SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
SHELBOURNE PROPERTIES II, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
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N/A
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
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(4) Date Filed: N/A
SHELBOURNE PROPERTIES II, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 2003
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of SHELBOURNE PROPERTIES II, INC. (the "Company"), a Delaware
corporation, will be held in the 11th Floor Conference Center in the offices of
Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York, New York on Tuesday,
May 20, 2003 at 11:15 A.M., to consider and act upon the following:
1. To elect two Class II Directors;
2. To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the 2003 fiscal year; and
3. To consider and act upon such other matters as may properly come before
the Meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 14, 2003
shall be entitled to receive notice of, and to vote at, the Meeting, and at any
adjournment or adjournments thereof.
All stockholders are cordially invited to attend the Meeting. Whether or
not you plan to attend the Meeting, please complete, date and sign the enclosed
proxy, which is solicited by the Board of Directors of the Company, and mail it
promptly in the enclosed envelope to make sure that your shares are represented
at the Meeting. In the event you decide to attend the Meeting in person, you
may, if you desire, revoke your proxy and vote your shares in person.
By order of the Board of Directors,
/s/ Carolyn B. Tiffany
Carolyn B. Tiffany
Secretary
Boston, Massachusetts
April 22, 2003
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL ENSURE THAT YOUR SHARES WILL BE
VOTED. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
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SHELBOURNE PROPERTIES II, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2003
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of SHELBOURNE PROPERTIES II,
INC. (the "Company"), a Delaware corporation, to be voted at the Annual Meeting
of Stockholders (the "Meeting") of the Company which will be held in the 11th
Floor Conference Center in the offices of Katten Muchin Zavis Rosenman, 575
Madison Avenue, New York, New York, on Tuesday, May 20, 2003 at 11:15 A.M., and
at any adjournment or adjournments thereof for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders and in this Proxy
Statement.
A Proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked, will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted (i) FOR the election, as Class II Directors, of persons who have
been nominated by the Board, (ii) FOR the ratification of the selection of
Deloitte & Touche LLP ("Deloitte & Touche") as independent auditors to audit and
report upon the consolidated financial statements of the Company for the 2003
fiscal year, and (iii) in accordance with the judgment of the person or persons
voting the proxies on any other matter that may be properly brought before the
Meeting. Each such Proxy granted may be revoked at any time thereafter by
writing to the Secretary of the Company prior to the Meeting, or by execution
and delivery of a subsequent Proxy or by attendance and voting in person at the
Meeting, except as to any matter or matters upon which, prior to such
revocation, a vote shall have been cast pursuant to the authority conferred by
such Proxy.
The principal executive offices of the Company are located at 7 Bulfinch
Place, Suite 500, Boston, MA 02114. The approximate date on which this Proxy
Statement and the accompanying Proxy will be first sent or given to stockholders
is April 22, 2003.
Stockholders of record of the common stock, par value $0.01 per share (the
"Common Stock"), of the Company at the close of business on April 14, 2003 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournments thereof. On the Record Date, there were issued and outstanding
894,792 shares of Common Stock. There was no other class of voting securities
outstanding at the Record Date. Each holder of Common Stock is entitled to one
vote for each share held by such holder. The presence, in person or by proxy, of
the holders of a majority of the outstanding shares of Common Stock is necessary
to constitute a quorum at the Meeting. Votes cast by proxy or in person at the
Meeting will be counted by the person appointed by the Company to act as
inspector of election for the Meeting. The two nominees for election as Class II
Directors at the Meeting who receive the greatest number of votes properly cast
for the election of directors shall be elected directors. The affirmative vote
of a majority of the votes in attendance at the Meeting (at which a quorum is
present), present in person or represented by proxy, that are properly cast is
necessary to approve the actions described in Proposal No. 2 of the accompanying
Notice of Annual Meeting. Abstentions and broker "non-votes" are included in the
determination of the number of shares present at the Meeting for quorum purposes
but broker "non-votes" are not counted in the tabulations of the votes cast on
proposals presented to stockholders. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
PROPOSAL 1 - ELECTION OF DIRECTORS
Pursuant to the Company's certificate of incorporation, the Board is
divided into three classes, as equal in number as possible, with respect to the
term for which they hold office and that the number of directors constituting
the Board of Directors shall from time to time be fixed and determined by a vote
of a majority of the Company's entire Board of Directors serving at the time of
such vote. The Board of Directors is now comprised of six members, with two
members in each Class, who shall serve until the end of each respective
three-year term, or until their successors are duly elected and qualified. The
Board of Directors has nominated (i) Arthur Blasberg, Jr. and Steven Zalkind for
re-election to Class II. Each Class II Director's term will expire at the 2006
annual meeting of stockholders; each Class III Director's term expires at the
2004 annual meeting of stockholders; and each Class I Director's term expires at
the 2005 annual meeting of stockholders.
If Proposal No. 1 is approved, Messrs. Blasberg and Zalkind will be elected
as Class II Directors for a term of three years, expiring at the 2006 annual
meeting of stockholders, and until their respective successors are elected and
shall qualify to serve.
Set forth below is the business experience of, and certain other
information regarding, the two director nominees and the Company's Directors.
Name and year first became
a Director of the Company Age Principal Occupation during the past Five Years
----------------------- --- -----------------------------------------------
CLASS II-TERM EXPIRING AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS
Arthur Blasberg, Jr. 75 Mr. Blasberg's activities for the past five years include appointment
2002 by the Superior Court in Massachusetts to serve as a receiver of
various businesses (including real estate investment companies), acting
as trustee of a trust holding undeveloped land and a trust whose main
asset was a limited partnership interest in a cogeneration plant. Mr.
Blasberg previously served as the receiver and liquidating trustee of
The March Company, Inc., a real estate investment firm which acted as
the general partner and/or limited partner in over 250 limited
partnerships. Mr. Blasberg is an attorney admitted to practice in the
Commonwealth of Massachusetts and previously served for five years as
an attorney in the general counsel's office of the Securities and
Exchange Commission.
Steven Zalkind 61 Mr. Zalkind has been a principal with Resource Investments Limited,
2002 L.L.C., a real estate management and investment company that owns,
operates and manages over 6,000 apartment units and 500,000 square feet
of retail shopping centers, for the past five years. Mr. Zalkind has
extensive experience in the operation, management and financing of real
estate projects including apartment buildings, shopping centers and
office buildings and has been involved in real estate acquisitions and
resales totaling in excess of $1.5 billion.
2
CLASS III-TERM EXPIRING AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS
John Ferrari 49 Mr. Ferrari has been a Managing Director of Manhattan East Suite
2002 Hotels, a New York based hotel management company that operates ten
hotels (2,100 rooms) in New York City, since 1996. Mr. Ferrari is
responsible for the day-to-day operations of the company and for all
acquisitions and development of new ventures.
Howard Goldberg 57 Mr. Goldberg has been a private investor and has provided consulting
2002 services to start-up companies since 1999. From 1994 through 1998,
Mr. Goldberg served as President and Chief Executive Officer of
Player's International, a public company in the gaming business, prior
to its being sold to Harrah's Entertainment Inc. In addition, from 1995
to 2000, Mr. Goldberg served on the board of directors of Imall Inc., a
public company that provided on-line shopping and which was ultimately
sold to Excite-at-Home. Mr. Goldberg has a law degree from New York
University and was previously the managing partner of a large New
Jersey law firm.
CLASS I-TERM EXPIRING AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS
Michael L. Ashner 50 Mr. Ashner has been a director, President, Chairman and Chief
2001* Executive Officer of the Company since August 19, 2002. Mr. Ashner
also served as a director, President, Chairman and Chief Executive
Officer of the Company from February 8, 2001 until August 15, 2002. Mr.
Ashner is and has been the Chief Executive Officer of Winthrop
Financial Associates, A Limited Partnership, since 1996, and the Chief
Executive Officer of The Newkirk Group, since 1997, two real estate
investment and management companies controlling approximately $3.5
billion of commercial real estate throughout the United States. Mr.
Ashner currently serves as a director of Greate Bay Hotel and Casino
Inc., and NBTY, Inc.
Peter Braverman 51 Mr. Braverman has been a director and Vice President of the Company
2002 since August 19, 2002. Mr. Braverman also served as a Vice President
of the Company from February 8, 2001 until August 15, 2001. Mr.
Braverman is and has been the Executive Vice President of Winthrop
Financial Associates, A Limited Partnership, since 1996, and the
Executive Vice President of The Newkirk Group, since 1997, two real
estate investment and management companies controlling approximately
$3.5 billion of commercial real estate throughout the United States.
* Mr. Ashner was a director from April 17, 2001 to August 15, 2001 at which
time he resigned. He became a director again on August 19, 2002 and has
held that position since such date.
Each of the foregoing directors also serves as directors of Shelbourne
Properties I, Inc. and Shelbourne Properties III, Inc.
3
BACKGROUND
On July 1, 2002, the Company entered into a Settlement Agreement and a
Stock Purchase Agreement, with, among others, HX Investors, L.P. ("HX").
Pursuant to the Settlement Agreement and Stock Purchase Agreement, as amended on
August 5, 2002, among other things, HX commenced an offer to purchase up to
268,444 shares of the Company's Common Stock (and the associated preferred share
purchase rights) for $73.85 per share (the "Offer"). The Offer expired on August
16, 2002 at which time HX acquired all 268,444 shares sought pursuant to the
Offer. As provided in the Settlement Agreement and Stock Purchase Agreement,
upon the acceptance for payment of the shares by HX under the Offer, the
existing directors resigned and the Board was reconstituted to consist of six
individuals designated by HX, four of whom, Messrs. Blasberg, Zalkind, Goldberg
and Ferrari, are independent directors.
The Company also agreed that following the aforementioned Board
reconstitution (i) any subsequent nominations for vacancies in the Board created
by the removal or resignation of an independent director will be made by the
remaining independent directors of the Board, and (ii) HX and the Company will
take all action necessary to cause the Company's by-laws to be amended to
implement the provisions of clause (i) and provide that any amendment to such
provisions will require the approval of a majority of the shares of the
Company's Common Stock entitled to vote at a meeting of stockholders of the
Company, other than those shares held by HX and its affiliates. At a meeting of
the Board on August 19, 2002, the Board enacted the foregoing amendments to the
Company's by-laws.
In addition, the Settlement Agreement and Stock Purchase Agreement provide
that HX's nominees to the Board who are not independent directors will, subject
to their fiduciary duties and existing obligations of the Company, support the
implementation of certain distribution policies.
Finally, the Settlement Agreement and Stock Purchase Agreement also provide
that, following completion of the Offer, at a meeting of the stockholders, the
Company would submit a Plan of Liquidation of the Company to the stockholders
for their approval, which approval was received on October 29, 2002.
BOARD MEETINGS AND COMMITTEES
During 2002, the Board met or acted through written consent 24 times. Each
director attended all of the meetings.
The Company's by-laws give the Board the authority to delegate its powers
to a committee appointed by the Board. All committees are required to conduct
meetings and take action in accordance with the directions of the Board and the
provisions of the Company's by-laws. The Board has appointed three standing
committees: an audit committee, a compensation committee and a corporate
governance committee. Certain of the committees' principal functions are
described below.
4
Audit Committee
The Audit Committee:
o reviews annual consolidated financial statements with the Company's
independent auditors;
o recommends the appointment and reviews the performance, independence,
and fees of the Company's independent auditors and the professional
services they provide;
o oversees the Company's system of internal accounting controls and the
internal audit function; and
o discharges other responsibilities, including those described in the
"Audit Committee Report" on page 11.
Until March 27, 2002, the Audit Committee consisted solely of independent
directors, Michael Bebon, Donald Coons and Robert Martin. Upon Mr. Bebon's
resignation from the Board on March 27, 2002, the Board nominated W. Edward
Scheetz to replace Mr. Bebon as a member of the Audit Committee. In connection
with the reconstitution of the Board on August 19, 2002, Messrs. Blasberg,
Goldberg and Zalkind, all of whom are independent directors, were nominated as
members of the Audit Committee.
The Board has adopted a written charter for the Company's Audit Committee,
which is attached hereto as an Appendix A to this Proxy Statement. The Audit
Committee held four meetings during the 2002 fiscal year. On March 13 and March
24, 2003, the Audit Committee met with the external auditors of the Company to
discuss the Company's 2002 financial statements.
Compensation Committee
The Compensation Committee:
o recommends to the Board the compensation policies and arrangements for
the Company's officers;
o ensures appropriate oversight of the Company's executive compensation
programs and human resources policies; and
o will, as appropriate, report to stockholders on the Company's executive
compensation policies and programs.
Since its formation on March 1, 2002 until the August 19, 2002
reconstitution of the Board, the Compensation Committee was composed of Messrs.
Martin and Coons, non-employee directors of the Company. On August 19, 2002,
Messrs. Ferrari and Zalkind, non-employee directors of the Company, were
nominated as members of the Corporate Governance Committee. The Compensation
Committee held one meeting during the 2002 fiscal year.
5
Corporate Governance Committee
The Corporate Governance Committee:
o reviews the qualifications of current and potential directors;
o reviews each director's continued service on the Board;
o reviews outside activities of Board members and resolves any issue of
possible conflict of interest; and
o reviews and assesses the adequacy of the Corporate Governance
Committee's Charter.
The Company's Corporate Governance Committee was formed on March 1, 2002
and until the August 19, 2002 reconstitution of the Board, was composed of
Messrs. Martin and Coons. On August 19, 2002, Messrs. Blasberg and Goldberg,
non-employee directors of the Company, were nominated as members of the
Corporate Governance Committee. The Corporate Governance Committee held no
meetings during the 2002 fiscal year.
EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers and
certain other officers of the Company:
Name Age Current Position
------------------- --- -------------------------------------------------
Michael L. Ashner 50 President, Chairman and Chief Executive Officer
Peter Braverman 51 Executive Vice President
Carolyn Tiffany 36 Chief Financial Officer, Secretary and Treasurer
Officers serve at the discretion of the Board.
Information regarding Messrs. Ashner and Braverman is included herein in
the section entitled "Proposal 1 -- Election of Directors."
Ms. Tiffany has been the Chief Financial Officer and Treasurer of the
Company since August 19, 2002. Ms. Tiffany has been with Winthrop Financial
Associates since January 1993. Ms. Tiffany was a Vice President in the asset
management and investor relations departments of Winthrop Financial Associates
from October 1995 to December 1997, at which time she became the Chief Operating
Officer of Winthrop Financial Associates. In addition, Ms. Tiffany is the Chief
Operating Officer of The Newkirk Group. In addition, Ms. Tiffany was a Vice
President and Treasurer of the Company from February 8, 2001 until August 15,
2001. Ms. Tiffany previously worked for the auditing firm of Kenneth Leventhal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 1, 2003
(except as otherwise indicated) regarding the ownership of Common Stock by (i)
each person who is known to the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) each executive officer named in the Summary Compensation Table
contained herein, and (iv) all current executive officers and directors of the
Company as a group. Except
6
as otherwise indicated, each such stockholder has sole voting and investment
power with respect to the shares beneficially owned by such stockholder.
NAME AND ADDRESS OF POSITION WITH THE AMOUNT AND NATURE OF PERCENT OF CLASS
------------------- ----------------- -------------------- ----------------
BENEFICIAL OWNER COMPANY BENEFICIAL OWNERSHIP
---------------- ------- --------------------
HX Investors, L.P. Shareholder 371,012(1) 41.46%
100 Jericho Quadrangle
Suite 214
Jericho, NY 11753
Michael L. Ashner Director, President 371,012(2) 41.46%
100 Jericho Quadrangle and Chief Executive
Suite 214 Officer
Jericho, NY 11753
Arthur Blasberg, Jr. Director 0 0
Peter Braverman Director and Executive 0 0
Vice President
John Ferrari Director 0 0
Howard Goldberg Director 0 0
Carolyn Tiffany Chief Financial Officer 0 0
and Treasurer
Steven Zalkind Director 10 *
All directors and executive 371,022 41.46%
officers as a group
-------------------------------------
*Less than 1%.
(1) Based upon information contained in a Form 4 filed by HX Investors, L.P.
("HX") with the Securities and Exchange Commission.
(2) Comprised of shares owned by HX. As the sole stockholder of Exeter Capital
Corporation, the sole general partner of HX, Mr. Ashner may be deemed to
beneficially own all shares owned by HX.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's executive officers, directors and persons
who beneficially own greater than 10% of a registered class of the Company's
equity securities to file certain reports ("Section 16 Reports") with the
Securities and Exchange Commission with respect to ownership and changes in
ownership of the Common Stock and other equity securities of the Company. Based
solely on the Company's review of the Section 16 Reports furnished to the
Company and written representations from certain reporting persons, all Section
16(a) requirements applicable to its officers, directors and greater than 10%
beneficial owners have been complied with.
7
Peter Braverman owns a 10% limited partner interest in HX. Accordingly, Mr.
Braverman owns an indirect pecuniary interest in approximately 37,101 of the
shares of Common Stock owned by HX. However, as a limited partner in HX, Mr.
Braverman does not exercise investment control over the HX shares. Accordingly,
Mr. Braverman is not deemed to beneficially own any of such shares under Section
13 or Section 16 of the Exchange Act.
EXECUTIVE COMPENSATION
For the period from January 1, 2002 to August 19, 2002, the executive
officers of the Company during such period were employed by Shelbourne
Management LLC. For the period from August 19, 2002 through the end of 2002, the
executive officers of the Company were employed by First Winthrop Corporation.
The executive officers received no remuneration from the Company but were
compensated by Shelbourne Management LLC or First Winthrop Corporation, as the
case may be, in their capacities as officers and employees of that company, as
shown in the table under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
COMPENSATION OF DIRECTORS
The Company's prior non-employee directors, Messrs. Bebon, Coons and Martin
in 2001 and until August 19, 2002 received $6,667 annually for their services as
directors. The Company's current non-employee directors, Messrs. Blasberg,
Ferrari, Goldberg and Zalkind will receive $10,000 annually for their services
as directors and $500 for each applicable committee meeting they attend.
Directors of the Company who are also officers of the Company receive no
additional compensation for serving on the Board. However, all directors are
reimbursed for travel expenses and other out-of-pocket expenses incurred in
connection with their service on the Board.
In addition, solely for their services as members of the Special Committee,
which was organized to review and evaluate the fairness of the February 2002
repurchase by the Company of the shares held by PCIC, former directors Michael
Bebon, Donald W. Coons and Robert Martin received a one-time payment of $20,000.
In consideration of the significant time and efforts that each of the
former directors made as a member of the Board prior to August 19, 2002, at
which time the Board was reconstituted as described above, including, among
other things, evaluating strategic alternatives to enhance stockholder value,
arranging for financing and otherwise managing the business of the Company, the
prior Board authorized a one-time payment of $75,000 to each of Robert Martin,
W. Edward Scheetz and Donald W. Coons.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Richard J. McCready, an executive officer of the Company until his
replacement on August 19, 2002, also served on the board of directors of
NorthStar Capital Investment Corp. ("NorthStar"), a former affiliate of the
Company. W. Edward Scheetz, a director of the Company until August 19, 2002,
also served on the board of directors of NorthStar.
Michael L. Ashner, a director and the Chief Executive Officer of the
Company, also serves as the Chief Executive Officer and director of Kestrel
Management Corp., the general partner of Kestrel Management, L.P. ("Kestrel"),
the entity that provides asset and property management services to the Company.
Similarly, Peter Braverman, a director and Vice President of the Company, also
serves as a Vice President of Kestrel Management Corp.
8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the April 4, 2003 Compensation Committee Report on
Executive Compensation. The members of the Compensation Committee on the date of
such report were John Ferrari and Steven Zalkind.
The Board, acting upon the recommendation of the Compensation Committee, is
responsible for determining compensation for the Company's executive officers.
The Compensation Committee is composed of two individuals who are non-employee
directors of the Company.
EXECUTIVE COMPENSATION PRINCIPLES
To date, the executive officers of the Company have received remuneration
from their employment by either Shelbourne Management LLC (for the period prior
to August 19, 2002) or First Winthrop Corporation (for the period since August
19, 2002). As such, no remuneration has been paid by the Company to its
executive officers. Further, in light of the adoption of the Plan of Liquidation
by the Company, it is not anticipated that the Company will become responsible
for the payment of any remuneration of its executive officers. If the Company
were to retain directly its executive officers, the Compensation Committee
would, in making its compensation recommendations to the Board consider (1) the
potential holding periods of the Company's remaining properties, (2) the number
of properties owned by the Company, (3) the business plan with respect to such
property, whether the property needs to be leased-up or has other issues which
need to be resolved prior to a sale, and (4) with respect to a specific
executive officer, such officer's specific responsibilities, experience and
overall performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
For fiscal year 2002, no executive officers of the Company, including the
Chief Executive Officer, received compensation from the Company. The executive
officers were compensated by Shelbourne Management LLC for the period prior to
August 19, 2002 and First Winthrop Corporation for the period thereafter, in
each case, in their capacities as officers and employees of such company, rather
than as executive officers of the Company.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), a publicly held company, such as the Company, will not be entitled to a
Federal income tax deduction for compensation paid to the chief executive
officer or any one of the other four most highly compensated officers of the
Company to the extent that compensation paid to such officer exceeds $1 million
in any fiscal year, unless such compensation is subject to certain exceptions
set forth in the Code for compensation that qualifies as performance based. If
the Company were to compensate its executive officers directly, the Board and
the Compensation Committee would consider Section 162(m) in structuring
compensation for the Company's executive officers; however, the Board or the
Compensation Committee may, where it deems appropriate, implement compensation
arrangements that do not satisfy the exceptions to Section 162(m).
The Compensation Committee of the Board
John Ferrari
Steven Zalkind
9
AUDIT COMMITTEE REPORT
The following is the April 15, 2003 Audit Committee Report. The members of
the Audit Committee on the date of such report were Arthur Blasberg, Jr., Howard
Goldberg and Steven Zalkind.
The Audit Committee (the "Committee") is comprised of three directors and
operates under the Audit Committee Charter, a copy of which is attached hereto
as Appendix A. The Committee met with Deloitte & Touche the independent auditors
of the Company on March 13 and March 24, 2003 to discuss the Company's 2002
financial statements. The Committee held discussions with the independent
auditors on the results of their examinations and the overall quality of the
Company's financial reporting and internal controls. The Committee evaluates the
continued appointment of the Company's independent auditors and makes its
recommendation to the Board.
The Audit Committee acts pursuant to the Audit Committee Charter and is
comprised of three members who were independent within the meaning of Section
121(a) of the American Stock Exchange Listing Standards (the "Listing
Standards").
As stated in the Committee's Charter, the Committee's responsibility is one
of oversight. It is the responsibility of the Company's management to prepare
consolidated financial statements in accordance with generally accepted
accounting principles and of the Company's independent auditor to audit those
financial statements. The Committee does not provide any expert or other special
assurance as to such financial statements concerning compliance with laws,
regulations, or generally accepted accounting principles.
In fulfilling its responsibilities, the Committee has reviewed and
discussed the Company's audited consolidated financial statements for the fiscal
year ended December 31, 2002 with the Company's management and the independent
auditors.
The Committee has discussed with Deloitte & Touche the matters required to
be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees." In addition, the Committee has received the written
disclosures and the letter from Deloitte & Touche required by Independence
Standards Board Standard No. 1, "Independence Discussions with Audit Committees"
and has discussed with Deloitte & Touche its independence from the Company and
its management.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board that the Company's audited consolidated financial
statements for the fiscal year ended December 31, 2002 be included in our 2002
Annual Report to Stockholders which is incorporated by reference into our Annual
Report on Form 10-K for the year ended December 31, 2002 and was filed with the
Securities and Exchange Commission on March 31, 2003
The Audit Committee of the Board
Arthur Blasberg, Jr.
Howard Goldberg
Steven Zalkind
10
PERFORMANCE GRAPH
The following graph compares the cumulative return among the Common Stock,
a peer group index and the Standard & Poor's 500 Stock Index, for the periods
shown. Effective October 29, 2002, the Company adopted a Plan of Liquidation.
Accordingly, it is expected that as properties are sold and dividends are paid
from such sale proceeds, the Common Stock price will decrease. The quarterly
changes for the periods shown in the graph are based on the assumption that $100
had been invested in the Common Stock and each index on May 14, 2001.
[GRAPHIC OMITTED]
PERIOD ENDING
----------------------------------------------------------------------
INDEX 05/14/01 06/30/01 12/31/01 06/30/02 12/31/02
-----------------------------------------------------------------------------------------------------------------------
Shelbourne Properties II, Inc. 100.00 76.63 86.59 133.55 197.05
S&P 500 100.00 98.14 92.69 80.48 72.11
Diversified and Other Peer Group* 100.00 107.82 118.76 141.09 137.17
*Diversified and Other Peer Group consists of REITs with a diversity and other
property focus and have a current market value as of March 21, 2003 of less than
$750M
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2002, as in prior years, property
management services (the "Property Management Services") and asset management
services, investor relation services and accounting services (the "Asset
Management Services") have been provided to the Company by then affiliates of
the Company.
ASSET MANAGEMENT SERVICES
For the period from January 1, 2002 to February 14, 2002, the Company was
obligated to pay for Asset Management Services pursuant to the terms of the
Advisory Agreement between the Company, the Operating Partnership and Shelbourne
Management LLC ("Shelbourne Management"), a wholly-owned subsidiary of Presidio
Capital Investment Company, LLC ("PCIC"), an annual asset management fee,
payable quarterly, equal to 1.25% of the gross asset value of the Corporation as
of the last day of each year. In addition, the Corporation was obligated to (i)
pay $150,000 for non-accountable expenses and (ii) reimburse Shelbourne
Management for expenses incurred in connection with the performance of its
services. Effective February 14, 2002, in connection with the Transaction (as
described below), the fee for providing Asset Management Services was reduced to
$333,333 per annum and was payable to Shelbourne Management.
During the period from January 1, 2002 to August 19, 2002, Shelbourne
Management and PCIC were affiliated with the management of the Company.
Effective August 19, 2002, as a result of the change in control of the Company,
Shelbourne Management and PCIC are no longer affiliated with the Company's
directors and/or executive officers nor do any of the present directors or
executive officers hold an interest in Shelbourne Management or PCIC.
Effective October 1, 2002, as provided for in the Plan of Liquidation, the
fee for providing Asset Management Services was further reduced to $200,000 per
annum and was payable to Kestrel, an entity which is an affiliate of the
Company. Mr. Ashner owns a 10% interest in Kestrel. Each of Mr. Braverman and
Ms. Tiffany owns a 1.67% interest in Kestrel.
PROPERTY MANAGEMENT SERVICES
During the year ended December 31, 2002, Kestrel continued to provide
Property Management Services to the Company under the terms of its October 1,
2000 agreements for a fee of up to 6% of property revenue.
The following table summarizes the amounts paid to affiliates for Expense
Reimbursements, Asset Management Fees, Transition Management Fee and Property
Management Fees for the twelve-month period ended December 31, 2002.
Shelbourne
Management Kestrel
---------- -------
Expense Reimbursement $ 25,000 $ --
Asset Management Fee 157,582 50,000
Transition Management Fee 208,250 --
Property Management Fee $ -- $ 366,524
12
DIVIDENDS BY THE COMPANY
Dividends payable to HX, an affiliate of the Company, for the year ended
December 31, 2002 on account of shares of common stock owned by HX was
$5,194,168.
TRANSACTION WITH PCIC
On February 14, 2002, the Company entered into a Purchase and Contribution
Agreement with, among others, PCIC and Shelbourne Management. Pursuant to the
Purchase and Contribution Agreement, among other things, the Company purchased
its advisory agreement with Shelbourne Management and repurchased all of the
shares of common stock held by PCIC.
Pursuant to the transaction, the Company paid PCIC approximately
$17,866,600 in cash and the Company's operating partnership, Shelbourne
Properties II L.P., issued Shelbourne Management LLC preferred partnership
interests with a liquidation preference of $1,015,148 and a note with an
aggregate stated amount of between approximately $22,000,000 and $23,600,000,
depending upon the timing of the repayment of the note. In May 2002, the
operating partnership repaid the note in full ($22,034,250) from proceeds of a
secured revolving credit facility procured on May 1, 2002.
As indicated earlier, PCIC is not affiliated with the Company's present
directors and/or officers. The Company's former directors and/or officers, Peter
Ahl, David T. Hamamoto, Steven Kauff, David G. King, Jr., Dallas G. Lucas and W.
Edward Scheetz were affiliated with PCIC and Shelbourne Management.
TRANSACTIONS WITH HX INVESTORS
In July 2002, the Company has entered into a Settlement Agreement and Stock
Purchase Agreement with, among others, HX pursuant to which the Board approved a
Plan of Liquidation for the Company, which Plan of Liquidation was subsequently
approved by the stockholders of the Company on October 29, 2002. Upon the
approval by the stockholders of the Plan of Liquidation, HX became entitled to
receive, at such time as distributions are made to the holders of outstanding
Common Stock, 15% of the excess (if any) of (a) "Net Proceeds" (as hereinafter
defined) over (b) for each outstanding share of Common Stock, the sum of $66.25
plus a return on the unsatisfied portion thereof at a rate of 6% per annum,
compounded quarterly, from August 20, 2002 until February 19, 2004 and then
increasing by 0.5% for each subsequent six-month period up to a maximum of 8%.
"Net Proceeds" means the total amount of the Company's cash from operations,
refinancings and property sales.
HX will be entitled to receive these distributions as the holder of Class B
partnership units in the operating partnership unless (i) a majority of the
Board consists of members nominated by HX and (ii) the Company fails to observe
certain distribution policies. The Class B units were issued to it on August 19,
2002. As of March 24, 2003, the remaining unpaid per share priority return to
stockholders was $9.66.
Mr. Ashner is the sole stockholder of Exeter Capital Corporation, the
general partner of HX, and holds a 40% interest in HX. In addition, Mr.
Braverman holds a 10% limited partner interest in HX.
13
PROPOSAL 2 - SELECTION OF INDEPENDENT AUDITORS
At the recommendation of the Audit Committee, the Board has selected
Deloitte & Touche to serve as independent auditors of the Company for its fiscal
year ending December 31, 2003. Although stockholder ratification of the Board's
action in this respect is not required, the Board considers it desirable for
stockholders to pass upon the selection of independent auditors and, if the
stockholders disapprove of the selection, intends to consider other firms for
selection as the independent auditors for the current fiscal year.
Representatives of Deloitte & Touche are expected to be present at the
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to questions from stockholders.
Audit Fees. The Company paid fees charged by Deloitte & Touche for the
fiscal years ended December 31, 2002 and 2001 of $48,917 and $62,207,
respectively, for the audit of its annual financial statements in the amounts.
Audit-Related Fees. The Company paid fees charged by Deloitte & Touche for
the fiscal years ended December 31, 2002 and 2001 of $29,906 and $23,516
respectively, for assurance and related services that were reasonably related to
the performance of the audit of the Company's annual financial statements. These
services included the review of the Company's Forms 10-Q for fiscal 2002 and
2001, for correct financial presentation and proper disclosures.
Tax Fees. The Company paid fees charged by Deloitte & Touche for the fiscal
years ended December 31, 2002 and 2001 of $35,789 and $42,700 for tax
compliance, tax advice and tax planning. These services included the preparation
of the Company's tax returns, REIT compliance and calculation of tax basis of
real estate owned.
All Other Fees. The Company paid fees charged by Deloitte & Touche for the
fiscal years ended December 31, 2002 and 2001 of $20,226 and $20,932,
respectively, related to the services provided in connection with the PCIC
transaction in February 2002 and real estate tax monitoring and services related
to obtaining abatements when necessary.
The Audit Committee has considered whether the provision of the above
services, other than audit services, is compatible with maintaining the
independence of Deloitte & Touche.
All of the work performed by Deloitte & Touche on the audit of annual
financial statements for fiscal year 2002 was performed by persons employed by
Deloitte & Touche on a full-time basis.
14
STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be considered for inclusion in the
Company's proxy statement for the 2004 Annual Meeting pursuant to Rule 14a-8 of
the Securities and Exchange Commission, the proposal must be received at the
Company's offices a reasonable time before the Company begins to print and mail
its proxy materials. The Company has set the deadline for receipt of such
proposals as the close of business on December 23, 2003. Proposals submitted
thereafter will be opposed as not timely filed.
Under our By-laws, stockholders must follow certain procedures to nominate
a person for election as a Director at an annual meeting, or to introduce an
item of business at an annual meeting, in each case, outside the processes of
SEC Rule 14a-8. Under these procedures, stockholders must submit the proposed
nominee or item of business by delivering a notice to the Secretary of the
Company at our principal executive offices. We must receive notice as follows:
- Normally we must receive notice of a shareholder's intention to
introduce a nomination or proposed item of business for an annual
meeting not less than 75 days nor more than 120 days before the first
anniversary of the prior year's meeting.
- However, if we hold the annual meeting on a date that is more than 30
days before or 60 days after such anniversary date, we must receive the
notice no later than the later of the 75th day prior to the scheduled
date of such annual meeting or the 15th day after we provide notice of
the meeting to stockholders or announce it publicly. In this regard, we
anticipate that the 2004 Annual Meeting will be held more than 30 days
prior to the anniversary date of the Meeting. Accordingly, assuming the
2004 Annual Meeting is held on June 16, 2004, we must receive the
notice no later than the later of April 2, 2003 or the 15th day after
we first provide notice of, or publicly announce, the date of such
meeting.
Any stockholder who wishes to submit a stockholder proposal, should send it
to the Secretary, Shelbourne Properties II, Inc., 7 Bulfinch Place, Suite 500,
Boston, Massachusetts 02114.
ANNUAL REPORT
Copies of our Annual Report for the fiscal year ended December 31, 2002 are
being mailed to stockholders of record on the Record Date together with this
Proxy Statement.
MISCELLANEOUS
As of the date of this Proxy Statement, the Board does not know of any
other matter to be brought before the Meeting. However, if any other matters not
mentioned in the Proxy Statement are brought before the Meeting or any
adjournments thereof, the persons named in the enclosed Proxy or their
substitutes will have discretionary authority to vote proxies given in said form
or otherwise act, in respect of such matters, in accordance with their best
judgment.
The Company has retained MacKenzie Partners, Inc. to aid in the
solicitation of proxies. MacKenzie Partners, Inc. will receive a fee not to
exceed $7,500, as well as reimbursement for certain out of pocket expenses
incurred by them in connection with their services, all of which will be paid by
the Company. All of the costs and expenses in connection with the solicitation
of proxies with respect to the matters described herein will be borne by the
Company. In addition to solicitation of proxies by use of the mails, directors,
officers and employees (who will receive no compensation therefor in addition to
their regular
15
remuneration) of the Company may solicit the return of proxies by telephone,
telegram or personal interview. The Company will request banks, brokerage houses
and other custodians, nominees and fiduciaries to forward copies of the proxy
materials to their principals and to request instructions for voting the
proxies. The Company may reimburse such banks, brokerage houses and other
custodians, nominees and fiduciaries for their expenses in connection therewith.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH BENEFICIAL OWNER OF COMMON
STOCK ON THE RECORD DATE, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST
SHOULD BE MADE IN WRITING TO CAROLYN TIFFANY, SHELBOURNE PROPERTIES II, INC., 7
BULFINCH PLACE, SUITE 500, BOSTON, MA 02114.
It is important that proxies be returned promptly. Stockholders are,
therefore, urged to fill in, date, sign and return the Proxy immediately. No
postage need be affixed if mailed in the enclosed envelope in the United States.
By Order of the Board of Directors
/s/ Carolyn B. Tiffany
Carolyn B. Tiffany
Secretary
April 22, 2003
16
APPENDIX A
AUDIT COMMITTEE CHARTER
OF
SHELBOURNE PROPERTIES II, INC.
The Audit Committee shall be appointed by the Board of Directors (the "Board")
of Shelbourne Properties II, Inc. (the "Company") to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
compliance by the Company with legal and regulatory requirements and (3) the
independence and performance of the Company's independent auditors.
The members of the Audit Committee shall meet the independence and experience
requirements of the American Stock Exchange.
The Audit Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of the Committee.
The Audit Committee shall:
o Report regularly to the Board.
o Review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval.
o Review the annual audited financial statements with management of the
Company and the independent auditors prior to publication, including major
issues regarding accounting and auditing principles and practices as well
as the adequacy of internal controls that could significantly affect the
Company's financial statements.
o Review an analysis prepared by management and the independent auditor of
the Company of the significant financial reporting issues and judgments
made in connection with the preparation of the Company's financial
statements.
o Recommend to the Board the appointment of the independent auditor, which
firm is ultimately accountable to the Audit Committee and the Board.
o Receive from the independent auditor periodic written reports, consistent
with Independence Standards Board Standard No. 1, regarding relationships
between the firm and its related entities and the Company and the firm's
independence, discuss such reports with the firm, and, if deemed
appropriate by the Committee, recommend that the Board take appropriate
action to satisfy itself of the firm's independence.
o Evaluate together with the Board the performance of the independent auditor
and, if so determined by the Audit Committee, recommend that the Board
replace the independent auditor.
o Obtain from the independent auditor written assurance that Section 10A of
the Private Securities Litigation Reform Act of 1995 has not been
implicated with respect to the Company's financial statements.
o Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
A-1
o Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to that letter. Such review should
include:
-Any difficulties encountered in the course of the audit work,
including any restriction on the scope of activities or access to
required information.
-Any changes required in the planned scope of the internal audit.
o Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
o Review with the Company`s general counsel legal matters that may have a
material impact on the financial statements.
o Have the power to inquire into any financial matters not set forth above
and shall perform such other functions as may be assigned to it by law, or
the Company's charter or By-laws, or by the Board.
o Be responsible for the appointment, compensation and oversight of the work
of the independent auditor (including the resolution of disagreements
between management and the independent auditor regarding financial
reporting) in connection with the preparation or issuance of any
independent audit report or related work.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of the management of the Company and the Company's independent
auditor.
A-2
SHELBOURNE PROPERTIES II, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael L. Ashner and Peter Braverman
or either of them, attorneys and proxies, with power of substitution and
revocation, to vote, as designated below, all shares of stock which the
undersigned is entitled to vote, with all powers which the undersigned would
possess if personally present, at the Annual Meeting of Stockholders (including
all adjournments thereof) of SHELBOURNE PROPERTIES II, INC. to be held on
Tuesday, May 20, 2003 at 11:15 A.M. in the 11th Floor Conference Center in the
offices of Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York, New York.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY
---- ---- for all nominees to vote
Arthur Blasberg, Jr.
Steven Zalkind
STOCKHOLDERS MAY WITHHOLD AUTHORITY TO ELECT ANY OF THE DIRECTORS BY
WRITING THE NAME OF THAT DIRECTOR IN THE SPACE PROVIDED BELOW.
-----------------------------------------------------------------------
2. APPROVAL of the appointment of auditors as set forth in the
accompanying Proxy Statement.
FOR AGAINST ABSTAIN
--- --- ---
The proxy is authorized to transact such other business as may properly
come before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is given, this
proxy will be voted FOR items 1 and 2 in the discretion of said proxy on any
other matter which may come before the meeting or any adjournments thereof.
Dated: , 2003
---------------
-------------------------------
Print Name
-------------------------------
Signature
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, custodian, guardian or corporate
officer, please give your full title as such. If a corporation, please sign full
corporate name by authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.