SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities and 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
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
MISSION WEST PROPERTIES, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------
(Name of Person (s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
MISSION WEST PROPERTIES, INC.
10050 Bandley Drive
Cupertino, California 95014
Dear Stockholder,
You are cordially invited to attend the 2005 Annual Meeting of Stockholders
of MISSION WEST PROPERTIES, INC. (the "Company") to be held on June 1, 2005 at
10:00 a.m., Pacific time, at the Company's offices at 10050 Bandley Drive,
Cupertino, California 95014.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of the 2005 Annual Meeting of Stockholders and
Proxy Statement. Also included is a Proxy Card and postage paid envelope.
Whether you plan to attend the Annual Meeting or not, it is important that
you promptly complete, sign, date and return the enclosed Proxy Card, or vote in
accordance with the instructions set forth on the Proxy Card. This will ensure
your proper representation at the Annual Meeting.
Sincerely,
/s/ Carl E. Berg
Carl E. Berg
Chairman of the Board and Chief
Executive Officer
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YOUR VOTE IS IMPORTANT.
PLEASE REMEMBER TO PROMPTLY RETURN YOUR PROXY.
- --------------------------------------------------------------------------------
MISSION WEST PROPERTIES, INC.
10050 Bandley Drive
Cupertino, CA 95014
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 2005
To the Stockholders of Mission West Properties, Inc.:
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Stockholders (the
"Annual Meeting") of Mission West Properties, Inc., a Maryland corporation (the
"Company"), will be held at the Company's offices at 10050 Bandley Drive,
Cupertino, California 95014 on June 1, 2005 at 10:00 a.m., Pacific time, for the
following purposes:
1. To elect five members of the Board of Directors to hold office until the
next Annual Meeting of Stockholders or until their respective successors
have been elected and qualified. The nominees are Carl E. Berg, John C.
Bolger, William A. Hasler, Lawrence B. Helzel, and Raymond V. Marino.
2. To ratify the appointment of the accounting firm of BDO Seidman, LLP as the
Company's independent registered public accounting firm for the year ending
December 31, 2005.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment of the Annual Meeting.
The Board of Directors has fixed the close of business on May 12, 2005 as
the record date for the determination of stockholders entitled to receive notice
of and to vote at the Annual Meeting and at any adjournments thereof. A list of
such stockholders will be available for inspection at the principal office of
the Company.
All stockholders are cordially invited to attend the Annual Meeting.
However, to ensure your representation, you are requested to complete, sign,
date and return the enclosed proxy as soon as possible in accordance with the
instructions on the Proxy Card. A return addressed envelope is enclosed for your
convenience. Any stockholder attending the Annual Meeting may vote in person
even though the stockholder has returned a proxy previously. Your proxy is
revocable in accordance with the procedures set forth in the Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Raymond V. Marino
----------------------------------
Raymond V. Marino
Secretary
Cupertino, California
April 26, 2005
MISSION WEST PROPERTIES, INC.
10050 Bandley Drive
Cupertino, California 95014
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PROXY STATEMENT
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Mission West Properties, Inc., a Maryland corporation
(the "Company"), of proxies, in the accompanying form, to be used at the 2005
Annual Meeting of Stockholders to be held at 10050 Bandley Drive, Cupertino,
California 95014 on June 1, 2005, at 10:00 a.m., Pacific time, and any
postponement or adjournments thereof (the "Annual Meeting").
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are being mailed on or about May 12, 2005 to all stockholders of the
Company's Common Stock entitled to notice of and to vote at the Annual Meeting.
SOLICITATION AND VOTING PROCEDURES
Shares represented by valid proxies in the form enclosed, received in time
for use at the Annual Meeting and not revoked at or before the Annual Meeting,
will be voted at the Annual Meeting, as discussed below. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of the
Company's common stock, par value $.001 per share ("Common Stock"), is necessary
to constitute a quorum at the Annual Meeting. Holders of Common Stock are
entitled to one vote per share on all matters.
Assuming the presence of a quorum, for Proposal No. 1 the affirmative vote
of a plurality of the votes cast at the Annual Meeting and entitled to vote is
required to elect the directors, and the five nominees who receive the most
votes will be elected to the Company's Board of Directors. An affirmative vote
of the holders of a majority of the votes cast affirmatively or negatively at
the Annual Meeting also is necessary for approval of Proposal No. 2 to ratify
the appointment of the Company's independent registered public accounting firm
for the fiscal year 2005 audit. All proxies will be voted as specified on the
proxy cards submitted by stockholders if the proxy is properly executed and is
received by the Company before the close of voting at the Annual Meeting or any
adjournment or postponement thereof. If no choice has been specified, a properly
executed and timely proxy will be voted for the Board's five nominees and for
Proposal No. 2, which are described in detail elsewhere in this Proxy Statement.
The Company will tabulate stockholder votes, and an officer of the Company
will tabulate votes cast in person at the Annual Meeting. With respect to the
tabulation of proxies for purposes of constituting a quorum, abstentions and
broker non-votes are treated as present. Abstentions will not be counted as
votes cast at the Annual Meeting with respect to any proposal and will have no
effect on the result of the vote. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner (i.e., in "street name") does not have
discretionary voting power with respect to a proposal and has not received
instructions from the beneficial owner. If the nominee broker properly and
timely requests instructions from the beneficial owner and does not receive
them, under applicable rules the broker has discretionary authority to vote on
certain routine matters such as the election of directors in Proposal No. 1 and
the ratification of the Company's independent registered public accounting firm
in Proposal No. 2.
The close of business on May 12, 2005 has been fixed as the record date for
determining the stockholders entitled to receive notice of and to vote at the
Annual Meeting. As of April 26, 2005, the Company had 18,247,191 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. Holders of
Common Stock outstanding as of the close of business on the record date will be
entitled to one vote for each share of Common Stock held.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in forwarding
proxy material to such beneficial owners. Solicitation of proxies by mail may be
supplemented by telephone, telegram, telex and other electronic means, and
personal solicitation by the directors, officers or employees of the Company. No
additional compensation will be paid to directors, officers or employees for
such solicitation.
The Company's Annual Report on Form 10-K for the year ended December 31,
2004 is being mailed to the stockholders with this Proxy Statement.
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VOTING ELECTRONICALLY OR BY TELEPHONE
A number of brokerage firms and banks are participating in a program
provided through ADP Investor Communication Services that offers telephone and
Internet voting options. If your shares are held in an account at a brokerage
firm or bank participating in the ADP program, you may authorize and direct
another person to act as a proxy or to appoint a proxy to vote your shares by
calling the telephone number which appears on your voting form or though the
Internet in accordance with instructions set forth on the voting form. Any such
authorization of a proxy to vote your shares through the ADP program must be
received by midnight on May 31, 2005.
The Internet and telephone voting authorization procedures are designed to
authenticate stockholders' identities, to allow stockholders to communicate
their authorization of a proxy to vote their shares and to confirm that their
instructions have been properly recorded. The Company has been advised by its
counsel that the procedures that have been put in place are consistent with the
requirements of applicable law. Stockholders communicating proxy authorization
via the Internet through ADP Investor Communication Services should understand
that there may be costs associated with electronic access, such as usage charges
from Internet access providers and telephone companies that would be borne by
the stockholder.
REVOCABILITY OF PROXIES
You can revoke your proxy at any time before the voting at the Annual
Meeting by sending a properly signed written notice of your revocation to the
Secretary of the Company, by submitting another proxy that is properly signed
and bears a later date or by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not itself revoke an earlier submitted
proxy. You should direct any written notices of revocation, requests for
additional copies of the Annual Report and Proxy Statement, and related
correspondence to: Mission West Properties, Inc., 10050 Bandley Drive,
Cupertino, California 95014, Attention: Secretary. Requests for additional
copies of the Annual Report and Proxy Statement may also be made by calling the
Company at (408) 725-0700.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the Company's executive officers and directors as of March 31,
2005 and certain information about them are set forth below:
Name Age Positions with the Company
---- --- --------------------------
Carl E. Berg 68 Chairman of the Board, Chief Executive Officer and Director
Raymond V. Marino 47 President, Chief Operating Officer and Director
Wayne N. Pham 35 Vice President of Finance and Controller
John C. Bolger (1) 58 Director
William A. Hasler (1) 63 Director
Lawrence B. Helzel (1) 57 Director
(1) Member of the Audit Committee, the Compensation Committee and the
Independent Directors Committee.
The following is a biographical summary of the business experience of the
Company's executive officers and directors:
CARL E. BERG. Mr. Berg has served as Chairman of the Board and Chief
Executive Officer of the Company since September 1997. Since 1979, Mr. Berg has
been a general partner of Berg & Berg Developers and has been a director and
officer of Berg & Berg Enterprises, Inc. since its inception. Mr. Berg is a
private investor and is also a director of Monolithic System Technology, Inc.,
Focus Enhancements, Inc., and Valence Technology, Inc.
RAYMOND V. MARINO. Mr. Marino joined the Company in June 2001 as President
and Chief Operating Officer and was appointed by the Board of Directors to fill
a newly created board seat in July 2001. From November 1996 to August 2000, he
was President, Chief Executive Officer and a member of the Board of Directors of
Pacific Gateway Properties, Inc.
WAYNE N. PHAM. Mr. Pham joined the Company in March 2000 as Controller and
was promoted to Vice President of Finance in October 2000. Mr. Pham was formerly
the Corporate Accountant and Accounting Manager at AvalonBay Communities, Inc.,
a multi-family apartment REIT.
JOHN C. BOLGER. Mr. Bolger became a director of the Company in March 1998.
Mr. Bolger is a private investor and certified public accountant. He is the
retired Vice President of Finance and Administration of Cisco Systems, Inc., a
manufacturer of computer networking systems, a position that he held from May
1989 to December 1992. Mr. Bolger is also a director of Integrated Device
Technology, Inc., Wind River Systems, Inc., Cogent Systems, Inc. and Micromuse,
Inc.
WILLIAM A. HASLER. Mr. Hasler became a director of the Company in December
1998. For seven years, Mr. Hasler was Dean of the Haas School of Business at the
University of California, Berkeley, and is a former vice chairman and director
of KPMG LLP. In 1998, he retired as Dean Emeritus and became Co-CEO of Aphton
Corporation, a public pharmaceutical company. Mr. Hasler stepped down from his
position as Co-CEO of Aphton Corporation and assumed the role of Vice-Chairman
of the Board. Mr. Hasler is also the Chairman of the Board of Directors of
Solectron Corporation and a director of Aphton Corporation, Technical Olympic
USA, Inc., Ditech Communications Network, Stratex Networks, Inc. and Genitope
Corporation. He is a public governor of the Pacific Stock and Options Exchange
and a trustee of the Schwab Funds.
LAWRENCE B. HELZEL. Mr. Helzel became a director of the Company in December
1998. Mr. Helzel is a private investor and a general partner of Helzel Kirshman,
L.P., a private investment partnership, a position which he has held for more
than five years.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to all of its
employees. The code of ethics is available on the Company's website
www.missionwest.com. If the Company makes any substantive amendments to the code
of ethics or grants any waiver, including any implicit waiver, from a provision
of the code to the Company's Chief Executive Officer, President and Chief
Operating Officer, Vice President of Finance or Controller, or persons
performing similar functions, where such amendment or waiver is required to be
disclosed under applicable SEC rules, the Company intends to disclose the nature
of such amendment or waiver on its website.
- 3 -
NUMBER, TERM AND ELECTION OF DIRECTORS
The Company's Bylaws currently provide for a Board of Directors consisting
of five directors. Each director serves for a term of one year or until the next
annual meeting at which directors are elected and the director's successor is
elected and qualified.
DESIGNATION OF CERTAIN DIRECTORS
Under the Company's Articles of Amendment and Restatement, or Charter,
Bylaws and contracts with the "Berg Group," which consists of Carl E. Berg,
Clyde J. Berg, the members of their respective immediate families, and
affiliated entities owning limited partnership interests, or O.P. Units, in any
of the Company's four operating partnerships, the Berg Group has special rights
with respect to meetings of the Board of Directors. A quorum for any meeting
requires the presence of Carl E. Berg, or in the event of his death, disability
or other event which results in his ceasing to be director, the presence of
someone who Mr. Berg has designated to replace him ("Berg Designee"). With
written consent from Mr. Berg or the Berg Designee, meetings of the Board of
Directors may be held without the presence of either of them. Mr. Berg is
obligated to submit a written statement identifying the Berg Designee to the
Company from time to time and may amend the statement at his sole discretion. In
addition, a majority of the Board of Directors, which must include Mr. Berg or
the Berg Designee, is required for approval of any amendment to the Charter or
Bylaws and any merger, consolidation or sale of all or substantially all of the
Company's assets or those of the Operating Partnerships. These special
provisions will remain in effect as long as the Berg Group collectively owns at
least 15% of the Company's voting stock computed on a diluted, or "Fully
Diluted," basis taking into account all voting stock issuable upon the exercise
of all outstanding warrants, options, convertible securities and other rights to
acquire voting stock of the Company, and all O.P. Units exchangeable or
redeemable for common stock or other voting stock of ours without regard to any
percentage ownership limit set forth in the Charter or Bylaws, or by agreement.
COMPENSATION OF DIRECTORS
The Company pays each director who is not an officer or employee of the
Company a fee for serving as director. The annual fee is equal to $15,000 plus
$1,000 for attendance (in person or by telephone) at each meeting of the Board
of Directors, excluding committee meetings. Officers who are also directors do
not receive any directors' fees.
Under the 2004 Equity Incentive Plan, which the Company's stockholders
approved at the 2004 annual meeting held in November 2004, the Board of
Directors may authorize annual option grants or awards to non-employee directors
in the Board's discretion as long as the number of shares or equivalent number
of underlying shares of common stock, in the case of certain awards, does not
exceed 50,000 per year. Such option grants or awards become exercisable
cumulatively with respect to 1/48th of the underlying shares on the first day of
each month following the date of grant. Generally, stock options must be
exercised while the optionee remains a director. In addition, the full Board of
Directors, acting through a disinterested majority, may authorize additional
shares to a director who performs significant additional tasks as the chair of a
Board of Directors committee or otherwise provides extraordinary service to the
Board. In the event of certain acquisitions representing the transfer of more
than 50% of the voting power of the Company's stock, all options and awards to
non-employee directors will fully vest under that plan.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Company's Board of Directors has standing Independent Directors, Audit
and Compensation Committees. All three of these committees have the same three
members: John C. Bolger, William A. Hasler and Lawrence B. Helzel. Each one is
independent within the meaning of AMEX's Listing Standards, Policies and
Requirements.
The Independent Directors Committee is responsible for reviewing and acting
upon proposed transactions between the Company and members of the Berg Group
under the terms of certain agreements between the Company and such Berg Group
members. See "Certain Relationships and Related Transactions." The meetings of
this committee occur at the same time as the Audit Committee meetings.
The Audit Committee has been established in accordance with section
3(a)(58)(A) of the Securities Exchange Act. The Audit Committee reviews, acts on
and reports to the Board of Directors with respect to various auditing and
accounting matters. The Audit Committee has the authority and responsibility to
select, evaluate, and where appropriate, replace the Company's independent
registered accounting firm. The Board of Directors has determined that Mr.
Bolger, the Chairman of the Audit Committee, and Mr. Hasler are each an "audit
committee financial expert" in accordance with applicable SEC rules. The Audit
Committee also approves the scope of the services provided and reviews the
annual audit fees to be paid to the Company's independent registered public
- 4 -
accounting firm, the performance of that firm, the audit report of the Company's
consolidated financial statements following completion of the audit and the
accounting practices of the Company with respect to internal accounting and
financial controls.
During the year ended December 31, 2004, there were six meetings of the
Board of Directors, four meetings of the Audit Committee and Independent
Directors Committee, and no meetings of the Compensation Committee. All five
directors attended 100% of the total number of meetings of the Board of
Directors. Each of the directors attended 100% of the meetings of the committees
of the Board of Directors of which he is a member.
The Board of Directors has delegated to the Compensation Committee
responsibility for reviewing, recommending and approving its compensation
policies and benefits programs, including the compensation of Carl E. Berg,
Chairman of the Board and Chief Executive Officer, and the Company's other two
executive officers. The Compensation Committee also has the principal
responsibility for the administration of the Company's equity compensation plan,
including approving stock option grants and awards to executive officers.
The Board of Directors does not believe that a nominating committee is
necessary because all the independent directors currently serve on the
Independent Directors, Audit and Compensation Committees, and any additional
committee of independent directors would consist of the same individuals. The
Berg Group has the right to designate two nominees to the Board of Directors
under the Company's Charter and Bylaws. Currently, Mr. Berg is the only nominee
proposed by the Berg Group. The three current independent directors, Messrs.
Bolger, Hasler and Helzel have been designated by the Board to review the
qualifications of all other candidates for director and to give their
recommendations to the entire Board of Directors, which reviews and approves
nominations for election to the Board of Directors at the next annual meeting of
stockholders. The independent directors will give director candidates proposed
by stockholders the same consideration as other proposed candidates.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders who desire to communicate with the Board, or to a specific
director, may do so by delivering the communication addressed to either the
Board of Directors or any director, c/o Mission West Properties, Inc., 10050
Bandley Drive, Cupertino, California 95014. These communications will be
delivered to the Board, or any individual director, as specified.
The Company has a policy that each director should make every reasonable
effort to attend each annual meeting of stockholders. At the Company's 2004
annual meeting of stockholders, two of the Company's directors were in
attendance.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and all other
executive officers of the Company (collectively the "named executive officers"),
for the years ended December 31, 2004, 2003 and 2002.
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation (1) Options Compensation
-------------------------------- ------ -------- ------- ------------------ ------------ --------------
Carl E. Berg 2004 $100,000 $ -- $22,500 -- --
Chairman of the Board and Chief 2003 100,000 -- 22,500 -- --
Executive Officer 2002 100,000 -- 22,500 -- --
Raymond V. Marino 2004 200,000 -- 30,000 -- --
President and Chief Operating 2003 200,000 -- 30,000 -- --
Officer 2002 200,000 -- 30,000 -- --
Wayne N. Pham 2004 112,500 -- 16,875 -- --
Vice President and Controller 2003 112,500 -- 16,875 -- --
2002 94,000 -- 14,100 -- --
(1) Consists of the Company's employer contribution to 401(k) plan.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant stock options or awards to purchase any shares of
Common Stock to any named executive officer with respect to the fiscal year
ended December 31, 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table provides information regarding the number of shares
covered by both exercisable and unexercisable stock options as of December 31,
2004 held by the named executive officers and the values of "in-the-money"
options, which values represent the positive spread between the exercise price
of any such options and the fiscal year-end value of the Company's Common Stock.
There were no option exercises by any of the named executive officers during the
fiscal year ended December 31, 2004.
Number of Securities Value of the Unexercised
Underlying Unexercised In-The-Money Options at
Shares Options at December 31, 2004 December 31, 2004 (1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------------- ------------- --------------- ------------- -------------- ------------- --------------
Carl E. Berg -- N/A N/A N/A N/A N/A
Raymond V. Marino -- N/A 229,167 145,833 - -
Wayne N. Pham -- N/A 149,000 3,000 $191,200 -
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $10.64, the closing
market price per share of the Company's Common Stock as reported on the
American Stock Exchange on December 31, 2004, the last trading day for the
year.
- 6 -
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The following table provides information as of December 31, 2004 regarding
equity compensation plans approved by the Company's security holders. The
Company does not have any equity compensation plans that have not been approved
by our security holders.
Number of Shares Number of Shares of Common
of Common Stock Remaining Available
Stock to be Issued Weighted-Average for Future
Upon Exercise of Exercise Price of Issuance Under Equity
Plan Category Outstanding Options Outstanding Options Compensation Plans
------------- ------------------- ------------------- --------------------------
Equity Compensation plans approved by security holders 767,000 $11.44 3,991,089
Equity Compensation plans not approved by security holders N/A N/A N/A
Total 767,000 $11.44 3,991,089
- 7 -
SHARE OWNERSHIP
The following table sets forth certain information as of March 31, 2005,
concerning the ownership of Common Stock by (i) each stockholder of the Company
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each current member of the Board of
Directors of the Company, (iii) each named executive officer and (iv) all
current directors and executive officers of the Company as a group.
The Company has relied on information supplied by its officers, directors
and certain shareholders and on information contained in filings with the SEC.
Percent of All
Shares of
Common Stock
(Assuming Percent of All
Number of Shares Percent of Exchange of Shares of Common
Beneficially All Shares of Number of O.P Holder's O.P. Stock/O.P. Units
Name Owned (1) Common Stock Units Units) (2) (1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS:
Carl E. Berg __ * 44,888,441(3)(13) 71.21% 42.76%
Chairman of the Board, Chief Executive
Officer and Director
Raymond V. Marino 274,238 (4) 1.51% __ 1.51% *
President, Chief Operating Officer and
Director
Wayne N. Pham 152,000 (5) * __ * *
Vice President of Finance and Controller
John C. Bolger, Director 54,222 (6) * __ * *
96 Sutherland Drive
Atherton, CA 94027
William A. Hasler, Director 46,000 (7) * __ * *
c/o Aphton Corporation
1 Market Street, Spear Tower, Ste. 1850
San Francisco, CA 94105
Lawrence B. Helzel, Director 219,500 (8) 1.21% __ 1.21% *
c/o Helzel Kirshman, LP
5550 Redwood Road, Suite 4
Oakland, CA 94619
5% STOCKHOLDERS:
Cohen & Steers Capital Management, Inc. 2,031,400 (9) 11.19% __ 11.19% 1.93%
757 Third Avenue
New York, NY 10017
Neuberger Berman, LLC 2,197,566 (10) 12.11% __ 12.11% 2.09%
Neuberger Berman, Inc.
605 Third Avenue
New York, NY 10158
Ingalls & Snyder, LLC 2,815,281 (11) 15.51% __ 15.51% 2.68%
61 Broadway
New York, NY 10006
Clyde J. Berg __ * 43,478,470(12)(13)70.55% 41.41%
c/o Berg & Berg Developers
10050 Bandley Drive
Cupertino, CA 95014
Berg & Berg Enterprises, Inc. (15) __ * 10,789,383 37.29% 10.28%
10050 Bandley Drive
Cupertino, CA 95014
Thelmer G. Aalgaard __ * 1,854,225 9.27% 1.77%
c/o Berg & Berg Developers
10050 Bandley Drive
Cupertino, CA 95014
John T. Kontrabecki __ * 1,755,761 8.82% 1.67%
2755 Campus Drive, Suite 100
San Mateo, CA 94403
All Directors and Officers as a group (6 745,960 (14) 4.11% 44,888,441 (12) 72.39% 43.47%
persons)
- ---------------------------------------------
* Less than 1%.
- 8 -
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and include
securities which such person has the right to acquire within 60 days of
March 31, 2005. Unless otherwise indicated, the persons or entities
identified in this table have sole voting and investment power with respect
to all shares shown as beneficially owned by them. Common Stock percentage
ownership interest calculations are based on 18,147,191 shares outstanding
as of March 31, 2005 and exclude all shares of Common Stock issuable upon
the exercise of outstanding options other than the shares so issuable
within 60 days under options held by the named person. Common Stock/O.P.
Units percentage ownership interest calculations are based on 104,481,886
shares of Common Stock and O.P. Units exchangeable for Common Stock as of
March 31, 2005.
(2) Assumes O.P. Units are exchanged for shares of Common Stock without regard
to (i) whether such O.P. Units may be exchanged for shares of Common Stock
within 60 days of March 31, 2005, and (ii) certain ownership limit
provisions set forth in the Company's Articles of Amendment and
Restatement.
(3) Includes O.P. Units in which Mr. Berg has a pecuniary interest because of
his status as a limited partner in the operating partnerships. Also
includes an additional 10,789,383, 196,428 and 169,131 shares of Common
Stock held by or issuable on exchange of O.P. Units beneficially owned by
Berg & Berg Enterprises, Inc., Berg & Berg Enterprises, LLC and West Coast
Venture Capital, Inc., respectively. Mr. Berg disclaims beneficial interest
in any shares or O.P. Units deemed beneficially owned by Kara Ann Berg, his
daughter, and the 1981 Kara Ann Berg Trust.
(4) Includes 255,208 shares of Common Stock issuable on exercise of options.
Does not include 119,792 unvested shares of Common Stock issuable on
exercise of options that are not exercisable within 60 days.
(5) Includes 152,000 shares of Common Stock issuable on exercise of options.
(6) Includes 32,000 shares of Common Stock issuable on exercise of options.
(7) Includes 32,000 shares of Common Stock issuable on exercise of options.
(8) Includes 32,000 shares of Common Stock issuable on exercise of options.
(9) Cohen & Steers Capital Management, Inc. is the beneficial owner on behalf
of other persons. No such person is known to have an interest in more than
5% of the Common Stock reported. Amount based on the filing of Schedule 13G
on February 14, 2005.
(10) Neuberger Berman, LLC & Neuberger Berman, Inc. is the beneficial owner on
behalf of other persons. One employee, Dan McCarthy, has an interest in
5.5% of the Common Stock reported. No other person is known to have an
interest in more than 5% of the Common Stock reported. Amount based on
information reported by the stockholder.
(11) Ingalls & Snyder, LLC is the beneficial owner on behalf of other persons.
No such person is known to have an interest in more than 5% of the Common
Stock reported. Amount based on the filing of Schedule 13G on February 11,
2005.
(12) Includes O.P. Units in which Mr. Berg has a pecuniary interest because of
his status as a limited partner in the operating partnerships. Also
includes L.P. Units held by Mr. Berg as trustee of the 1981 Kara Ann Berg
Trust and an additional 10,789,383 shares of Common Stock held by or
issuable on exchange of O.P. Units beneficially owned by Berg & Berg
Enterprises, Inc. This does not include any share deemed beneficially owned
by Sonya L. Berg and Sherri L. Berg, his daughters, as to which he
disclaims beneficial ownership.
(13) Carl E. Berg is an executive officer and director and Clyde J. Berg is a
director of Berg & Berg Enterprises, Inc. With members of their immediate
families, the Messrs. Berg beneficially owns, directly and indirectly, all
of the O.P. Units of Berg & Berg Enterprises, Inc.
(14) Current officers and directors include Carl E. Berg, Raymond V. Marino,
Wayne N. Pham, John C. Bolger, William A. Hasler, and Lawrence B. Helzel.
See Notes 3 through 8.
- 9 -
CONTRACTUAL AND OTHER CONTROL ARRANGEMENTS
SPECIAL BOARD VOTING PROVISIONS. The Charter and Bylaws provide substantial
control rights for the Berg Group. These rights include a requirement that Mr.
Berg or his designee as director approve certain fundamental corporate actions,
including amendments to the Charter and Bylaws and any merger, consolidation or
sale of all or substantially all of the Company's assets. In addition, the
Bylaws provide that a quorum necessary to hold a valid meeting of the Board of
Directors must include Mr. Berg or his designee. The rights described in the two
preceding sentences apply only as long as the Berg Group members and their
affiliates, other than the Company and the Operating Partnerships, beneficially
own, in the aggregate, at least 15% of the outstanding shares of common stock on
a Fully Diluted basis. In addition, directors representing more than 75% of the
entire Board of Directors must approve other significant transactions, such as
incurring debt above certain amounts, acquiring assets and conducting business
other than through the Operating Partnerships.
BOARD OF DIRECTORS REPRESENTATION. The Berg Group members have the right to
designate two of the director nominees submitted by the Board of Directors to
stockholders for election, as long as the Berg Group members and their
affiliates, other than the Company and the Operating Partnerships, beneficially
own, in the aggregate, at least 15% of the Company's outstanding shares of
common stock on a Fully Diluted basis. If the Fully Diluted ownership of the
Berg Group members and their affiliates is less than 15% but is at least 10% of
the common stock, the Berg Group members have the right to designate one of the
director nominees submitted by the Board of Directors to stockholders for
election. Its right to designate director nominees affords the Berg Group
substantial control and influence over the management and direction of the
Company.
SUBSTANTIAL OWNERSHIP INTEREST. The Berg Group currently owns O.P. Units
representing approximately 74.2% of the equity interests in the operating
partnerships. The O.P. Units may be converted into shares of Common Stock,
subject to limitations set forth in the Charter (including an overall 20%
ownership limitation for the Berg Group), and other agreements with the Berg
Group. Upon conversion these shares would represent voting control of the
Company. The Berg Group's ability to exchange its O.P. Units for common stock
permits it to exert substantial influence over the management and direction of
the Company.
LIMITED PARTNER APPROVAL RIGHTS. Mr. Berg and other limited partners of the
Operating Partnerships, including other members of the Berg Group, may restrict
the Company's operations and activities through rights provided under the terms
of the Amended and Restated Agreement of Limited Partnership which governs each
of the Operating Partnerships and the Company's legal relationship to each
Operating Partnership as its general partner. Matters requiring approval of the
holders of a majority of the O.P. Units, which necessarily would include the
Berg Group, include (i) the amendment, modification or termination of any of the
Operating Partnership Agreements; (ii) the transfer of any general partnership
interest in the Operating Partnerships, including, with certain exceptions,
transfers attendant to any merger, consolidation or liquidation of the Company;
(iii) the admission of any additional or substitute general partners in the
Operating Partnerships; (iv) any other change of control of the Operating
Partnerships; (v) a general assignment for the benefit of creditors or the
appointment of a custodian, receiver or trustee of any of the assets of the
Operating Partnerships; and (vi) the institution of any bankruptcy proceeding
for any Operating Partnership.
In addition, as long as the Berg Group members and their affiliates,
beneficially own, in the aggregate, at least 15% of the outstanding shares of
common stock on a Fully Diluted basis, the consent of the limited partners
holding the right to vote a majority of the total number of O.P. Units
outstanding is also required with respect to (i) the sale or other transfer of
all or substantially all of the assets of the Operating Partnerships and certain
mergers and business combinations resulting in the complete disposition of all
O.P. Units; (ii) the issuance of limited partnership interests senior to the
O.P. Units as to distributions, assets and voting; and (iii) the liquidation of
the Operating Partnerships.
- 10 -
COMPARISON OF SHAREHOLDER RETURN ON INVESTMENT
The following line graph compares the change in the Company's cumulative
stockholder return on its shares of Common Stock to the cumulative total return
of the NAREIT Equity REIT Total Return Index ("NAREIT Equity Index") and the
Standard & Poor's 500 Stock Index ("S & P 500 Index") from December 31, 1999 to
December 31, 2004. The line graph starts December 31, 1999. The graph assumes
that the value of the investment in the Company's Common Stock was $100 at
December 31, 1999 and that all dividends were reinvested. The Common Stock's
price on December 31, 1999 was $7.75. The Company obtained the information about
the NAREIT Equity Index and S & P 500 Index from each entity respectively, and
has assumed that the information is reliable, but cannot assume its accuracy.
[OBJECT OMITTED]
Mission West
Properties, Inc. S & P 500 Index NAREIT Equity Index
---------------- --------------- -------------------
1999 $100.00 $100.00 $100.00
2000 $189.95 $90.90 $126.37
2001 $187.02 $80.09 $143.97
2002 $158.16 $62.39 $149.47
2003 $224.95 $80.29 $204.98
2004 $199.30 $89.02 $269.70
(1) The stock price performance shown in the graph is not necessarily
indicative of future performance of the Company's Common Stock.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate
this Proxy Statement on future filings made by the Company under those
statutes, the Audit Committee Report, the Report on Executive Compensation
and Stock Performance Graph are not deemed filed with the Securities
Exchange Commission and shall not be deemed incorporated by reference into
any such filings.
- 11 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PROPERTY ACQUISITIONS AND FINANCIAL TRANSACTIONS BETWEEN THE COMPANY AND THE
BERG GROUP
FORMATION OF THE COMPANY. Through a series of transactions in 1997 and
1998, the Company became the vehicle for substantially all of the Silicon Valley
R&D property activities of the Berg Group, which includes Mr. Berg, his brother
Clyde J. Berg, members of their families and a number of entities in which they
have controlling or substantial ownership interests. The Company owns these
former Berg Group properties, as well as the rest of its properties, through the
Operating Partnerships, of which the Company is the sole general partner.
Through various property acquisition agreements with the Berg Group, the Company
has the right to purchase, on pre-negotiated terms, R&D and other types of
office and light industrial properties that the Berg Group develops in the
future in the states of California, Oregon and Washington the details of which
are set forth above. Since September 1998, the Company has acquired a total of
approximately 3,100,000 million rentable square feet of R&D buildings under the
Pending Projects Acquisition Agreement and the Berg Land Holdings Option
Agreement. The total cost of these properties was approximately $478 million.
The Company issued a total of 27,962,025 O.P. Units and assumed debt totaling
approximately $209 million to acquire them.
RELATED PARTY DEBT. As of December 31, 2004 and 2003, debt in the amount of
$9.6 million and $6.3 million, respectively, was due the Berg Group under the
$20 million line of credit, which is collateralized by five of our properties
and expires in March 2006. The line of credit bears interest at an annual rate
of LIBOR plus 1.30%. The Berg Group has no obligation to renew this line of
credit when it expires, and we may be unable to obtain a similar credit facility
on comparable terms. We borrowed and repaid amounts under this line of credit at
various times during 2004. Additionally, in 2004 and 2003, the operating
partnerships declared distributions of $0.88 and $0.96 per O.P. Unit,
respectively. Distributions paid to various members of the Berg Group were $69.1
million and $75.2 million in 2004 and 2003, respectively. Interest expense
incurred in connection with the Berg Group line of credit was $0.3 million, $0.2
million and $2.6 million for the years ended December 31, 2004, 2003 and 2002,
respectively.
As of December 31, 2004 and 2003, debt in the amount of $10.4 million and
$10.8 million, respectively, was due the Berg Group under a mortgage note
established May 15, 2000 in connection with the acquisition of a 50% interest in
Hellyer Avenue Limited Partnership, the obligor under the mortgage note. The
mortgage note bears interest at 7.65%, and is due in ten years with principal
payments amortized over 20 years. Interest expense incurred in connection with
the Berg Group mortgage note was $0.8 million, $0.8 million and $0.9 million for
the years ended December 31, 2004, 2003 and 2002, respectively.
If we are unable to repay our debts to the Berg Group when due, the Berg
Group could take action to enforce our payment obligations. Potential actions by
the Berg Group to enforce these obligations could result in the foreclosure in
one or more of our properties and a reduction in the amount of cash
distributions to our stockholders. In turn, if we fail to meet the minimum
distributions test because of a loan default or another reason, we could lose
our REIT classification for federal income tax purposes.
TRANSFER OF INTEREST TO BERG GROUP IN CONSOLIDATED JOINT VENTURE. In July
2000, the Hellyer Avenue Limited Partnership ("Hellyer LP") was formally
organized as a California limited partnership between Mission West Properties,
L.P. ("MWP"), of which the Company is the managing general partner, and Republic
Properties Group ("RPC"), an unaffiliated third party, as a general partner and
limited partner. MWP was designated as the managing general partner of Hellyer
LP. For a 50% ownership interest in Hellyer LP, RPC agreed to cause Stellex
Microwave Systems, Inc. ("Stellex") to provide a 15-year lease on an approximate
160,000 square foot R&D building to be constructed by Berg & Berg Enterprises,
Inc. ("BBE") on land owned by another Berg Group member.
As part of the transaction, MWP acquired the underlying land pursuant to
the Berg Land Holdings Option Agreement for a price of $5.7 million by issuing
659,223 O.P. Units to the Berg Group entity that owned the property. Further,
under the terms of the Hellyer LP partnership agreement MWP then contributed the
land to the partnership at an agreed value of $9.6 million which amount was to
be amortized and paid to MWP in the form of income and cash flow preferences.
The transaction was reviewed and approved by the Independent Directors
Committee.
In connection with the transaction, BBE built and paid for all improvements
on the land. The total cost of the R&D building, exclusive of specified tenant
improvements obligations, was approximately $11.4 million. Hellyer LP issued a
note for the amount of those construction costs to BBE, which note was secured
by the buildings.
Because RPC's interest in Hellyer LP was attributable solely to its
commitment to obtain Stellex as a tenant for the property, the partnership
agreement provided that if a payment default occurred within the first five
years of the Stellex lease, RPC would lose 100% of its interest in the
partnership, and if a payment default occurred during the second five year
period under the lease, RPC would lose 50% of its interest in Hellyer LP.
- 12 -
Pursuant to RPC's commitment to Hellyer LP, Stellex executed a lease
agreement obligating Stellex, among other things, to pay monthly rent starting
at $1.60 per square foot on a triple net basis for 15 years and to reimburse BBE
for the tenant improvement obligations, which ultimately totaled approximately
$10.5 million.
Under the lease terms, Stellex was obligated to reimburse BBE in full for
the tenant improvement costs no later than August 25, 2000. Several days before
the due date, representatives of Stellex met with representatives of MSW and
informed them that Stellex could not pay the balance due BBE. Stellex requested
MSW immediately to draw down the letter of credit as a result of a default on
the tenant improvement payment required under the lease.
On September 1, 2000, MWP, as the general partner of Hellyer LP, ceased all
allocations of income and cash flow to RPC and exercised the right under the
partnership agreement to cancel RPC's entire interest in the partnership.
Following discussions with and approval by the Independent Directors Committee,
the Company authorized the transfer of RPC's interest in Hellyer LP to BBE.
Under the Berg Land Holdings Option Agreement and the Acquisition Agreement
dated as of May 14, 1998, the Independent Directors Committee had the right, but
not the obligation, to reacquire the property interest and the related
distributions related to the property interest at any time. The transfer was
effective as of September 1, 2000.
Stellex filed for bankruptcy protection on September 12, 2000. On November
20, 2000, RPC filed suit in the Circuit Court of Maryland for Baltimore City to
recover past distributions and its interest in the Hellyer LP., and the Company
counter-sued on behalf of MWP and itself in Superior Court of California for the
County of Santa Clara in February 2001.
In January 2002, Stellex was acquired through its bankruptcy proceeding by
a division of Tyco Corporation. In connection with the acquisition of Stellex,
the purchaser assumed the lease with Hellyer LP, agreed to comply with all terms
of the lease and reimbursed BBE for the tenant improvements, as required under
the lease agreement and the Bankruptcy Court order.
Since the inception of Hellyer LP, the Company has accounted for the
properties owned by the partnership on a consolidated basis, with reductions for
the minority interest held by the minority partner (first RPC and then BBE). In
each period, the Company has accrued amounts payable by Hellyer LP to the
minority interest partner, including BBE, prior to payment. Through December 31,
2004, accumulated cash flow distributions from Hellyer LP totaling approximately
$2.2 million were accrued, of which $2.1 million was distributed to BBE, which
has been classified on the Company's consolidated balance sheets as an account
receivable from BBE with an offsetting account payable to BBE. The Company did
not object to that proposed classification.
In April 2004, the Circuit Court of Maryland for Baltimore City issued its
decision in the Maryland suit, and awarded damages of approximately $1.1 million
to RPC. The court denied all requests by MWP, including a declaration that all
of RPC's interests in Hellyer L.P. were validly converted to limited partnership
interests and transferred to MWP or its designee in accordance with the terms of
the Hellyer L.P. partnership agreement. The court also denied RPC's request for
an injunction ordering the reinstatement of RPC's partnership interests in
Hellyer L.P. MWP has appealed the decision to the Maryland Appeals Court. If the
litigation with RPC is ultimately decided in RPC's favor, the Company
anticipates that BBE may be required to return RPC's former interest in Hellyer
LP and all prior distributions to RPC. If the litigation is ultimately decided
in the Company's favor, the Independent Directors Committee has the right, but
not the obligation, to acquire the former RPC interest and related distributions
from BBE under the terms of the Berg Land Holdings Option Agreement and the
Acquisition Agreement. In July 2004, RPC attached the Company's bank account for
approximately $1.1 million. Following a July 2004 hearing in the Superior Court
of the State of California for the County of Santa Clara the Company posted a
$1.5 million appeal bond in August 2004 and RPC removed the attachment on the
Company's bank account until final resolution of the appeal in Maryland.
On February 4, 2005, the Maryland Appeals Court heard our appeal. On March
1, 2005, the Maryland Appeals Court ruled in favor of MWP, finding that the
Circuit Court of Maryland could not assert personal jurisdiction in the RPC
suit. The Maryland Appeals Court will issue its mandate within 30 days, after
which RPC will have 15 days to seek a writ of certiorari to the Maryland Appeals
Court.
BERG COMMITMENT TO COMPLETE FUTURE IMPROVEMENTS AND BUILDING IN CONNECTION
WITH CERTAIN ACQUISITIONS FROM THE BERG GROUP UNDER THE BERG LAND HOLDINGS
OPTION AGREEMENT. The Berg Group has an approximately $7.5 million commitment to
complete an approximately 75,000 to 90,000 square foot building in connection
with the Company's 2001 acquisition of 245 Caspian in Sunnyvale, which consisted
of approximately three acres of unimproved land zoned for commercial
development. The Berg Group has an approximately $2.5 million commitment to
complete certain tenant improvements in connection with the Company's 2002
acquisition of 5345 Hellyer Avenue in San Jose.
- 13 -
BERG CONTROLLED ENTITIES HAVE FINANCIAL INTERESTS IN CERTAIN TENANTS THAT
LEASE SPACE FROM THE COMPANY. During December 31, 2004, 2003 and 2002, Carl E.
Berg or entities controlled by Mr. Berg have financial interests in several
companies that lease space from the operating partnerships, which include three
companies where Mr. Berg has a greater than 10% ownership interest. These
related tenants occupy approximately 48,000 square feet and contributed $866,000
$904,000 and $748,000 in rental revenue in 2004, 2003 and 2002, respectively.
Leasing and Overhead Reimbursements Provided by Berg Controlled Entity. The
Company currently leases office space owned by Berg & Berg Enterprises, Inc., an
affiliate of Carl E. Berg and Clyde J. Berg. Rental amounts and overhead
reimbursements paid to Berg & Berg Enterprises, Inc. were $90,000 for the years
ended December 31, 2004, 2003 and 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
a registered class of the Company's 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 ours. Directors, executive officers and greater
than 10% holders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file
To the Company's knowledge, based solely on review of the copies of the
above-mentioned reports furnished to the Company and written representations
regarding all reportable transactions, during the fiscal year ended December 31,
2004, all Section 16(a) filing requirements applicable to its directors,
officers and greater than ten percent holders were complied with on time.
REPORT ON EXECUTIVE COMPENSATION BY THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
COMPENSATION PHILOSOPHY
The Company's executive compensation policy is designed to attract and
retain qualified executive personnel by providing executives with a competitive
total compensation package based in large part on their contribution to the
financial and operational success of the Company, the executive's personal
performance and increases in stockholder value as measured by the Company's
stock price.
COMPENSATION PROGRAM
The compensation package for the Company's executive officers consists of
the following three components:
BASE SALARY. The Compensation Committee determines the base salary of each
executive based on the executive's scope of responsibility, past accomplishments
and experience and personal performance, internal comparability considerations
and data regarding the prevailing compensation levels for comparable positions
in relevant competing executive labor markets. The Committee may give different
weight to each of these factors for each executive, as it deems appropriate. In
selecting comparable companies for the purpose of setting competitive
compensation for the Company's executives, the Compensation Committee considers
many factors not directly associated with stock price performance, such as
geographic location, annual revenue and profitability, organizational structure,
development stage and market capitalization.
ANNUAL INCENTIVE COMPENSATION. At the present time, the Company does not
have an annual incentive compensation program in place. However, the
Compensation Committee may in the future at the Compensation Committee's
discretion institute an annual incentive program.
STOCK OPTIONS AND AWARDS. The Compensation Committee believes that granting
stock options and/or awards to executives and other key employees on an ongoing
basis gives them a strong incentive to maximize stockholder value and aligns
their interests with those of other stockholders. The Compensation Committee
determines stock option grants and awards to executives and has authorized the
Company's CEO to determine stock option grants and awards for all other
employees, subject to the Compensation Committee's approval of total share
allocations from the Option Plan. In determining the size of stock option grants
and awards, the Compensation Committee considers the executive's current
position with and responsibilities to the Company, potential for increased
responsibility and promotion over the option term, tenure with the Company and
performance in recent periods, as well as the size of
- 14 -
comparable awards made to executives in similar positions in competing executive
labor markets. Generally, each stock option grant allows the executive to
purchase shares of Common Stock at a price per share equal to the market price
on the date the option is granted, but the Compensation Committee has the power
to grant options at a lower price if considered appropriate under the
circumstances. Each stock option grant generally becomes exercisable, or vests,
in installments over time, or contingent upon the executive's continued
employment with the Company. Management did not recommend and the Compensation
Committee did not authorize any stock option grants or awards in 2004.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The annual salary for Mr. Berg was
set in 1997 and first became payable in 1998. The Compensation Committee has no
plan to adjust his compensation.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code generally disallows a tax deduction to publicly-held
companies for compensation paid to certain executive officers, to the extent
that compensation paid to the officer exceeds $1 million during the taxable
year. The compensation paid to the Company's executive officers for the year
ended December 31, 2004 did not exceed the $1 million limit per officer. In
addition, the Option Plan and executive incentive option grants have been
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of his or her outstanding options with an exercise
price per share equal to the fair market value per share of the common stock on
the grant date will qualify as performance-based compensation that will not be
subject to the $1 million limitation. It is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, and the Compensation
Committee does not expect to take any action at this time to modify cash
compensation payable to the Company's executive officers to avoid the
application of Section 162(m).
The Compensation Committee of the Board of Directors:
John C. Bolger
William A. Hasler
Lawrence B. Helzel
- 15 -
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was formed in December
1998 and currently is comprised of Messrs. John C. Bolger, William A. Hasler and
Lawrence B. Helzel. None of these individuals were at any time during 2004, or
at any other time, an officer or employee of the Company. No executive officer
of ours serves as a member of the compensation committee of any other entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
AUDIT COMMITTEE REPORT
The Board of Directors adopted an amended Audit Committee Charter on April
28, 2004, which sets forth the responsibilities of the committee. The Company
notes, however, that management has primary responsibility for its financial
statements and the overall financial reporting process, including its system of
internal controls. Furthermore, the Company's independent registered public
accounting firm audits management's assessment of the effectiveness of internal
control over financial reporting and the financial statements prepared by
management, expresses an opinion on whether those financial statements fairly
present the financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America, and discusses with the Audit Committee any issues they believe should
be raised with us.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for fiscal year 2004 and management's assessment of
the effectiveness of internal control over financial reporting with management
and the Company's independent registered public accounting firm, BDO Seidman,
LLP ("BDO"). The Audit Committee discussed with BDO matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee was also provided by BDO the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with BDO that firm's independence.
Based on the discussions with BDO concerning the audits, the independence
discussions and the financial statement review, and such other matters deemed
relevant and appropriate by the Audit Committee, we recommended to the Board of
Directors that the Company's financial statements for the fiscal year ended
December 31, 2004 be included in its 2004 Annual Report on Form 10-K filed with
the SEC.
The Audit Committee of the Board of Directors:
John C. Bolger
William A. Hasler
Lawrence B. Helzel
- 16 -
--------------------------------------------------------
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
--------------------------------------------------------
At the Annual Meeting, five directors (constituting the entire Board of
Directors) are to be elected to serve until the next annual meeting of
Stockholders and until each director's successor is elected and qualified, or
until the death, resignation or removal of such director. There are five
nominees, all of whom are currently directors of the Company.
NOMINEES
Set forth below is information regarding the nominees for election to the
Board of Directors:
Name Position(s) with the Company First Elected Director
- ----------------------------- --------------------------------------------------------------- ----------------------------
Carl E. Berg Chairman of the Board, Chief Executive Officer and Director 1997
John C. Bolger Director 1998
William A. Hasler Director 1998
Lawrence B. Helzel Director 1998
Raymond V. Marino President, Chief Operating Officer and Director 2001
In accordance with the Company's Bylaws, it is a qualification of two
directors that they be nominated by the Berg Group and that one such director be
Carl E. Berg, or the Berg Designee as long as the Berg Group and its affiliates
(other than the Company and the Operating Partnership) own at least 15% of the
Fully Diluted number of shares. The Company has been advised by Mr. Berg, who
represents the Berg Group, that he will be the only Berg Group nominee for
election at this meeting.
A plurality of the votes cast at the Annual Meeting is required to elect
each nominee as a director. Unless authority to vote for any of the nominees
named above is withheld, the shares represented by the enclosed proxy will be
voted FOR the election as directors of such nominees. Each person nominated has
agreed to serve if elected, and the Board of Directors has no reason to believe
that any nominee will be unavailable or will decline to serve. In the event,
however, that any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the current Board of Directors to fill the vacancy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE ABOVE NOMINEES.
- 17 -
-----------------------------------------------------------
PROPOSAL NO. 2:
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-----------------------------------------------------------
The Audit Committee of our Board of Directors has appointed BDO Seidman,
LLP, as our independent registered public accounting firm, to audit the
financial statements of the Company for the year ending December 31, 2005. The
Board of Directors proposes that the stockholders ratify this appointment.
The Company expects that representatives of BDO Seidman, LLP will be
present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
In the event that stockholders fail to ratify the appointment, the Audit
Committee will reconsider its selection. Even if the selection is ratified, the
Audit Committee, in its discretion, may direct the appointment of a different
independent registered public accounting firm at any time during the year if the
Audit Committee determines that such a change would be in the Company's best
interests.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
On January 26, 2004, the Company's independent registered public accounting
firm, PricewaterhouseCoopers LLP ("PWC") resigned, did not render an audit
opinion on the Company's fiscal year 2003 financial statements and withdrew its
audit opinions on the Company's fiscal year 2002 and 2001 financial statements.
In May 2004, the Audit Committee appointed BDO as the Company's new independent
registered public accounting firm to complete the audit of the Company's
financial statements for the years ending December 31, 2003, 2002 and 2001.
The aggregate fees billed to the Company by BDO Seidman, LLP for
professional services rendered with respect to 2004 and 2003 fiscal years are as
follows:
BDO 2004 2003
-------- --------
Audit Fees (1) $350,655 $151,253
(1) Includes the aggregate fees billed for the audit and review of the
Company's annual and quarterly financial statements and the audit of
internal controls over financial reporting in 2004.
In addition to the 2004 and 2003 audit fees noted above, the Company also
paid BDO Seidman, LLP $302,506 in audit fees in 2004 for the re-audits of the
Company's 2002 and 2001 financial statements.
There were no other audit related, tax or other fees or any fees for
non-audit services accrued by or billed to the Company by BDO Seidman, LLP in
2004 and 2003.
The aggregate fees accrued by or billed to the Company by PWC for
professional services rendered with respect to fiscal year 2003 is as follows:
PWC 2003
--------
Audit Fees (1) $121,050
Tax Fees (2) 10,800
--------
Total 131,850
(1) Audit Fees include amounts related to professional services rendered in
connection with audits of the Company's annual financial statements and the
reviews of its quarterly financial statements.
(2) Tax fees include amounts billed for professional services rendered by
accountants for tax advisory.
There were no other audit related, tax or other fees or any fees for
non-audit services accrued by or billed to the Company by
PricewaterhouseCoopers, LLP in 2003.
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The Audit Committee pre-approves all annual audit engagement services and
fees and all fees for non-audit services (other than non-audit services that are
de minimus within the meaning of section 10A(i)(l)(B) of the Securities Exchange
Act and non-audit services that the independent accountants are prohibited from
providing to us). The Audit Committee requires the independent accountants to
submit a detailed proposal and budget for each engagement prior to the
commencement of the engagement. Additional services must be pre-approved by the
Audit Committee or the Chairman of the Audit Committee to whom pre-approval
authority has been delegated. All services of the independent registered public
accountants relating to review and attestation of internal controls and
procedures are pursuant to section 404 of the Sarbanes Oxley Act.
There were no fees paid to independent accountants in the past three fiscal
years that were for non-audit services that the Audit Committee or Chairman did
not pre-approve.
CHANGE OF ACCOUNTANTS
On January 26, 2004, PricewaterhouseCoopers, LLP, San Francisco, California
("PWC"), the independent registered public accounting firm previously engaged as
the principal accountant to audit the financial statements of Mission West
Properties, Inc., (the "Company"), resigned as independent auditors for the
Company. PWC did not issue a report of independent auditors' with respect to the
Company's 2003 financial statements prior to its resignation.
The reports of PWC on the Company's consolidated financial statements for
the preceding two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In the Company's view there were no disagreements with PWC on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
PWC would have caused them to make reference thereto in their report on the
financial statements for such years in connection with PWC's audits for 2001 and
2002 and through January 26, 2004.
Also, during fiscal years 2001 and 2002, and through January 26, 2004,
there were no "reportable events" (as defined in Regulation S-K Item
304(a)(1)(v)) known to the Company.
In connection with the Company's disclosure of PWC's resignation, the
Company asked PWC to furnish it with a letter addressed to the SEC stating
whether PWC agreed or disagreed with the above statements. In response to that
request, PWC submitted the following response to the SEC:
Commissioners:
We have read the statements made by Mission West Properties, Inc., which we
understand has been filed with the Commission, pursuant to Item 4 of Form
8-K, as part of the Company's Form 8-K report dated January 26, 2004. In
addition to the events reported in such Form 8-K, with which we agree,
additional events that should have been reported by the Company follow:
In connection with our review of the Company's interim financial statements
for the period ended September 30, 2003, management provided us with oral
representations relating to certain related party transactions. We
subsequently requested the representations in writing, and management has
not been willing to comply with this request.
In connection with our audit of the Company's financial statements for the
year ended December 31, 2003, we had the following reportable events or
disagreements with management as to the nature and extent of our audit
procedures:
1. We requested written representations from management relating to the
related party transactions referred to above, and we indicated that
the requested written representations were necessary for us to
complete our audit. The Company and its counsel responded that they
were not willing to provide the requested written representations and,
further, indicated that the requested representations were not
necessary for us to complete our audit.
2. In response to our inquiries regarding subsequent events and other
matters that may be significant to our audit, management expressed an
unwillingness to respond fully to our inquiries.
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3. We informed the audit committee that information came to our attention
that, if further investigated, may materially impact the fairness or
reliability of financial statements previously issued by the Company
and, due to our resignation, we did not conduct further investigation.
Because of the foregoing circumstances, and the fact that management has
made statements that are inconsistent with oral representations made
previously, we advised the audit committee that we are no longer willing or
able to rely on the representations of management.
On February 12, 2004, we informed the Company that our audit reports dated
January 21, 2002 and January 28, 2003 on the financial statements of the
Company for the years ended December 31, 2001 and 2002 should no longer be
relied upon, and that we are no longer willing to be associated with the
interim financial statements of the Company for any interim periods within
such years or for any interim periods in the period ended September 30,
2003.
In reply to PWC's response to the SEC, the Company's management submitted
its response on SEC Form 8-K/A filed February 15, 2004, in which the Company
objected strenuously to the assertions contained in PWC's letter. The Company
also corresponded with the SEC regarding the Company's objections to PWC's
letter. The following are the Company's responses to PWC's letter to the SEC as
reported by the Company in the Form 8-K/A filed on February 15, 2004:
Response to Items 1 - 3 in PWC's Letter to SEC:
1. William Croteau, the PWC audit engagement partner ("Croteau") resigned
during a telephone call at approximately 6:30 PM on Monday, January 26,
2004 with John Bolger the Chairman of the Audit Committee. Prior to that
telephone call PWC had not met with the Audit Committee at any time to
discuss any of the issues described herein, which PWC was obligated to do
under terms of its engagement letter. During the telephone call with Mr.
Bolger, Croteau stated he would not attend the regular Audit Committee
meeting scheduled for the following day and further stated to Mr. Bolger
that no accounting or disclosure issues existed. At no time prior to the
telephone conversation with Bolger on the night of January 26, 2004 had
Croteau advised the Audit Committee of any issues with any member of
management, including Mr. Berg or Mr. Marino, that would lead to PWC's
resignation. The representations requested by PWC were related to the
proposed management representation letter for the third quarter of 2003
which was not furnished to management until November 19, 2003 more than 30
days after clearance on release of earnings by PWC and the Audit Committee.
In addition, the representation letter from PWC was received by management
after the PWC had approved the Form 10-Q for the quarter ended September
30, 2003 which was filed by the Company on November 13, 2003. On December
5, 2003 after returning from vacation, Mr. Marino provided the
representation letter to Mr. Berg for signature. Mr. Berg believed the
representation letter PWC asked management to sign contained (i) inaccurate
and potentially misleading statements and (ii) asked management to
speculate about future contingent events that were not subject to the
control of management. On December 6, 2003 management provided PWC with
alternative language that management considered factual and correct.
Discussions and email communications on this matter continued between
management and PWC until we received an email from Croteau at 5:30 p.m. on
January 23, 2004 stating that PWC had reached an "impasse" with management
on this matter. Following receipt of Croteau's January 23 email, management
expected that this impasse would be resolved by the Audit Committee at the
next scheduled meeting on Tuesday, January 27, 2004. If PWC had met with
the Audit Committee as scheduled; advised them of PWC's issues and given
the Audit Committee the opportunity to resolve such issues, this dispute
could have been resolved.
2. Neither the Company's management nor the Audit Committee was ever
informed by PWC of any subsequent events or other matters where management
had been unwilling to fully respond or cooperate, except as stated above.
3. PWC only informed the Audit Committee after their decision to resign
"that information came to our [their] attention that, if further
investigated, may materially impact the fairness or reliability of
financial statements issued by the company..." The Audit Committee is
having the matter outlined in item 1 above independently investigated,
since this is the only matter which PWC has informed the Audit Committee
would require further investigation. Once again, PWC's statement that they
"advised the audit committee that we [they] are no longer willing to rely
on representations of management" were not presented by PWC to the Audit
Committee prior to PWC's resignation. Management believes that the Audit
Committee has been fully apprised of all circumstances that were the
subject of the representations referred to above.
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With respect to the pertinent paragraph in PWC's letter, management of the
Company denies having made any oral representations to PWC that were the
same or substantially similar to the representations in PWC's proposed
third quarter 2003 representation letter that management rejected.
Furthermore, PWC failed to advise the Audit Committee of any concern that
PWC had or any audit issues related to such proposed representations until
four days after PWC resigned as independent accountant.
Responses to Last Two Paragraphs of PWC's Letter to SEC:
Prior to its resignation, PWC had never informed management or the Audit
Committee of any inconsistent statements except those disputed above, which
would have been resolved, if PWC had not breached its contractual
obligations contained in the engagement letter by resigning before allowing
the Audit Committee to investigate any such allegations.
By resigning without meeting with the Audit Committee and informing them of
any management issues was a breach of PWC's engagement letter. Refusing to
complete the December 31, 2003 audit and failing to allow their audit
reports for December 31, 2001 and 2002 to be relied upon, PWC has acted
recklessly, thereby exposing the Company to undetermined costs and damages.
Prior to its resignation, PWC had never disclosed to management or the
Audit Committee any material issues related to the fairness or reliability
of financial statements of the Company.
On May 10, 2004, the Audit Committee of the Board of Directors authorized
the engagement of BDO Seidman, LLP as the Company's new independent registered
public accounting firm for the fiscal years ending December 31, 2003 and
December 31, 2004. BDO completed the audit of the Company's 2001, 2002 and 2003
financial statements and issued its report on July 30, 2004.
During the two most recent fiscal years ended December 31, 2003 and 2002
and the subsequent interim period through May 10, 2004, BDO Seidman, LLP had not
been engaged as independent accountants to audit the financial statements of the
Company, nor had it been consulted regarding the application of accounting
principles to any specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements, or any matter that was the subject of a disagreement or reportable
event.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF BDO SEIDMAN, LLP TO SERVE AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31,
2005.
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STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
To be considered for inclusion in the Company's proxy card and proxy
statement relating to the 2006 Annual Meeting of Stockholders, proposals subject
to SEC Rule 14a-8 must be received at the Company's principal office no later
than January 31, 2006.
In addition, if you desire to bring other business, including director
nominations, for the 2006 Annual Meeting that will not be included in the
Company's proxy card and proxy statement, your notice must be delivered to the
Company no earlier than March 1, 2006 and no later than April 1, 2006.
For additional requirements, a stockholder should refer to our Bylaws,
Article II, Section 12, "Nominations and Proposals by Stockholders," a current
copy of which may be obtained from our Secretary. If the Company does not
receive timely notice pursuant to the Company's Bylaws, any proposal will be
excluded from consideration at the 2006 Annual Meeting.
All stockholder proposals should be addressed to the attention of the
Secretary at the principal office of the Company.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
stockholder action at the Annual Meeting. However, if other matters do properly
come before the Annual Meeting or any adjournments or postponements thereof, the
Board of Directors intends that the persons named in the proxies will vote upon
such matters in accordance with the best judgment of the proxy holders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Raymond V. Marino
----------------------------------
Raymond V. Marino
Secretary
Cupertino, California
April 26, 2005
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MISSION WEST PROPERTIES, INC.
------------------
------------------------
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE 2005 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Carl E. Berg and Raymond V. Marino, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote all shares of common stock of Mission West Properties,
Inc. (the "Company") held of record by the undersigned in favor of each proposal
designated on this Proxy Card and to vote the shares of the undersigned in their
discretion with respect to other matters that properly come before the 2005
Annual Meeting of Stockholders (the "Annual Meeting") to be held June 1, 2005
and any adjournment of the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR EACH OF THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSAL 2.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE REQUIRED IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
DETACH HERE
[X] Please mark vote as in
this example
1. Election of Directors 2. Ratify the selection of BDO Seidman, LLP as our
Nominees: 01 Carl E. Berg 02 John C. Bolger 03 independent registered public accounting firm for the
William A. Hasler 04 Lawrence B. Helzel 05 Raymond V. fiscal year ending December 31, 2005.
Marino FOR AGAINST ABSTAIN
[ ] [ ] [ ]
[ ]Vote FOR [ ]Vote WITHHELD
all nominees from all nominees
(except as marked)
3. In their discretion, the proxies are authorized to vote
Instructions: To withhold authority to vote for any upon any other business that may properly come before
indicated nominee, write the number(s) of the nominee(s) the meeting.
in the box provided below.
MARK HERE FOR
- ---------------------------------------------------- ADDRESS CHANGE [ ]
Name AND NOTE AT LEFT
- ----------------------------------------------------
Street Address Please sign exactly as name appears hereon. Joint owners
should each sign. Executors, administrators, trustees,
- ---------------------------------------------------- guardians or other fiduciaries should give full title as
City State Country Zip Code such. If signing for a corporation or other entity, please
sign in full corporate or other entity name by a duly
authorized officer.
[ ] Please check here if you plan on attending the 2005 Annual
Stockholders Meeting.
Signature: Date: Signature: Date:
----------------------------- ---------- ----------------------------- ----------
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