SOUTH WEST PROPERTY TRUST INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1996
To our Stockholders:
The annual meeting of stockholders of South West Property Trust Inc. will
be held at the Park City Club, 5956 Sherry Lane, Suite 1700 in Dallas, Texas on
Tuesday, May 14, 1996, at 10:00 a.m., local time, for the following purposes:
(1) to elect two directors, each for a term of three years;
(2) to ratify the appointment of Ernst & Young LLP to audit the consolidated
financial statements of South West Property Trust Inc. for the fiscal
year beginning January 1, 1996; and
(3) to transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business March 19, 1996, will
be entitled to notice of and to vote at the meeting or any adjournments thereof.
Dated: April 12, 1996
By Order of the Board of Directors,
Lewis H. Sandler
Secretary
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE PROXY IN THE ENCLOSED ENVELOPE. IN ORDER TO AVOID THE
ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE>
SOUTH WEST PROPERTY TRUST INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 14, 1996
The accompanying Proxy is solicited by the Board of Directors of South West
Property Trust Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on Tuesday, May 14, 1996 at 10:00 a.m., local time, at
the Park City Club, 5956 Sherry Lane, Suite 1700, Dallas, Texas, or at any
adjournment(s) thereof (the "Annual Meeting"). Giving the Proxy will not in any
way affect the stockholder's right to attend the Annual Meeting and to vote in
person. Any stockholder executing a Proxy has the power to revoke the Proxy at
any time before it is voted by (i) executing a subsequently dated Proxy; (ii)
filing a written request to revoke or amend his (or her) Proxy with the
Secretary of the Company at the principal executive offices of the Company prior
to May 14, 1996; or (iii) attending the Annual Meeting and revoking the Proxy
prior to the start of the Annual Meeting.
A Proxy card is enclosed for your use. A Proxy which is properly signed,
dated, returned and not revoked will be voted in accordance with the
instructions contained therein. Unless authority to vote for the election of
directors (or for any one or more nominees) is withheld, proxies will be voted
FOR the slate of two directors proposed by the Board of Directors, and, if no
contrary instructions are given, proxies will be voted FOR approval of each of
the other proposals. Discretionary authority is provided in the Proxy as to any
matters not specifically referred to therein. Shares of common stock represented
by proxies which are marked "withhold authority" with respect to the election of
one or more nominees for election as directors, proxies which are marked
"abstain" on other proposals, and proxies which are marked to deny discretionary
authority on other matters will be counted in determining a quorum but will not
be counted in determining whether a majority vote was obtained in such matters.
Management is not aware of any other matters which are likely to be brought
before the Annual Meeting. However, if any such matters properly come before the
Annual Meeting, it is understood that each Proxy holder is fully authorized to
vote thereon in accordance with his or her judgment and discretion.
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation of proxies by use of the mails, certain officers and regular
employees (who will receive no compensation therefor in addition to their
regular salaries) may be used to solicit proxies personally and/or by telephone
or telegraph. In addition, banks, brokers and other custodians, nominees and
fiduciaries will be requested to forward copies of the Proxy material to their
principals and to request authority for the execution of proxies. The Company
will reimburse such persons for their expenses in doing so. In addition, the
Company has retained Morrow & Company to assist in solicitation for a fee
estimated not to exceed $3,500 plus reimbursement of out-of-pocket expenses.
This Proxy Statement and the accompanying Proxy was mailed on or about
April 12, 1996 to all stockholders entitled to vote at the Annual Meeting. A
copy of the Company's 1995 Annual Report which includes the consolidated
financial statements of the Company for the fiscal year ended December 31, 1995
was mailed on or about March 25, 1996 to all stockholders of record on March 19,
1996 (the "Record Date"). The Board of Directors has fixed the close of business
on the Record Date for the determination of the stockholders entitled to notice
of, and to vote at, the Annual Meeting. As of March 19, 1996, there were
outstanding 20,422,117 shares of the Company's common stock (the "Shares"), each
Share having one vote. The 1995 Annual Report is not to be considered part of
the soliciting materials.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Members of the Board of Directors serve staggered three-year terms in
accordance with the Company's Articles of Incorporation and Bylaws. The number
of directors constituting the full Board of Directors of the Company currently
is seven. The Bylaws of the Company provide that a majority of the Company's
Board of Directors shall at all times consist of independent Directors. The
terms of two of the present Directors expire this year and each has been
nominated for re-election to a term of three years expiring 1999.
Unless you indicate to the contrary, the persons named in the accompanying
Proxy will vote your shares FOR the election of the director nominees named
below, both of whom are currently Directors of the Company. Election of the
nominees requires the affirmative vote of a majority of the votes cast by the
holders of the outstanding shares of common stock. In the event that any of the
nominees should become unable or unwilling to serve as a Director, it is
intended that the proxies will be voted for the election of such other person as
the proxies so determine. It is not anticipated that any of the nominees will be
unable or unwilling to serve as a Director.
Biographical information concerning each of the nominees and Directors
continuing in office is presented on the following pages.
<TABLE>
<CAPTION>
Present Directors Who Are Nominated for Re-election
Director Term to
Director's Name Age Principal Occupation Since Expire
<S> <C> <C> <C> <C>
Lewis H. Sandler 59 Executive Vice President, Secretary 1983 1996
and General Counsel of the Company
Robert W. Scharar 46 President and Director of 1992 1996
FCA Corporation
</TABLE>
Additional information regarding the two nominees for election as Directors
of the Company is as follows:
Lewis H. Sandler has been General Counsel of the Company and its
predecessors since 1983 and is Executive Vice President, Secretary, General
Counsel and a Director of the Company. He was admitted to the Bar of the State
of New York in 1962 and has since then been a practicing attorney. He was
admitted to the Bar of the State of Texas in 1981. He has acted as counsel to
Messrs. Schneider and Sherman, Chief Executive Officer and Chief Operating
Officer of the Company, respectively, and their respective companies and
partnerships, since 1973.
Robert W. Scharar is President and a Director of FCA Corporation, a
registered investment advisor which he founded in 1983. He is also president and
a director of FCA Investment Company, a Small Business Investment Company, and
serves as a trustee of First Commonwealth Mortgage Trust and of United Investors
Realty Trust, both of which are REITs. Mr. Scharar is also past president of the
American Association of Attorneys - CPAs. Mr. Scharar is a Director of the
Company and a member of the Compensation and Audit Committees.
Your proxy will be voted FOR the re-election of these nominees unless you
specify otherwise.
<PAGE>
Continuing Directors Whose Terms Are Not Expiring
<TABLE>
<CAPTION>
Director Term to
Director's Name Age Principal Occupation Since Expire
<S> <C> <C> <C>
Mark J. Sandler 53 Private Investor 1989 1997
John S. Schneider 57 Chief Executive Officer and Chairman 1983 1998
of the Board of the Company
Robert F. Sherman 53 President and Chief 1983 1997
Operating Officer of the Company
Larrie A. Weil 52 President & CEO, QuickCall 1983 1998
Corporation
Ira T. Wender 69 Of Counsel, Patterson, Belknap, Webb 1983 1998
& Tyler, New York, NY
</TABLE>
Additional information regarding the continuing Directors of the Company is
as follows:
Mark J. Sandler was a senior managing director of Bear, Stearns & Co. Inc.,
an investment banking firm, in charge of its real estate operations from prior
to 1987 until his retirement in October 1988. Since that time, Mr. Sandler has
managed his personal and family investments. Mr. Sandler is a Director of the
Company and a member of the Compensation and Audit Committees. Mark Sandler is
not related to Lewis Sandler.
John S. Schneider has been Chief Executive Officer of the Company and its
predecessor-in-interest, Southwest Realty, Ltd., since 1983 and is the Chairman
of the Board of Directors. He is primarily responsible for the overall direction
of the Company. Mr. Schneider graduated from the Harvard Business School in 1967
and was employed by the investment banking firm of Donaldson, Lufkin and
Jenrette until 1973, when he cofounded a predecessor firm to the Company.
Robert F. Sherman has been the Chief Executive of the Company's (including
its predecessor entities) property management operations since 1975 and is
President and Chief Operating Officer of the Company, in charge of management
services and responsible for the on-site management of the properties owned or
managed by the Company. Mr. Sherman has served as President of both the National
Apartment Association and the Dallas Apartment Association, and has been a
Director of the National, Texas and Dallas Apartment Associations.
Larrie A. Weil has been the President and CEO of QuickCall Corporation, an
international producer and distributor of wireless payphones, since June, 1995.
In January, 1996, QuickCall Corporation filed a voluntary Chapter 11 petition
under the federal bankruptcy code. From March 1991 to June 1995, Mr. Weil was a
principal and head of corporate finance for Barre & Company, an investment
banking firm. From 1985 to 1989, he was employed by Underwood, Neuhaus & Co.,
Incorporated, an investment banking firm, serving as Chief Operating Officer
from 1987 to 1989 and from January 1990 to March 1992 as President of its
successor, 909 Corp. He was Senior Vice President of Eppler, Guerin & Turner,
Inc., an investment banking firm, from 1981 to 1985. Mr. Weil is a Chartered
Financial Analyst. Mr. Weil is a Director of the Company and a member of the
Compensation and Audit Committees.
Ira T. Wender is a former partner and is currently of counsel to the law
firm of Patterson, Belknap, Webb & Tyler, New York, NY, since July 1986. From
January 1994 to December 1995, he was Chairman of Perry Ellis International,
Inc. He is also a Director of Dime Savings Bank of New York and REFAC
Technology, Inc. Mr. Wender is a Director of the Company and a member of the
Compensation and Audit Committees.
<PAGE>
PROPOSAL NO. 2 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The stockholders are asked to consider and ratify the appointment by the
Board of Directors of Ernst & Young LLP, an independent certified public
accounting firm, to audit the consolidated financial statements of the Company
for the fiscal year beginning January 1, 1996. Ernst & Young LLP has audited the
books of the Company since 1994. Representatives of the firm will attend the
Annual Meeting and have the opportunity to make a statement if they desire, and
will also be available to answer questions.
The Board of Directors recommends you vote FOR the ratification of the
appointment of Ernst & Young LLP as the independent auditors and your proxy will
be so voted unless you specify otherwise.
OTHER BUSINESS
The Company is not aware of any business to be acted upon at the Annual
Meeting other than that which is explained in this Proxy Statement. In the event
that any other business calling for a vote of the stockholders is properly
presented at the meeting, the holders of the proxies will vote your shares in
accordance with their best judgment.
MEETINGS AND CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 1995, the Board of Directors held four regular meetings
and three special telephone meetings. No director attended less than 75% of the
meetings. The Company has Executive, Audit and Compensation Committees. The
Company does not have a nominating committee.
Executive Committee
The Executive Committee has been granted the authority to acquire and
dispose of real property and the power to authorize, on behalf of the full Board
of Directors, the execution of certain contracts and agreements, including those
relating to the borrowing of money by the Company. The current members of the
Executive Committee appointed by the Board of Directors are John S. Schneider,
Robert F. Sherman and Lewis H. Sandler.
Audit Committee
The Board of Directors has established an Audit Committee consisting of
four independent Directors, Mark Sandler, Robert Scharar, Larrie Weil and Ira
Wender. The duties of the Audit Committee include: (i) recommending independent
auditors to the Company; (ii) reviewing with the independent auditors of the
Company the scope of the audit, audit fees, the audit report and the management
letter; (iii) reviewing with management and the independent auditors the
financial condition of the Company for the year; (iv) reviewing and approving
non-audit services, if any, by the independent auditors; and (v) consulting with
the independent auditors and, if necessary, with internal financial personnel of
the Company, with regard to the adequacy of internal controls. The Audit
Committee met twice during the past fiscal year.
<PAGE>
Compensation Committee
The Compensation Committee consists of four independent Directors, Mark
Sandler, Robert Scharar, Larrie Weil and Ira Wender. The duties of the
Compensation Committee include: (i) the setting of annual compensation for
officers and other key personnel; and (ii) the establishment and supervision of
bonus, deferred compensation and similar awards and plans for officers,
directors and key personnel. The Compensation Committee met twice during the
past fiscal year. The Compensation Committee is also responsible for
administering the Company's 1992 Non-qualified Option Plan and the 1995 Omnibus
Incentive Plan.
Compensation of Directors
The Company pays each non-employee Director an annual fee of $12,000 plus a
fee of $1,000 for each regular meeting in which he participates. In addition,
the Company will reimburse the Directors, including those who are also employees
of the Company, for travel and other expenses incurred in connection with their
duties as Directors. No compensation is paid to non-employee Directors for
telephone meetings or for committee meetings in which such Directors
participate. Neither officers nor executive officers who are also Directors
receive any additional compensation for attendance at Board meetings or
committee meetings.
EXECUTIVE OFFICERS OF THE COMPANY
Current Executive Officers
The executive officers of the Company, their respective ages, positions
held and tenure as officers are as follows:
Officer of
the Company
Name Age Principal Occupation Since
John S. Schneider 57 Chairman of the Board 1983
and Chief Executive Officer
Robert F. Sherman 53 President, Chief Operating Officer 1983
and Director
Lewis H. Sandler 59 Executive Vice President, Secretary, 1983
General Counsel and Director
Diana M. Laing 41 Executive Vice President, Chief Financial 1983
Officer and Treasurer
David M. Johnston 51 Executive Vice President - Real Estate 1992
Investments
Business Experience
Information concerning the business experience of Messrs. Schneider,
Sherman and Sandler is provided under the section entitled "Proposal No. 1 -
Election of Directors."
Diana M. Laing has been employed by the Company and its predecessors since
1982. She is Executive Vice President and Chief Financial Officer of the
Company. She has previously served as Controller, Treasurer and Vice
President-Finance of the Company and its predecessors. Ms. Laing is a Certified
Public Accountant and a member of the American Institute of CPAs and the Texas
Society of CPAs. Ms. Laing is a Director of Sterling House Corporation, a
publicly-traded operator of assisted living centers.
David L. Johnston has been Executive Vice President - Real Estate
Investments since joining the Company in October 1992. From 1989 to 1992, Mr.
Johnston was Senior Vice President of Property Company of America, responsible
for the Southwestern Region, acquiring approximately 5,000 apartments units for
that company. From 1982 to 1988, he was a Division President and Senior Partner
of the Trammell Crow Residential Company. During his more than twenty years of
real estate experience, Mr. Johnston has developed more than 10,000 apartment
units, primarily in Texas.
Terms of Office; Relationships
The officers of the Company are elected annually by the Board of Directors
at the annual meeting of the Board of Directors held following each Annual
Meeting of Stockholders, or as necessary and convenient in order to fill
vacancies or newly created offices. Each officer holds office until his or her
successor is duly elected and qualified or until his or her death, resignation
or removal, if earlier. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Company and its stockholders will be served thereby,
but such removal shall be without prejudice to the contractual rights, if any,
of the person so removed.
There are no family relationships among the officers or between the
officers and the Directors. There are no arrangements or understandings between
any officer and any other person pursuant to which that officer or Director was
selected.
SECURITY OWNERSHIP
Security Ownership of Directors and Executive Officers
The following tables set forth certain information as to the number of
Shares beneficially owned as of February 15, 1996 by (a) each person (including
any "group" as that term is used in Section 13(d)(3) of the Exchange Act) who is
known to the Company to own beneficially 5% or more of the Shares, (b) each
Director and nominee for Director, (c) each executive officer listed under
"Compensation of Executive Officers," and (d) all executive officers and
Directors of the Company as a group.
As of February 15, 1996 there were 20,413,649 Shares outstanding. In
addition, the Company has granted options (which remain outstanding) covering an
aggregate of 1,717,967 Shares to its executive officers, Directors and certain
key employees under the Company's 1992 Non-Qualified Stock Option Plan and 1995
Omnibus Incentive Plan. As of February 15, 1996, options covering 420,200 Shares
had vested. The computation of ownership information presented below includes
only those options which have vested. The balance of options issued and
outstanding as of February 15, 1996 vest over the next five years.
<PAGE>
The following table sets forth certain information as to the number of
Shares beneficially owned as of February 15, 1996, by each Director and nominee
for Director, by each of the named Executive Officers, and by all officers and
Directors of the Company as a group:
<TABLE>
<CAPTION>
Security Ownership of Management
Name of Amount & Nature of Percentage
Beneficial Owners Beneficial Ownership of Class
<S> <C> <C>
John S. Schneider 510,333(1) 2.5%
Robert F. Sherman 182,979(2) 1%
Lewis H. Sandler 170,703(3) 1%
Mark J. Sandler 52,387 *
Robert W. Scharar 28,000(4) *
Larrie A. Weil 31,366(5) *
Ira T. Wender 37,264(6) *
David L. Johnston 86,500(7) *
Diana M. Laing 86,500(8) *
All Officers and Directors 1,621,232(9) 7.9%
as a group (16 persons)
<FN>
- -----------------------------------
* Less than 1%.
(1) Includes 79,650 Shares held by a trust for his wife.
(2) Includes 70,351 Shares owned by members of Mr. Sherman's immediate family
or by trusts for such members and 28,000 Shares which are issuable to Mr.
Sherman pursuant to options to purchase Shares which vested January 1,
1996.
(3) Includes 15,780 Shares held in trusts for members of Mr. Lewis Sandler's
immediate family and 4,200 Shares which are issuable to Mr. Lewis Sandler
pursuant to options to purchase Shares which vested January 1, 1996.
(4) Includes 8,500 Shares which are issuable to Mr. Scharar pursuant to
options to purchase Shares which vested January 1, 1996.
(5) Includes 28,000 Shares which are issuable to Mr. Weil pursuant to options
to purchase Shares which vested January 1, 1994, May 25, 1995 and January
1, 1996.
(6) Includes 8,500 Shares which are issuable to Mr. Wender pursuant to options to purchase Shares which vested
January 1, 1996.
(7) Includes 86,500 Shares which are issuable to Mr. Johnston pursuant to
options to purchase Shares which vested January 1, 1994, January 1, 1995,
May 25, 1995 and January 1, 1996.
(8) Includes 56,500 Shares which are issuable to Ms. Laing pursuant to
options to purchase Shares which vested January 1, 1994, January 1, 1995,
May 25, 1995 and January 1, 1996.
(9) Includes 165,781 Shares owned by members of the Officers' and Directors'
immediate family or by trusts for such members and 435,200 Shares which
are issuable pursuant to options to purchase Shares which have vested or
will vest within 60 days of February 15, 1996.
</FN>
<CAPTION>
Security Ownership of Certain Beneficial Owners
Names and Addresses of Amount & Nature of Percentage
Beneficial Owners Beneficial Ownership of Class
<S> <C> <C>
Public Employee Retirement 1,537,800(1) 7.53%
Systems of Ohio
277 East Town Street
Columbus, Ohio 43215-4642
T. Rowe Price Associates, Inc. 1,196,000(2) 5.86%
100 East Pratt Street
Baltimore, Maryland 21202
LaSalle Advisors Limited Partnership 1,095,017(3) 5.36% ABKB/LaSalle
Securities Limited Partnership 470,300(4) 2.30%
11 South LaSalle Street
Chicago, Illinois 60603
<FN>
- ------------------------------
(1) According to the Schedule 13G filed by Public Employees Retirement System
of Ohio dated January 30, 1996, they beneficially own and have sole
dispositive and voting power over 1,537,800 Shares.
(2) According to the Schedule 13G filed by T. Rowe Price Associates, Inc. dated
February 14, 1996, they beneficially own 1,196,000 Shares and have sole
voting power over 31,000 Shares and sole dispositive power over 1,196,000
Shares.
(3) According to the Schedule 13G filed by LaSalle Advisors Limited Partnership
dated February 14, 1996, they beneficially own 1,095,017 Shares and have
sole voting and dispositive power over 539,000 Shares. They have shared
voting power and shared dispositive power over 202,407 Shares and 556,107
Shares, respectively,
(4) According to the Schedule 13G filed by ABKB/LaSalle Securities Limited
Partnership dated February 14, 1996, they beneficially own 470,300 Shares
and have sole voting and dispositive power over 126,700 Shares. They have
shared voting power and shared dispositive power over 178,100 and 343,600
shares, respectively.
</FN>
</TABLE>
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding the annual
compensation the Company paid to the Chief Executive Officer and to the four
executive officers each of whose aggregate remuneration exceeded $100,000 during
1995:
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term
<CAPTION>
Compensation
Shares
Annual Compensation Underlying All Other
Options LTIP Payouts(4) Compensation
Name and Principal Position Year Salary ($) Bonus ($)(1) (#) ($) (5)
- --------------------------- ---- ---------- ------------ ----------- ---------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
John S. Schneider 1995 $ 236,400 $90,000 26,725(2) $ 1,404 $4,000
Chief Executive Officer 1994 225,000 67,500 70,000(3) 80 4,000
1993 190,000 54,900 2,000
Robert F. Sherman 1995 189,000 86,940 17,000(2) 446 3,000
President and 1994 180,000 54,000 70,000(3) 55 3,000
Chief Operating Officer 1993 164,000 47,700 2,000
Lewis H. Sandler 1995 168,000 77,280 28,850(2) 749 3,000
Executive Vice President, 1994 160,000 48,000 70,000(3) 45 5,000
General Counsel and Secretary 1993 158,000 45,900 2,000
David J. Johnston 1995 178,500 82,110 400
Executive Vice President- 1994 169,500 51,000 70,000(3) 55
Real Estate Investments 1993 158,000 45,900
Diana M. Laing 1995 150,000 69,000 424 3,000
Executive Vice President, 1994 120,000 36,000 70,000(3) 20 2,000
Chief Financial Officer 1993 100,000 28,800 1,000
and Treasurer
<FN>
- ------------------------------
(1) Amounts represent incentive/bonus earned for the year. These amounts were
paid in the following year.
(2) Amounts represent options issued as reload options for stock tendered for a
portion of the option exercise price when non-qualified options were
exercised. In the aggregate, reload options for 72,575 Shares with exercise
prices ranging from $12.375 to $13.00 were granted.
(3) Each Executive Officer was granted options for 50,000 Shares with an
exercise price of $13.00 per Share and options for 20,000 Shares with an
exercise price of $11.00 per Share of common stock, which will vest over
four years commencing May 25, 1995. The exercise price represents the
closing market price of the Company's common stock on the date of the
grant.
(4) Amounts earned through December 31, 1995 on deferred compensation under
non-qualified deferred compensation plan.
(5) Company's matching contribution under 401(k) Plan.
</FN>
</TABLE>
<PAGE>
Indemnification. The Charter and Bylaws of the Company provide for
indemnification of the officers and Directors of the Company to the fullest
extent permitted under Maryland Law and permit the indemnification, at the
discretion of the Board of Directors, of all other persons permitted to be
indemnified to the extent the Board deems advisable as permitted under such law.
The Charter also contains a provision that limits the liability of the Directors
to the Company and its stockholders for monetary damages for a breach of a
Director's duty of care.
Employment Agreements. The Company has entered into employment agreements
with each of Messrs. Schneider, Sherman, Sandler and Johnston and Ms. Laing for
the payment of certain severance compensation in the event of the voluntary or
involuntary termination of their employment. These agreements, which may be
terminated by either party upon 90 days' notice, also provide for annual
incentive compensation calculated as a percentage of base salary, based upon the
increase in funds from operations per share of common stock for the current year
over the prior year. Such agreements also provide that in the event of
termination of employment by the Company (other than for cause or in the event
of death) the executive is entitled to severance pay equal to at least his or
her then current annual base salary plus the unpaid portion of any
incentive/bonus compensation payable and/or earned in that year. In the event of
termination at the option of the executive, the Company is obligated to
repurchase the common stock owned by him or her at the then market price per
Share. If the executive proposes to sell 10% or more of his or her current
holdings of common stock, such Shares are subject to a right of first refusal at
the then market price in favor of the Company during the term of employment and
for a period of one year thereafter.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four independent outside Directors (Mark J. Sandler, Robert W.
Scharar, Larrie A. Weil and Ira T. Wender).
When setting salaries for executive officers, the Committee will evaluate
annually the performance of the Company and will compare the Company's
performance with other REITs and real estate companies engaged in activities
similar to that of the Company. The Committee will also take into account the
size of the Company relative to this peer group and the effect that any
substantial increase in compensation will have on the Company's funds from
operations. When the Company was formed in 1992, compensation of its officers,
directors and other key personnel was established at what the Committee believed
to be levels that were at the conservative end of the compensation spectrum,
with the idea that as the Company's performance improves, individual performance
will be rewarded with incentives and bonuses that are commensurate with such
improvement. Company performance will be measured largely by: (i) growth in
funds from operations per Share (which also constitutes the basis for Company
distributions to its stockholders) and (ii) creation of additional stockholder
value.
In connection with the Company's overall compensation philosophy of
reinforcing strategic performance objectives through the use of incentive
compensation programs, the Committee's objective is to attract and retain
quality talent, which is critical to both the short-term and long-term success
of the Company. In so doing, the Committee seeks to create a mutuality of
interest between executive officers and the Company's stockholders by aligning
the executive officers' interests with those of the stockholders through a
variety of plans.
Accordingly, if the Company's performance during the course of a year
warrants an increase in dividends to its stockholders and/or reflects an
increase in stockholder value, executive compensation should reflect such
success. In 1995, the Committee limited such incentive system to an
incentive/bonus compensation equal to 46% of the base salary for executive
officers and to 30% of the base salary for other officers and key personnel
entitled thereto. In addition, no incentive/bonus compensation will be payable
if the increase in funds from operations per Share in any year is less than
three percent.
<PAGE>
In 1995, executive compensation consisted of base salary (see Summary
Compensation Table, above) and an incentive/bonus compensation. The
incentive/bonus compensation that was earned in 1995, in the aggregate amount of
$405,330 for the five executive officers (computed at 46% of their base salary),
was paid in January, 1996. During 1995, funds from operations grew by 24%. Base
salaries for 1996 for all executive officers, including the chief executive
officer, for 1995 increased overall by four percent from the 1995 level.
The Compensation Committee
Mark J. Sandler
Robert W. Scharar
Larrie A. Weil
Ira T. Wender
Deferred Compensation under 401(k) Plan
The Company sponsors a 401(k) plan for all full time employees who have
been employed by the Company (or its predecessor) for at least 12 months.
Eligible employees may contribute up to 15% of their gross pay, subject to
certain limitations. The Company's contribution percentage may vary, however.
For each of the years 1995, 1994 and 1993, the Company contributed an amount
equal to 50% of the amount contributed by the employee, up to 10% of his or her
gross pay. For 1992, the Company (or its predecessor entity) contributed an
amount equal to 35% of the amount contributed by the employee, up to 10% of his
or her gross pay. Each employee vests in the employer contribution according to
the following table:
Years of Service Vested Percentage
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
1992 Employee Stock Option Plan; 1995 Omnibus Incentive Plan
In May 1992, the Company adopted an incentive and non-qualified stock
option plan (the "Option Plan") for the purpose of attracting and retaining the
Company's Directors, executive officers and other key employees ("Eligible
Participants"). A maximum of 1,800,000 Shares was reserved for issuance under
the Option Plan. The Option Plan allows for the grant of "incentive" and
"non-qualified" options (within the meaning of the Internal Revenue Code) that
are exercisable at the fair market value of the Shares at the date of the grant
as established by the Committee.
In 1995, the stockholders approved the adoption by the Company of an
omnibus incentive plan (the "Incentive Plan") which provides for the granting of
additional options, as well as stock appreciation rights, restricted shares and
performance units. The Incentive Plan is designed to further promote the
interests of the Company by providing Eligible Participants with Share and/or
Share-based compensation which will increase in value based upon the market
performance of the Company's Shares and/or the corporate achievement of
financial and other performance objectives. The Incentive Plan is also
administered by the Committee. The Directors that serve on this committee
constitute "Disinterested Administrators" within the meaning of Rule 16b-3
promulgated under the Securities Act of 1933 (the "Securities Act"). No member
of the Committee is eligible to participate under either of the plans except
through formula awards that apply to all non-employee Directors. The current
members of the Committee are Messrs. Weil, Wender, Scharar and Mark Sandler.
<PAGE>
Under the Incentive Plan, the Committee may grant options for up to an
additional 3,000,000 Shares, provided, however, that the aggregate number of
options that may be outstanding at any one time under both plans shall not
exceed approximately ten percent (10%) of the outstanding capital stock of the
Company on a fully diluted basis. The Committee has the authority to determine
the terms of options granted under the Incentive Plan, the individuals who shall
receive options, the times when they shall receive them, whether an incentive
stock option and/or non-qualified option shall be granted, the number of Shares
to be subject to each option, and the date or dates each option shall become
exercisable. Although no additional options may be granted under the 1992 Plan,
the Committee will continue to administer both plans, including questions
pertaining to eligibility, Company financing of option exercises and
adjustments.
The grant of options may not cause the Company to fail to qualify as a REIT
for federal income tax purposes. An optionee may, with the consent of the
Committee, elect to pay for the Shares to be received upon the exercise of an
option in cash, Shares or any combination thereof.
No options were granted in 1995 to either executive officers or to
non-employee directors except for "reload" options that were issued under the
Incentive Plan to executive officers and non-employee directors who exercised
options in 1995 and who delivered to the Company, for cancellation, Shares on
account of the exercise price of the options exercised. The closing price of the
Shares on the date of option exercise was credited to the option exercise price.
Concurrently, reload options were issued for a like number of Shares having an
exercise price equal to the closing price of the Shares on the date of exercise.
These reload options will vest over a five (5) year period. In the aggregate,
reload options for 85,967 Shares with exercise prices ranging from $12.375 to
$13.00 per Share were granted to executive officers (72,575) and non-employee
directors (13,392).
Subsequent to year end 1995, options for 285,000 Shares vested, 69,300 of
which were exercised to purchase Shares (at $11.00 per Share). During 1995,
options for 625,967 Shares were granted at an exercise price ranging from $11.00
to $13.00 per Share and options for 100,000 Shares with an exercise price
ranging from $11.00 to $13.625 per Share terminated pursuant to employee
attrition.
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN 1995
Potential Realizable Value
Individual Grants at Assumed Annual Rates
Options % of Total Options of Share Price Appreciation
Granted Granted to Exercise Expiration For Option Term
Name (#) (1) Employees in 1995 Price Date 5% ($)10% ($)
- ---- ----------- ----------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John S. Schneider 4,095 0.7% $12.625 June 5, 2001 $ 14,465 $ 31,791
4,095 0.7% 12.625 June 5, 2002 17,773 40,140
4,095 0.7% 12.625 June 5, 2003 21,246 49,324
4,095 0.7% 12.625 June 5, 2004 25,103 59,731
4,095 0.7% 12.625 June 5, 2005 28,943 70,874
1,563 0.2% 13.000 Sept 26, 2001 6,985 15,776
1,563 0.2% 13.000 Sept 26, 2002 8,350 19,385
1,562 0.2% 13.000 Sept 26, 2003 9,784 23,356
1,562 0.2% 13.000 Sept 26, 2004 11,375 27,855
Robert F. Sherman 2,200 0.4% 12.375 June 8, 2001 7,617 16,741
2,200 0.4% 12.375 June 8, 2002 9,359 21,138
2,200 0.4% 12.375 June 8, 2003 11,188 25,974
2,200 0.4% 12.375 June 8, 2004 13,219 31,454
2,200 0.4% 12.375 June 8, 2005 15,242 37,322
1,500 0.2% 13.000 Sept 26, 2001 6,703 15,140
1,500 0.2% 13.000 Sept 26, 2002 8,014 18,604
1,500 0.2% 13.000 Sept 26, 2003 9,389 22,414
1,500 0.2% 13.000 Sept 26, 2004 10,917 26,732
Lewis H. Sandler 4,520 0.7% 12.375 June 1, 2001 15,649 34,396
4,520 0.7% 12.375 June 1, 2002 19,229 43,429
4,520 0.7% 12.375 June 1, 2003 22,987 53,365
4,520 0.7% 12.375 June 1, 2004 27,160 64,625
4,520 0.7% 12.375 June 1, 2005 31,315 76,680
1,563 0.2% 13.000 Sept 26, 2001 6,985 15,776
1,563 0.2% 13.000 Sept 26, 2002 8,350 19,385
1,562 0.2% 13.000 Sept 26, 2003 9,784 23,356
1,562 0.2% 13.000 Sept 26, 2004 11,375 27,855
<FN>
(1) Amounts represent options issued as reload options for stock redeemed when
options were exercised. In the aggregate, reload options for 72,575 Shares
with exercise prices ranging from $12.375 to $13.00 per Share were granted.
</FN>
<PAGE>
<CAPTION>
OPTION EXERCISES IN 1995 AND YEAR END OPTION VALUES
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares Value at December 31, 1995 at December 31, 1995(2)
Acquired on Realized # Exercisable/ Exercisable/
Name Exercise (#) ($) (1) Unexercisable Unexercisable
---- ------------- ------------ -------------------------- -------------------
<S> <C> <C> <C> <C>
John S. Schneider 59,500 $ 76,375 0 / 205,225 $ 0 / $382,000
Robert F. Sherman 73,500 83,875 0 / 153,500 $ 0 / $282,000
Lewis H. Sandler 63,500 70,125 0 / 150,350 $ 0 / $257,000
David L. Johnston 63,500 / 121,500 $133,750 / $229,000
Diana M. Laing 20,000 45,000 36,500 / 112,500 $ 66,250 / $206,000
<FN>
(1) Represents the spread between the market value of the underlying Shares at
exercise minus the exercise price.
(2) Represents the number of Shares underlying the options (excluding options
the exercise price of which was more than the market value of the
underlying Shares) times the market price, minus the exercise price.
</FN>
</TABLE>
<PAGE>
Performance Graph
Securities and Exchange Commission rules require that a line graph
performance presentation be provided comparing cumulative total stockholder
return with a performance indicator of a broad market index and either a
nationally recognized industry index or a registrant constructed peer group
index over a minimum period of five years. The following graph demonstrates a
five year comparison of cumulative total returns for the Company (and its
predecessor entity), the S&P 500 Stock Index and the NAREIT Equity REIT Total
Return Index.
<TABLE>
<S> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995
The Company 100 229 292 305 364
S&P 500 Index 100 108 118 120 165
NAREIT Equity REIT Index 100 115 137 141 163
</TABLE>
All of the data is based upon the last closing price of the month for
all tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System. The data is market weighted. The
total return calculation is based upon the weighting at the beginning of the
period. Dividends are included in the month based upon their payment date. The
total return index includes dividends reinvested on a monthly basis. The NAREIT
Equity REIT Total Return Index was provided by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"). At year end 1995 there were
178-qualified REITs in the NAREIT Equity REIT Total Return Index with a total
market capitalization of $40.9 billion. The Standard & Poor's 500 data was
provided by Ibbotson Associates in Chicago, Illinois.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions, or series of similar transactions,
since the beginning of the Company's last fiscal year, nor are there any
currently proposed transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeds $60,000, and in which any director or officer of the Company
(or any investor beneficially owning more than 5% of any class of the Company's
securities) had, or will have, a direct or indirect material interest.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors and beneficial owners of more than
10% of the common stock of the Company to file initial reports of ownership and
reports of changes in ownership with the SEC, the New York Stock Exchange and
the Pacific Stock Exchange. Executive officers and Directors are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. 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 noted that no individual who, at any time during fiscal
1995 was a Director, officer or beneficial owner of more than 10% of the common
stock of the Company failed to file the reports required by Section 16(a) of the
Securities Exchange Act of 1934 on a timely basis.
PROPOSALS OF STOCKHOLDERS
A proposal submitted by a stockholder for presentation at the Company's
1997 Annual Meeting of Stockholders and received at the Company's executive
offices no later than November 19, 1996, will be included in the Company's Proxy
Statement and proxy relating to such Annual Meeting. Proposals should be sent to
the Secretary of the Company at the Company's principal office located at 5949
Sherry Lane, Suite 1400, Dallas, Texas 75225.
YOU ARE URGED TO SEND IN YOUR EXECUTED PROXY PROMPTLY.
