<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
KOLL REAL ESTATE GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
GREGORY W. PRESTON-BROBECK, PHLEGER & HARRISON
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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:
------------------------------------------------------------------------
<PAGE>
KOLL REAL ESTATE GROUP, INC.
4343 VON KARMAN AVENUE
NEWPORT BEACH, CALIFORNIA 92660
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1994
------------------------
The annual meeting of stockholders (the "Annual Meeting") of Koll Real
Estate Group, Inc. a Delaware corporation (formerly known as The Bolsa Chica
Company) (the "Company"), will be held at the Mellon Bank Building, 8 Loockerman
Street, Dover, Delaware, on May 20, 1994, commencing at 9:00 a.m. local time, to
consider and act upon the following:
(1) To elect two directors of the Company, each for a term of three
years.
(2) To consider and vote upon the approval of the Company's 1993 Stock
Option/Stock Issuance Plan.
(3) To consider and vote upon the ratification of the appointment of
Deloitte & Touche as independent auditors of the Company.
(4) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Holders of record of the Company's Class A Common Stock at the close of
business on April 11, 1994 will be entitled to receive notice of, and to vote at
the Annual Meeting, or any adjournment or postponement thereof.
By Order of the Board of Directors,
[SIG]
RAYMOND J. PACINI
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
Newport Beach, California
April 11, 1994
THE BOARD OF DIRECTORS OF KOLL REAL ESTATE GROUP, INC. RECOMMENDS THAT YOU
VOTE FOR THE FOREGOING PROPOSALS.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE.
<PAGE>
KOLL REAL ESTATE GROUP, INC.
4343 VON KARMAN AVENUE
NEWPORT BEACH, CALIFORNIA 92660
------------------------
PROXY STATEMENT
------------------------
April 11, 1994
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Koll Real Estate Group, Inc., a Delaware
corporation formerly known as The Bolsa Chica Company (the "Company"), for use
at the Annual Meeting of Stockholders of the Company (the "Annual Meeting") to
be held at the Mellon Bank Building, 8 Loockerman Street, Dover, Delaware on May
20, 1994, at 9:00 a.m., local time, and at any adjournment thereof. This Proxy
Statement and the related proxy card are first being sent to the Company's
stockholders on or about April 11, 1994.
ACTION TO BE TAKEN UNDER THE PROXY
At the Annual Meeting, the holders of shares of the Company's Class A Common
Stock, par value $.05 per share (the "Class A Common Stock") will be asked to
consider and vote upon (i) the election of Messrs. Wirta and Ellis to the Board,
(ii) the approval of the Company's 1993 Stock Option/Stock Issuance Plan, and
(iii) the ratification of the appointment of Deloitte & Touche as independent
auditors for the Company for the fiscal year ending December 31, 1994.
All proxies in the enclosed form that are properly executed and returned to
the Company will be voted at the Annual Meeting or any adjournments thereof in
accordance with any specifications thereon, or, if no specifications are made,
will be voted FOR approval of the proposals set forth in the Notice of Annual
Meeting of Stockholders. Any proxy may be revoked by any stockholder who attends
the meeting and gives oral notice of his or her intention to vote in person,
without compliance with any other formalities. In addition, any proxy given
pursuant to this solicitation may be revoked prior to the Annual Meeting by
delivering an instrument revoking it or a duly executed proxy bearing a later
date to the Secretary of the Company.
Management does not know of any matters other than those set forth herein
which may come before the Annual Meeting. If any other matters are properly
presented to the meeting for action, it is intended that the persons named in
the enclosed form of proxy and acting thereunder will vote in accordance with
their best judgment on such matters.
PROXY SOLICITATION
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Company. In addition to the use of
the mails, proxies may be solicited by officers and directors and regular
employees of the Company, without additional remuneration, by personal
interviews, telephone, telegraph or otherwise. The Company will also request
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to the beneficial owners of shares held of record and will provide reimbursement
for the cost of forwarding the material in accordance with customary charges.
The Company has retained Reinhard Associates to aid in the solicitation of
proxies, including soliciting proxies from brokerage firms, banks, nominees,
custodians and fiduciaries. The fees of such firm will aggregate approximately
$5,000 plus out-of-pocket costs and expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Holders of record of the Company's Class A Common Stock at the close of
business on April 11, 1994 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting with respect to all matters properly presented at the
Annual Meeting. Holders of the Class A Common Stock are entitled to one vote for
each share held on each such matter at the Annual Meeting. A stockholders' list
will be available for examination by stockholders at the Annual Meeting.
<PAGE>
At the Record Date, there were 43,319,703 shares of Class A Common Stock
issued and outstanding. No shares of Class B Common Stock were issued and
outstanding as of the Record Date and the outstanding shares of the Company's
Series A Preferred Stock do not have voting rights with respect to the matters
being considered at the Annual Meeting. The holders of a majority of the shares
entitled to vote, present in person or represented by proxy, will constitute a
quorum for the transaction of business at the Annual Meeting. A plurality of the
votes cast is required to elect the directors and the affirmative vote of a
majority of the shares of the Class A Common Stock, present in person or by
proxy and entitled to vote at the Annual Meeting, is necessary to approve the
1993 Stock Option/ Stock Issuance Plan and to ratify the appointment of Deloitte
& Touche as independent auditors for the Company for its fiscal year ending
December 31, 1994.
A proxy submitted by a stockholder may indicate that all or a portion of the
shares of Class A Common Stock represented by such proxy are not being voted by
such stockholder with respect to a particular matter. This could occur, for
example, when a broker is not permitted to vote stock held in street name on
certain matters in the absence of instructions from the beneficial owner of the
stock. The shares subject to any such proxy which are not being voted with
respect to a particular matter (the "non-voted shares") will be considered
shares not present and entitled to vote on such matter, although such non-voted
shares will count for purposes of determining the presence of a quorum.
The following table sets forth, as of April 1, 1994, the name and address of
each person believed to be a beneficial owner of more than 5% of the Class A
Common Stock, the number of shares beneficially owned and the percentage so
owned. Except as set forth below, management knows of no person who, as of April
1, 1994, owned beneficially more than 5% of the Company's outstanding Class A
Common Stock.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- --------------------------- ------------------------------------- ------------------------ ---------
<S> <C> <C> <C>
Class A Common Stock Libra Invest & Trade Ltd. 3,968,060 shares (1) 9.2(1)
Road Town, Pasea Estate
P.O. Box 3149
Tortola, British Virgin Islands
<FN>
- ------------------------
(1) According to Corrected Amendment No. 5 to Schedule 13D dated January 28,
1994 filed jointly with the Securities and Exchange Commission (the "SEC")
by Mr. Toufic Aboukhater and Libra Invest & Trade Ltd. ("Libra"), a
corporation wholly owned by Mr. Aboukhater, Mr. Aboukhater disclosed that
through Libra, as of that date, he was the beneficial owner of 3,968,060
shares of the Company's Class A Common Stock, as to which he had sole
voting and dispositive power. This number does not include 3,395,482 shares
issued to Libra in December 1993, as to which Mr. Aboukhater had sole
voting power and which shares have been deposited in a custodial account
for periodic sale in accordance with instructions from the Company. The
proceeds from such sales are to be remitted to the Company and until sold
these shares, together with the 3,968,060 shares listed above, are subject
to a voting agreement with the Company. See "Certain Transactions --
Transactions with Libra".
</TABLE>
For information with respect to security ownership of management, see
"Nomination and Election of Directors."
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of Donald M. Koll (Chairman),
Ray Wirta, Harold A. Ellis, Jr., Paul C. Hegness, J. Thomas Talbot and Marco F.
Vitulli. Under the Restated Certificate of Incorporation and the Amended Bylaws
of the Company, the six members of the Board of Directors are divided into three
classes with each class having a term of three years. The class of two directors
to be elected at the 1994 Annual Meeting will be elected for a three-year term
expiring in 1997.
2
<PAGE>
Upon recommendation of the Nominating Committee, the Board of Directors has
nominated Messrs. Wirta and Ellis, whose current terms expire at the 1994 Annual
Meeting, for election as directors. If any nominee should be unavailable for
election at the Annual Meeting, the proxies will be voted for the election of
such other person as may be recommended by the Board of Directors in place of
such nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS
DIRECTORS.
Information about the nominees for election as directors and the incumbent
directors, including biographical and employment information, is set forth
below:
NOMINEES FOR ELECTION AS DIRECTORS
Ray Wirta, 50, for a term expiring in 1997; Mr. Wirta has been a Director
and Chief Executive Officer of the Company since March 1993. Mr. Wirta has also
been President and Chief Operating Officer of The Koll Company, a general
contracting and international real estate development company ("Koll Company")
and Vice Chairman of the Board and Chief Executive Officer of Koll Management
Services, Inc., a real estate management company ("Koll Management Services")
since prior to 1989.
Harold A. Ellis, Jr., 62, for a term expiring in 1997; Mr. Ellis has been a
director of the Company since August 1993. Mr. Ellis has been the Managing
Partner of Ellis Partners, Inc., a real estate asset management and consulting
company since 1992. Until 1992, Mr. Ellis was the Chairman and Chief Executive
Officer of Grubb & Ellis Company, one of the nation's largest diversified real
estate service organizations.
INCUMBENT DIRECTORS
Donald M. Koll, 61, term expires in 1996; Mr. Koll has been Chairman of the
Board of the Company since March 1993 and was Managing Director-President and a
director of the Company from 1990 to 1992. Mr. Koll has also been Chairman of
the Board and Chief Executive Officer of Koll Company and Chairman of the Board
of Koll Management Services since prior to 1989.
Paul C. Hegness, 47, term expires in 1996; Mr. Hegness has been a partner in
the law firm of Good, Wildman, Hegness & Walley since 1979 and has been a
director of the Company since March 1993. He was previously employed by the
Construction Division of Del Webb Corporation, the Home Building Division of
Broadmoor Homes, and Union Bank. Mr. Hegness is also a director of Walter Foster
Publishing, a publisher and marketer of art instructional materials.
J. Thomas Talbot, 58, term expires in 1995; Mr. Talbot has been a director
of the Company since August 1993. Mr. Talbot has been the owner of The Talbot
Company, an investment and asset management company since July 1991. From August
1989 until July 1991, Mr. Talbot was Chief Executive Officer of HAL, Inc., the
parent company of Hawaiian Airlines. Mr. Talbot is also a director of the
following companies: The Baldwin Company, a developer of residential real
estate; The Hallwood Group, Inc., a corporate rescue firm; Showbiz Pizza Time,
Inc., a restaurant chain; and Hemmeter Enterprises, Inc., a gaming company.
Marco F. Vitulli, 59, term expires in 1995; Mr. Vitulli has been a director
of the Company since March 1993. Mr. Vitulli has been the President of Vitulli
Ventures, Ltd., a real estate development, investment management and consulting
services company since 1981. Mr. Vitulli is also the Chairman of Elk River
Enterprises, a lumber company, and he is a director of Pope Resources, a land,
timber, mineral and recreational properties company.
3
<PAGE>
Information about the beneficial ownership of the Class A Common Stock as of
April 1, 1994 by each nominee, director, executive officer named in the Summary
Compensation Table below, and all directors and executive officers of the
Company as a group is set forth below:
<TABLE>
<CAPTION>
SHARES OF
CLASS A PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK(1) CLASS (2)
- -------------------------------------------------- ---------------- -----------
<S> <C> <C>
Donald M. Koll.................................... 276,701 *
Ray Wirta......................................... 240,000 *
Harold A. Ellis, Jr. (3).......................... 43,263 *
Paul C. Hegness (3)............................... 110,571 *
J. Thomas Talbot (3).............................. 2,000 *
Marco F. Vitulli (3).............................. 121,000 *
Raymond J. Pacini................................. 223,434 *
Michael D. Dingman (4)............................ 180,954 *
Directors and Executive Officers as a group (9
persons including the above named)............... 1,445,263 3.3
<FN>
- ------------------------
(1) Except as otherwise indicated in the notes below, the persons indicated
have sole voting and investment power with respect to shares listed. In
addition to the specific shares indicated in the following footnotes, this
column includes shares held directly and shares subject to stock options
which are currently exercisable or become exercisable within sixty days
after April 1, 1994.
(2) Asterisks indicate beneficial ownership of 1% or less of the class.
(3) Includes 2,000 shares of Class A Common stock granted pursuant to the
Company's Restricted Stock Plan for Non-Employee Directors, which shares
are subject to certain restrictions on vesting and disposition.
(4) On March 16, 1993, Mr. Dingman resigned as a director and as an executive
officer of the Company.
</TABLE>
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors met 11 times during 1993. All of the then
incumbent directors attended at least 75% of the meetings of the Board and
committees of the Board during the periods that they served. The Board has three
standing committees: the Audit Committee, the Compensation Committee and the
Nominating Committee. During 1993, the Audit Committee met three times, the
Compensation Committee met four times and the Nominating Committee met once.
The Audit Committee consists of Messrs. Ellis, Hegness, Talbot and Vitulli,
with Mr. Ellis serving as Chairman. It is responsible for recommending the firm
to be appointed as independent accountants to audit the Company's financial
statements and to perform services related to the audit; reviewing the scope and
results of the audit with the independent accountants; reviewing with management
and the independent accountants the Company's year-end operating results;
considering the adequacy of the internal accounting control procedures of the
Company; reviewing the non-audit services to be performed by the independent
accountants and considering the effect of such performance on the accountants'
independence.
The Compensation Committee consists of Messrs. Ellis, Hegness, Talbot and
Vitulli, with Mr. Talbot serving as Chairman. It is responsible for the review,
recommendation and approval of compensation arrangements for directors and
executive officers, for the approval of such arrangements for other senior level
employees, and for the administration of certain benefit and compensation plans
and arrangements of the Company and its subsidiaries.
The Nominating Committee consists of all members of the Board, with Mr.
Hegness serving as Chairman. It is responsible for the nomination of persons for
election to the Board of Directors. The
4
<PAGE>
Nominating Committee will consider nominees recommended by stockholders.
Stockholder recommendations may be sent to the Nominating Committee, Attention:
Secretary, Koll Real Estate Group, Inc., 4343 Von Karman Avenue, Newport Beach,
California 92660.
PROPOSAL 2
APPROVAL OF 1993 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders of the Company are being asked to approve the Koll Real
Estate Group, Inc. 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"),
pursuant to which 7,500,000 shares of the Company's Series A Convertible
Redeemable Preferred Stock ("Series A Preferred Stock") and 7,500,000 shares of
the Company's Class A Common Stock will initially be reserved for future
issuance. The Board of Directors of the Company (the "Board") authorized the
implementation of the 1993 Plan as an equity incentive program to become
effective on November 29, 1993 (the "Effective Date"), subject to stockholder
approval at the Annual Meeting. The 1993 Plan is intended to serve as the
successor to the 1988 Stock Plan (the "Predecessor Plan"), under which 3,000,000
shares of Class A Common Stock and 3,000,000 shares of Series A Preferred Stock
are currently reserved for issuance, and all outstanding stock options under the
Predecessor Plan will be incorporated into the 1993 Plan upon its approval. No
further option grants will be made under the Predecessor Plan. The 1993 Plan
provides for an additional reserve of 4,500,000 shares of Class A Common Stock
and 4,500,000 shares of Series A Preferred Stock, and contains the three
separate equity incentive programs described below. If approved, the 15,000,000
aggregate number of shares of Class A Common Stock and Series A Preferred Stock
reserved for issuance under the 1993 Plan would represent 14.9% of the Company's
fully diluted equity (including the 42,505,504 shares of outstanding Series A
Preferred Stock which will become convertible into shares of Class A Common
Stock on July 16, 1994).
The affirmative vote of a majority of the shares of the Company's Class A
Common Stock present in person or by proxy at the Annual Meeting and entitled to
vote on this proposal is required for approval of the 1993 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 1993 PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS
OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE PROGRAM WHICH WILL
PROVIDE A MEANINGFUL OPPORTUNITY FOR EXECUTIVE OFFICERS, KEY EMPLOYEES AND NON-
EMPLOYEE BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY INTEREST IN THE
COMPANY AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S
SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS OF
THE COMPANY.
The following is a summary of the principal features of the 1993 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1993 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so by written request submitted to the
Company's principal executive offices, 4343 Von Karman Avenue, Newport Beach, CA
92660, Attention: Secretary.
EQUITY INCENTIVE PROGRAMS
The 1993 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, under which officers, key employees,
eligible non-employee members of the Board and consultants may be granted
options to purchase shares of the Company's Series A Preferred Stock and Class A
Common Stock, (ii) a Director Fee Program, under which each non-employee member
of the Board may elect to apply all or any portion of his or her annual retainer
fee (currently $30,000) to the acquisition of unvested shares of the Company's
Series A Preferred Stock or Class A Common Stock, and (iii) an Automatic Option
Grant Program, under which option grants will be made to non-employee members of
the Board.
5
<PAGE>
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
SHARE RESERVE
7,500,000 shares of the Company's Series A Preferred Stock and 7,500,000
shares of the Company's Class A Common Stock have been reserved for issuance
over the ten-year term of the 1993 Plan. Such authorized share reserve is
comprised of the number of shares of Series A Preferred Stock and Class A Common
Stock which remained available for issuance, as of the Effective Date, under the
Predecessor Plan, including the shares subject to the outstanding options
incorporated into the 1993 Plan and any other shares which remained available
for future option grants under the Predecessor Plan (3,000,000 shares of Series
A Preferred Stock and 3,000,000 shares of Class A Common Stock), plus an
additional increase of 4,500,000 shares of Series A Preferred Stock and
4,500,000 shares of Class A Common Stock. As of April 1, 1994, 6,350,000 shares
of Series A Preferred Stock and 6,476,856 shares of Class A Common Stock were
subject to outstanding options granted or shares purchased under the 1993 Plan,
leaving 1,150,000 shares of Series A Preferred Stock and 1,023,144 shares of
Class A Common Stock remaining available for future option grants or share
purchases.
The shares of Series A Preferred Stock and Class A Common Stock available
for issuance under the 1993 Plan will be drawn from either the Company's
authorized but unissued shares of Series A Preferred Stock and Class A Common
Stock or from reacquired shares of Series A Preferred Stock and Class A Common
Stock, including shares repurchased by the Company on the open market. Should an
option (including outstanding options incorporated into the 1993 Plan from the
Predecessor Plan) expire or terminate for any reason prior to exercise in full
(including options cancelled in accordance with the cancellation-regrant
provisions of the 1993 Plan), the shares subject to the portion of the option
not so exercised will be available for subsequent issuance under the 1993 Plan.
Shares subject to any option surrendered in accordance with the stock
appreciation right provisions of the 1993 Plan and all share issuances under the
1993 Plan, whether or not the shares are subsequently reacquired by the Company
pursuant to its repurchase rights under the 1993 Plan, will reduce on a
share-for-share basis the number of shares of the Company's Series A Preferred
Stock and Class A Common Stock available for subsequent issuance.
Adjustments will be made under the 1993 Plan to reflect changes in the
Company's capital structure as shares of Series A Preferred Stock are redeemed
or converted into shares of Class A Common Stock. Upon each redemption or
conversion of the outstanding shares of Series A Preferred Stock, the number of
shares of Series A Preferred Stock at the time available for issuance under the
1993 Plan and the number of shares of Series A Preferred Stock subject to stock
options at the time outstanding under the 1993 Plan will be decreased by the
same percentage by which the number of outstanding shares of Series A Preferred
Stock is decreased by reason of such redemption or conversion. In addition, at
the time of any redemption or conversion the number of shares of Class A Common
Stock available for issuance under the 1993 Plan and the number of shares of
Class A Common Stock subject to stock options outstanding under the 1993 Plan
which would otherwise be exercisable for Series A Preferred Stock will be
correspondingly increased by the number of shares obtained by multiplying (i)
the number of shares of Series A Preferred Stock no longer issuable under the
1993 Plan or no longer subject to each such outstanding stock option by (ii) the
number of shares of Class A Common Stock into which each such redeemed or
converted share of Series A Preferred Stock is at the time convertible on a
per-share basis. In addition, the option exercise price per share of Series A
Preferred Stock in effect under each outstanding option will, upon each
redemption or conversion of the outstanding shares of Series A Preferred Stock,
be adjusted by dividing (i) such exercise price per share (as such price relates
to the shares of Class A Common Stock issuable under the option in place of the
Series A Preferred Stock) by (ii) the number of shares of Class A Common Stock
into which each such redeemed or converted share of Series A Preferred Stock is
at the time
6
<PAGE>
convertible on a per-share basis. In no event, however, will there be issued
over the term of the 1993 Plan more than 15,000,000 shares in the aggregate of
Series A Preferred Stock and Class A Common Stock, subject to anti-dilution
adjustment.
No individual participating in the 1993 Plan may be granted stock options or
separately exercisable stock appreciation rights for more than 5,000,000 shares
of Class A Common Stock and Series A Preferred Stock in the aggregate over the
term of the 1993 Plan.
PLAN ADMINISTRATION
The Discretionary Option Grant Program will be administered by the
Compensation Committee of the Board, which will be comprised of two or more
non-employee Board members appointed by the Board. The Compensation Committee,
as "Plan Administrator," will have complete discretion (subject to the express
provisions of the 1993 Plan) to authorize stock option grants. All grants under
the Automatic Option Grant and Director Fee Programs will be made in strict
compliance with the express provisions of those programs, and no administrative
discretion will be exercised by the Plan Administrator with respect to the
grants or stock issuances made under those programs.
ELIGIBILITY
Executive officers and other key employees, non-employee members of the
Board and independent consultants and advisors to the Company (or any now
existing or subsequently established parent or subsidiary corporation) will be
eligible to participate in the Discretionary Option Grant Program. Non-employee
members of the Board who serve as Plan Administrator will only be eligible to
participate in the Automatic Option Grant and Director Fee Programs.
As of April 1, 1994, it was estimated that all four executive officers and
30 other key employees were eligible to participate in the 1993 Plan and all
four non-employee Board members were eligible to participate in the Automatic
Option Grant and Director Fee Programs.
VALUATION
The fair market value per share of the Company's Series A Preferred Stock or
Class A Common Stock on any relevant date under the 1993 Plan will be the
closing selling price per share on that date on the Nasdaq National Market,
which serves as the primary market for the Company's Series A Preferred Stock
and Class A Common Stock. If there is no reported selling price for such date,
then the closing selling price for the last previous date for which such
quotation exists will be determinative of fair market value. The fair market
value of both the Company's Series A Preferred Stock and Class A Common Stock on
April 4, 1994, as reported on the Nasdaq National Market, was $.2813 per share.
DISCRETIONARY OPTION GRANT PROGRAM
The principal features of the Discretionary Option Grant Program may be
summarized as follows:
The exercise price per share of the Series A Preferred Stock or Class A
Common Stock subject to a stock option will not be less than 100% of the fair
market value per share of that security on the grant date. No option will have a
maximum term in excess of ten years measured from the grant date. The Plan
Administrator will have complete discretion to grant options (i) which are
immediately exercisable for vested shares, (ii) which are immediately
exercisable for unvested shares subject to the Company's repurchase rights or
(iii) which become exercisable in installments for vested shares over the
optionee's period of service.
The exercise price may be paid in cash or in shares of the Company's Series
A Preferred Stock or Class A Common Stock valued at fair market value on the
exercise date. The option may also be exercised for vested shares through a
same-day sale program pursuant to which the purchased shares are to be sold
immediately and a portion of the sale proceeds applied to the payment of the
exercise price for those shares on the settlement date.
7
<PAGE>
Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the Plan
Administrator (not to exceed 36 months) at the time of the option grant. During
that period, the option will generally be exercisable only for the number of
shares in which the optionee is vested at the time of cessation of service. For
purposes of the 1993 Plan, an individual will be deemed to continue in service
for so long as that person performs services on a periodic basis for the Company
or any parent or subsidiary corporations, whether as an employee, a non-employee
member of the Board or an independent consultant or advisor.
The Plan Administrator will have complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
Any unvested shares of the Company's Series A Preferred Stock and Class A
Common Stock will be subject to repurchase by the Company, at the original
exercise price paid per share, upon the optionee's cessation of service prior to
vesting in those shares. The Plan Administrator will have complete discretion in
establishing the vesting schedule for any such unvested shares and will have
full authority to cancel the Company's outstanding repurchase rights with
respect to those shares in whole or in part at any time.
The optionee is not to have any stockholder rights with respect to the
option shares until the option is exercised and the exercise price is paid for
the purchased shares. Options are not assignable or transferable other than by
will or by the laws of inheritance following the optionee's death, and the
option may, during the optionee's lifetime, be exercised only by the optionee.
The Plan Administrator may grant options with stock appreciation rights.
Stock appreciation rights provide the holders with the right to surrender their
options for an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value of the vested shares of the Company's Series
A Preferred Stock or Class A Common Stock subject to the surrendered option over
(ii) the aggregate exercise price payable for such vested shares. Such
appreciation distribution may, in the discretion of the Plan Administrator, be
made in cash or in shares of the Company's Series A Preferred Stock or Class A
Common Stock. Officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may also be granted limited stock
appreciation rights in connection with their option grants. Any option with such
a limited stock appreciation right in effect for at least six months may be
surrendered to the Company upon the successful completion of a hostile tender
offer for securities possessing more than 50% of the combined voting power of
the Company's outstanding securities. In return for the surrendered option, the
officer will be entitled to a cash distribution from the Company in an amount
per vested share of Series A Preferred Stock or Class A Common Stock subject to
the surrendered option equal to the excess of (i) the highest reported price per
share of the Company's Series A Preferred Stock or Class A Common Stock paid in
such hostile tender offer over (ii) the option exercise price.
DIRECTOR FEE PROGRAM
Under the Director Fee Program, each individual serving as a non-employee
Board member will be eligible to elect to apply all or any portion of the annual
retainer fee otherwise payable in cash to such individual (currently $30,000) to
the acquisition of unvested shares of Series A Preferred Stock and/or Class A
Common Stock. The non-employee Board member must make the stock election prior
to the start of the calendar year for which the election is to be in effect. On
the first trading day in January of the calendar year for which the election is
in effect, the portion of the retainer fee subject to such election will be
applied to the acquisition of the selected shares of Series A Preferred Stock
and/or Class A Common Stock by dividing the elected dollar amount by the closing
selling price per share of Series A Preferred Stock or Class A Common Stock (as
the case may be) on that trading day. The
8
<PAGE>
issued shares will be held in escrow by the Company until the individual vests
in those shares. The non-employee Board member will have full stockholder
rights, including voting and dividend rights, with respect to all issued shares
held in escrow on his or her behalf.
Upon completion of each calendar quarter of Board service during the year
for which the election is in effect, the non-employee Board member will vest in
one-fourth of the issued shares, and the stock certificate for those shares will
be released from escrow. Immediate vesting in all the issued shares will occur
in the event the individual dies or becomes disabled during his or her period of
Board service or certain changes in control or ownership of the Company are
effected during such period. Should the Board member cease service prior to
vesting in one or more quarterly installments of the issued shares, then those
installments will be forfeited, and the individual will not be entitled to any
cash payment from the Company with respect to the forfeited shares.
For the 1994 calendar year, the following non-employee Board members
received unvested shares of Class A Common Stock under the Director Fee Program,
at a purchase price of $.4375 per share, in lieu of a portion of their cash
retainer fee for such year: Mr. Ellis: 34,285 shares; Mr. Hegness: 68,571
shares; and Mr. Vitulli: 24,000 shares. None of these shares will vest or
otherwise be released from escrow unless the stockholders approve the 1993 Plan
at the Annual Meeting.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was serving as
a non-employee Board member on the Effective Date was automatically granted a
non-statutory option to purchase 125,000 shares of Series A Preferred Stock and
a non-statutory option to purchase 125,000 shares of Class A Common Stock,
subject to stockholder approval of the 1993 Plan. In addition, each individual
who first becomes a non-employee Board member on or after the Effective Date,
whether through election by the Company's stockholders or appointment by the
Board, will be automatically granted at the time of such election or appointment
a non-statutory option to purchase 125,000 shares of Series A Preferred Stock
and a non-statutory option to purchase 125,000 shares of Class A Common Stock.
However, no non-employee Board member who has previously been in the employ of
the Company or any parent or subsidiary corporation will be eligible to receive
these automatic stock option grants.
Each option granted under the Automatic Option Grant Program will be subject
to the following terms and conditions:
-- The exercise price per share of the Series A Preferred Stock or
Class A Common Stock subject to an automatic option grant will be equal to
100% of the fair market value per share of that security on the automatic
option grant date.
-- Each option will have a maximum term of ten years measured from the
grant date.
-- Each option will be immediately exercisable for all the option
shares, but any purchased shares will be subject to repurchase by the
Company at the exercise price paid per share. Each option will vest, and the
Company's repurchase right will lapse as to (i) 40% of the option shares
upon the optionee's completion of one year of Board service measured from
the automatic grant date, and (ii) the remaining option shares in two equal
and successive annual installments over the optionee's period of continued
Board service, with the first such installment to vest two years after the
automatic option grant date.
-- The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while holding an automatic
option grant, then such option will remain exercisable for a twelve-month
period following the optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after
9
<PAGE>
the expiration date of the option term. During the applicable exercise
period, the option may not be exercised for more than the number of shares
(if any) in which the optionee is vested at the time of cessation of Board
service.
-- Should the optionee die or become permanently disabled while serving
as a Board member, then the shares of the Company's Series A Preferred Stock
and Class A Common Stock subject to any automatic option grant held by that
optionee will immediately vest in full, and those vested shares may be
purchased at any time within the twelve-month period following the date of
the optionee's cessation of Board service.
-- The shares subject to each automatic option grant will vest in full
upon the occurrence of certain changes in control or ownership of the
Company, as explained in more detail below in the subsection entitled
Option/Vesting Acceleration.
-- Upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding securities, each automatic option grant which has been
outstanding for at least six months may be surrendered to the Company for a
cash distribution per surrendered option share in an amount equal to the
excess of (i) the highest price per share of the Company's Series A
Preferred Stock or Class A Common Stock paid in such tender offer over (ii)
the exercise price payable for such share.
-- The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic option grant.
Adjustments will be made under the Automatic Option Grant Program to reflect
changes in the Company's capital structure as shares of Series A Preferred Stock
are redeemed or converted into shares of Class A Common Stock. Upon each
redemption or conversion of the outstanding shares of Series A Preferred Stock,
the number of shares of Series A Preferred Stock at the time subject to the
outstanding stock options under the Automatic Option Grant Program and the
number of shares of Series A Preferred Stock for which automatic option grants
will subsequently be made to each newly-elected non-employee Board member will
be decreased by the same percentage by which the number of outstanding shares of
Series A Preferred Stock is decreased by reason of such redemption or
conversion. In addition, at the time of any redemption or conversion the number
of shares of Class A Common Stock subject to outstanding stock options under the
Automatic Option Grant Program which would otherwise be exercisable for Series A
Preferred Stock and the number of shares of Class A Common Stock for which
automatic option grants will subsequently be made to each newly-elected
non-employee Board member will be correspondingly increased by the number of
shares obtained by multiplying (i) the number of shares of Series A Preferred
Stock no longer subject to each such outstanding stock option or no longer
issuable in the future per newly-elected non-employee Board member by (ii) the
number of shares of Class A Common Stock into which each such redeemed or
converted share of Series A Preferred Stock is at the time convertible on a
per-share basis. In addition, the option exercise price per share of Series A
Preferred Stock in effect under each outstanding automatic option grant will,
upon each redemption or conversion of the outstanding shares of Series A
Preferred Stock, be adjusted by dividing (i) such exercise price per share (as
such price relates to the shares of Class A Common Stock issuable under the
option in place of the Series A Preferred Stock) by (ii) the number of shares of
Class A Common Stock into which each such redeemed or converted share of Series
A Preferred Stock is at the time convertible on a per-share basis.
OPTION/VESTING ACCELERATION.
Outstanding options under the 1993 Plan will become immediately exercisable,
and unvested shares issued under the 1993 Plan will be subject to accelerated
vesting, in the event of certain changes in the ownership or control of the
Company.
In the event of an acquisition of the Company by merger or asset sale, each
option at the time outstanding under the Discretionary Option Grant Program will
automatically become exercisable for
10
<PAGE>
all of the shares of the Company's Series A Preferred Stock or Class A Common
Stock at the time subject to that option and may be exercised for any or all of
such shares as fully-vested shares, except to the extent: (i) such option is
either to be assumed by the successor corporation (or parent thereof) or is
otherwise to be replaced by a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof) or (ii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of grant. The Plan Administrator will have the
discretion to provide for the subsequent acceleration of any option under the
Discretionary Option Grant Program which does not accelerate at the time of the
acquisition, in the event the optionee's service terminates within a designated
period following such acquisition.
Any outstanding repurchase rights of the Company under the Discretionary
Option Grant Program will also terminate, and the shares subject to those
terminated rights will become fully vested, upon any acquisition of the Company,
except to the extent (i) one or more of such repurchase rights are expressly
assigned to the successor corporation (or its parent company) or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the unvested shares are issued. The Plan Administrator
will have the discretion to provide for the subsequent termination of any
repurchase rights which remain in existence after the acquisition, in the event
the individual's service terminates within a designated period following such
acquisition.
The Plan Administrator has full power and authority to provide for the
acceleration of one or more outstanding options under the Discretionary Option
Grant Program upon the occurrence of a hostile takeover of the Company (whether
by tender offer for more than 50% of the outstanding shares or by a change in
the majority of the Board), so that each such option will, immediately prior to
such hostile takeover, become exercisable for the total number of shares of
Series A Preferred Stock and Class A Common Stock at the time subject to such
option and may be exercised for any or all of such shares as fully-vested
shares. The Plan Administrator may also provide for the automatic termination of
any outstanding repurchase rights held by the Company under the Discretionary
Option Grant Program (with the concurrent vesting of the shares subject to those
terminated rights) in the event of such hostile takeover. Alternatively, the
Plan Administrator may condition such accelerated option vesting and termination
of the repurchase rights upon the individual's cessation of service under
certain prescribed circumstances following the hostile takeover.
Upon the occurrence of any acquisition of the Company or hostile takeover,
all repurchase rights outstanding under the Automatic Option Grant Program will
immediately terminate (with the concurrent vesting of the shares subject to
those terminated rights) and all shares outstanding under the Director Fee
Program will immediately vest in full.
Immediately following the consummation of any acquisition of the Company,
all outstanding options under the 1993 Plan will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be exercisable. Any options under the
1993 Plan which are accelerated in connection with a hostile takeover will
remain so exercisable until the expiration or sooner termination of the option
term.
Outstanding stock options under the Predecessor Plan which are to be
incorporated into the 1993 Plan do not contain any automatic acceleration
provisions which would allow the option to become immediately exercisable upon
an acquisition or hostile change in control of the Company. However, options
under the Predecessor Plan which are not to be assumed by the acquiring entity
may, solely in the Plan Administrator's discretion, be accelerated in whole or
in part upon an acquisition of the Company by merger or asset sale or upon
certain other changes in control of the Company. The Plan Administrator will
also have the discretionary authority to extend the automatic acceleration
provisions of the 1993 Plan to any or all stock options incorporated from the
Predecessor Plan.
The acceleration of options or vesting of shares in the event of any
acquisition of the Company or hostile takeover may be seen as an anti-takeover
provision and may have the effect of discouraging a merger proposal, a takeover
attempt or other efforts to gain control of the Company.
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<PAGE>
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of the Company's
Series A Preferred Stock or Class A Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of consideration, appropriate adjustments will be made to (i) the
maximum number and/or class of securities issuable under the 1993 Plan, (ii) the
maximum number and/or class of securities for which any one individual may be
granted stock options and separately exercisable stock appreciation rights in
the aggregate over the term of the 1993 Plan, (iii) the number and/or class of
securities and price per share in effect under each outstanding option, (iv) the
number and/or class of securities for which automatic option grants will
subsequently be made under the Automatic Option Grant Program per each
newly-elected non-employee Board member and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into the 1993 Plan from the Predecessor Plan.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program in order to assist one
or more optionees in financing their exercise of outstanding options under the
Discretionary Option Grant Program. The form in which such assistance is to be
made available (including loans or installment payments) and the terms upon
which such assistance is to be provided will be determined by the Plan
Administrator. However, the maximum amount of financing provided any individual
may not exceed the amount of cash consideration payable for the issued shares
plus all applicable Federal, state and local income and employment taxes
incurred in connection with the acquisition of the shares. Any such financing
may be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the individual's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of non-statutory
options under the Discretionary Option Grant with the right to have the Company
withhold a portion of the shares of Series A Preferred Stock or Class A Common
Stock otherwise issuable to such individuals in satisfaction of the Federal,
state and local income and employment tax liability incurred by such individuals
in connection with the exercise of those options. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of the Company's Series A Preferred Stock or Class A Common Stock in payment of
such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees or holders of unvested shares without their consent, and
amendments to the Automatic Option Grant and Director Fee Programs may not be
made more frequently than once every six months unless otherwise necessary to
comply with applicable tax and securities laws and regulations. In addition, the
Board may not, without the approval of the Company's stockholders, (i)
materially increase the maximum number of shares issuable under the 1993 Plan,
the number of shares for which automatic option grants will be made to
newly-elected non-employee Board members or the maximum number of shares for
which any one individual may be granted stock options and separately exercisable
stock appreciation rights, except to reflect certain changes in the Company's
capital structure, (ii) materially modify the eligibility requirements for
option grants or (iii) otherwise materially increase the benefits accruing to
participants under the 1993 Plan.
The Board may terminate the 1993 Plan at any time, and the 1993 Plan will in
all events terminate on November 28, 2003. Each stock option or unvested share
issuance outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grant or
issuance.
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<PAGE>
NEW PLAN BENEFITS
On the Effective Date, option grants were made under the Discretionary
Option Grant Program to certain executive officers and other key employees.
These grants are subject to stockholder approval of the 1993 Plan at the Annual
Meeting. The table below shows, as to the Company's Chief Executive Officer and
each of the other executive officers named in the Summary Compensation Table
below, the non-employee members of the Board and the various indicated groups,
the number of shares of Series A Preferred Stock and Class A Common Stock
subject to the initial stock options granted under the 1993 Plan. Each of the
granted options, whether for Series A Preferred Stock or Class A Common Stock,
has an exercise price of $.40625 per share, which was the fair market value per
share of both the Series A Preferred Stock and Class A Common Stock on the grant
date.
<TABLE>
<CAPTION>
NUMBER OF OPTION SHARES
------------------------------
SERIES A
PREFERRED CLASS A
NAME AND POSITION STOCK COMMON STOCK
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Donald M. Koll, 600,000 600,000
Chairman of the Board
Ray Wirta, 500,000 500,000
Vice Chairman of the Board and Chief Executive Officer
Richard Ortwein, 600,000 600,000
President
Raymond J. Pacini, 600,000 600,000
Executive Vice President, Chief Financial Officer and Secretary
Harold A. Ellis, Jr. 125,000 125,000
Director
Paul C. Hegness 125,000 125,000
Director
J. Thomas Talbot 125,000 125,000
Director
Marco F. Vitulli 125,000 125,000
Director
Executive Officer Group (4 persons) 2,300,000 2,300,000
Non-Employee Director Group (4 persons) 500,000 500,000
Non-Executive Officer, Key Employee Group (9 persons) 720,000 720,000
</TABLE>
PREDECESSOR PLAN
Each stock option issued and outstanding under the Predecessor Plan
immediately prior to the Effective Date will be incorporated into the 1993 Plan,
upon its approval, and treated as an outstanding stock option under the 1993
Plan, but each such option continues to be governed solely by the terms and
conditions of the instrument evidencing such grant, and nothing in the 1993 Plan
will be deemed to affect or otherwise modify the rights or obligations of the
holders of such options with respect to their acquisition of shares thereunder.
However, the Plan Administrator has complete discretion to extend one or more
features of the 1993 Plan, including the various acceleration provisions, to any
or all of the options incorporated from the Predecessor Plan.
PREDECESSOR PLAN STOCK AWARDS
The tables below show, as to each of the Company's executive officers named
in the Summary Compensation Table below, and the various other indicated
individuals and groups, the following information with respect to stock option
transactions effected during the period from July 1, 1992 to April 1, 1994 under
the Predecessor Plan: the number of shares of the Company's Series A Preferred
Stock or Class A Common Stock subject to options granted during that period and
the weighted average exercise price payable per share. No stock options were
exercised and no direct stock issuances were made under the Predecessor Plan
during that period.
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<PAGE>
OPTION TRANSACTIONS -- SERIES A PREFERRED STOCK
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
NAME AND POSITION (# OF SHARES) OF OPTIONS GRANTED($)
- -------------------------------------------------------------------------- --------------- -------------------------
<S> <C> <C>
Donald M. Koll, 600,000 .28
Chairman of the Board
Ray Wirta, 500,000 .28
Vice Chairman of the Board and Chief Executive Officer
Richard M. Ortwein, 600,000 .28
President
Raymond J. Pacini, 200,000 .14
Executive Vice President, Chief Financial Officer and Secretary 300,000 .28
All current executive officers as a group (4 persons) 2,200,000 .27
All non-employee directors as a group (4 persons) -- --
All employees, including current officers or key employees who are not 630,000 .28
executive officers as a group (4 persons)
</TABLE>
OPTION TRANSACTIONS -- CLASS A COMMON STOCK
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
NAME AND POSITION (# OF SHARES) OF OPTIONS GRANTED($)
- -------------------------------------------------------------------------- --------------- -------------------------
<S> <C> <C>
Donald M. Koll, 600,000 .25
Chairman of the Board
Ray Wirta, 500,000 .25
Vice Chairman of the Board and Chief Executive Officer
Richard M. Ortwein, 600,000 .25
President
Raymond J. Pacini, 200,000 .23
Executive Vice President, Chief Financial Officer and Secretary 300,000 .25
All current executive officers as a group (4 persons) 2,200,000 .25
All non-employee directors as a group (4 persons) -- --
All employees, including current officers or key employees who are not 630,000 .25
executive officers as a group (4 persons)
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1993 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition will result.
14
<PAGE>
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the option exercise date over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of those shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
The Company anticipates that any compensation deemed paid by the Company upon
one or more disqualifying dispositions of incentive stock option shares under
the 1993 Plan will be deductible by the Company and will not have to be taken
into account for purposes of the $1,000,000 limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of the Company's Series A Preferred Stock and Class A Common
Stock under a non-statutory option. These special provisions may be summarized
as follows:
-- If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in those
shares, then the optionee will not recognize any taxable income at the time
of exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (i) the
fair market value of the shares on the date the repurchase right lapses with
respect to those shares over (ii) the exercise price paid for the shares.
-- The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options under the 1993 Plan will be
deductible by the Company and will not have to be taken into account for
purposes of the $1,000,000 limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
STOCK APPRECIATION RIGHTS.
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to a business expense deduction equal
to the appreciation distribution for the taxable year in which the ordinary
income is recognized by the optionee.
15
<PAGE>
DIRECT STOCK ISSUANCE.
The tax principles applicable to direct stock issuances under the Director
Fee Program will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
ACCOUNTING TREATMENT
Under accounting rules currently in effect but expected to change
substantially in the future, option grants or stock issuances with exercise or
issue prices equal to the fair market value of the shares on the grant or issue
date will not result in any compensation expense to the Company for financial
reporting purposes. However, outstanding options will be taken into account in
the calculation of earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of the
Company's Series A Preferred Stock and Class A Common Stock subject to such
outstanding stock appreciation rights has increased from the prior quarter-end
will be accrued as compensation expense, to the extent such fair market value is
in excess of the aggregate exercise price in effect for those rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1994 Annual Meeting
is required for approval of the 1993 Plan. If such approval is obtained, the
1993 Plan will be effective as of November 29, 1993. Should such stockholder
approval not be obtained, then the 1993 Plan will not become effective, and all
outstanding options granted under the 1993 Plan will terminate without ever
becoming exercisable for any of the option shares, and all direct stock
issuances under the Director Fee Program will be cancelled. The Predecessor Plan
would, however, continue to remain in effect and all outstanding options
incorporated into the 1993 Plan would be transferred back to the Predecessor
Plan.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee of the Board of Directors, the
Board of Directors has appointed Deloitte & Touche as independent auditors for
the 1994 fiscal year and hereby requests stockholders to ratify such
appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT AUDITORS.
On October 13, 1992, based upon the recommendation of its Audit Committee,
the Board of Directors of the Company appointed the accounting firm of Deloitte
& Touche to replace Kenneth Leventhal & Company as the Company's independent
auditors. On that same day, Deloitte & Touche was engaged as the Company's
auditors for the fiscal year ended December 31, 1992 and Kenneth Leventhal &
Company was dismissed.
Kenneth Leventhal & Company's report dated February 3, 1992, on the balance
sheets of the Company as of December 31, 1991 and 1990 and the related
statements of operations, changes in group and stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1991,
included an emphasis paragraph related to matters of uncertainty associated with
the Company's ability to continue as a going concern and an emphasis paragraph
related to the inherent uncertainties associated with estimated real estate
values.
There have been no disagreements between the Company and Kenneth Leventhal &
Company as to any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or
16
<PAGE>
procedure, which disagreements, if not resolved to Kenneth Leventhal & Company's
satisfaction, would have caused Kenneth Leventhal & Company to make reference to
the subject matter of the disagreement in its reports.
Representatives of Deloitte & Touche will be present at the Annual Meeting
and will have an opportunity to make a statement if they so desire and to
respond to appropriate questions from stockholders.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
The non-employee directors of the Company are entitled to receive cash
compensation and compensation pursuant to the plans described below.
CASH COMPENSATION. Non-employee directors of the Company receive
compensation of $30,000 per year, with no additional fees for attendance at
Board or committee meetings. Employee directors are not paid any fees or
additional compensation for service as members of the Board or any of its
committees. All directors are reimbursed for expenses incurred in attending
Board and committee meetings. Pursuant to the Deferred Compensation Plan for
Non-Employee Directors, a non-employee director may elect, generally prior to
the commencement of any calendar year, to have all or any portion of the
director's compensation for such calendar year credited to a deferred
compensation account. Amounts credited to the director's account will accrue
interest based upon the average quoted rate for ten-year U.S. Treasury Notes.
Deferred amounts will be paid in a lump sum or in installments commencing on the
first business day of the calendar year following the year in which the director
ceases to serve on the Board, or of a later calendar year specified by the
director.
1993 PLAN. The 1993 Plan includes an automatic option grant program,
pursuant to which each individual serving as a non-employee director on the
November 29, 1993 effective date of the 1993 Plan received an option grant for
125,000 shares of Series A Preferred Stock and 125,000 shares of Class A Common
Stock each with an exercise price of $.40625 per share, exercisable over a
maximum term of ten years. For further information concerning these grants and
the automatic option grant program, please see Proposal 2: "Approval of 1993
Stock Option/Stock Issuance Plan."
RESTRICTED STOCK PLAN. Under the Restricted Stock Plan, each individual
joining the Company as an non-employee Director member received an immediate
one-time grant of 2,000 shares of Class A Common Stock, subject to certain
restrictions. During 1993, such a 2,000 share grant was made under such
Restricted Stock Plan to each of the following non-employee Directors: Messrs.
Ellis, Hegness, Talbot and Vitulli. The Restricted Stock Plan was terminated in
November 1993 in connection with the implementation of the 1993 Plan, which is
subject to stockholder approval at the Annual Meeting.
17
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid during the previous
three fiscal years to the Chief Executive Officer and the Company's other
executive officers whose salary and bonus during 1993 exceeded $100,000 (the
"Named Executives") for services in all capacities to the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
- -------------------------------------------------------------------------- --------------------------------------------------------
OTHER RESTRICTED 1988 1993 ALL
ANNUAL STOCK PLAN PLAN OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD OPTIONS OPTIONS COMPENSATION
POSITION ($)(1) ($) ($) ($) (# OF SHARES) (# OF SHARES)(2) ($)(3)
- ------------------------- ------------- ------- ------------ ---------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald M. Koll 1993 162,500 -- -- -- 1,200,000 1,200,000 --
Chairman of the Board 1992 -- -- -- -- -- -- --
1991 -- -- -- -- -- -- --
Ray Wirta 1993 110,417 -- -- -- 1,000,000 1,000,000 --
Chief Executive Officer 1992 -- -- -- -- -- -- --
1991 -- -- -- -- -- -- --
Raymond J. Pacini 1993 156,500 130,000 22,148 (4) -- 600,000 1,200,000 5,925
Executive Vice President 1992 165,167 60,000 76,832 (4) -- 400,000 -- 5,831
and Chief Financial 1991 156,000 60,000 47,405 (4) -- -- -- 8,100
Officer
Michael D. Dingman 1993 20,833(3)(5) -- -- -- -- -- 625
Former Chairman of the 1992 167,708 -- -- -- 850,000(6) -- 5,149
Board, Chief Executive 1991 225,000 -- -- -- -- -- 10,707
Officer and Chief
Operating Officer (5)
<FN>
- ------------------------------
(1) Includes amounts electively deferred by each Named Executive under the
Company's Savings and Profit Sharing Plan and Executive Retirement and
Savings Program.
(2) Options granted under the 1993 Plan are subject to stockholder approval of
the 1993 Plan at the Annual Meeting.
(3) Reflects the Company's contributions to the Company's Savings and Profit
Sharing Plan and the savings plan component of the Executive Retirement and
Savings Program.
(4) Reflects periodic installment payments to Mr. Pacini for expense
reimbursements in connection with his relocation to California from New
Hampshire in 1990.
(5) On March 16, 1993, Mr. Dingman resigned as a director and as an executive
officer of the Company.
(6) The Company and Mr. Dingman agreed to terminate such options as of March
16, 1993.
</TABLE>
18
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted during 1993 to the
Named Executives. No stock appreciation rights were granted to such individuals
during 1993.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAMED EXECUTIVES GRANTED(1) FISCAL YEAR ($/SH) DATE VALUE($)(2)
- -------------------------------------------------- ----------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Donald M. Koll 600,000(3) -- .25 04/18/03 147,000
600,000(4) -- .2813 04/18/03 168,780
600,000(3) -- .4063 11/28/03 238,900
600,000(4) -- .4063 11/28/03 243,780
-----------
Total......................................... 2,400,000 19.5 -- --
-----------
-----------
Ray Wirta 500,000(3) -- .25 04/18/03 122,500
500,000(4) -- .2813 04/18/03 140,650
500,000(3) -- .4063 11/28/03 199,090
500,000(4) -- .4063 11/28/03 203,150
-----------
Total......................................... 2,000,000 16.3 -- --
-----------
-----------
Raymond J. Pacini 300,000(3) -- .25 04/18/03 73,500
300,000(4) -- .2813 04/18/03 84,390
600,000(3) -- .4063 11/28/03 238,900
600,000(4) -- .4063 11/28/03 243,780
-----------
Total......................................... 1,800,000 14.6 -- --
-----------
-----------
<FN>
- ------------------------
(1) These options were granted pursuant to the Company's 1988 Plan and 1993
Plan and the exercise prices were equal to the closing selling prices of
the Class A Common Stock and Series A Preferred Stock on the Nasdaq
National Market on the grant date. The options granted under the 1993 Plan
are subject to stockholder approval of the 1993 Plan at the Annual Meeting.
Options granted under the 1988 Plan and 1993 Plan become exercisable in
cumulative installments to the extent of 40% of the option shares on the
first anniversary date of the grant, and to the extent of an additional 30%
on each of the second and third anniversary dates, although they may become
exercisable earlier upon the occurrence of certain changes in control of
the Company or upon the optionee's death, disability or normal retirement.
The options generally must be exercised, if at all, not later than 90 days
following the termination of the optionee's employment with the Company and
its affiliates. However, in the event the optionee's employment terminates
due to death, disability or normal retirement, the options must be
exercised, if at all, not later than one year following the termination of
the optionee's employment with the Company and its affiliates.
(2) Based on the Black-Scholes option pricing model which is an economic model
that, based upon certain assumptions with respect to several variables,
commonly is used to estimate the present value of an option grant. The
values presented are based on the following assumptions: (a) dividend yield
of 0% for both Class A Common Stock and Series A Preferred Stock; (b)
risk-free rates of return of 6.58% and 5.73% for the April and November
grants, respectively; and (c) expected Black-Scholes volatility of 141% for
the Class A Common Stock and 177% for the Series A Preferred Stock. Like
any economic model, the Black-Scholes option pricing model produces
different results depending on the assumptions made, and the values shown
above are merely good faith estimates of the present value of such options.
(3) Option to purchase shares of Class A Common Stock.
(4) Option to purchase shares of Series A Preferred Stock.
</TABLE>
19
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUE
The following table sets forth information for each Named Executive with
regard to the aggregate stock options exercised during the 1993 fiscal year, and
stock options held as of December 31, 1993. On December 31, 1993, the only
options exercisable by the Named Executives were for 160,000 shares under
options granted to Mr. Pacini. No stock appreciation rights were exercised by
the Named Executives during the 1993 fiscal year, nor did such individuals hold
any stock appreciation rights at the end of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED IN-THE-MONEY OPTIONS
NAME ON EXERCISE(#) REALIZED($)(1) OPTIONS AT FY-END(2) AT FY-END($)(3)
- ---------------------------------- ------------------- ----------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Donald M. Koll -- -- 2,400,000 243,720
Ray Wirta -- -- 2,000,000 203,100
Raymond J. Pacini -- -- 2,200,000 240,590(4)
Michael D. Dingman -- -- -- --
<FN>
- ------------------------
(1) Market value of underlying securities on exercise date, minus the exercise
price.
(2) Includes an equal number of options to purchase the Class A Common Stock
and Series A Preferred Stock; and includes options of 1,200,000 shares,
1,000,000 shares and 1,200,000 shares granted to Messrs. Koll, Wirta and
Pacini, respectively, under the 1993 Plan, which options are subject to
stockholders approval of the 1993 Plan at the Annual Meeting.
(3) Based upon market value of $.4375 for the Class A Common Stock and $.4375
for the Series A Preferred Stock as of December 31, 1993, less the
aggregate exercise price payable for such shares.
(4) Includes the value of the 160,000 shares subject to Mr. Pacini's currently
exercisable options.
</TABLE>
EXECUTIVE RETIREMENT AND SAVINGS PROGRAM
The Company maintains two retirement benefit programs: a tax-qualified
defined benefit pension plan available generally to all employees (the "Pension
Plan") and the Retirement and Savings Program, a non-qualified supplemental
benefit plan pursuant to which retirement benefits are provided to executive
officers and other eligible key management employees who are designated by the
Compensation Committee, which determines the service recognized under the
program in calculating a participant's vested interest and retirement income
(the "Supplemental Plan" and, together with the Pension Plan the "Retirement
Program"). As of December 31, 1993, all benefits under the Pension Plan were
frozen, and no further compensation or years of service will be taken into
account for additional benefit accrual purposes, under the Pension Plan.
The following table shows the total estimated annual benefits payable under
the Retirement Program in the form of a 50% joint and survivor annuity to
hypothetical participants upon retirement at normal retirement age, in the
compensation and years-of-service categories indicated in the table.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
------------------------------------------------
ANNUALIZED 10 YEARS
AVERAGE OF 20 YEARS 30 YEARS 40 YEARS
EARNINGS SERVICE OF SERVICE OF SERVICE OF SERVICE
- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$100,000 $ 15,000 $ 30,000 $ 45,000 $ 60,000
200,000 30,000 60,000 90,000 120,000
400,000 60,000 120,000 180,000 240,000
</TABLE>
The years of service recognized under the Retirement Program generally
include all service with the Company and its subsidiaries and their
predecessors. The credited years of service as of December 31, 1993 under the
Retirement Program of each of the Named Executives are as follows:
20
<PAGE>
Mr. Dingman, 23 years; and Mr. Pacini, seven years. Compensation recognized
under the Retirement Program generally includes a participant's base salary
(including any portion deferred) and annual bonus compensation and, for 1993,
retirement benefits are calculated based upon the average of a participant's
recognized compensation for the five years out of the final ten consecutive
years of credited service that produce the highest such average.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, and its members are named below. No member of
the Compensation Committee was at any time during the 1993 fiscal year or at any
other time an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
or any entity which has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee. Good, Wildman,
Hegness & Walley, a law firm with which Mr. Hegness is a senior partner,
provides legal services to the Company.
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND STOCK PRICE
PERFORMANCE COMPARISON GRAPH SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL AND
SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT
INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AND SHALL
NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
REPORT OF THE COMPENSATION COMMITTEE
The overall objectives of the Company compensation program are to attract
and retain the best possible executive talent, to motivate these executives to
achieve the goals inherent in the Company's business strategy, to maximize the
link between executive and stockholder interests through an equity based plan
and to recognize individual contributions as well as overall business results.
The key elements of the Company's executive compensation program consist of
fixed compensation in the form of base salary, and variable compensation in the
forms of annual incentive compensation and stock options. An executive officer's
annual base salary represents the fixed component of his total compensation;
however, variable compensation is intended to comprise a substantial portion of
an executive's total annual compensation. The Compensation Committee also takes
into account the fact that executives may also provide services to, and receive
compensation from, other entities. In addition, while the elements of
compensation described below are considered separately, the Compensation
Committee takes into account the full compensation package afforded by the
Company to the individual, including any pension benefits, supplemental
retirement benefits, insurance and other benefits, as well as the programs
described below.
BASE SALARIES. Base salaries for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive talent
including, where appropriate, a comparison to base salaries for comparable
positions at other companies, and to historical levels of salary paid by the
Company and its predecessors. Current base salaries for the Company's executive
officers are at or below the 75th percentile of the surveyed compensation data.
Salary adjustments are based on a periodic evaluation of the performance of
the Company and of each executive officer, and also take into account new
responsibilities as well as changes in the competitive market place. The
Compensation Committee, where appropriate, also considers non-financial
performance measures.
ANNUAL INCENTIVE COMPENSATION AWARDS. The variable compensation payable
annually to executive officers is intended to consist principally of annual
incentive compensation awards, based on various factors, including both
corporate and individual performance, established by the Compensation Committee
each fiscal year. The Compensation Committee determined not to make any annual
incentive compensation awards with respect to 1993 to any of its executive
officers other than Mr. Pacini, whose bonus award was based on his achievement
of specific objectives during the year.
21
<PAGE>
OTHER INCENTIVE COMPENSATION. Participation of executives in equity-based
compensation programs is reviewed annually, and awards under such programs,
primarily in the form of stock option grants under the Company's 1988 Stock Plan
and the Company's 1993 Stock Option/Stock Issuance Plan, are made periodically
to the executives. Each option grant is designed to align the interests of the
executive with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The number of shares subject to each
option grant is based upon the executive's tenure, level of responsibility and
relative position in the Company. The Compensation Committee has established
certain general guidelines in making option grants to the executive officers in
an attempt to target a fixed number of option shares based upon the individual's
position with the Company and his existing holdings of unvested options.
However, the Company does not adhere strictly to these guidelines and will vary
the size of the option grant made to each executive officer as it feels the
circumstances warrant. Each grant allows the officer to acquire shares of the
Company's stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to 10 years). The option vests in periodic
installments over a three-year period, contingent upon the executive officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he remains in the Company's employ and
the market price of the Company's Class A Common Stock and Series A Preferred
Stock appreciates over the option term.
During 1993, Messrs. Koll, Wirta and Pacini received stock options under the
1988 Plan for an aggregate of 1,200,000, 1,000,000 and 600,000 shares,
respectively, of the Company's common and preferred stock, and options under the
1993 Plan for an aggregate of 1,200,000, 1,000,000 and 1,200,000 shares,
respectively, of the Company's common and preferred stock. The option grants
under the 1993 Plan are subject to stockholder approval of the 1993 Plan at the
Annual Stockholders Meeting.
The size of the option grants made in 1993 reflected the decision of the
Compensation Committee to have a significant portion of the overall compensation
payable to these executive officers tied directly to the creation of stockholder
value in the form of appreciation in the market price of the Company's
outstanding stock. The total compensation package of the Company's executive
officers has been structured to be less in the form of guaranteed levels of base
salary and to be more dependent upon the market price of the Company's
outstanding securities.
CEO COMPENSATION. The base salary established for the Company's Chief
Executive Officer, Mr. Wirta, reflects the Committee's policy to maintain a
relative level of stability and certainty with respect to Mr. Wirta's base
salary from year to year, and there was no intent to have this particular
component of compensation affected to any significant degree by the Company's
performance factors. In setting Mr. Wirta's base salary, the Committee sought to
accomplish three objectives: provide a level of base salary competitive to that
paid to other chief executive officers in the industry, maintain internal
comparability and have his base salary play a less central role in his overall
compensation package by reason of the option grants made to him in lieu of a
more substantial increase in his level of base salary. Mr. Wirta's current base
salary is below the average of the surveyed compensation data for similarly
situated chief executive officers in the industry.
TAX LIMITATION. The cash compensation to be paid to each of the Company's
executive officers for the 1994 fiscal year is not expected to exceed the
$1,000,000 limit on the tax deductibility of such compensation imposed under
federal tax legislation enacted in 1993. In addition, the stockholders will be
asked at the Annual Meeting to approve the Company's 1993 Plan which will impose
a limit on the maximum number of shares of the Company's common and preferred
stock for which any one participant may be granted stock options over the
remaining term of the plan. If the 1993 Plan is approved, any compensation
deemed paid to an executive officer upon the exercise of an outstanding
22
<PAGE>
option under the 1993 Plan will qualify as performance-based compensation which
will not be subject to the $1,000,000 limitation. No other changes to the
Company's executive compensation programs will be made as a result of the new
limitation until final Treasury Regulations are issued with respect to such
limitation.
The Compensation Committee
of the Board of Directors:
J. Thomas Talbot, Chairman
Harold A. Ellis, Jr.
Paul C. Hegness
Marco F. Vitulli
STOCK PRICE PERFORMANCE COMPARISON
The following graph illustrates the return that would have been realized on
December 31 of each year (assuming reinvestment of dividends) by an investor who
invested $100 on January 2, 1990 (the first date on which the Company's Class A
Common Stock was traded) in each of (i) the Company's Class A Common Stock, (ii)
the Media General Composite Market Value Index ("Media General Index"), and
(iii) the Wilshire Real Estate Securities Index of Real Estate Operating
Companies ("Real Estate Index") which consists of 12 real estate operating and
development companies.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, REAL ESTATE INDEX AND MEDIA GENERAL INDEX
<TABLE>
<CAPTION>
REAL ESTATE
THE COMPANY INDEX MEDIA GENERAL INDEX
------------- ---------------- -------------------
<S> <C> <C> <C>
January 2, 1990............................................ $ 100.00 $ 100.00 $ 100.00
December 31, 1990.......................................... 20.51 51.47 92.98
December 31, 1991.......................................... 7.05 58.29 120.02
December 31, 1992.......................................... 2.56 52.60 124.83
December 31, 1993.......................................... 4.48 62.84 143.29
</TABLE>
23
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH THE KOLL COMPANY AND ITS AFFILIATES
Since January 1, 1993, the Company has entered into various transactions
with The Koll Company ("Koll") and Koll Management Services, Inc. ("KMS"), a
public company majority-owned by Koll. Messrs. Koll and Wirta are directors and
executive officers of Koll and KMS; Richard M. Ortwein, President of the
Company, was a director of KMS until March 1994; and Mr. Pacini was also the
executive vice president and chief financial officer of KMS from March 1993 to
November 1993.
ACQUISITION OF KOLL'S DOMESTIC REAL ESTATE DEVELOPMENT OPERATIONS
On September 30, 1993, the Company acquired the domestic real estate
development business and related assets of Koll, including a license to use the
"Koll" name (the "Koll Acquisition"). The transaction was approved by a special
committee of the Board comprised of the Company's independent directors. The
Company also obtained an opinion from an investment banking firm that the terms
of the transaction were fair, from a financial standpoint, to the Company and
its stockholders. The principal activity of the acquired business is to provide
nation-wide commercial, industrial, retail and residential real estate
development services, including feasibility studies, entitlement coordination,
project planning, construction management, financing, marketing, acquisition,
disposition and asset management services. The acquired business generates
income principally through fees and participating interests in equity
partnerships. No real property was involved in the transaction.
In connection with the Koll Acquisition, the Company paid Koll $4.75 million
in cash, approximately $960,000 in reimbursement of investments in transferred
development projects, plus an earn-out over the next four and one-quarter years
based on the future profitability of the business acquired. On December 29,
1993, upon the recommendation of the special committee of the Board and having
received a favorable opinion from another investment banking firm, the Company
amended the terms of the Koll Acquisition by paying $4.25 million in cash in
exchange for the immediate termination of the earn-out obligation with
retroactive effect to the initial date of the Koll Acquisition. Under the
earnout, the Company was entitled to a 20% preferred return on its original
$4.75 million investment, Koll was then entitled to a matching return subject to
available profits and all remaining profits were to be split equally between the
Company and Koll. The pro forma impact of this acquisition assuming it had
occurred on January 1, 1993, would have been to increase the Company's revenues
and income from continuing operations before income taxes and amortization of
goodwill by $10.0 million and $2.4 million, respectively.
In connection with the Koll Acquisition, Koll and Mr. Koll entered into
covenants not to compete with the Company with respect to domestic real estate
development, subject to certain limited exceptions. The Koll covenant is
perpetual in duration, while the covenant of Mr. Koll is limited to the
five-year period following his ceasing to be either an officer, director or
stockholder of the Company. In addition, the Company also paid Koll $325,000 to
terminate its June 11, 1990 management agreement with Koll, in lieu of
continuing to receive and pay for duplicative services during the 90-day notice
period which would otherwise have been required under the management agreement.
Under the terms of the management agreement, the Company was obligated to pay a
quarterly management fee equal to .125% of the average book value of its assets
managed by Koll. Additionally, the Company was obligated to reimburse Koll for
certain personnel costs and other expenses and Koll was generally entitled to a
disposition fee of 1% of the net sale proceeds (as defined) upon the sale of any
real estate property (other than the Bolsa Chica and Wentworth properties)
managed by Koll. During 1993, the Company incurred management fees of $1.4
million, through the termination date, and reimbursable personnel costs and
other expenses of approximately $48,000 under this management agreement. Since
September 30, 1993 the Company has been internally developing and managing its
assets.
24
<PAGE>
CONSTRUCTION MANAGEMENT AGREEMENT
In 1993, the Company entered into a construction management agreement with
Koll Construction, a wholly owned subsidiary of Koll, for demolition of bunkers
at the Bolsa Chica project. The Company paid fees aggregating approximately
$100,000 to Koll Construction in consideration of these services and related
reimbursements.
SERVICE AGREEMENTS
On September 30, 1993, the Company entered into a Financing and Accounting
Services Agreement to provide Koll with financing, accounting, billing,
collections and other related services until 30 days' prior written notice of
termination is given by one company to the other. Fees earned by the Company for
the year ended December 31, 1993 were approximately $140,000.
The Company also entered into a Management Information Systems and Human
Resources Services Agreement on September 30, 1993 with KMS. Under this
agreement, KMS provides computer programming, data organization and retention,
record keeping, payroll and other related services until 30 days' prior written
notice of termination is given by one company to the other. Fees and related
reimbursements accrued during the year ended December 31, 1993 were
approximately $35,000.
SUBLEASE AGREEMENTS
On September 30, 1993, the Company entered into a month-to-month Sublease
Agreement with Koll to sublease a portion of a Koll affiliate's office building
in which Messrs. Koll, Wirta and Ortwein have an ownership interest located in
Newport Beach, California. The Company also entered into lease agreements on a
month-to-month basis for office space in Northern California and San Diego,
California with KMS and Koll Construction, respectively. Combined annual lease
costs on these three month-to-month leases during the year ended December 31,
1993 were approximately $80,000.
DEVELOPMENT FEES
For the year ended December 31, 1993, the Company earned fees of
approximately $740,000 for real estate development services provided to
partnerships in which Koll and Messrs. Koll, Wirta and Ortwein have an ownership
interest. These fees were earned under contracts assigned to the Company in
connection with the Koll Acquisition.
LOAN RECEIVABLE
In December 1993, the Company purchased a $1,132,000 nonrecourse
construction loan from Citicorp Real Estate, Inc., secured by a first trust deed
on four multi-tenant industrial buildings, for which the borrower was a
partnership in which Koll and Messrs. Koll, Wirta and Ortwein have an ownership
interest. As of March 31, 1994, the loan balance had been reduced to
approximately $164,000 from proceeds generated by sales of three of the
buildings. The Company expects to recognize a gross profit of approximately
$180,000 upon closing the sale of the fourth building which is expected to occur
during the second quarter of 1994.
JOINT BUSINESS OPPORTUNITY AGREEMENTS
The Company and Koll have entered into agreements to jointly develop
business opportunities in the Pacific Rim and in Europe. Under the terms of the
Pacific Rim agreement, the Company and Koll will share on a 50%-50% basis all
costs and expenses incurred in connection with identifying and obtaining
business opportunities, and will share in all revenues generated from any such
opportunities on a 50%-50% basis. The Company currently anticipates that its
share of such costs and expenses will be approximately $180,000 during 1994.
Under the European agreement, costs and expenses will be shared on a 50% -
50% basis and, after Koll has received reimbursement of approximately $70,000
for previously incurred costs, all revenues from business opportunities will be
shared on a 50% - 50% basis. The Company currently anticipates that its share of
such costs and expenses will be approximately $30,000 during 1994.
25
<PAGE>
OTHER MATTERS
Mr. Ortwein is a partner in various partnerships with a subsidiary of the
Company relating to certain development projects, which entitles him to a profit
participation after the Company's subsidiary has been reimbursed for all costs
and expenses incurred prior to profit realization.
TRANSACTIONS WITH LIBRA
On December 17, 1993, the Company completed a transaction with Libra Invest
& Trade Ltd. ("Libra") a principal stockholder of the Company, whereby the
Company exchanged its Lake Superior Land Company subsidiary for (1)
approximately $42.4 million in aggregate face amount of the Company's 12% Senior
Subordinated Debentures held by Libra; (2) net cash proceeds to be generated by
Libra's periodic sale of approximately 3.4 million shares of the Company's Class
A Common Stock held by Libra through a series of transactions to be effected in
an orderly manner within a three-year period; and (3) the right of the Company
to receive a contingent payment if the proceeds from any disposition by Libra of
Lake Superior Land Company during the 15 year period following the closing of
the transaction exceed a 20% preferred return on the negotiated value of Libra's
investment. In February 1994, the Company received $1 million in cash from Libra
in exchange for termination of the contingent payment provision.
The Company also completed a separate transaction with Libra in December
1993, whereby the Company exchanged approximately 3.4 million newly issued
shares of its Class A Common Stock for approximately $10.6 million in aggregate
face amount of the Company's 12% Subordinated Debentures held by Libra.
In connection with these transactions with Libra, the Company recorded an
after-tax gain of $39.1 million on the disposition of Lake Superior Land Company
and an after-tax extraordinary gain on extinguishment of the Debentures of $23.6
million.
The Company received opinions from an investment banking firm that the terms
of the transactions with Libra were fair, from a financial standpoint, to the
Company and its stockholders.
Libra also entered into voting agreements with respect to all of the shares
of Class A Common Stock owned by Libra and its affiliates. Under the terms of
these agreements, which are effective until December 17, 1996 unless sooner
terminated by the mutual consent of the parties thereto, all such shares will be
voted with respect to any matter in the same proportion as the votes cast by all
other stockholders with respect to such matter. These voting agreements are not
applicable to the following matters: (1) transactions with affiliates of the
Company, (2) director or officer compensation, or any stock option arrangement
which provides for the issuance of options on shares of equity securities of the
Company in excess of 15% of all outstanding equity securities of the Company (3)
any merger, sale of assets or other extraordinary corporate transactions, or (4)
any amendment to the certificate of incorporation or bylaws of the Company.
ABEX TRANSITION AGREEMENT
Pursuant to a 1992 transition agreement, the Company and Abex Inc. ("Abex")
agreed to provide each other certain administrative support services until July
16, 1993, and thereafter until 60 days' prior written notice of termination is
given by one company to the other. Effective April 1, 1993, the 1992 transition
agreement was amended to provide that all transitional services would be
provided by Abex to the Company for a period ending on March 31, 1994, and that
the Company would pay $500,000 quarterly for such services. Accordingly, the
Company paid approximately $1.3 million for the year ended December 31, 1993 and
accrued for an additional $500,000 during that period. The amendment also
provided for the termination of the Company's lease of certain New Hampshire
facilities. Until March 16, 1993, Michael D. Dingman, Paul M. Montrone and Paul
M. Meister, executive officers of Abex, were also executive officers of the
Company.
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ABEX AND WTI TAX SHARING AGREEMENTS
Under tax sharing agreements between the Company, Abex and Wheelabrator
Technologies Inc. ("WTI"), a principal stockholder of the Company until December
1993, the parties are charged with sharing responsibility for paying any
increase in the federal, state or local income tax liabilities (including any
interest or penalties payable with respect thereto) for any consolidated,
combined or unitary tax group which included WTI, Henley Group, a subsidiary of
the Company, or any of their respective subsidiaries for tax periods ending on
or before December 31, 1988. WTI is charged with responsibility for paying the
first $51 million of such increased taxes, interest and penalties, plus any
amounts payable with respect to such liabilities by certain former affiliates of
WTI under their tax sharing agreements with WTI. Should the amounts payable
exceed $51 million, the Company would be charged with responsibility for paying
the next $25 million, plus amounts payable with respect to liabilities which are
attributable to certain of the Company's subsidiaries. Liabilities in excess of
the amounts payable by WTI and the Company, as described above, will generally
be assumed by Abex. In the first quarter of 1993, the Company paid approximately
$7.6 million related to the tax sharing agreements.
In January 1993, the Internal Revenue Service completed its examination of
the Federal tax returns of WTI for the periods May 27, 1986 through December 31,
1988 and asserted a material deficiency relating to the tax basis of a former
subsidiary of WTI. WTI, Abex and the Company disagreed with the position taken
by the IRS and WTI filed a petition with the U.S. Tax Court. A trial date had
been scheduled for June 1994; however, in March 1994 WTI and the IRS filed a
Stipulation of Settlement with the U.S. Tax Court that will result in a tax
payable together with interest of approximately $72.5 million which is due in
April 1994. The other parties to the tax sharing agreements have informed the
Company that it is being charged with a net obligation of approximately $21
million of this settlement, with Abex and WTI being charged with responsibility
for paying approximately $22 million and $30 million, respectively. The Company
is currently evaluating the scope of this claimed obligation under the
settlement and potential sources of financing for such amount that the Company
may ultimately be obligated to pay.
OTHER MATTERS
SUBMISSION OF PROPOSALS FOR 1995 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's annual meetings, consistent with regulations adopted by
the Securities and Exchange Commission and the By-laws of the Company. Proposals
to be considered for inclusion in the proxy statement for the 1995 annual
meeting must be received by the Company at its principal executive office no
later than December 12, 1994. Proposals should be directed to the attention of
the Secretary, Koll Real Estate Group, Inc., 4343 Von Karman Avenue, Newport
Beach, California 92660.
COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities and Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of a registered class of the Company's equity securities to file various reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers concerning their holdings of, and transactions in, securities
of the Company. Copies of these filings must be furnished to the Company.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that there was compliance for the fiscal year
ended December 31, 1993 with all Section 16(a) filing requirements applicable to
the Company's officers, directors and greater than 10% beneficial owner, except
that Mr. Ellis did not timely report the acquisition of 6,978 shares of Class A
Common Stock in October 1993. A Form 4 was subsequently filed by Mr. Ellis.
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ANNUAL REPORT
The Company's 1993 Annual Report to Stockholders, together with this Proxy
Statement, is being mailed to all stockholders of the Company of record on April
11, 1994, the record date for voting at the Annual Meeting.
By Order of the Board of Directors,
[SIG]
RAYMOND J. PACINI
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
April 11, 1994
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A VOTE FOR PROPOSALS 1, 2 AND 3 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
1. Election of Directors with terms expiring at Annual Meeting in 1997.
FOR each nominee listed WITHHOLD AUTHORITY to vote for each
nominee listed
Nominees: Ray Wirta and Harold A. Ellis, Jr.
(Instructions: To withhold authority to vote for any individual nominee, write
the nominee's name on the space provided below.)
2. Approval of Koll Real Estate Group, Inc. Stock Option/Stock Issuance Plan.
FOR AGAINST ABSTAIN
3. Ratify the appointment of Deloitte & Touche as independent auditors for
the fiscal year ending December 31, 1994.
FOR AGAINST ABSTAIN
A MAJORITY (OR IF ONLY ONE, THEN THAT ONE) OF THE ABOVE PERSONS OR THEIR
SUBSTITUTES WHO SHALL BE PRESENT AND ACTING AT THE MEETING SHALL HAVE THE
POWERS CONFERRED HEREBY.
DATED , 1994
SIGNATURES OF STOCKHOLDER(S)--PLEASE SIGN NAME EXACTLY AS IMPARTED (DO NOT
PRINT). PLEASE INDICATE ANY CHANGE OF ADDRESS.
NOTE: EXECUTORS, ADMINISTRATORS, TRUSTEES AND OTHERS SIGNING IN REPRESENTATIVE
CAPACITY SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN. IF SHARES ARE HELD
JOINTLY, EACH SHAREHOLDER SHOULD SIGN.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY.
<PAGE>
KOLL REAL ESTATE GROUP, INC.
ANNUAL MEETING, MAY 20, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Ray Wirta and Raymond J. Pacini, each with power of substitution, are hereby
authorized to vote all shares of Class A Common Stock of Koll Real Estate
Group, Inc. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of Koll Real Estate Group, Inc.
to be held on Friday, May 20, 1994, and at any adjournments, as specified on
the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS.
(PLEASE MARK THIS PROXY AND SIGN AND DATE IT ON THE
REVERSE SIDE HEREOF AND RETURN IT IN THE ENCLOSED ENVELOPE.)
