SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ASR INVESTMENTS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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:
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2) Form, Schedule or Registration No.
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3) Filing party:
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4) Date filed:
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<PAGE>
ASR INVESTMENTS CORPORATION
335 NORTH WILMOT, SUITE 250
TUCSON, ARIZONA 85711
(520) 748-2111
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 22, 1997
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The Annual Meeting of Stockholders of ASR Investments Corporation, a Maryland
corporation (the "Company"), will be held on July 22, 1997 at 9:00 a.m., at the
Williams Center Courtyard Marriot, 201 S. Williams Blvd., Tucson, Arizona for
the following purposes:
1. To elect directors to serve until the next annual meeting of stockholders
and until their successors are elected and qualified.
2. To approve an amendment to the Company's Articles of Incorporation that
will change the corporate name to Heritage Residential Corporation.
3. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on May 23, 1997 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person. To
assure your representation at the meeting, however, you are urged to mark, sign,
date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Sincerely,
/s/ Joseph C. Chan
Joseph C. Chan
Secretary
Tucson, Arizona
June 20, 1997
<PAGE>
ASR INVESTMENTS CORPORATION
335 NORTH WILMOT, SUITE 250
TUCSON, ARIZONA 85711
(520) 748-2111
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PROXY STATEMENT
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GENERAL
The enclosed proxy is solicited on behalf of ASR Investments Corporation, a
Maryland corporation (the "Company"), by the Company's board of directors (the
"Board of Directors") for use at the Annual Meeting of Stockholders to be held
July 22, 1997 at 9:00 a.m. (the "Meeting"), or at any adjournment thereof, for
the purposes set forth in this proxy statement and in the accompanying Notice of
Annual Meeting of Stockholders. The Meeting will be held at the Williams Center
Courtyard Marriott, 201 S. Williams Blvd., Tucson, Arizona.
These proxy solicitation materials were mailed on or about June 25, 1997 to
all stockholders entitled to vote at the Meeting.
The information contained in the "Compensation Committee Report on Executive
Compensation" and "Performance of the Common Stock" elsewhere herein shall not
be deemed "filed" with the Securities and Exchange Commission or subject to
Regulation 14A or 14C or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
RECORD DATE
Stockholders of record at the close of business on May 23, 1997 (the "Record
Date") are entitled to notice of and to vote at the Meeting. On the Record Date,
there were issued and outstanding 4,437,611 shares of the Company's Common
Stock, $.01 par value (the "Common Stock").
REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its use by
delivering to the Company written notice of revocation or a duly executed proxy
bearing a later date or by attending the Meeting and voting in person.
VOTING SOLICITATION
The presence, in person or by proxy, of the holders of a majority of the
total number of shares of Common Stock outstanding constitutes a quorum for the
transaction of business at the Meeting. Each stockholder voting at the Meeting,
either in person or by proxy, may cast one vote per share of Common Stock held
in the election of directors and on each other matter to come before the
Meeting. Cumulative voting in the election of directors is not permitted.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspectors appointed for the Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
The cost of this solicitation will be borne by the Company. In addition, the
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for expenses incurred in forwarding solicitation material to
such beneficial owners. Proxies also may be solicited by certain of the
Company's directors and officers, personally or by telephone or telegram,
without additional compensation.
1
<PAGE>
ANNUAL REPORT
The 1996 Annual Report to Stockholders, which was mailed to stockholders with
this Proxy Statement, contains financial and other information about the Company
but is not incorporated into this Proxy Statement and is not to be considered a
part of these proxy soliciting materials.
The Company will provide upon written request, without charge to each
stockholder of record as of the Record Date, a copy of the Company's annual
report on Form 10-K for the year ended December 31, 1996 as filed with the SEC.
Any exhibits listed in the Form 10-K report also will be furnished upon request
at the actual expense incurred by the Company in furnishing such exhibit. Any
such requests should be directed to the Company at 335 North Wilmot, Suite 250,
Tucson, Arizona 85711.
ELECTION OF DIRECTORS
NOMINEES
A board of nine directors is to be elected at the Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for Jon A.
Grove, Frank S. Parise, Jr., Joseph C. Chan, Don W. Winton, Earl M. Baldwin,
Steven G. Davis, John J. Gisi, Raymond L. Horn and Frederick C. Moor, all of
whom currently are directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Meeting, the proxies will be voted for any nominee designated by the current
Board of Directors to fill the vacancy. It is not expected that any nominee will
be unable or will decline to serve as a director. The term of office of each
person elected as a director will continue until the next annual meeting of
stockholders and until a successor has been elected and qualified. Biographical
information regarding the nominees for directors is set forth below under the
heading "Information Concerning Directors and Executive Officers of the
Company."
The Company's Bylaws provide that the Board of Directors shall consist of not
fewer than three nor more than 15 members. The Bylaws further provide that, for
so long as the Company maintains its election to be treated as a real estate
investment trust ("REIT"), the majority of the members of the Board of Directors
and of any committee of the Board of Directors will at all times be Unaffiliated
Directors, except in the case of a vacancy. Unaffiliated Directors are directors
who are not employees of the Company. As of the date of this Proxy Statement,
the Unaffiliated Directors are Messrs. Baldwin, Davis, Gisi, Horn and Moor.
Vacancies occurring on the Board of Directors among the Unaffiliated Directors
will be filled by nominees selected by the Unaffiliated Directors who are
approved by the vote of a majority of the directors, including a majority of the
Unaffiliated Directors.
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<PAGE>
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Jon A. Grove 53 Chairman of the Board, President, Chief Executive Officer and Director
Frank S. Parise, Jr. 45 Vice Chairman, Executive Vice President, Chief Administrative Officer,
and Director
Joseph C. Chan 45 Executive Vice President, Chief Operating Officer, Secretary,
Treasurer and Director
Don W. Winton 43 Executive Vice President
Dale A. Webber 36 Vice President
Roger A. Karber 42 Vice President, Property Development
Thomas A. Heeringa 43 Vice President
Mary C. Clements 30 Controller
Earl M. Baldwin 53 Director
Steven G. Davis 46 Director
John J. Gisi 51 Director
Raymond L. Horn 67 Director
Frederick C. Moor 65 Director
</TABLE>
Jon A. Grove has been Chairman of the Board of Directors, President, Chief
Executive Officer and a director of the Company since its organization in June
1987. Mr. Grove also had served as the President of one of the general partners
of Pima Mortgage L.P. (the "Manager") since its organization until April 30,
1997 and had been a director and principal stockholder of Pima Realty Advisors,
Inc. (the "Property Manager") since its organization until April 30, 1997. On
April 30, 1997, pursuant to the approval of the stockholders at a special
meeting held on April 23, 1997, the Company acquired the entire interests in all
of the partners of the Manager and the Property Manager. From 1974 to 1989, Mr.
Grove was employed with The Estes Co. (now called GWS), a company which founded
the Company and which develops, constructs and sells residential, multi-family,
commercial and industrial real estate, most recently as executive vice president
and chief operating officer. Mr. Grove also has been Chairman of the Board and a
Director of American Southwest Holdings, Inc. and its affiliates since their
organization; these companies are Arizona-based corporations involved in the
issuance and administration of mortgage- collateralized bonds.
Frank S. Parise, Jr. has been Vice Chairman of the Board of Directors,
Executive Vice President and Chief Administrative Officer of the Company since
December 1988 and a director of the Company since its organization. Mr. Parise
also had served as the President of one of the general partners of the Manager
since its organization until April 30, 1997 and had been the President, a
director and principal stockholder of the Property Manager since its
organization until April 30, 1997. On April 30, 1997, pursuant to the approval
of the stockholders at a special meeting held on April 23, 1997, the Company
acquired the entire interests in all of the partners of the Manager and the
Property Manager. From 1985 to 1989, Mr. Parise was employed by The Estes Co.,
most recently as President of its Financial Services Division and Multifamily
Development Division. From 1982 to 1985, Mr. Parise was the President of E.
Allen Development Corporation, a company that acquired and managed apartments.
Joseph C. Chan has been a director of the Company since February 1989,
Executive Vice President and Chief Operating Officer since December 1988,
Treasurer since April 1994 and Secretary since March 1996. Mr. Chan served as
the Vice President and Treasurer of the Company from its organization until
December 1988. Mr. Chan also had served as the President of one of the general
partners of the Manager since its organization until April 30, 1997 and a
director and principal stockholder of the Property Manager since its
organization until April 30, 1997. On April 30, 1997, pursuant to the approval
of the stockholders at a special meeting held on April 23, 1997, the Company
acquired the entire interests in all of the partners of the Manager and the
Property Manager. From 1986 to 1987, Mr. Chan served as an officer of The Estes
Co.
3
<PAGE>
Dale A. Webber has been a Vice President of the Company since September 1987.
Roger A. Karber has been Vice President, Property Development of the Company
since January 1995. From 1989 to 1994, Mr. Karber was president of Festival
Markets, Inc., a company that developed specialty retail centers. From 1979 to
1989, Mr. Karber was employed by The Estes Co., where he was instrumental in
establishing its apartment operations which included developing over 1,500
apartment units.
Don W. Winton has been a Director and Executive Vice President of the Company
since April 1997. Mr. Winton served as the general partner of the partnerships
(the "Winton Partnerships") from which the Company purchased 13 apartment
communities and one office building in April 1997 and as President of Winton &
Associates, Inc., an apartment management company, for more than five years
prior to sale to the Company. Currently, Mr. Winton also serves as the general
partner in partnerships (in which the Company does not own any interests) that
own 3,206 apartment units, 44 townhome/condominium units, two office buildings
and eight single family lots.
Mary C. Clements has been Controller of the Company since May 1994. Ms.
Clements was employed by Deloitte & Touche LLP, an international accounting
firm, from her graduation in May 1990 until she joined the Company in May 1994.
Earl M. Baldwin has been a director of the Company since its organization.
Since 1985, Mr. Baldwin has been president of Baldwin Financial Corp., a risk
management consulting service company for mortgage lenders specializing in
hedging and secondary market strategy. From 1973 to 1985, Mr. Baldwin was
employed by Security Pacific Mortgage Corporation ("SPMC"), a mortgage banking
company, serving most recently as its executive vice president.
Steven G. Davis has been a director of the Company since May 1997. He
currently serves as a director of ROC Communities, Inc., a public REIT that owns
and operates manufactured home communities. Mr. Davis was a founding shareholder
of ROC and served as an Executive Vice President, Chief Financial Officer,
Secretary and Treasurer from 1993-1997. From 1990-1993, Mr. Davis was the
President and a director of The Windsor Corporation which was merged with ROC.
From 1985-1990, Mr. Davis was responsible for the real estate investment banking
division of LPL Financial Services.
John J. Gisi has been a director for the Company since February 1989. Mr.
Gisi has served as the President and Chief Executive Officer of National Bancorp
of Arizona, Inc., a wholly owned subsidiary of Zions Bancorporation, and as the
Chairman of the Board, President and Chief Executive Officer of National Bank of
Arizona since September 1984. Mr. Gisi also serves as a director of several
subsidiaries of Zions Bancorporation.
Raymond L. Horn has been a director of the Company since its organization.
Mr. Horn serves as tax advisor to several Phoenix-based real estate companies.
Mr. Horn, a certified public accountant and lawyer, presently is in private
practice after retiring from Deloitte Haskins & Sells (now Deloitte & Touche
LLP) as the partner-in-charge of that firm's Arizona tax practice. Mr. Horn is a
member of numerous professional and business associations including the American
Institute of Certified Public Accountants and the American Bar Association.
Frederick C. Moor has been a director of the Company since February 1989. Mr.
Moor presently is retired after 33 years of employment with The Valley National
Bank of Arizona (now Bank One, Arizona), most recently as Vice President and
Banking Services Manager for the Eastern Division.
All directors are elected at each annual meeting of the Company's
stockholders and hold office until their successors are elected and qualified.
All officers serve at the discretion of the Board of Directors. The Company
currently has five salaried employees.
MEETINGS AND COMMITTEES
During the year ended December 31, 1996, the Board of Directors of the
Company held a total of five meetings. No director attended fewer than 75% of
the meetings of the Board of Directors.
4
<PAGE>
The Company's Bylaws authorize the Board of Directors to appoint among its
members an executive committee, an audit committee and other committees. A
majority of the members of any committee so appointed must be Unaffiliated
Directors. The Board of Directors has appointed an Audit Committee and a
Compensation Committee. Messrs. Gisi and Horn serve as the members of the
Company's Audit Committee and Compensation Committee. The Audit Committee
reviews the annual financial statements, any significant accounting issues and
the scope of the audit with the Company's independent auditors and is available
to discuss with the auditors any other accounting and audit related matters
which may arise during the year. The Audit Committee met separately at one
formal meeting during 1996 which was attended by all of the members of the
Committee. Prior to April 30, 1997, the Compensation Committee reviewed all
transactions with the Manager and the Property Manager and their affiliates,
including the renewal of the Management Agreement and the Property Management
Agreements and the preliminary terms of the acquisition by the Company of the
Manager and the Property Manager. After 30, 1997, the Compensation Committee
reviews and recommends the levels and form of compensation of the executive
officers of the Company. During 1996, the Compensation Committee met twice to
review the preliminary terms of the acquisition of the Manager and the Property
Manager. The Board of Directors has not appointed any other committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 30, 1997, pursuant to the approval by the stockholders at a special
meeting held on April 23, 1997, the Company acquired (i) the entire interests in
the Manager and the Property Manager in exchange for 262,008 shares of the
Company's Common Stock and (ii) the entire interests in Winton & Associates, a
property management company owned by Mr. Winton for 70,284 shares of the
Company's Common Stock. These acquisitions were made in connection with the
Company's acquisition of 13 apartment communities and one office building from
14 limited partnerships in which Mr. Winton was the general partner. In
accordance with the acquisition agreements, each of Messrs. Grove, Parise, Chan
and Winton has entered into an employment agreement with the Company. Under the
employment agreements, each executive will receive compensation of $100,000 per
year and be eligible to receive an annual bonus in such amount, if any, as may
be determined by the unaffiliated Directors of the Company and fringe benefits
generally made available from time to time to employees of the Company. Each
executive will be employed under the employment agreement for a term of five
years and from year-to-year thereafter until terminated by either party. In the
event of termination by the Company prior to the expiration of the employment
agreement for a reason other than death, disability, or cause, the executive
will be entitled to receive his fixed compensation for the remainder of the term
of the employment agreement.
As a result of the above transaction, the Company terminated the Management
Agreement and the Property Management Agreements as of April 30, 1997. The
following description of the Management Agreement and Property Management
Agreements relates to the periods when they were in effect.
The Company's Bylaws provide that the Board of Directors has the full power
to conduct, manage and direct the business and affairs of the Company. Prior to
April 30, 1997, the Company was a party to a management agreement (the
"Management Agreement") with the Manager to manage the day-to-day operations of
the Company, subject to the supervision of the Company's Board of Directors. Jon
A. Grove, Frank S. Parise, Jr. and Joseph C. Chan had been directors or officers
of general partners of the Manager since its organization until April 30, 1997.
For performing these services, the Manager received an annual base management
fee in an amount equal to 3/8 of 1% per annum of the Average Invested Assets of
the Company (as defined in the Management Agreement). The Manager also performed
certain analysis and other services in connection with the administration of
mortgage securities with respect to which the Company acquired mortgage
interests. For such services, the Company reimbursed the Manager for the fees
charged by the issuer and administrator of the mortgage securities and paid the
Manager an annual administration fee of $10,000 for each series of mortgage
interests acquired prior to 1991, $20,000 for the aggregate mortgage interests
acquired in 1991 and $20,000 for the aggregate mortgage interests acquired in
1992. In 1996, the Company paid the Manager management fees of approximately
$386,000 and administration fees of approximately $193,000. The payment of such
fees was unanimously approved by the Unaffiliated Directors.
5
<PAGE>
In connection with the renewal of the Management Agreement beginning with
1994, the Manager and the Company agreed to eliminate the incentive management
fee provision. On December 16, 1993, the Company granted to Messrs. Grove,
Parise and Chan options to purchase 309,800 shares of the Company's Common Stock
and stock appreciation rights ("SARs") covering 90.200 shares of the Company's
Common Stock. The exercise price is $8.60 per share, which was 110% of the
market price of the Common Stock on the grant date. If dividends are declared
during the period the stock options or SARs are outstanding, the holder of the
options and SARs can elect to receive currently or upon exercise cash in an
amount equal to the product of the per share dividend amount times the number of
options or SARs outstanding. In 1996, the Company paid Messrs. Grove, Parise and
Chan $266,667 each based on the total dividends of $2.00 per share paid in 1996.
All of the options and SARs are currently exercisable. The options will expire
on December 16, 1998, if not terminated earlier pursuant to the terms of the
agreements. The options were subject to early termination if the Management
Agreement was terminated by the Manager or was terminated by the Company for
cause pursuant to the terms of the Management Agreement. As the Company has
acquired the entire interests in the Manager and effectively terminated the
Management Agreement, these options will remain effective until December 16,
1998.
Prior to April 30, 1997, the Company had entered into a property management
agreement (collectively the "Property Management Agreements") with the Property
Manager for each of the apartments acquired by the Company. Each Property
Management Agreement was approved by the Unaffiliated Directors. Under the
agreement, the Property Manager provided the customary property management
services at its cost without profit or distribution to its owners, subject to
the limitation of the prevailing management fee rates for similar properties in
the market. In 1996, the Company paid the Property Manager $417,000 which
amounted to 3% of the total revenues of the apartments.
The Company owns certain mortgage interests with respect to structured
financing issued by American Southwest Holdings, Inc. ("ASH"). An affiliate of
ASH performs the customary administration services and receives fees for such
services of $12,500 per year for each series of structured financing. The
Company believes that the fees charged by ASH are comparable to those charged by
other companies performing similar services. Jon A. Grove, Chairman of the
Board, President and Chief Executive Officer of the Company, is Chairman of the
Board of Directors of ASH and its affiliates and owns 12.5% of the voting stock
of ASH. The Company has agreed to indemnify and hold harmless ASH and certain
affiliates from any action or claim brought or asserted by any party by reason
of any allegation that ASH or such affiliates is an affiliate or is otherwise
accountable or liable for the debts or obligations of the Company or its
affiliates.
In 1996, Mr. Webber exercised options to purchase a total of 2,666 shares of
the Company's Common Stock by executing a full recourse promissory note for
$30,000 to the Company. The note is secured by the shares of Common Stock issued
and bears interest, payable monthly, at the prime rate plus 1%. The note is due
on December 31, 1998 and can be repaid by delivering to the Company shares of
Common Stock owned by the individuals based on the then market price of the
Common Stock. During 1996, Messrs. Chan and Webber repaid the notes of $297,000
using 12,011 shares of Common Stock and cash of $61,842.
6
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
As of June 6, 1997, there were outstanding 4,437,611 shares of Common Stock.
The following table sets forth the beneficial ownership of Common Stock of the
Company as of June 6, 1997 by each person known by the Company to own more than
5% of the outstanding shares of Common Stock of the Company, by each director of
the Company, and by all directors and executive officers of the Company as a
group, which information as to beneficial ownership is based upon statements
furnished to the Company by such persons. The number of shares also includes (1)
any shares of Common Stock owned of record by such person's minor children and
spouse and by other related individuals and entities over whose shares of Common
Stock such person has custody, voting control or the power of disposition and
(2) shares of Common Stock that such persons had the right to acquire within 60
days of June 6, 1997 by the exercise of stock options, (excluding the SARs).
Each director and executive officer of the Company may be reached through the
Company at 335 North Wilmot, Suite 250, Tucson, Arizona 85711.
NUMBER OF PERCENT OF
SHARES TOTAL (1)
------- ---------
Jon A. Grove 233,527 5.1%
Joseph C. Chan 233,808 5.1
Frank S. Parise, Jr 206,631 4.5
Don W. Winton(3) 145,204 3.3
Earl M. Baldwin 3,477 (2)
Steven G. Davis 0 (2)
John J. Gisi 11,658 (2)
Raymond L. Horn 5,988 (2)
Frederick C. Moor 3,378 (2)
All directors and executive officers 859,623 18.0
as a group (12 persons)
Non-Management 5% Shareholders
------------------------------
King William Associates(4) 531,269 12.0%
3485 FM 1960 West
Suite 450
Houston, Texas 77060
- ------------
(1) In calculating the percentage of ownership, the number of shares of Common
Stock that the identified person or group had the right to acquire within
60 days of June 6, 1997 upon the exercise of stock options is deemed to be
outstanding for the purpose of computing the percentage of the shares of
Common Stock owned by such person, but such shares are not deemed to be
outstanding for the purpose of computing the percentage of the shares of
Common Stock owned by any other person.
(2) Less than 1% of the outstanding shares of Common Stock.
(3) The number of shares shown are owned directly by Mr. Winton and does not
include any of the shares owned by (i) King William Associates in which Mr.
Winton is a 15.4% general partner and (ii) Grantor Trust of Former CHB
Partners (which owns 56,178 shares of Common Stock) of which Mr. Winton is
the trustee and his children own 9.25% beneficial interests in the trust.
(4) King William Associates received the shares in connection with the
Company's acquisition of the Winton Properties. Mr. Winton is a general
partner and owns 15.4% interest in King William Associates.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Company's
executive officers whose total cash and cash equivalent remuneration exceed
$100,000 for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- -------
NAME AND PRINCIPAL ------------------------ RESTRICTED OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS OTHER STOCK SARS PAYOUT COMPENSATION
- -------- ---- ------ ----- ----- ----- ---- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jon A. Grove (1) 1996 $179,114 -- --
Chairman, President, 1995 180,431 -- --
and Chief Executive 1994 251,747 -- --
Officer
Frank S. Parise, Jr. (1) 1996 $179,114 -- --
Vice Chairman, 1995 180,431 -- --
Executive Vice 1994 251,747 -- --
President,
and Chief
Administrative
Officer
Joseph C. Chan (1) 1996 $179,114 -- --
Director, Executive 1995 180,431 -- --
Vice President, 1994 251,747 -- --
Secretary, and
Chief Operating
Officer
Dale A. Webber 1996 $141,729 -- -- 70,000 --
Vice President 1995 108,447 -- -- -- --
1994 108,147 -- -- 8,000 --
Roger A. Karber 1996 $117,835 -- -- 50,000 --
Vice President 1995 100,000 $15,000 -- -- -- --
</TABLE>
- -------------
(1) Messrs. Grove, Parise and Chan are not salaried employees of the Company
and do not receive any cash or cash equivalent compensation directly from
the Company. They receive their compensation from the Manager, the partners
of which are corporations owned by these individuals. See "Certain
Relationships and Related Transactions." The amounts listed under Other
Compensation represent the total cash payments received or receivable from
the Manager by these individuals and the corporations owned by them.
8
<PAGE>
The following tables set forth certain stock option information concerning
the officers included in the above table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS/ OPTIONS/SARS AT ASSUMED ANNUAL RATES
SARS GRANTED TO EXERCISE OF STOCK PRICE APPRECIATION
GRANTED EMPLOYEES IN OR BASE EXPIRATION FOR OPTION TERM
(#) FISCAL YEAR PRICE DATE 5%(1) 10%(1)
--- ----------- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jon A. Grove None N/A N/A N/A N/A N/A
Frank S. Parise, Jr. None N/A N/A N/A N/A N/A
Joseph C. Chan None N/A N/A N/A N/A N/A
Dale A. Webber 70,000 42% $16.625 12/16/98 $119,547 $244,563
Roger A. Karber 50,000 30% $16.50 12/16/98 118,738 233,800
</TABLE>
- -------------
(1) This amount is the calculated future value of the stock options as of
December 16, 1998 assuming stock price appreciation rates of 5% and 10% per
year as specified in Item 402(c)(2) of Regulation S-K.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------
Jon A. Grove -- -- 138,581 $1,589,234
-- --
Frank S. Parise, Jr. -- -- 140,287 1,653,343
-- --
Joseph C. Chan -- -- 138,581 1,589,234
-- --
Dale A. Webber 2,666 $19,995 47,930 191,194
23,334 90,419
Roger A. Karber -- -- 33,332 133,328
16,668 66,672
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors performs the functions
of making recommendations to the Board concerning the Company's compensation
policies applicable to its executive officers. Messrs. Grove, Parise and Chan
serve as both directors and the principal executive officers of the Company. All
compensation matters relating to the Company's principal executive officers,
however, are decided by the Unaffiliated Directors, consisting of Messrs.
Baldwin, Gisi, Horn, Moor and Davis. The principal executive officers make
recommendation to the Board concerning the compensation of other executive
officers of the Company. None of the Unaffiliated Directors are, or have ever
been, officers or employees of the Company or any of its subsidiaries. Messrs.
Grove, Parise and Chan abstained from participating in the deliberations of the
Board of Directors concerning the approval of the Management Agreement, the
Property Management Agreements, the acquisition of the Manager and the Property
Manager or any other matters relating to their compensation. In addition, during
1996, none of the executive officers, including Messrs. Grove, Parise and Chan,
served on the board of directors or the compensation committee of the entities
that employed any of the Unaffiliated Directors.
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COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1996, the Company paid an annual
director's fee to each Unaffiliated Director equal to $24,000, a fee of $500 for
each meeting of the Board of Directors attended by each Unaffiliated Director
and reimbursement of costs and expenses of all directors for attending such
meetings. Additionally, each member of the Audit Committee and the Compensation
Committee received a fee of $300 for each meeting attended by the member.
Affiliated Directors do not receive any fees for serving on the Board of
Directors.
STOCK OPTION PLANS
The Company has a nonstatutory stock option plan (the "Nonstatutory Stock
Option Plan") and an incentive stock option plan (the "Incentive Stock Option
Plan") (together the "Stock Option Plans"). The purpose of the Stock Option
Plans is to provide a means of performance-based compensation in order to
attract and retain qualified personnel and to provide incentive to others whose
job performance affects the Company. The Incentive Stock Option Plan provides
for incentive stock options which are intended to meet the requirements of
Section 422A of the Internal Revenue Code, (the "Code") ("ISOs") and which may
be granted to the officers and key personnel of the Company. The Nonstatutory
Stock Option Plan provides for non-qualified stock options which may be granted
to the Company's directors and key personnel of the Manager.
The Stock Option Plans are administered by the Board of Directors, which
determines whether such options will be granted, whether such options will be
ISOs or non-qualified options, which directors, officers and key personnel will
be granted options and the number of options to be granted, subject to the
maximum amount of shares issuable under the Stock Option Plans set forth below.
In making such determinations, the Board of Directors takes into account the
duties and responsibilities of the participants, their present and potential
contribution to the success of the Company and such other factors as the Board
deems relevant in connection with accomplishing the purpose of the Plan. Under
current law, ISOs cannot be granted to directors who are not also employee, or
to directors or employees of entities unrelated to the Company.
Under the Stock Option Plans, options to purchase a maximum of 140,000 shares
of the Company's Common Stock may be granted to the Company's directors,
officers and key personnel as well as to the directors, officers and key
personnel of the Manager. The exercise price for any option granted may not be
less than 100% of the fair market value of shares of Common Stock at the time
the option is granted. The optionholder may pay the exercise price in cash or by
delivery of previously acquired shares of Common Stock of the Company.
Generally, one-third of the options granted at any one time are immediately
exercisable, one-third are exercisable one year after the date of grant and the
remaining one-third become exercisable two years after the date of grant. The
options expire 10 years after the date of grant. No option may be granted under
the Stock Option Plans to any person who, assuming exercise of all options held
by such person, would own or be deemed to own more than 9.8% of the total
outstanding shares of Common Stock of the Company.
Under each of the Stock Option Plans, an exercising optionholder has the
right to require the Company to purchase some or all of the optionholder's
shares of the Company's Common Stock. That redemption right is exercisable by
the optionholder only with respect to shares that he has acquired by exercise of
an option granted under the Stock Option Plans which are restricted from
transfer by federal securities law as a result of grants or exercise of options
under the Stock Option Plans and such right must be exercised during the six
months immediately following the expiration of any such restriction.
No option granted under the Stock Option Plans is exercisable for a period in
excess of the term of the option as provided in the Stock Option Plans, subject
to earlier termination in the event of termination of employment, retirement or
death of the optionholder. An option may be exercised in full or in part at any
time or from time to time during the term of the option or provide for its
exercise in stated installments at stated times during the option term.
The Board of Directors may amend the Stock Option Plans at any time, except
that approval by the Company's stockholders is required for any amendment that
increases the aggregate number of shares
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that may be issued pursuant to the Stock Option Plans, changes the class of
persons eligible to receive such options, modifies the period within which the
options may be exercised or the terms upon which options may be exercised, or
increases the material benefits accruing to the participants under the Stock
Option Plans. Unless previously terminated by the Board of Directors, the Stock
Option Plans will terminate in August 1997.
As of December 31, 1996, options to purchase 43,278 shares of Common Stock
were outstanding and options to purchase 5,901 shares were available for grant
under the Plans.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The principal component of the Company's executive compensation during 1996
was the management fees paid to the Manager under the Management Agreement and
the benefits of the stock options and SARs granted to the executives in 1993.
The Company's principal executive officers, Jon A. Grove (Chairman of the Board,
President and Chief Executive Officer), Frank S. Parise, Jr. (Vice Chairman of
the Board, Executive Vice President and Chief Administrative Officer), and
Joseph C. Chan (Director, Executive Vice President and Chief Operating Officer),
were not salaried employees of the Company, but were employees of the Manager
and corporations owned by them are partners in the Manager. Accordingly, this
report addresses the compensation arrangement under the Management Agreement and
the stock options granted to these executives. The principal executive officers
also were the stockholders of the Property Manager which received reimbursement
from the Company for the costs of providing the customary property management
services for the Company's apartment communities. (See "Certain Relationships
and Related Transactions.") The Compensation Committee does not consider such
reimbursement as compensation to these executive officers as the reimbursement
was based on cost at no profit or distribution to these executive officers. The
Company did not provide these executives with any fringe benefits, such as
medical insurance benefits, retirement benefits, employer-contributory benefit
plans or any other employee benefit plans. In addition, the Manager paid all
costs of employing these executives, including payroll taxes.
The Management Agreement had been in effect since the Company began
operations in August 1987 until April 30, 1997. The Management Agreement was
renewable annually and must be approved by a majority of the Unaffiliated
Directors. In deciding to renew the Management Agreement, the Unaffiliated
Directors considered various factors, including the compensation arrangements of
other entities similar to the Company, the experience of the Manager, the
performance of the Manager, and the complexity of the assets and operations of
the Company.
Prior to 1994, a major element of the total management fees was the incentive
management fee which was earned only if the Company's taxable income before net
operating loss carryforward exceeded a specified level. This performance-based
compensation arrangement provided for the automatic elimination of a major
portion of the Company's operating expenses when the Company's taxable income
did not exceed the specified level.
In connection with the renewal of the Management Agreement beginning with
1994, the Company and the Manager agreed to eliminate the incentive management
fee provision. As a substitute, the Company granted to Messrs. Grove, Parise and
Chan options to purchase 309,800 shares of the Company's Common Stock and stock
appreciation rights ("SARs") covering 90,200 shares of the Company's Common
Stock. The exercise price for the stock options and SARs is $8.60 per share,
which was 110% of the market price of the Common Stock on the grant date. The
Company adopted a new operating strategy in 1993 to transform the Company from a
mortgage derivative REIT to a real estate equity REIT. Any appreciation in the
value of a property is not reported in taxable income until the property is sold
in a taxable transaction. In addition, as a result of the net operating loss
carryforward, substantially all of the Company's taxable income, if any,
reported in future years is not required to be paid as dividends to the
stockholders. Accordingly, the Committee believed that the amount of taxable
income is no longer an appropriate criterion for relating the compensation to
management to the benefits obtained by the stockholders. The Committee believed
that the market price of its Common Stock provided the most comprehensive
criterion for determining the long term incentive compensation for management
and the
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stock options closely associated the interests of management with those of the
stockholders. In determining the number of the options and SARs granted, the
Committee considered various factors, including the benefit of eliminating the
incentive management fees, the stock-based incentive compensation amount of
other companies and the opportunities for increases in the market price of the
Company's Common Stock.
John J. Gisi Raymond L. Horn
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the American
Stock Exchange. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file.
Based solely on the Company's review of such reports received by it during
the fiscal year ended December 31, 1996, and written representations that no
other reports were required, the Company believes that each person who, at any
time during such fiscal year, was a director, officer or beneficial owner of
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements during such year or prior fiscal years.
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CUMULATIVE TOTAL RETURNS COMPARISON
The following graph shows a five-year comparison of the cumulative total
returns (assuming reinvestment of dividends) for the Company, the Equity REIT
index compiled by the National Association of Real Estate Investment Trusts
("NAREIT") and the S&P 500. The index compiled by NAREIT consist of 166 property
REITs with a total market capitalization of $78.3 billion as of December 31,
1996. Any stockholder wishing to receive a copy of the index may contact the
Company.
12/91 12/92 12/93 12/94 12/95 12/96
----- ----- ----- ----- ----- -----
Company 100 42 33 41 69 99
S&P 100 108 118 120 165 203
NAREIT 100 115 137 141 163 221
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PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The stockholders of the Company are being requested to approve a proposal to
amend Article II of the Company's Amended and Restated Articles of Incorporation
(the "Articles of Incorporation") to change the corporate name of the Company to
"Heritage Residential Corporation." The Company is proposing the name change for
several reasons. First, the present name is generally associated with mortgage
investments, the proposed new name would create a clear perception that the
Company is no longer a mortgage REIT. Second, the proposed new name is more
descriptive of the primary purpose of the Company, which is to own and operate
apartment communities. Third, the Company is operating the newly acquired
apartment communities under the name "Heritage" and intends to market each of
its communities under the Heritage Residential name. Changing the corporate name
would create a unified corporate image for investor relations and marketing
purposes.
The management and the Board of Directors believe that it would be in the
best interest of the Company to change the corporate name to "Heritage
Residential Corporation." Stock certificates previously issued to stockholders
will not need to be exchanged for new certificates if the name change is
approved by the stockholders. No right of appraisal or similar rights of
dissenters exist with respect to this matter.
The Board of Directors has unanimously approved the proposed amendment to the
Articles of Incorporation. The affirmative vote of two-thirds of the outstanding
shares of the Company's Common Stock is required for approval. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO THE ARTICLES OF
INCORPORATION.
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1997 and recommends that
stockholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection. The Board of Directors anticipates that representatives of
Deloitte & Touche LLP will be present at the Meeting, will have the opportunity
to make a statement if they desire, and will be available to respond to
appropriate questions.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented by such stockholders
at the next annual meeting of the Company for the fiscal year ending December
31, 1997 must be received by the Company no later than January 1, 1998 in order
to be included in the proxy statement and form of proxy relating to such
meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting. If any
other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
Dated: June 20, 1997
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