics, Nominating and Corporate Governance Committee has not
rejected a timely director nominee from a stockholder or
stockholders holding more than 5% of the Companys voting
stock.
The Ethics, Nominating and Corporate Governance Committee will
consider director candidates recommended by stockholders. The
Ethics, Nominating and Corporate Governance Committee does not
intend to alter the manner in which it evaluates candidates,
including the minimum criteria set forth above, based on whether
the candidate was recommended by a stockholder or not.
Stockholders who wish to recommend individuals for consideration
by the Ethics, Nominating and Corporate Governance Committee to
become nominees for election to the Board may do so by
delivering a written recommendation to the Ethics, Nominating
and Corporate Governance Committee at the address set forth on
the cover page of this proxy statement. Recommendations for
individuals to be considered nomination at the 2006 Annual
Meeting must be received by September 30, 2005.
Recommendations received after September 30, 2005 will be
considered for nomination at the 2007 annual meeting.
Submissions must include the full name of the proposed nominee,
a description of the proposed nominees business experience
for at least the previous five years, complete biographical
information, a description of the proposed nominees
qualifications as a director and a representation that the
nominating stockholder is a beneficial or record owner of the
Companys stock. Any such submission must be accompanied by
the written consent of the proposed nominee to be named as a
nominee and to serve as a director if elected.
Meetings Of The Board Of Directors
The Board of Directors met eight times during the last fiscal
year. Each director attended 75% or more of the aggregate of the
meetings of the Board of Directors and of the committees on
which he or she served, held during the period for which he or
she was a director or committee member.
Stockholder Communications With The Board Of Directors
The Companys Board has adopted a formal process by which
stockholders may communicate with the Board or any of its
directors. This information is available on the Companys
website at www.GladstoneCommercial.com.
Code Of Ethics
The Company has adopted the Gladstone Commercial Corporation
Code of Business Conduct and Ethics that applies to all
officers, directors and employees. The Code of Business Conduct
and Ethics is available on the Companys website at
www.GladstoneCommercial.com. If the Company makes any
substantive amendments to the Code of Business Conduct and
Ethics or grants any waiver from a provision of the Code to any
executive officer or director, the Company will promptly
disclose the nature of the amendment or waiver on its website.
10
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS1
The Audit Committee
The Audit Committee of the Board of Directors consists of the
three non-employee directors named below. Each member of the
Audit Committee is an independent director as defined by the
current and proposed Nasdaq listing standards and the
Companys own standards. In addition, the Board of
Directors has unanimously determined that all members of the
Audit Committee qualify as audit committee financial
experts within the meaning of the Securities and Exchange
Commission regulations. The Board of Directors has unanimously
determined that all Audit Committee members are financially
literate under current Nasdaq listing standards and at least one
member has financial management expertise. The Audit Committee
is primarily responsible for oversight of the Companys
financial statements and controls, assessing and ensuring the
independence, qualifications and performance of the independent
registered public accounting firm, approving the independent
registered public accounting firm services and fees and
reviewing and approving the annual audited financial statements
for the Company before issuance, subject to Board of Directors
approval. No members of the Audit Committee received any
compensation from the Company during the last fiscal year other
than directors fees.
Committee Report
The following is the report of the Audit Committee with respect
to the Companys audited financial statements for the
fiscal year ended December 31, 2004.
The Audit Committee has reviewed and discussed the
Companys audited financial statements with management and
PricewaterhouseCoopers LLP, the Companys independent
registered public accounting firm, with and without management
present. The Audit Committee included in its review results of
the independent registered public accounting firms
examinations, the Companys internal controls, and the
quality of the Companys financial reporting. The Audit
Committee also reviewed the Companys procedures and
internal control processes designed to ensure full, fair and
adequate financial reporting and disclosures, including
procedures for certifications by the Companys chief
executive officer and chief financial officer that are required
in periodic reports filed by the Company with the Securities and
Exchange Commission. The Audit Committee is satisfied that the
Companys internal control system is adequate and that the
Company employs appropriate accounting and auditing procedures.
The Audit Committee also has discussed with
PricewaterhouseCoopers LLP matters relating to the independent
registered public accounting firms judgments about the
quality, as well as the acceptability, of the Companys
accounting principles as applied in its financial reporting as
required by Statement of Auditing Standards No. 61
(Communications with Audit Committees). In addition, the Audit
Committee has discussed with PricewaterhouseCoopers their
independence from management and the Company, as well as the
matters in the written disclosures received from
PricewaterhouseCoopers and required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit
Committees). The Audit Committee received a letter from
PricewaterhouseCoopers confirming their independence and
discussed it with them. The Audit Committee discussed and
reviewed with PricewaterhouseCoopers the Companys critical
accounting policies and practices, internal controls, other
material written communications to management, and the scope of
PricewaterhouseCoopers audits and all fees paid to
PricewaterhouseCoopers during the fiscal year. The Audit
Committee adopted guidelines requiring review and pre-approval
by the Audit Committee of audit and non-audit services performed
by PricewaterhouseCoopers for the Company. The Audit Committee
has reviewed and considered the compatibility of
PricewaterhouseCoopers performance of non-audit services
with the maintenance of PricewaterhouseCoopers
independence as the Companys independent registered public
accounting firm.
|
|
1 |
The material in this report is not soliciting
material, is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of
the Company under the 1933 Act or 1934 Act, whether made before
or after the date hereof and irrespective of any general
incorporation language |
contained in such filing.
11
Based on the Audit Committees review and discussions
referred to above, the Audit Committee recommended to the Board
of Directors that the Companys audited financial
statements be included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2004 for
filing with the Securities and Exchange Commission. In addition,
the Audit Committee has engaged PricewaterhouseCoopers LLP to
serve as the Companys independent registered public
accounting firm for the fiscal year ending December 31,
2005.
|
|
|
Submitted by the Audit Committee |
|
|
Anthony Parker, Chairperson |
|
|
Michela English |
|
|
David A. R. Dullum |
Relationship with Independent Registered Public Accounting
Firm
The audit committee of the Board of Directors has selected
PricewaterhouseCoopers, LLP (PWC) as the
Companys independent registered public accounting firm to
audit the Companys financial statements for fiscal year
2005. Representatives of PWC are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate
questions. PWC is the largest registered public accounting firm
in the world. Given PWCs experience and presence in the
accounting profession, the Companys audit committee
(composed entirely of independent directors) and the
Companys full Board of Directors determined that it was
not necessary to submit the selection of PWC as the
Companys independent registered public accounting firm to
the stockholders for ratification. If the Board of Directors or
the audit committee has any significant question as to
PWCs ability to serve as the Companys independent
registered public accounting firm, the audit committee would
either seek to engage another accounting firm or, if the
committee nevertheless elects to retain PWC as the
Companys independent registered public accounting firm,
the Board of Directors would seek ratification of the selection
of PWC by the Companys stockholders.
Independent Registered Public Accounting Firms Fees
The following table represents aggregate fees billed to the
Company for the period from its inception through
December 31, 2003 and for the fiscal year ended
December 31, 2004 by PricewaterhouseCoopers LLP, the
Companys independent registered public accounting firm.
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Audit Fees
|
|
$ |
280,000 |
|
|
$ |
111,700 |
|
Audit-related Fees
|
|
|
22,500 |
|
|
|
0 |
|
Tax Fees
|
|
|
19,214 |
|
|
|
5,600 |
|
All Other Fees
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
$ |
321,714 |
|
|
$ |
117,300 |
|
|
|
|
|
|
|
|
All fees described above were approved by the Audit Committee.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by the
Companys independent registered public accounting firm,
PricewaterhouseCoopers LLP. The policy generally pre-approves
specified services in the defined categories of audit services,
audit-related services, and tax services up to specified
amounts. Pre-approval may also be given as part of the Audit
Committees approval of the scope of the engagement of the
independent registered public accounting firm or on an
individual explicit case-by-case basis before the independent
registered public accounting firm is engaged to provide each
service. The pre-approval of services may be delegated to one or
more of the Audit
12
Committees members, but the decision must be reported to
the full Audit Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of the
services other than audit services by PricewaterhouseCoopers LLP
is compatible with maintaining the independent registered public
accounting firms independence.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Companys common stock as of April 4,
2005 by: (i) each director and nominee for director;
(ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and
directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five
percent of its common stock.
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership(1) | |
|
|
| |
Beneficial Owner |
|
Number of Shares | |
|
Percent of Total | |
|
|
| |
|
| |
Prudential Financial, Inc.(2)
|
|
|
530,400 |
|
|
|
6.9 |
% |
|
715 Broad Street
|
|
|
|
|
|
|
|
|
|
Newark, NJ 071202
|
|
|
|
|
|
|
|
|
Persons associated with CF Advisors, LLC(3)
|
|
|
494,000 |
|
|
|
6.44 |
% |
|
666 5th Avenue, 34th Floor
|
|
|
|
|
|
|
|
|
|
New York, NY 10103
|
|
|
|
|
|
|
|
|
Capital Research and Management Company(4)
|
|
|
453,000 |
|
|
|
5.9 |
% |
|
333 South Hope Street
|
|
|
|
|
|
|
|
|
|
Los Angeles, CA 90071
|
|
|
|
|
|
|
|
|
Fairholme Capital Management, LLC(5)
|
|
|
400,000 |
|
|
|
5.2 |
% |
|
51 JFK Parkway
|
|
|
|
|
|
|
|
|
|
Short Hills, NJ 07078
|
|
|
|
|
|
|
|
|
Avenir Corporation
|
|
|
387,890 |
|
|
|
5.1 |
% |
|
1725 K St., NW, Suite 401
|
|
|
|
|
|
|
|
|
|
Washington, DC 20006
|
|
|
|
|
|
|
|
|
David Gladstone(6)
|
|
|
353,442 |
|
|
|
4.4 |
% |
Terry Lee Brubaker(7)
|
|
|
118,320 |
|
|
|
1.5 |
% |
George Stelljes, III(8)
|
|
|
101,000 |
|
|
|
1.3 |
% |
Harry Brill(9)
|
|
|
25,000 |
|
|
|
* |
|
David A.R. Dullum(10)
|
|
|
10,000 |
|
|
|
* |
|
Michela A. English(11)
|
|
|
6,022 |
|
|
|
* |
|
Anthony W. Parker(12)
|
|
|
12,123 |
|
|
|
* |
|
Paul W. Adelgren(13)
|
|
|
5,000 |
|
|
|
* |
|
Maurice W. Coulon(14)
|
|
|
6,000 |
|
|
|
* |
|
John H. Outland(15)
|
|
|
5,000 |
|
|
|
* |
|
All executive officers and directors as a group
(10 persons)(16)
|
|
|
641,907 |
|
|
|
7.9 |
% |
|
|
|
|
* |
Less than one percent. |
|
|
(1) |
This table is based upon information supplied by officers,
directors and principal stockholders and Schedules 13D and 13G
filed with the Securities and Exchange Commission (the
SEC). Unless otherwise indicated in the footnotes to
this table and subject to community property laws where
applicable, the Company believes that each of the stockholders
named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
Applicable percentages are based on 7,667,000 shares outstanding
on April 4, 2005, adjusted as required by rules promulgated
by the SEC. |
13
|
|
|
|
(2) |
According to a Schedule 13G filed by Jennison Associates
LLC on February 11, 2005, these shares are held by investment
companies, insurance separate accounts, and institutional
clients advised by Jennison Associates LLC, a wholly-owned
subsidiary of Prudential Financial, Inc. Jennison Associates LLC
disclosed on the same Schedule 13G that it has sole voting
and investment power with respect to all 530,000 shares.
However, on the Schedule 13G filed by Prudential Financial,
Inc. on February 14, 2005, Prudential Financial, Inc.
disclosed that it has sole voting and investment power with
respect to 175,000 of these shares, and shares voting and
investment power with Jennison Associates with respect to the
remaining 355,400 shares. |
|
|
(3) |
According to a Schedule 13G filed jointly by CF Advisors,
LLC, A. Alex Porter, Paul Orlin, Geoffrey Hulme, and Jonathan W.
Friedland on February 14, 2005, CF Advisors, LLC shares
voting and investment power with Messrs. Porter, Orlin, Hulme,
and Friedland with respect to these shares. |
|
|
(4) |
According to a Schedule 13G filed jointly by Capital
Research and Management Company and Smallcap World Fund, Inc. on
February 14, 2005, sole voting power with respect to these
shares is held by Smallcap World Fund, Inc., and sole investment
power with respect to these shares is held by Capital Research
and Management Company. |
|
|
(5) |
According to a Schedule 13G filed jointly by Fairholme
Capital Management, L.L.C. and Bruce Berkowitz on
February 4, 2004, these shares are held by various
investment vehicles managed by Fairholme Capital Management.
Mr. Berkowitz is deemed to have beneficial ownership of
these shares because he holds voting and dispositive power over
all shares beneficially owned by Fairholme Capital Management. |
|
|
(6) |
Includes 200,000 shares issuable upon exercise of options held
by Mr. Gladstone that are currently exercisable. |
|
|
(7) |
Includes 100,000 shares issuable upon exercise of options held
by Mr. Brubaker that are currently exercisable, and 12,500
shares owned by Mr. Brubakers spouse with respect to
which Mr. Brubaker disclaims beneficial ownership. |
|
|
(8) |
Includes 100,000 shares issuable upon exercise of options held
by Mr. Stelljes that are currently exercisable. |
|
|
(9) |
Includes 25,000 shares issuable upon exercise of options held by
Mr. Brill that are currently exercisable. |
|
|
(10) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. Dullum that are currently exercisable. |
|
(11) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. English that are currently exercisable. |
|
(12) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. Parker that are currently exercisable. |
|
(13) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. Adelgren that are currently exercisable. |
|
(14) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. Coulon that are currently exercisable. |
|
(15) |
Includes 5,000 shares issuable upon exercise of options held by
Mr. Outland that are currently exercisable. |
|
(16) |
Includes 455,000 shares issuable upon exercise of options held
by the Companys directors and executive officers (as
described more fully in footnotes (6) through (15)
above, and 12,500 shares owned by Mr. Brubakers
spouse with respect to which Mr. Brubaker disclaims
beneficial ownership (as described in footnote (7) above). |
14
Section 16(A) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
1934 Act) requires the Companys directors and
executive officers, and persons who own more than ten percent of
a registered class of the Companys equity securities, to
file with the SEC initial reports of ownership and reports of
changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Companys knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended December 31, 2004, all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
Compensation of Directors
As compensation for serving on the Companys Board of
Directors, each of the Companys independent directors will
receive an annual fee of $10,000 and an additional $1,000 for
each Board of Directors meeting attended, and an additional
$1,000 for each committee meeting attended if such committee
meeting takes place on a day other than when the full Board of
Directors meets. In addition, the Company reimburses its
directors for their reasonable out-of-pocket expenses incurred
in attending Board of Directors and committee meetings. Upon
joining the Board of Directors, each independent director
receives a non-qualified option to purchase 10,000 shares of
common stock having an exercise price equal to the quoted price
of the Companys common stock on the Nasdaq National Market
on the date of grant. At the time of each Annual Meeting of the
Companys stockholders following his or her appointment,
each incumbent independent director will receive an additional
non-qualified option to purchase 10,000 shares of common stock
with an exercise price equal to the fair market value of the
common stock on the date of grant. All options granted to
independent directors will vest in two equal annual installments
beginning one year from the date of grant.
The Company does not pay any compensation to directors who also
serve as its officers, or as officers or directors of the
Adviser, in consideration for their service as directors of the
Company. The Companys Board of Directors may change the
compensation of independent directors in its discretion. None of
the Companys independent directors received any
compensation from the Company during the fiscal year ended
December 31, 2004 other than for Board of Directors or
committee service.
Compensation of Executive Officers
The following table shows, for the period from the
Companys inception on February 14, 2003 to
December 31, 2003, and for the fiscal year ended
December 31, 2004, compensation awarded or paid to, or
earned by, the Companys chief executive officer and each
of the Companys other executive officers at
December 31, 2004 (the Named Executive
Officers) for all services rendered to the Company during
these periods. The Named Executive Officers are employees of the
Adviser, Gladstone Management Corporation. Under the terms of an
advisory agreement with the Adviser, the Company reimburses the
Adviser for the Companys pro rata share of the
Advisers payroll and benefits expenses on an
employee-by-employee basis, based on the percentage of each
employees time devoted to the Companys matters. For
additional information regarding this arrangement, see
Advisory Agreement and Certain
Transactions. The salary amounts set forth in the table
below represent payments made to the Named Executive Officer in
respect of services rendered to the Company through the Adviser
and do not represent the total salary earned by the Named
Executive Officers during the period (e.g., amounts paid to the
Named Executive Officer for services rendered to Gladstone
Capital, etc.):
15
|
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|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities | |
|
|
Name and |
|
|
|
|
|
|
|
Other Annual | |
|
Underlying | |
|
All Other | |
Principal Position |
|
Year | |
|
Salary ($) | |
|
Bonus ($) | |
|
Compensation ($) | |
|
Options | |
|
Compensation ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
David Gladstone
|
|
|
2004 |
|
|
$ |
88,833 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
Chief Executive Officer(1)
|
|
|
2003 |
|
|
$ |
44,500 |
|
|
$ |
0 |
|
|
$ |
1,335 |
|
|
|
200,000 |
|
|
$ |
0 |
|
Terry Lee Brubaker
|
|
|
2004 |
|
|
$ |
28,511 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
30,000 |
|
|
$ |
0 |
|
|
President, Chief Operating
|
|
|
2003 |
|
|
$ |
14,234 |
|
|
$ |
0 |
|
|
$ |
427 |
|
|
|
100,000 |
|
|
$ |
0 |
|
|
Officer and Secretary(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Stelljes III
|
|
|
2004 |
|
|
$ |
61,636 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
30,000 |
|
|
$ |
0 |
|
|
Executive Vice President
|
|
|
2003 |
|
|
$ |
17,417 |
|
|
$ |
0 |
|
|
$ |
522 |
|
|
|
100,000 |
|
|
$ |
0 |
|
|
and Chief Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry Brill
|
|
|
2004 |
|
|
$ |
37,427 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
10,000 |
|
|
$ |
0 |
|
|
Chief Financial Officer(4)
|
|
|
2003 |
|
|
$ |
13,937 |
|
|
$ |
0 |
|
|
$ |
416 |
|
|
|
25,000 |
|
|
$ |
0 |
|
|
|
(1) |
Represents approximately 44% of Mr. Gladstones total
salary for the fiscal year ended December 31, 2004 (as
Mr. Gladstone devoted approximately 44% of his time to the
Companys matters during the fiscal year ended
December 31, 2004); and approximately 45% of
Mr. Gladstones total salary for six months ended
December 31, 2003 (as Mr. Gladstone devoted
approximately 45% of his time to the Companys matters
during the six months ended December 31, 2003). No amounts
were paid to Mr. Gladstone in respect of any services
rendered to the Company prior to July 1, 2003.
Mr. Gladstones current base annual salary from the
Adviser is $200,000. |
|
(2) |
Represents approximately 13% of Mr. Brubakers total
salary for the fiscal year ended December 31, 2004 (as
Mr. Brubaker devoted approximately 13% of his time to the
Companys matters during the fiscal year ended
December 31, 2004); and approximately 14% of
Mr. Brubakers total salary for the six months ended
December 31, 2003 (as Mr. Brubaker devoted
approximately 14% of his time to the Companys matters
during the six months ended December 31, 2003. No amounts
were paid to Mr. Brubaker in respect of services rendered
to the Company prior to July 1, 2003. Mr. Brubakers
current base annual salary from the Adviser is $235,000. |
|
(3) |
Represents approximately 28% of Mr. Stelljes total
salary for the fiscal year ended December 31, 2004 (as
Mr. Stelljes devoted approximately 28% of his time to the
Companys matters during the fiscal year ended December 31,
2004); and approximately 17% of Mr. Stelljes total
salary for the six months ended December 31, 2003 (as
Mr. Stelljes devoted approximately 17% of his time to the
Companys matters during the six months ended December 31,
2003). No amounts were paid to Mr. Stelljes in respect of
services rendered to the Company prior to July 1, 2003.
Mr. Stelljes current base annual salary from the
Adviser is $235,000. |
|
(4) |
Represents approximately 29% of Mr. Brills total
salary for the fiscal year ended December 31, 2004 (as
Mr. Brill devoted approximately 29% of his time to the
Companys matters during the fiscal year ended December 31,
2004); and approximately 25% of Mr. Brills total
salary for the six months ended December 31, 2003 (as
Mr. Brill devoted approximately 25% of his time to the
Companys matters during the six months ended
December 31, 2003). No amounts were paid to Mr. Brill
in respect of any services rendered to the Company prior to
July 1, 2003. Mr. Brills current base annual
salary from the Adviser is $135,000. |
Stock Option Grants And Exercises
The Company grants options to its executive officers under the
2003 Plan. The Company adopted the 2003 Plan on June 10,
2003 for the purpose of attracting and retaining the services of
executive officers, directors and other key employees. As of
April 4, 2005, options to purchase a total of 865,000
shares were outstanding under the 2003 Plan and options to
purchase 70,000 shares remained available for grant under the
2003 Plan.
Under the 2003 Plan, the Compensation Committee may award to
employees, including those of the Adviser, incentive stock
options within the meaning of Section 422 of the Internal
Revenue Code, or ISOs,
16
and nonstatutory stock options to employees, non-employee
directors and certain consultants, including the Adviser and its
affiliates. In addition, the 2003 Plan permits the granting of
restricted stock.
Options granted under the 2003 Plan may be exercised for a
period of no more than ten years from the date of grant or, in
the case of ISOs granted to any recipient who owns, or is
treated as owning, under Section 424(d) of the Internal
Revenue Code, more than 10% of the total combined voting power
of the Companys stock, no more than five years from the
date of grant. No awards may be granted under the 2003 Plan to
any person who, assuming exercise or settlement of all options
and rights held by such person, would own or be deemed to own
more than 9.8% of the outstanding shares of the Companys
capital stock without approval of the Board of Directors. Unless
sooner terminated by the Board of Directors, the 2003 Plan will
terminate on June 9, 2013, and no additional awards may be
made under the 2003 Plan after that date.
Options granted under the 2003 Plan will entitle the optionee,
upon exercise, to purchase shares of common stock from the
Company at a specified exercise price per share. ISOs must have
a per share exercise price of no less than the fair market value
of a share of common stock on the date of the grant or, if the
optionee owns or is treated as owning, under Section 424(d)
of the Internal Revenue Code, more than 10% of the total
combined voting power of all classes of the Companys
stock, no less than 110% of the fair market value of a share of
common stock on the date of the grant. Nonstatutory stock
options granted under the 2003 Plan must have a per share
exercise price of no less than 85% of the fair market value of a
share of common stock on the date of the grant. Options will not
be transferable other than by laws of descent, distribution and,
in the case of nonstatutory stock options, assignment or grant
to a trust, individual retirement account or pension plan that
is for the benefit of the optionee.
The Compensation Committee administers the 2003 Plan and has the
authority, subject to the provisions of the 2003 Plan, to
determine who will receive awards under the 2003 Plan and the
terms of such awards. The Compensation Committee has the
authority to adjust the number of shares available for options,
the number of shares subject to outstanding options and the
exercise price for options following the occurrence of events
such as stock splits, cash or stock dividends, distributions and
recapitalizations.
If authorized by the Compensation Committee, the exercise price
of an option may be paid in the form of shares of common stock
that are already owned by a participant. In addition, the
Compensation Committee may permit, when appropriate, a
cashless exercise arrangement whereby an optionee
may exercise a portion of his or her option by surrendering a
portion of the shares subject to his or her option having a fair
value equal to the aggregate exercise price of the portion of
the option being exercised. If an optionee elects to make a
cashless exercise of a portion of his or her option, he or she
will receive upon such exercise shares having an aggregate fair
market value equal to the product of (1) the excess of the
fair market value of a share of common stock on the exercise
date over the exercise price and (2) the number of shares
covered by the portion of the option being exercised. The 2003
Plan provides that if a stock option is not exercised and the
option expires for any reason, then the shares of common stock
subject to the option will be available for reissuance under the
2003 Plan.
Participants in the 2003 Plan are eligible to receive grants of
restricted stock. These shares may be subject to a time-based
vesting schedule or the attainment of performance goals
established by the Compensation Committee. Restricted stock may
be sold or may be issued for no cash consideration as determined
by the Compensation Committee. Upon a participants
termination of service with the Company, the Company may have
the option to repurchase or reclaim the unvested shares of stock
at the original purchase price paid by a participant for such
shares, if any. The specific terms and conditions of the
restricted stock purchases shall be governed by the 2003 Plan
and individual agreements in a form approved by the Compensation
Committee. Restricted stock acquired under the 2003 Plan is
transferable if so determined by the Compensation Committee in
its discretion. As of April 4, 2005, the Company has not issued
any shares of restricted stock.
Upon specified corporate transactions, as defined in the 2003
Plan, all outstanding stock options and restricted stock under
the 2003 Plan may either be assumed or new awards may be
substituted by the successor or surviving entity. If the
surviving entity does not assume or substitute similar awards,
the vesting of awards held by the participants whose continuous
service has not terminated prior to the closing date of the
corporate transaction will be accelerated in full and then
terminated to the extent not exercised, if appropriate,
17
prior to the closing date of the corporate transaction. With
respect to any other awards which are not assumed or substituted
and which are held by participants whose continuous service has
terminated on or prior to the closing date of the corporate
transaction, such awards will not be accelerated unless
otherwise provided in a written agreement between the Company
and the participant and approved by the Compensation Committee.
Upon a corporate transaction that constitutes a change in
control, as defined in the 2003 Plan, awards of stock options
and restricted stock held by participants whose continuous
service has not terminated prior to the date of the change in
control will be entitled to additional acceleration of vesting,
but only to the extent as provided in any written agreement
between the Company and the participant and approved by the
Compensation Committee.
The following tables show for the fiscal year ended
December 31, 2004, certain information regarding options
granted to, exercised by, and held at year end by, the Named
Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable | |
|
|
Individual Grants | |
|
|
|
|
|
Value at Assumed | |
|
|
| |
|
|
|
|
|
Annual Rates of Stock | |
|
|
Number of | |
|
% of Total Options | |
|
|
|
|
|
Price Appreciation for | |
|
|
Securities | |
|
Granted to | |
|
|
|
|
|
Option Term(1) | |
|
|
Underlying Options | |
|
Employees in Fiscal | |
|
Exercise Or Base | |
|
Expiration | |
|
| |
Name |
|
Granted (#) | |
|
Year | |
|
Price ($/Sh) | |
|
Date | |
|
5% ($) | |
|
10% ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mr. Gladstone
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Mr. Brubaker
|
|
|
30,000 |
|
|
|
11.1 |
% |
|
$ |
16.10 |
|
|
|
6/8/2014 |
|
|
$ |
303,756 |
|
|
$ |
769,778 |
|
Mr. Stelljes
|
|
|
30,000 |
|
|
|
11.1 |
% |
|
$ |
16.10 |
|
|
|
6/8/2014 |
|
|
$ |
303,756 |
|
|
$ |
769,778 |
|
Mr. Brill
|
|
|
10,000 |
|
|
|
3.7 |
% |
|
$ |
16.10 |
|
|
|
6/8/2014 |
|
|
$ |
101,252 |
|
|
$ |
256,593 |
|
|
|
(1) |
The potential realizable value is based on the term of the
option at the time of its grant (10 years). It is
calculated by assuming that the stock price on the date of the
grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option
is exercised and the underlying shares sold on the last day of
its term for the appreciated stock price. The amounts represent
certain assumed rates of appreciation only, in accordance with
the rules of the SEC, and do not reflect the Companys
estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of
the Companys common stock and no gain to the optionee is
possible unless the stock price appreciates over the option
term, which will benefit all stockholders. |
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
|
|
Underlying | |
|
Value of Unexercised | |
|
|
|
|
|
|
Unexercised | |
|
In-the-Money | |
|
|
|
|
|
|
Options/ SARs at | |
|
Options/ SARs at | |
|
|
|
|
|
|
FY-End (#) | |
|
FY-End ($) | |
|
|
Shares Acquired | |
|
Value | |
|
Exercisable/ | |
|
Exercisable/ | |
Name |
|
on Exercise (#) | |
|
Realized ($)(1) | |
|
Unexercisable | |
|
Unexercisable(2) | |
|
|
| |
|
| |
|
| |
|
| |
Mr. Gladstone
|
|
|
0 |
|
|
|
n/a |
|
|
|
200,000/0 |
|
|
|
$420,000/$0 |
|
Mr. Brubaker
|
|
|
0 |
|
|
|
n/a |
|
|
|
100,000/30,000 |
|
|
|
$210,000/$30,000 |
|
Mr. Stelljes
|
|
|
0 |
|
|
|
n/a |
|
|
|
100,000/30,000 |
|
|
|
$210,000/$30,000 |
|
Mr. Brill
|
|
|
0 |
|
|
|
n/a |
|
|
|
25,000/10,000 |
|
|
|
$52,500/$10,000 |
|
|
|
(1) |
Value realized is calculated as the closing market price on the
date of exercise, net of option exercise price, but before any
tax liabilities or transaction costs. |
|
(2) |
The value of unexercised options is calculated as the closing
market price on December 31, 2004 less the exercise price.
In-the-money options are those with an exercise
price that is less than the closing market price on
December 31, 2004. |
18
Equity Compensation Plan Information
The following table provides certain information with respect to
the 2003 Plan, which is the Companys only equity
compensation plan, as of December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities | |
|
|
|
|
|
|
remaining available | |
|
|
|
|
|
|
for issuance under | |
|
|
Number of securities to | |
|
Weighted-average | |
|
equity compensation | |
|
|
be issued upon exercise | |
|
exercise price of | |
|
plans (excluding | |
|
|
of outstanding options, | |
|
outstanding options, | |
|
securities reflected | |
|
|
warrants and rights | |
|
warrants and rights | |
|
in column (a)) | |
Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
865,000 |
|
|
$ |
15.39 |
|
|
|
70,000 |
|
Equity compensation plans not approved by security holders
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Total
|
|
|
865,000 |
|
|
$ |
15.39 |
|
|
|
70,000 |
|
Employment Agreements
Because the Companys executive officers are employees of
the Adviser, the Company does not pay cash compensation to them
directly in return for their services to the Company. However,
the Companys executive officers and other officers,
employees and personnel of the Adviser who spend time on matters
related to the Company continue to be eligible to receive awards
under the 2003 Plan. Pursuant to the terms of an advisory
agreement between the Company and the Adviser, the Company
reimburses the Adviser for the Companys pro rata share of
the Advisers employee payroll and benefits expenses on an
employee-by-employee basis, based on the percentage of each
employees time devoted to the Companys matters. For
additional information regarding this arrangement, see
Advisory Agreement under Certain
Transactions.
Messrs. Gladstone, Brubaker and Stelljes have entered into
employment agreements with the Adviser as senior executive
officers of the Adviser. Summarized below are certain material
terms of Messrs. Gladstone, Brubaker and Stelljes
current employment agreements.
Each of the employment agreements of Messrs. Gladstone,
Brubaker and Stelljes provides for a term through April 22,
2007 that will be extended for successive periods of one year
unless the Adviser gives the senior executive officer three
months prior written notice of its intention to terminate
the agreement without cause. Messrs. Gladstone, Brubaker
and Stelljes each have the right to terminate their respective
employment agreement at any time by giving the Adviser three
months prior written notice.
The employment agreements of Messrs. Gladstone, Brubaker
and Stelljes provide for a base salary of $200,000. The
Advisers Board of Directors has the right to increase
their base salaries and also, generally, to decrease them, but
not below $200,000. Currently, the base salary of
Mr. Gladstone is $200,000, and the base salaries of
Messrs. Brubaker and Stelljes have been set at $235,000.
The employment agreements provide that each of
Messrs. Gladstone, Brubaker and Stelljes is entitled to
receive a cash bonus of up to 100% of his base salary based upon
a determination by the Advisers Board of Directors. Each
of Messrs. Gladstone, Brubaker and Stelljes is also
entitled to participate in the 2003 Plan. However,
Mr. Gladstone has voluntarily agreed not to accept any
additional options from the Company.
If the Adviser should terminate the employment of
Messrs. Gladstone, Brubaker or Stelljes each would be
subject to certain non-compete covenants. These covenants would
generally apply for one year. During periods when
Messrs. Gladstone, Brubaker or Stelljes are entitled to
receive severance payments from the Adviser, they may terminate
these covenants prohibiting competition by forgoing such
severance payments.
Each of the employment agreements also provides that the officer
will maintain the confidentiality of the Companys
confidential information during and after the period of his
employment.
Pursuant to the terms of the advisory agreement between the
Company and the Adviser, the Companys Board of Directors
has the exclusive right to: (i) grant stock compensation to
the senior executive officers;
19
(ii) hire, fire and control the activities of the senior
executive officers in connection with and to the extent of their
services to the Company; (iii) determine the economic value
of the services performed by the senior executive officers to
the Company; and (iv) remit funds to cover the complete
compensation of the senior executive officers providing services
to the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
ON EXECUTIVE
COMPENSATION2
The Compensation Committee (the Committee) is
responsible for the oversight of the Companys executive
compensation program. In this regard, the role of the Committee
is to assess all components of the total compensation of the
Companys executives to ensure that total compensation
reflects the Companys key strategic priorities of
attracting, retaining and rewarding executives who effectively
work to achieve the Companys business and investment
objectives. The Committees charter reflects this
responsibility, and the Committee and the Board of Directors
periodically review and revise the charter. The Committees
membership is determined by the Board of Directors and is
composed entirely of independent directors. The Committee meets
at scheduled times during the year, and it may also consider and
take action by written consent. The Committee Chairman reports
on Committee actions and recommendations at meetings of the
Board of Directors. Although it has not done so to date, the
Committee has the authority to engage the services of outside
advisers, experts and others to assist in fulfilling its
responsibilities. The current total compensation plan for the
Companys executive officers consists of the following
elements:
|
|
|
|
|
Base salary paid to executive officers by the Adviser; |
|
|
|
Bonuses paid to executive officers by the Adviser; and |
|
|
|
Long-term incentive compensation in the form of stock options
granted by the Company under the 2003 Plan. |
The Companys executive officers are salaried employees of
the Adviser. Pursuant to the terms of the advisory agreement
between the Company and the Adviser, the Company reimburses the
Adviser for its pro rata share of the Advisers payroll and
benefits expenses on an employee-by-employee basis, based on the
percentage of time that its personnel spend on the
Companys matters. The Committee fulfills its
responsibility to assess the base salary and bonus components of
compensation paid to executive officers by periodically
reviewing and approving those portions of the salaries and
bonuses paid by the Adviser to the Companys executive
officers that are borne by the Company.
In addition, the Committee administers the 2003 Plan through
which the Companys executive officers may receive stock
option grants.
Compensation Philosophy
The Company depends on the management and analytical abilities
of the Companys executive officers for the Companys
long-term success and for the enhancement of the Companys
long-term stockholder value. Because of this dependence, the
Committee has a critical oversight role in ensuring that the
Companys compensation, whether paid pursuant to the
Companys advisory agreement, through awards under the 2003
Plan, or otherwise enables the Company and the Adviser to
attract, retain and reward the performance of executive officers
and employees whose substantial experience in investing and
lending will enable the Company to achieve its business and
investment objectives. The Company fulfills this role by:
|
|
|
|
|
ensuring that base salary paid to the Companys executive
officers, a portion of which the Company bears through
reimbursement of the Adviser pursuant to the advisory agreement,
is competitive with other leading financial services companies
with which the Company competes for talented investment
professionals; |
|
|
2 |
The material in this report is not soliciting
material, is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of
the Company under the 1933 Act or 1934 Act, whether
made before or after the date hereof and irrespective of any
general incorporation language contained in such filing. |
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ensuring that bonuses paid to the Companys executive
officers, a portion of which the Company bears through
reimbursement of the Adviser pursuant to the advisory agreement,
are sufficient to provide motivation to achieve the
Companys principal business and investment goals and to
bring total compensation to competitive levels; and |
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providing significant equity-based incentives to ensure that the
Companys executive officers are motivated over the long
term to achieve the Companys business and investment
objectives. |
Through its periodic review and approval of the Companys
advisory agreement, the Committee approves the portions of the
salaries and bonuses of the Companys executive officers
that are borne by the Company through the reimbursement of
payroll and benefits expenses to the Adviser under the advisory
agreement. The Committees reviews are conducted on at
least an annual basis and with sufficient frequency to determine
that the expenses incurred are in the best interests of the
Companys stockholders. The Committee is also responsible
for reviewing the performance of the Adviser and determining
whether the compensation paid to the Companys executive
officers is reasonable in relation to the nature and quality of
services performed and whether the provisions of the advisory
agreement are being satisfactorily performed. Specifically, the
Committee considers factors such as:
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the pay practices of the Adviser in relation to those of leading
financial services companies with which the Adviser competes to
attract and retain talented investment professionals; |
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the amount of the fees paid to the Adviser in relation to the
Companys size and the composition and performance of the
Companys investments; |
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the Advisers ability to hire, train, supervise and manage
new employees as needed to effectively manage the Companys
future growth; |
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the success of the Adviser in generating appropriate investment
opportunities; |
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rates charged to other investment entities by advisers
performing similar services; |
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additional revenues realized by the Adviser and its affiliates
through their relationship with the Company, whether paid by the
Company or by others with whom the Company does business; |
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the value of the Companys assets each quarter; |
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the quality and extent of service and advice furnished by the
Adviser and the performance of the Companys investment
portfolio; |
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the quality of the Companys portfolio relative to the
investments generated by the Adviser for its other
clients; and |
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the extent to which bonus expenses under the advisory agreement
reflect the Advisers achievement of the Companys
principal business and investment objectives of generating
income for the Companys stockholders in the form of
quarterly cash distributions that grow over time and increasing
the value of the Companys common stock. |
Long-term incentive compensation is realized through the grant
of stock options under the Companys 2003 Plan. Awards
under the 2003 Plan are generally subject to time-based vesting
to encourage the Companys executive officers to continue
their services to the Company. Grants are made at 100% of fair
market value on the date of grant.
Stock options require price appreciation of the Companys
common stock over the term of the options in order for executive
officers to receive any value, thus directly aligning the
interests of our executive officers with the interests of our
stockholders. The size of option grants to the Companys
executive officers is determined based on competitive practices
at leading companies in the finance industry and the
Companys
21
philosophy of significantly linking executive compensation with
stockholder interests. In determining the size of the grants,
the Committee also considers the Companys philosophy that
option grants give our executive officers significant equity
incentives to build long-term stockholder value.
In 2004 the Committee granted a total of 280,000 stock options,
of which 12,000 options granted to our employees were
subsequently forfeited upon termination of employment, that will
vest over a one-year period. Of this total, no options were
granted to David Gladstone, 30,000 options were granted to Terry
Lee Brubaker, 30,000 options were granted to George
Stelljes III, 10,000 options were granted to Harry Brill,
and 210,000 options were granted to other participants under the
2003 Plan. Such grants were intended to provide the incentive to
successfully maximize stockholder value over the next several
years. The Committee believes this approach creates an
appropriate focus on longer term objectives and promotes
retention of the Companys executive officers.
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Personal Benefits Policies |
Our executive officers are not entitled to operate under
different standards than other employees of the Adviser who work
on our behalf. The Adviser does not have programs for providing
personal benefit perquisites to executive officers, such as
permanent lodging, personal use of company vehicles, or
defraying the cost of personal entertainment or family travel.
The Advisers health care and other insurance programs are
the same for all of its eligible employees, including our
executive officers. We expect our executive officers to be
exemplars under our Code of Business Conduct and Ethics, which
are applicable to all employees of the Adviser who work on our
behalf.
Corporate Performance and Chief Executive Officer
Compensation
The amount of Mr. Gladstones base salary for the
fiscal year ended December 31, 2004 that was paid in
respect of services rendered to the Company through the Adviser
was $88,833. Mr. Gladstone declined to accept any bonus for
the year and insisted that his bonus be allocated to the other
employees of the Adviser. In approving the reimbursement of the
Companys portion of Mr. Gladstones salary under
the advisory agreement, the Committee took into account
(i) the percentage of time that Mr. Gladstone devoted
to the Companys matters; (ii) revenue growth;
(iii) increase in earnings per share;
(iv) Mr. Gladstones leadership in future growth
initiatives; and (v) Mr. Gladstones insistence
that his bonus be allocated to the other employees.
During the fiscal year ended December 31, 2004, the Company
achieved most of the Companys corporate objectives. The
Committee rated Mr. Gladstones individual performance
as above average.
Conclusion
We believe that the elements of our compensation program
individually and in the aggregate strongly support and reflect
the strategic priorities on which we have based our compensation
philosophy. A significant portion of the Companys
executive compensation program, and Mr. Gladstones
compensation, specifically, are contingent on the extent to
which the performance of the Company and the Adviser result in
the realization of the Companys business and investment
objectives, which realization is closely linked to increases in
long-term stockholder value. The Company remains committed to
this philosophy of paying for performance that increases
stockholder value. The Committee will continue its work to
ensure that this commitment is reflected in a total executive
compensation program that enables the Company to remain
competitive in the market for talented executives, recognizing
that the volatility of the Companys business may result in
highly variable compensation in future time periods.
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Submitted by the Compensation Committee |
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David A. R. Dullum, Chairperson |
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John H. Outland |
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Anthony W. Parker |
22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Compensation Committee consists of Messrs Parker, Dullum and
Outland, each of whom is an independent director under Nasdaq
rules. During the fiscal year ended December 31, 2004, no
executive officer of the Company served as a member of the
compensation committee or as a director of another entity, one
of whose executive officers served on the Compensation Committee.
PERFORMANCE MEASUREMENT
COMPARISON3
The following graph shows the total stockholder return of an
investment of $100 in cash on August 13, 2003, the first
day of trading of the Companys common stock for
(i) the Companys common stock, (ii) the
Standards & Poors 500 Index (the
S&P 500) and (iii) the NAREIT
Composite Index (the NAREIT Index). All values
assume reinvestment of the full amount of all dividends:
Comparison Cumulative Total Return on Investment
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August 13, 2003 |
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December 31, 2003 |
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December 31, 2004 |
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Gladstone Commercial Corporation
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$ |
100.00 |
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$ |
108.18 |
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$ |
112.97 |
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S&P 500
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$ |
100.00 |
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$ |
113.00 |
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$ |
123.16 |
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NAREIT Index
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$ |
100.00 |
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$ |
116.30 |
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$ |
151.67 |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advisory Agreement
The Company has entered into an advisory agreement with the
Adviser, pursuant to which the Adviser is responsible for
managing the Companys business on a day-to-day basis and
for identifying, evaluating, negotiating and consummating
investment transactions consistent with the Companys
investment criteria. In return for providing such services, the
Company reimburses the Adviser for certain expenses it incurs
related to management of the Companys activities. David
Gladstone, Terry Lee Brubaker, George Stelljes III and
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3 |
This Section is not soliciting material, is not
deemed filed with the SEC, and is not to be
incorporated by reference in any filing of the Company under the
1933 Act or the 1934 Act, whether made before or after the date
hereof and irrespective of any general incorporation language
contained in any such filing. |
23
Harry Brill are all officers and directors of the Adviser, and
David Gladstone is the controlling stockholder of the Adviser.
Although the Company believes that the terms of the advisory
agreement are no less favorable to the Company than those that
could be obtained from an unaffiliated third party in an
arms-length transaction, the Adviser, its officers and its
directors have a material interest in the terms of the advisory
agreement and in the reimbursements described in further detail
below.
Many of the services performed by the Adviser and its affiliates
in managing the Companys day-to-day activities are
summarized below. This summary is provided to illustrate the
material functions which the Adviser and its affiliates perform
pursuant to the terms of the advisory agreement, but it is not
intended to include all of the services which may be provided to
the Company by third parties.
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Adviser Duties and Authority Under the Advisory
Agreement |
Under the terms of the advisory agreement, the Adviser is
required to use its best efforts to present the Company with
investment opportunities consistent with its investment policies
and objectives as adopted by the Companys Board of
Directors. In performing its duties, the Adviser, either
directly or indirectly by engaging an affiliate:
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finds, evaluates, presents and recommends real estate investment
opportunities consistent with the Companys investment
policies and objectives; |
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provides advice to the Company and acts on its behalf with
respect to the negotiation, acquisition, financing, refinancing,
holding, leasing and disposition of real estate investments; |
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enters contracts to purchase real estate and make mortgage loans
on behalf of the Company in compliance with its investment
procedures, objectives and policies, subject to approval of the
Companys Board of Directors, where required; |
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takes the actions and obtains the services necessary to effect
the negotiation, acquisition, financing, refinancing, holding,
leasing and disposition of real estate investments; and |
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provides day-to-day management of the Companys business
activities and other administrative services as requested by the
Companys Board of Directors. |
Each investment that the Company makes is approved or ratified
by the Board of Directors. The Companys Board of Directors
has authorized the Adviser to make investments in any property
on behalf of the Company without the prior approval of the Board
of Directors if the following conditions are satisfied:
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The Adviser has obtained an independent appraisal for the
property indicating that the total cost of the property does not
exceed its appraised value; and |
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The Adviser has provided us with a representation that the
property, in conjunction with the Companys other
investments and proposed investments, is reasonably expected to
fulfill the Companys investment objectives and policies as
established by the Board of Directors and then in effect. |
The actual terms and conditions of transactions involving
investments in properties and mortgage loans are determined in
the sole discretion of the Adviser, subject at all times to
compliance with the foregoing requirements. Some types of
transactions, however, require the prior approval of the Board
of Directors, including a majority of independent directors,
including the following:
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loans not secured or otherwise supported by real property; |
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any acquisition or mortgage loan which at the time of investment
would have a cost exceeding 20% of the Companys total
assets; |
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any lease or mortgage loan to a tenant or borrower having a risk
rating of less than 4 on the Companys risk rating scale; |
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transactions that involve conflicts of interest with the Adviser
(other than reimbursement of expenses in accordance with the
advisory agreement); and |
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the lease of assets to the Adviser, its affiliates or any of the
Companys officers or directors. |
In addition to its duties under the advisory agreement, the
Adviser and its affiliates engage in other business ventures
and, as a result, their resources are not dedicated exclusively
to the Companys business. For example, the Adviser also
serves as external adviser to Gladstone Capital Corporation, a
publicly traded business development company affiliated with the
Company, and Gladstone Land Corporation, a privately held
company affiliated with David Gladstone, the Companys
chairman and chief executive officer. However, under the
advisory agreement, the Adviser must devote sufficient resources
to the administration of the Companys affairs to discharge
its obligations under the agreement. The advisory agreement is
not assignable or transferable by either the Company or the
Adviser without the consent of the other party, except that the
Adviser may assign the advisory agreement to an affiliate for
whom the Adviser agrees to guarantee its obligations to the
Company. Either the Company or the Adviser may assign or
transfer the advisory agreement to a successor entity.
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Termination of the Advisory Agreement |
The term of the advisory agreement ends on December 31,
2006, and thereafter will be automatically renewed for
successive one-year periods, unless either the Company or the
Adviser gives the other party notice of non-renewal at least
120 days before the end of any term. Additionally, the
advisory agreement may be terminated:
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immediately by the Company for cause or upon the
bankruptcy of the Adviser; |
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without cause by a majority of the Companys independent
directors upon 60 days notice to the Adviser; or |
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immediately with good reason by the Adviser. |
Cause is defined in the advisory agreement to mean
fraud, criminal conduct, willful misconduct or willful or
negligent breach of fiduciary duty, or the commission of a
material breach of the advisory agreement, by the Adviser.
Good reason is defined in the advisory agreement to
mean either a failure to obtain a satisfactory agreement from
any successor to the Company to assume and agree to perform the
Companys obligations under the advisory agreement, or a
material breach of the advisory agreement of any nature
whatsoever by us.
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Payments to the Adviser Under the Advisory
Agreement |
The following sets forth the type and amounts payable to the
Adviser in connection with its operation of the Companys
business. While the Company believes that these payments are no
less favorable than it could have obtained from negotiating with
an unaffiliated third party at arms-length, these payments
have not been determined through arms-length bargaining.
Under the terms of the advisory agreement, the Company is
responsible for all expenses incurred for its direct benefit.
Examples of these expenses include expenses incurred in
connection with the Companys organization and initial
public offering, legal, accounting, tax preparation, consulting,
recruiting, stockholder related costs, and related fees. In the
event that any of these expenses are incurred on the
Companys behalf by the Adviser, the Company is required to
reimburse the Adviser on a dollar-for-dollar basis for all such
amounts. During the year ended December 31, 2004, the total
amount of these expenses that the Company incurred was
approximately $1,142,000.
In addition, the Company is also responsible for all fees
charged by third parties that are directly related to its
business, which may include real estate brokerage fees, mortgage
placement fees, lease-up fees and transaction structuring fees
(although the Company may be able to pass some or all of such
fees on to tenants and borrowers). In the event that any of
these expenses are incurred on the Companys behalf by the
Adviser, the Company will be required to reimburse the Adviser
on a dollar-for-dollar basis for all such amounts. During the
year ended December 31, 2004, the Company passed all such
fees along to its tenants, and
25
accordingly did not incur any such fees during this period.
Accordingly, no reimbursements were made to the Adviser for
these amounts.
The Company is also required to reimburse the Adviser for its
pro rata share of the Advisers payroll and benefits
expenses on an employee-by-employee basis, based on the
percentage of each employees time devoted to its matters.
During the year ended December 31, 2004, these expenses
were approximately $903,000.
The Company may also be required to reimburse the Adviser for
its pro rata portion of all other expenses of the Adviser not
reimbursed under the arrangements described above
(overhead expenses), equal to the total overhead
expenses of the Adviser, multiplied by the ratio of hours worked
by the Advisers employees on the Companys projects
to the total hours worked by the Advisers employees.
However, the Company will only be required to reimburse the
Adviser for its portion of the Advisers overhead expenses
if the amount of payroll and benefits reimbursed to the Adviser
is less than 2.0% of the Companys average invested assets
for the year. Additionally, the Company will only be required to
reimburse the Adviser for overhead expenses up to the point that
reimbursed overhead expenses and payroll and benefits expenses,
on a combined basis, equal 2.0% of the Companys average
invested assets for the year. The Adviser will bill the Company
on a monthly basis for these amounts. The Adviser must reimburse
the Company annually for the amount by which amounts billed to
and paid by the Company exceed this 2.0% limit during a given
year. During the year ended December 31, 2004, the amount
of overhead expenses reimbursed to the Adviser was approximately
$285,000.
In addition to the reimbursement of expenses described above,
the Advisers officers, directors and employees are
eligible to receive stock option grants from the 2003 Plan.
The Companys Board of Directors is responsible for
reviewing the fees and expenses under the advisory agreement on
at least an annual basis and with sufficient frequency to
determine that the expenses incurred are in the best interests
of the Companys stockholders. The Companys
independent directors are also responsible for reviewing the
performance of the Adviser and determining whether the
compensation paid to the Adviser is reasonable in relation to
the nature and quality of services performed and whether the
provisions of the advisory agreement are being satisfactorily
performed. Specifically, the Companys independent
directors consider factors such as:
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the amount of the fees paid to the Adviser in relation to the
Companys size and the composition and performance of its
investments; |
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the success of the Adviser in generating appropriate investment
opportunities; |
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rates charged to other investment entities by advisers
performing similar services; |
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additional revenues realized by the Adviser and its affiliates
through their relationship with the Company, whether paid by the
Company or by others with whom it does business; |
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the value of the Companys assets each quarter; |
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the quality and extent of service and advice furnished by the
Adviser and the performance of the Companys investment
portfolio; and |
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the quality of the Companys portfolio relative to the
investments generated by the Adviser for its other clients. |
Other Transactions with the Adviser and its Affiliates
From time to time the Company may enter into transactions with
the Adviser or one or more of its affiliates. A majority of the
Companys independent directors and a majority of the
Companys directors not otherwise interested in a
transaction with the Adviser must approve all such transactions
with the Adviser or its affiliates.
It is the Companys current policy that it will not
purchase any property from or co-invest with the Adviser, any of
its affiliates or any business in which the Adviser or any of
its affiliates have invested except
26
that the Company can make leases to existing and prospective
portfolio companies of entities advised by the Adviser so long
as the portfolio company is not controlled by that entity, and
that if the Company decides to change this policy on
co-investments with the Adviser or its affiliates, it will seek
approval of this decision from the stockholders.
Indemnification
In its Articles of Incorporation and Bylaws, the Company has
agreed to indemnify certain officers and directors by providing,
among other things, that the Company will indemnify such officer
or director, under the circumstances and to the extent provided
for therein, for expenses, damages, judgments, fines and
settlements he or she may be required to pay in actions or
proceedings which he or she is or may be made a party by reason
of his or her position as a director, officer or other agent of
the Company, and otherwise to the fullest extent permitted under
Maryland law and the Companys Bylaws. Notwithstanding the
foregoing, the indemnification provisions shall not protect any
officer or director from liability to the Company or its
stockholders as a result of any action that would constitute
willful misfeasance, bad faith or gross negligence in the
performance of such officers or directors duties, or
reckless disregard of his or her obligations and duties.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by
delivering a single proxy statement addressed to those
stockholders. This process, which is commonly referred to as
householding, potentially means extra convenience
for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are
Gladstone Commercial Corporation stockholders will be
householding our proxy materials. A single proxy
statement will be delivered to multiple stockholders sharing an
address unless contrary instructions have been received from the
affected stockholders. Once you have received notice from your
broker that they will be householding communications
to your address, householding will continue until
you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in
householding and would prefer to receive a separate
proxy statement and annual report, please notify your broker,
direct your written request to Martin von Rosenberg, Director of
Shareholder Relations, at the address set forth on the cover
page of this proxy statement or contact Martin von Rosenberg at
(703) 286-0775. Stockholders who currently receive multiple
copies of the proxy statement at their address and would like to
request householding of their communications should
contact their broker.
27
OTHER MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
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By Order of the Board of Directors |
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Terry Lee Brubaker |
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Secretary |
April 20, 2005
A copy of the Companys Annual Report to the Securities and
Exchange Commission on Form 10-K for the fiscal year ended
December 31, 2004 is available without charge upon written
request to: Corporate Secretary, Gladstone Commercial
Corporation, 1521 Westbranch Drive, Suite 200, McLean,
Virginia 22102.
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DETACH PROXY CARD HERE
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Please vote, date and
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promptly return this proxy
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Vote must be indicated (x) in Black or Blue Ink |
in the enclosed return |
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envelope which is postage |
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prepaid if mailed in the |
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United States. |
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE FOR DIRECTOR LISTED BELOW.
Proposal 1: To elect two directors to hold office until the 2008 Annual Meeting of Stockholders.
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FOR all nominees
listed
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WITHHOLD AUTHORITY
to vote for all nominees listed
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*FOR all except
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Nominee: Michela A. English
Nominee: Anthony W. Parker
To withhold authority to vote in favor of any nominee, mark FOR all except and write the name of
the nominee below:
*Exceptions ___________________________________________________
In their discretion, the proxies are authorized to vote on any other business as may properly come
before the meeting or any adjournment or postponement thereof.
Please sign exactly as your name or names appear hereon. If the stock is registered in the names of
two or more persons, each should sign. Executor, administrator, trustee, guardian and
attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate
name and have a duly authorized officer sign, stating title. If signer is a partnership, please
sign in partnership name by authorized person.
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Date |
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Share Owner sign here |
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Co-Owner sign here |
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____________________________________________________________ |
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__________ |
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____________________________________________________________
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GLADSTONE COMMERCIAL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2005
The undersigned hereby appoints David Gladstone and Terry Brubaker, and each of them acting
individually, as attorneys and proxies of the undersigned, with full power of substitution, to vote
all of the shares of stock of Gladstone Commercial Corporation which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of Gladstone
Commercial Corporation to be held
at 11:00 a.m. local time in the Hilton McLean at 7920 Jones Branch Drive, McLean, VA 22102, and at any and all postponements, continuations and adjournments thereof, with all powers
that the undersigned would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary authority as to any
and all other matters that may properly come before the meeting.
Unless a contrary direction is indicated, this proxy will be voted in favor of each of the
nominees listed in Proposal 1, as more specifically described in the proxy statement. If specific
instructions are indicated, this proxy will be voted in accordance therewith.
(Continued and to be signed on reverse side)
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To change your address, please mark this box
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GLADSTONE COMMERCIAL CORPORATION
P.O. BOX 11046
NEW YORK, NY 10203-0046 |