SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CORNERSTONE REALTY INCOME TRUST, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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:(1)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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
- ----------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
APRIL 4, 1997
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 6, 1997
The Annual Meeting of Shareholders of Cornerstone Realty Income Trust, Inc.
(the "Company") will be held at The Cornerstone, 107 West Broad Street,
Richmond, Virginia 23220, on Tuesday, May 6, 1997 at 3:00 p.m. for the following
purposes:
1. To elect two (2) directors, each to serve for an ensuing three-year term.
2. To transact such other business as may properly come before the meeting.
The holders of common shares of record at the close of business on March 31,
1997 are entitled to vote at the meeting. If you are present at the meeting, you
may vote in person even though you have previously delivered your proxy.
The proxy card with which to vote your shares is located in the window pocket
of the envelope in which these proxy materials were mailed. If necessary, an
additional proxy card may be obtained by calling David S. McKenney, Vice
President of Investor Services, at (804) 643-1761.
By Order of the Board of Directors
/s/ Stanley J. Olander, Jr.
Stanley J. Olander, Jr.
Secretary
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR
PROXY AND VOTE IN PERSON.
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
PROXY STATEMENT
APRIL 4, 1997
GENERAL
The enclosed proxy is solicited by the directors of Cornerstone Realty Income
Trust, Inc. (the "Company") for the Annual Meeting of Shareholders to be held at
The Cornerstone, 107 West Broad Street, Richmond, Virginia 23220, on Tuesday,
May 6, 1997 at 3:00 p.m. (the "Annual Meeting"). The proxy may be revoked at any
time prior to voting thereof by giving written notice to the Company of
intention to revoke or by conduct inconsistent with continued effectiveness of
the proxy, such as delivery of a later dated proxy or appearance at the meeting
and voting in person the shares to which the proxy relates. Shares represented
by executed proxies will be voted, unless a different specification is made
therein, FOR election as directors of the persons named therein.
This proxy statement and the enclosed proxy were mailed on April 6, 1997 to
shareholders of record at the close of business on March 31, 1997 (the "Record
Date"). In conjunction therewith, the Company mailed to each shareholder of
record as of the Record Date an Annual Report that includes audited financial
statements for the year ended December 31, 1996.
At the close of business on the Record Date, the Company had 28,500,462
common shares ("Shares") outstanding and entitled to vote. Each Share has one
vote on all matters, including those to be acted upon at the Annual Meeting. The
holders of a majority of such Shares present at the Annual Meeting in person or
represented by proxies constitute a quorum. If a quorum is present, the
affirmative vote of a majority of Shares at the Annual Meeting is required to
elect directors. Shareholders who wish to abstain from voting on the election of
directors may do so by specifying that their vote for either or both of the
nominees be withheld in the manner provided in the enclosed proxy, and the
Shares otherwise votable by such shareholders will not be included in
determining the number of Shares voted for such nominees. The Company will
comply with instructions in a proxy executed by a broker or other nominee
shareholder that fewer than all of the Shares of which such shareholder is the
holder of record on the Record Date are to be voted on a particular matter. All
such Shares which are not voted will be treated as Shares as to which vote has
been withheld.
The mailing address of the Company is 306 East Main Street, Richmond,
Virginia 23219. Notice of revocation of proxies should be sent to that address,
to the attention of David S. McKenney.
THE COMPANY WILL PROVIDE SHAREHOLDERS, WITHOUT CHARGE (EXCEPT FOR EXHIBITS),
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES THEREIN, ON WRITTEN REQUEST TO STANLEY J.
OLANDER, JR., SECRETARY OF THE COMPANY, AT THE MAILING ADDRESS FOR THE COMPANY
SET FORTH ABOVE.
OWNERSHIP OF EQUITY SECURITIES
"Beneficial Ownership" as used herein has been determined in accordance with
the rules and regulations of the Securities and Exchange Commission.
As of the Record Date, there are no shareholders known to the Company who own
beneficially more than 5% of the outstanding Shares. Beneficial Ownership of
Shares held by directors and executive officers of the Company as of the Record
Date are indicated in the table below. Each person named in the table and
included in the director/officer group has sole voting and investment powers as
to such Shares, or shares such powers with his or her spouse and minor children,
if any.
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<PAGE>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
- ----------------------------------------------- -------------- ------------
Glenn W. Bunting, Jr........................... 11,762.00 *
Leslie A. Grandis.............................. 12,429.08 *
Glade M. Knight(2)............................. 1,270,571.41 4.427%
Penelope Ward Kyle............................. 12,412.89 *
Stanley J. Olander, Jr......................... 146,781.34 *
Harry S. Taubenfeld............................ 37,514.50 *
Martin Zuckerbrod.............................. 36,152.35 *
Debra A. Jones................................. 145,758.61 *
-------------
All directors and executive officers as a
group.......................................... 1,673,382.18 5.831%
- ----------
* Less than one percent of outstanding Shares.
(1) Includes Shares that may be acquired upon the exercise of stock options, as
follows: Messrs. Bunting and Grandis and Ms. Kyle -- 11,762 Shares each;
Mr. Knight -- 54,264 Shares; Mr. Olander and Ms. Jones -- 29,586 Shares
each; and Messrs. Taubenfeld and Zuckerbrod -- 24,757 Shares each.
(2) Number of Shares beneficially owned by Mr. Knight includes 700,000 Shares
to be issued to an affiliate of Mr. Knight on or before September 30, 1997
in connection with the Company's conversion to self-administration. See
"Certain Relationships and Agreements -- Conversion to
Self-Administration." Number of Shares beneficially owned by Mr. Knight
also includes 673.58 Shares owned by a corporation wholly owned by him.
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTORS. At the Annual Meeting two (2) directors are to be
elected, each to hold office for an ensuing three-year term, or until his
successor is duly elected and qualified, except in the event of death,
resignation or removal. The nominees selected by the Board of Directors are
Stanley J. Olander, Jr. and Martin Zuckerbrod. If elected, Messrs. Olander and
Zuckerbrod will serve until the Annual Meeting of Shareholders in the year 2000.
Of the directors whose terms do not expire in 1997, Mr. Taubenfeld and Ms.
Kyle will serve until the 1998 Annual Meeting of Shareholders, and Messrs.
Bunting, Grandis and Knight will serve until the 1999 Annual Meeting of
Shareholders.
Unless otherwise specified, proxies solicited hereby will be voted FOR the
election of the nominees listed, except that in the event either of those named
should not continue to be available for election, discretionary authority may be
exercised to vote for a substitute. No circumstances are presently known that
would render any nominee named herein unavailable. Each of the nominees is now a
member of the Board of Directors.
The nominees, their ages, the year of election of each to the Board of
Directors of the Company, their principal occupations during the past five years
or more, and directorships of each in public companies in addition to the
Company are as follows:
STANLEY J. OLANDER, JR., 42, is Chief Financial Officer and Secretary of the
Company. From June 1991 through August 1996, Mr. Olander was employed by
Cornerstone Realty Group, Inc. Through Cornerstone Realty Group, Inc.,
Cornerstone Management Group, Inc. and Cornerstone Advisors, Inc., which had
contracts to provide management and administration services to the Company, Mr.
Olander provided the same general types of services as he now provides as the
Company's Chief Financial Officer. Mr. Olander has held various executive
positions in real estate companies organized by Glade M. Knight since 1981. Mr.
Olander was first elected to the Board of the Company in 1992 and his term
expires in 1997. Mr. Olander has been the Company's Chief Financial Officer
since September 1, 1996, and serves in such capacity under an employment
agreement which has a five-year term ending on August 31, 2001.
3
<PAGE>
MARTIN ZUCKERBROD, 66, has practiced law, and been involved in mortgage and
real estate investment activities, in the firm of Zuckerbrod & Taubenfeld of
Cedarhurst, New York since 1959. He has practiced law since 1956. Mr.
Zuckerbrod's areas of professional concentration are real estate and commercial
law. Mr. Zuckerbrod also serves as a judge in the Village of Cedarhurst, New
York. Mr. Zuckerbrod was first elected to the Board of the Company in 1992 and
his term expires in 1997.
OTHER DIRECTORS AND OFFICERS. The following are the directors of the Company
whose terms expire after 1997 and the other executive officers of the Company:
Glade M. Knight, 53, is Chairman, Chief Executive Officer and President of
the Company. Since 1972, Mr. Knight has held executive and/or ownership
positions in several corporations involved in the management of and investment
in real estate. Mr. Knight is also a director, Chairman of the Board and
President of Apple Residential Income, Trust, Inc. Mr. Knight was first elected
to the Board of the Company in 1989 and his term expires in 1999. Mr. Knight
serves as Chief Executive Officer and President of the Company under an
employment agreement which has an initial one-year term ending on August 31,
1997, and which may be extended by the Company for up to four additional
one-year terms.
Debra A. Jones, 42, is the Chief Operating Officer of the Company. From June,
1991 through August 1996, Ms. Jones was employed by Cornerstone Realty Group,
Inc. Through Cornerstone Realty Group, Inc., Cornerstone Management Group, Inc.
and Cornerstone Advisors, Inc., which had contracts to provide management and
administration services to the Company, Ms. Jones provided the same general
types of services as she now provides as the Company's Chief Operating Officer.
Ms. Jones has held executive positions in real estate companies organized by Mr.
Knight since 1979. Ms. Jones has been the Company's Chief Operating Officer
since September 1, 1996 , and serves in such capacity under an employment
agreement which has a five-year term ending on August 31, 2001.
Glenn W. Bunting, Jr., 52, is a director of the Company. He has been
President of American KB Properties, Inc., which develops and manages shopping
centers, since 1985. He has been President of G.B. Realty Corporation, which
brokers shopping centers and apartment communities, since 1980. Mr. Bunting was
first elected to the Board of the Company in 1993 and his term expires in 1999.
Leslie A. Grandis, 52, is a director of the Company. He has been a partner in
the law firm of McGuire, Woods, Battle & Boothe, L.L.P. in Richmond, Virginia
since 1974. Mr. Grandis concentrates his practice in the areas of corporate
finance and securities law. He is a director of Markel Corporation and CSX Trade
Receivables Corporation. Mr. Grandis was first elected to the Board of the
Company in 1993 and his term expires in 1999.
Penelope W. Kyle, 49, is a director of the Company. Ms. Kyle has been the
director of the Virginia Lottery since September 1, 1994. Ms. Kyle worked in
various capacities for CSX Corporation and its affiliated companies from 1981
until August 1994. She served as Vice President, Administration and Finance for
CSX Realty, Inc. beginning in 1991, as Vice President, Administration for CSX
Realty, Inc. from 1989 to 1991, and as Assistant Vice President and Assistant to
the President for CSX Realty, Inc. from 1987 to 1989. Ms. Kyle is also a
director of Apple Residential Income Trust, Inc. Ms. Kyle was first elected to
the Board of the Company in 1993 and her term expires in 1998.
Harry S. Taubenfeld, 67, is a director of the Company. Mr. Taubenfeld has
practiced law, and been involved in mortgage and real estate investment
activities, in the firm of Zuckerbrod & Taubenfeld of Cedarhurst, New York since
1959, and has practiced law since 1956. Mr. Taubenfeld specializes in real
estate and commercial law. Mr. Taubenfeld is a Trustee of the Village of
Cedarhurst, New York, and a past President of the Nassau County Village
Officials. Mr. Taubenfeld was first elected to the Board of the Company in 1992
and his term expires in 1998.
4
<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has an Executive Committee, an Audit Committee and a
Compensation Committee as its standing committees. The Board of Directors has no
nominating committee.
The Executive Committee has, to the extent permitted by law, all powers
vested in the Board of Directors except such powers specifically denied the
Committee under the Company's Bylaws or by law. Messrs. Bunting, Knight and
Zuckerbrod are the members of the Executive Committee.
The Audit Committee oversees the relationship between the Company and its
independent auditors, monitors the reasonableness of Company expenses and
declares distributions to shareholders. Messrs. Taubenfeld and Zuckerbrod and
Ms. Kyle are the members of the Audit Committee.
The Compensation Committee administers the Company's incentive and stock
option plans, and oversees the compensation and reimbursement of directors and
officers of the Company. The members of the Compensation Committee are Mr.
Grandis and Ms. Kyle.
During 1996, the Board of Directors held four meetings and the Executive
Committee held eight meetings. The Audit Committee met four times during the
year and the Compensation Committee met two times. Each director attended at
least 75% of the aggregate of the number of meetings of the Board and of the
committees to which he or she was assigned.
COMPENSATION OF DIRECTORS
During 1996, independent directors received annual directors' fees of $2,000
plus $500 for each meeting of the Board and $100 for each committee meeting
attended. Independent directors received an additional $1,000 for serving on the
Executive Committee in 1996. Non-independent directors received no compensation
from the Company for their service as directors. All directors were reimbursed
by the Company for their travel and other out-of-pocket expenses incurred in
attending meetings of the directors or a committee and in conducting the
business of the Company.
Effective January 1, 1997, the annual fee for independent directors increased
to $10,000, payable $5,000 in cash and $5,000 in Shares. The annual fee will be
paid in four equal quarterly installments. The Shares will be valued at the
current market price at the time of issuance. Also, effective January 1, 1997,
independent directors will not receive any compensation for attending a
committee meeting if it occurs on the same day as a meeting of the entire Board
of Directors.
In addition, in 1996, each independent director received an option to
purchase 3,624 Shares, exercisable at $11 per Share. Independent directors will
receive additional Share options in 1997 and future years under the Company's
Non-Employee Directors Stock Option Plan.
EXECUTIVE OFFICERS
The Company's executive officers are Glade M. Knight, Debra A. Jones and
Stanley J. Olander, Jr. Information with regard to Messrs. Knight and Olander
and Ms. Jones is set forth above under the caption "Election of Directors."
COMPENSATION OF EXECUTIVE OFFICERS
GENERAL. The Company did not pay salaries to its officers for the period
before September 1, 1996. During such prior period, the Company operated as an
"externally-advised" and "externally-managed" real estate investment trust
("REIT"). Effective October 1, 1996 the Company converted to "self-administered"
and "self-managed" status. See "Certain Relationships and Agreements." In
connection with this change, the Company entered into employment agreements with
Messrs. Knight and Olander and Ms. Jones, each of whom had previously served as
the principal executive officers of the Company's advisory and management
companies.
The following table sets forth the compensation awarded by the Company to the
Company's Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer (collectively the "Named Executive Officers") during the fiscal year
ending December 31, 1996.
5
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------------- ------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED SHARE UNDERLYING
POSITION SALARY($)(1) BONUS($)(2) COMPENSATION(3) AWARDS($)(4) OPTIONS(#)
- --------------------------- ----------- ----------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Glade M. Knight
Chairman and Chief
Executive Officer.......... 70,000 (5) -- -- -- 80,440
Debra A. Jones
Chief Operating Officer ... 40,000 (6) -- -- -- 44,310
Stanley J. Olander, Jr.
Chief Financial Officer ... 40,000 (6) -- -- -- 44,310
- ----------
</TABLE>
(1) Amounts given are for the period September 1, 1996 through December 31,
1996.
(2) Bonuses may be awarded in 1997 and in future years in the discretion of the
Board of Directors.
(3) The Company provides each of the Named Executive Officers with use of a
Company automobile, and pays premiums for term life, disability and health
insurance for the Named Executive Officers. The value of such items was
less than the lesser of either $50,000 or 10% of the total salary and bonus
of the Named Executive Officer in 1996.
(4) At December 31, 1996, Mr. Knight held 5,000 restricted Shares issued under
the Company's Incentive Plan and each of Ms. Jones and Mr. Olander held
2,500 restricted Shares issued under the Incentive Plan. All of these
restricted Shares were issued on July 1, 1995 and vest in equal 1/5
portions on July 1 of each year from 1995 through 1999, inclusive. If the
holder of such restricted Shares ceases to be either an officer or employee
of the Company for any reason other than death or permanent disability, the
unvested restricted Shares will revert to the Company. Distributions are
payable on all of these restricted Shares, both vested and unvested. As of
the date of this Proxy Statement, there is and has been no public market
for the Shares. Thus, the value of the restricted Shares awarded under the
Incentive Plan at the end of 1996 is indeterminate.
(5) Annualized salary of $210,000.
(6) Annualized salary of $120,000.
The following table sets forth information with respect to the exercisability
of the Share options held by the Named Executive Officers during the year ended
December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
SHARES UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
ACQUIRED VALUE YEAR-END OPTIONS AT YEAR END($)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
- ----------------------- --------------- ---------- ----------- -- ---------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Glade M. Knight........ -- -- 54,264 26,176 -- --
Debra A. Jones......... -- -- 29,586 14,724 -- --
Stanley J. Olander,
Jr..................... -- -- 29,586 14,724 -- --
</TABLE>
(1) The exercise price of each exercisable option referred to in the table is
$11.00 per Share. The exercise price of one half of the unexercisable options
referred to in the table will equal the fair market value of the Shares on
September 8, 1997, and the exercise price of the other one half of the
unexercisable options referred to in the table will equal the fair market value
of the Shares on September 9, 1997. As of the date of this Proxy Statement,
there is and has been no public market for the Shares. Thus, the value of the
options at the end of 1996 is indeterminate.
EMPLOYMENT AGREEMENTS. Each of Glade M. Knight, Debra A. Jones and Stanley J.
Olander, Jr. has, effective September 1, 1996, entered into an employment
agreement with the Company. Mr. Knight's employment agreement has a term of one
year, but may be extended by the Company for up to four additional one-year
terms. The employment agreements with Ms. Jones and Mr. Olander have five year
terms ending on August 21, 2001. Mr. Olander and Ms. Jones are obligated to
devote all of their
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<PAGE>
business time to the Company. Mr. Knight is not similarly restricted, although
he has agreed to devote as much of his attention and energies to the business of
the Company as is reasonably required in the judgment of him and the Board of
Directors.
Each employment agreement contains a limited non-compete provision. The
officer agrees that during the term of his or her employment, and for a period
of one year thereafter if the officer terminates his or her employment, such
officer will not be employed by or affiliated with a business that competes with
the Company in Virginia, North Carolina, or South Carolina, or solicit or
attempt to solicit any person employed by the Company to leave such employment
for employment with a competing business. Notwithstanding the foregoing, Mr.
Knight will be permitted (1) to continue to act as a general partner of various
real estate partnerships in which he was a general partner as of September 1,
1996, and (2) to pursue other ventures, including without limitation real estate
ventures, except any such ventures that compete with the Company in Virginia,
North Carolina or South Carolina.
Each employment agreement terminates automatically upon the officer's death.
The Company is obligated to pay to the decedent's personal representative an
amount equal to the decedent's current annual salary in a one-time lump sum
payment.
The Company may also terminate the officer's employment and the Company's
obligations under the employment agreement in the event of the "disability" of
the officer or for "cause," as defined in the agreement. "Disability" means
inability to perform the essential functions of the position, after reasonable
accommodation in accordance with the Americans with Disabilities Act, if such a
disability results from a physical or mental impairment which can be expected to
result in death or to continue for at least six consecutive months. In the event
of termination for disability, the Company must pay the officer or his
representative an amount equal to the officer's current annual salary in a
one-time lump sum payment. "Cause" is defined in the employment agreement as
including continued or deliberate neglect of duties, willful misconduct of the
officer injurious to the Company, violation of any code or standard of ethics
applicable to Company employees, active disloyalty to the Company, conviction of
a felony, habitual drunkenness or drug abuse, excessive absenteeism unrelated to
a disability, or breach by the officer of the employment agreement. If the
Company terminates the officer for "cause," it will have no further obligation
to the officer except under any applicable benefits policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is comprised of Leslie A. Grandis and
Penelope W. Kyle. Leslie A. Grandis is also a partner in the law firm of
McGuire, Woods, Battle & Boothe, L.L.P., which serves as general counsel to the
Company. The representation of the Company by McGuire, Woods, Battle & Boothe,
L.L.P. is expected to continue in 1997. Ms. Kyle's husband is also a partner in
McGuire, Woods, Battle & Boothe, L.L.P.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Company's Compensation Committee determines compensation arrangements for
the Company's executive officers and administers the Company's Incentive Plan,
pursuant to which Share options and restricted Shares may be issued to eligible
officers and employees.
The Company did not pay salaries to its executive officers during the period
preceding September 1, 1996. See "Certain Relationships and Agreements --
Conversion to Self-Administration." As of that date, the Company entered into
employment agreements with the Company's Chief Executive Officer (Mr. Knight),
Chief Operating Officer (Ms. Jones) and Chief Financial Officer (Mr. Olander).
See "Compensation of Executive Officers - Employment Agreements." The initial
annual salary payable to Mr. Knight is $210,000, and the initial annual salary
payable to each of Ms. Jones and Mr. Olander is $120,000.
Under the employment agreements, the Company is required to review the
performance of the executive officer at the end of each fiscal year of the
Company and, in its sole discretion and based on the executive officer's
performance and the financial condition of the Company, may either maintain or
increase the executive officer's salary. In addition, each executive officer is
eligible to receive an annual
7
<PAGE>
bonus determined by the Company. The Company expects that these decisions will
be made on its behalf by the Compensation Committee. As of the date of this
Proxy Statement, no decision has been made regarding any increase in annual
salary or the granting of any bonus to any of the executive officers.
The initial annual salaries for the executive officers were set at a level
believed to be at the low end of the range of salaries paid to comparable
officers of comparable companies. In determining comparable salaries, the
Compensation Committee reviewed certain salary surveys, including a survey of
the National Association of Real Estate Investment Trusts reporting on salaries
in other REITs, as well as salaries of officers of other REITs presented by
Company management as being comparable. The intent of the Compensation Committee
was to set initial salaries at a level low enough to permit subsequent increases
based on executive officer and Company performance that will eventually result
in Company salaries generally being similar to those in comparable REITs.
Given the Company's short history of paying salaries to its executive
officers, the Compensation Committee is still formulating the criteria to be
used in determining salary increases and bonuses. However, the Compensation
Committee generally expects to establish criteria to help the Company achieve
its business objectives by: (1) designing performance-based compensation
standards that align the interests of management with the interests of
shareholders; (2) providing compensation increases and incentive compensation
that vary directly with both Company financial performance and individual
contributions to that performance by the executive officer; and (3) linking
executive officer compensation to elements that affect both short- and long-term
Share price performance. As appropriate, the Compensation Committee will also
consider whether compensation levels are sufficient to attract and retain
superior executive officers in a competitive environment.
Leslie A. Grandis
Penelope W. Kyle
8
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder returns, over
the periods presented, on the Company's Shares, the Standard & Poor's Composite
Index of 500 Stocks and the SNL Multi-Family REITs Index (which is an index of
37 other REITs).
The indicated values are based on share price appreciation plus dividends,
which are assumed to be reinvested. Since the Company's Shares have had no
public trading market, no Share price appreciation is included in the values
plotted for the Company. Dividends of the Company are assumed to be reinvested
in Shares, which are assumed to have a value equal to the price at which offered
to the public. Accordingly, the other indices are not necessarily comparable to
the Company's graph. Also, the historical information set forth below is not
necessarily indicative of future performance.
GRAPHIC OMITTED
<TABLE>
<CAPTION>
Index 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96
- ------------------------------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cornerstone Realty Income Trust 100.00 103.31 107.44 111.46 116.59 121.04 126.77
S&P 500 100.00 96.61 101.32 121.80 139.39 153.45 171.26
SNL Multi-Family REITs Index 100.00 101.09 101.59 103.25 116.26 124.31 152.34
</TABLE>
CERTAIN RELATIONSHIPS AND AGREEMENTS
CONVERSION TO SELF-ADMINISTRATION. Before October 1, 1996, the Company
operated as an "externally-advised" and "externally-managed" REIT. Cornerstone
Advisors, Inc. served as the advisor to the Company, Cornerstone Management
Group, Inc. served as the manager of the properties, and property acquisition
services were provided to the Company by Cornerstone Realty Group, Inc. Glade M.
Knight owned all of the stock of Cornerstone Advisors, Inc., Cornerstone
Management Group, Inc. and Cornerstone Realty Group, Inc. (collectively, the
"External Companies").
Before October 1, 1996, the Company entered into a separate management
contract with Cornerstone Management Group, Inc. with respect to each property
acquired. Under the terms of these agreements, the Company was obligated to pay
Cornerstone Management Group, Inc. a management fee equal to 5% of gross rental
income from the related property plus certain expenses. Under the terms of the
advisory agreement with Cornerstone Advisors, Inc., the Company was obligated to
pay to Cornerstone Advisors, Inc. an annual advisory fee of up to 0.25% of the
Company's assets based on certain performance criteria. Under the terms of the
acquisition agreement with Cornerstone Realty Group, Inc., the Company was
obligated to pay Cornerstone Realty Group, Inc. a brokerage commission of 2% of
the gross purchase price of each property acquisition.
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In 1996, the Company paid Cornerstone Management Group, Inc. $1,243,215, paid
Cornerstone Advisors, Inc. $295,759, and paid Cornerstone Realty Group, Inc.
$1,957,624 in fees and expense reimbursements under the agreements between the
Company and the External Companies.
As of September 1, 1996, the Company agreed with the External Companies on a
series of related transactions, the effect of which was to convert the Company
into a "self-administered" and "self-managed" REIT effective October 1, 1996.
The transactions were unanimously approved by the Board of Directors, which
relied in part upon a "fairness opinion" issued by an accounting firm engaged by
the Board of Directors. The conversion was approved by the Board of Directors
because it was determined to be in the best interests of the Company and the
shareholders for property acquisition, property management and Company
administration to be performed by the Company's own officers and employees,
rather than through contracts with the External Companies.
To effect the conversion, the Company agreed to issue 1,400,000 Shares to
Cornerstone Management Group, Inc. in exchange for the assignment by such
company of all of its rights and interests in, to and under it management
agreements with the Company. On October 1, 1996, the Company issued 700,000
Shares, and the balance of such Shares will be issued on September 30, 1997. No
distributions are payable with respect to the 700,000 unissued Shares until they
are issued. However, there are no conditions to the issuance of the deferred
Shares other than the passage of time.
In addition, the Company paid to Cornerstone Realty Group, Inc. and
Cornerstone Advisors, Inc. an aggregate of $1,325,000 in exchange for the
assignment by them of all of their rights and interests in the property
acquisition agreement and advisory agreement with the Company. Also on such
date, the Company paid to Cornerstone Realty Group, Inc. $100,000 and paid to
Glade M. Knight $350,000 for the personal property and building, respectively,
located at 306 East Main Street, Richmond, Virginia, which previously had served
as the principal executive office of the External Companies. This space now
serves as the principal executive office of the Company. Finally, the Company
paid approximately $138,000 to certain lenders, representing the balance owned
by Cornerstone Realty Group, Inc. on certain automobile loans, in exchange for
the conveyance of seven automobiles by it to the Company.
Although Mr. Knight owned all of the shares of each of the External
Companies, Mr. Knight held a portion of the shares in such companies for the
benefit of Ms. Jones and Mr. Olander. Mr. Knight transferred 109,091 Shares and
$100,000 cash to each of these officers from the proceeds of the transactions
described above.
Immediately following the assignment by each of the External Companies of its
rights and interests in its respective agreement with the Company, the Company
terminated each such agreement. Furthermore, as of September 1, 1996, the
Company entered into employment agreements with Mr. Knight, Mr. Olander and Ms.
Jones. See "Compensation of Executive Officers -- Employment Agreements."
APPLE RESIDENTIAL INCOME TRUST. Currently, Mr. Knight owns all of the
outstanding shares of Apple Realty Group, Inc. ("ARG"), the company that
provides property acquisition services to Apple Residential Income Trust, Inc.
On or before the closing of the offering of Shares of the Company being
undertaken as of the date of this Proxy Statement, the Company will acquire from
Mr. Knight all of the assets of ARG in exchange for $350,000 in cash and Shares
valued at $1,650,000. The number of Shares issued will be based upon the public
offering price in such offering, net of underwriting discounts and commissions.
The sole material asset of ARG is its Property Acquisition/Disposition Agreement
with Apple and the Company will succeed by assignment to the rights, powers,
benefits, duties and obligations of ARG under the Property
Acquisition/Disposition Agreement. The acquisition of the assets of ARG was
unanimously approved by the Company's Board of Directors.
OTHER RELATIONSHIPS. Messrs. Zuckerbrod and Taubenfeld are principals in the
law firm of Zuckerbrod & Taubenfeld of Cedarhurst, New York, which acted as
counsel to the Company in connection with the Company's acquisition of certain
of its real properties in 1996 and received legal fees totaling approximately
$210,000. This law firm is expected to render additional services to the Company
in 1997 and will receive compensation for such services.
As noted above, under "Compensation Committee Interlocks and Insider
Participation," Mr. Grandis, who is a director of the Company, is also a partner
in the law firm of McGuire, Woods, Battle
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& Boothe, L.L.P., which serves as general counsel to the Company. Such
representation is expected to continue in 1997. The husband of Penelope W. Kyle,
who is a director of the Company, is also a partner in McGuire, Woods, Battle &
Boothe, L.L.P.
INDEPENDENT PUBLIC ACCOUNTANT
The firm of Ernst & Young LLP served as independent auditors for the Company
in 1996. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. He will have an opportunity to make a statement if he so desires
and will be available to answer appropriate questions from shareholders. The
Board of Directors is expected to retain Ernst & Young LLP as the Company's
independent auditors for 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
The following persons failed to file on a timely basis certain reports
required by Section 16(a) of the Securities Exchange Act of 1934 during the
Company's most recent fiscal year (with the parenthetical numbers indicating,
respectively, the number of late reports and the number of transactions that
were not filed on a timely basis): Glenn W. Bunting, Jr. (1, 1), Leslie A.
Grandis (4, 4), Glade M. Knight (3, 6), Penelope W. Kyle (4, 4), Harry S.
Taubenfeld (4, 4), Martin Zuckerbrod (4, 7), Debra A. Jones (2, 6), William P.
Graham (former director) (1, 1), Philip H. Kirkpatrick (former director) (1, 2),
and Edward L. Marcus (former director) (1, 1).
MATTERS TO BE PRESENTED AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS
Any qualified shareholder wishing to make a proposal to be acted upon at the
Annual Meeting of Shareholders in 1998 must submit such proposal, to be
considered by the Company for inclusion in the Proxy Statement, to the Company
at its executive office in Richmond, Virginia, no later than December 4, 1997.
OTHER MATTERS
Management knows of no matters other than those stated above likely to be
brought before the Annual Meeting. However, if any matters not now known come
before the Annual Meeting, the persons named in the enclosed proxy are expected
to vote the Shares represented by such proxy on such matters in accordance with
their best judgment.
THE COMPANY DEPENDS UPON ALL SHAREHOLDERS PROMPTLY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD TO AVOID COSTLY SOLICITATION. YOU CAN SAVE THE COMPANY
CONSIDERABLE EXPENSE BY SIGNING AND RETURNING YOUR PROXY CARD IMMEDIATELY.
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P R O X Y
CORNERSTONE REALTY INCOME TRUST, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David S. McKenney and Martin B. Richards as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the common shares of
Cornerstone Realty Income Trust, Inc. held of record by the undersigned on March
31, 1997 at the annual meeting of shareholders to be held on May 6, 1997 or any
adjournment thereof.
1.ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES LISTED BELOW [ ]
Stanley J. Olander, Jr. and Martin Zuckerbrod
(INSTRUCTIONS: To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below.)
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2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED ABOVE.
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Please indicate whether you plan to attend the Annual Meeting in person:
[ ] Yes [ ] No
Dated: ___________________________, 1997
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Print Name
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Signature
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Signature if held jointly
Please print exact name(s) in which
shares are registered, and sign exactly
as name appears. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.
