<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the registrant [X]
<TABLE>
<S> <C>
Filed by a party other than the registrant [ ]
[ ] Confidential, for use of the
Check the appropriate box: Commission only (as permitted
[X] Preliminary proxy statement by Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule
14a-12
</TABLE>
CARDINAL REALTY SERVICES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CARDINAL REALTY SERVICES, INC.
[ , 1997]
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Cardinal Realty Services, Inc. (the "Company") to be held at [ ]
a.m. (local time) on [ , 1997] at [ ].
At this meeting, you will be asked to vote on the (1) election of five
directors; (2) approval of an amendment to the Company's Restated Articles of
Incorporation to change the name of the Company to "Lexford, Inc."; (3) approval
of the Company's 1997 Performance Equity Plan; and (4) any other business that
may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION AND THE
PROPOSAL TO APPROVE THE 1997 PERFORMANCE EQUITY PLAN.
The Board of Directors will also report on the Company's affairs and there
will be a discussion period for questions and answers.
The Board of Directors appreciates and encourages shareholder participation
in the Company's affairs. Whether or not you plan to attend the meeting, it is
important that your shares be represented. Please complete, sign and date the
enclosed proxy card and return it in the envelope provided at your earliest
convenience.
Your vote is important and much appreciated.
Sincerely,
/s/ John B. Bartling, Jr.
John B. Bartling, Jr.
President and Chief Executive Officer
<PAGE> 3
CARDINAL REALTY SERVICES, INC.
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ , 1997]
To Our Shareholders:
Notice is hereby given of the Annual Meeting of Shareholders of Cardinal
Realty Services, Inc. (the "Company") to be held at [ ],
on [ , 1997] at [ ] a.m. (local time) to consider and act upon
the following matters which are more fully described in the accompanying Proxy
Statement:
1. The election of one director for a two-year term expiring in 1999
and the election of four directors for three-year terms expiring in 2000;
2. The approval of an amendment to the Company's Restated Articles of
Incorporation to change the name of the Company to "Lexford, Inc.";
3. The approval of the Company's 1997 Performance Equity Plan; and
4. To transact any other business which may properly come before the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION AND THE
PROPOSAL TO APPROVE THE 1997 PERFORMANCE EQUITY PLAN.
Shareholders of record as of the close of business on [ , 1997],
will be entitled to notice of, and to vote at, the meeting.
Shareholders who are unable to attend the meeting in person are requested
to complete, sign, date and return the enclosed proxy in the envelope provided.
No postage is required if mailed in the United States. A proxy may be revoked by
a shareholder by written notice to the Secretary of the Company or the Secretary
of the meeting at any time prior to its use.
By order of the Board of Directors,
/s/ Jeffrey D. Meyer
Jeffrey D. Meyer
Secretary
Columbus, Ohio
[ , 1997]
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE RETURN ENVELOPE PROVIDED. IN ORDER TO AVOID THE
ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE> 4
CARDINAL REALTY SERVICES, INC.
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to holders of common stock, without par
value ("Common Stock"), of Cardinal Realty Services, Inc. (the "Company") for
use at the Annual Meeting of Shareholders to be held on [ , 1997], or
at any adjournments or postponements thereof, pursuant to the accompanying
Notice of Annual Meeting of Shareholders. A proxy card for the meeting and a
return envelope are enclosed. Shareholders may revoke the authority granted by
their execution of proxies at any time before their effective exercise by filing
with the Secretary of the Company, or with the Secretary of the meeting, a
written revocation or duly executed proxy, bearing a later date, or by voting in
person at the meeting.
The purpose of the meeting is to: (a) elect one Class I director to the
Board of Directors (the "Board") for a two-year term expiring in 1999 and elect
four Class II directors to the Board for three-year terms expiring in 2000; (b)
approve an amendment to the Company's Restated Articles of Incorporation to
change the name of the Company to "Lexford, Inc."; (c) approve the Company's
1997 Performance Equity Plan; and (d) transact any other business which may
properly come before the meeting. While the Company is not currently aware of
any other matters which will come before the meeting, if any other matters do
properly come before the meeting, the persons designated as proxies intend to
vote in accordance with their best judgment on such matters. Shares represented
by executed and unrevoked proxies will be voted FOR each of the nominees for
director and each of the proposals listed as items (b) and (c), unless otherwise
indicated on the form of proxy.
Proxies for use at the meeting are being solicited by the Board of the
Company. Shareholders of record at the close of business on [ , 1997]
(the "Record Date") will be entitled to notice of and to vote at the meeting.
Proxies are being mailed to shareholders with this Proxy Statement on or about
[ , 1997]. On May 22, 1997, the Company had outstanding 4,486,592
shares of Common Stock, each of which is entitled to one vote upon each of the
matters to be presented at the meeting. The holders of a majority of the shares
of Common Stock issued and outstanding on the Record Date, present in person or
by proxy and entitled to vote, will constitute a quorum at the meeting. Provided
that a quorum is represented at the meeting the proposals will require the
following affirmative votes for approval:
(a) Each nominee for election to the Board will be elected by a
plurality of the votes cast in the election of such director;
(b) The affirmative vote of a majority of the shares of Common Stock
issued and outstanding is required to approve the amendment to the
Company's Restated Articles of Incorporation; and
(c) The affirmative vote of a majority of the shares of Common Stock
issued and outstanding and held by persons other than those persons to whom
shares may be issued pursuant to the 1997 Performance Equity Plan will be
required to approve the 1997 Performance Equity Plan.
Abstentions (including broker non-votes) do not count as votes cast.
Proxies will be solicited primarily by mail, but additional solicitation
may be made in person or by telephone by officers or employees of the Company.
In addition, the Company has retained MacKenzie Partners, Inc., a proxy
solicitation firm, for assistance in soliciting proxies. MacKenzie Partners,
Inc. will receive a fee of $7,500 for such assistance together with
reimbursement of its out-of-pocket expenses. All solicitation expenses,
including all payments to MacKenzie Partners, Inc. and the costs of preparing,
assembling and mailing the proxy material, will be borne by the Company.
<PAGE> 5
ITEM 1: ELECTION OF DIRECTORS
At the meeting, one Class I director is to be elected for a two-year term
expiring at the annual meeting in 1999 and four Class II directors are to be
elected for three-year terms expiring at the annual meeting in 2000. Members of
the Board serve until their successors have been duly elected and qualified or
until their earlier resignation or removal. If a vacancy occurs during the term
of any director, such vacancy may be filled by the Board for the remainder of
the full term. Set forth below are the names of, and certain information with
respect to, the persons nominated by the Nominating Committee of the Board for
election as directors. Unless otherwise specified, all duly executed proxies
will be voted FOR the election of such nominees.
The persons named in the proxy will be authorized to vote for the five
nominees proposed by the Nominating Committee of the Board that are named below,
unless such authorization is withheld. Proxies cannot be voted for a greater
number of persons than the number of nominees named. To the knowledge of the
Board, all of the nominees will be available for service at the date of the
meeting. If, for any reason, any of the nominees should become unavailable for
election, discretionary authority may be exercised by the persons named in the
proxy to vote for substitute nominees proposed by the Nominating Committee of
the Board.
The Company's Regulations provide that the terms of the directors will be
staggered with three classes of directors, each class consisting of a number of
directors to be determined by resolution of the Board, provided that the total
number of directors be no less than nine or more than twelve directors.
Currently there are three directors serving in each of the three classes.
Messrs. Madigan, Neilan and Pollack are current directors of the Company and
their term expires at the annual meeting in 1997 and all three have been
nominated for re-election. The Merger Agreement dated August 1, 1996, pursuant
to which the Company acquired Lexford Properties, Inc., contains the Company's
agreement to cause Patrick M. Holder and Stanley R. Fimberg to be nominated for
election as members of the Board at the Company's next annual shareholders
meeting, which annual meeting is the subject of this Proxy Statement.
Accordingly, the Board has by resolution, increased the number of members of the
Board to eleven and designated the additional two directors as Class I and Class
II directors, respectively. The Nominating Committee of the Board has nominated
Mr. Holder for election as a Class I director and has nominated Mr. Fimberg for
election as a Class II director.
NOMINEES FOR DIRECTOR
CLASS I DIRECTOR TO BE ELECTED AT THE 1997 ANNUAL MEETING
<TABLE>
<CAPTION>
HAS SERVED
AS
DIRECTOR PRINCIPAL OCCUPATION
NAME AGE SINCE AND BUSINESS EXPERIENCE
- ---- ----- ------------ ------------------------------------------------
<S> <C> <C> <C>
Patrick M. Holder 49 n/a Executive Vice President of the Company since
December 20, 1996 and President of Lexford
Properties, Inc., a wholly owned subsidiary of
the Company, since August 1, 1996. Mr. Holder
was President of Lexford Partners, a Texas joint
venture and manager of multi-family properties
(and the predecessor to Lexford Properties,
Inc.) from 1988 to July 31, 1996. Mr. Holder
previously served as President of Brentwood
Properties, a property management firm, from
1987 to 1988.
</TABLE>
2
<PAGE> 6
CLASS II DIRECTORS TO BE ELECTED AT THE 1997 ANNUAL MEETING
<TABLE>
<CAPTION>
HAS SERVED
AS
DIRECTOR PRINCIPAL OCCUPATION
NAME AGE SINCE AND BUSINESS EXPERIENCE
- ---- ----- ------------ ------------------------------------------------
<S> <C> <C> <C>
Joseph E. Madigan 64 1992 A corporate financial consultant, Mr. Madigan
also is a Director of Skyline Chili, Inc., VOCA
Corporation and The Frank Gates Service Company.
Mr. Madigan currently serves as Chairman of the
Company's Board of Directors and served as
Acting Chief Executive Officer of the Company
from June 13, 1995 to December 1, 1995. Mr.
Madigan was Executive Vice President, Chief
Financial Officer and Director of Wendy's
International, Inc. from 1980 through 1987. He
was Treasurer and Vice President of Borden, Inc.
between 1968 and 1980. Mr. Madigan is also a
former Trustee of Excelsior Income Shares, Inc.,
a closed-end income fund, and NCC Funds, a
Cleveland-based closed-end investment fund.
George J. Neilan 61 1992 President of Allstate Development Company, and
has been involved in land acquisition and
development in the Charleston, West Virginia
area since 1982. He also maintains an
intellectual property legal practice in South
Charleston, West Virginia.
Glenn C. Pollack 39 1992 Senior Vice President of Brown, Gibbons, Lang &
Company, L.P., an investment banking firm
located in Cleveland, Ohio, since January 6,
1997. Mr. Pollack served as President of Zeus
Advisors, Inc., a consulting firm located in
Cleveland, Ohio, from November 1994 to December
1996. From September 1989 to October 1994, Mr.
Pollack was Chief Executive Officer of A & W
Foods, Inc., a regional food distributor. Mr.
Pollack was a senior manager in the Corporate
Strategies Group at the Cleveland office of
Price Waterhouse in 1988 and 1989, and served in
a similar capacity from 1984 to 1988 with
Siedmann & Associates, a Cleveland-based
consulting firm.
Stanley R. Fimberg 63 n/a Managing member of FSC Realty, LLC, a real
estate firm specializing in the ownership of
multi-family properties, since March 1, 1996.
Mr. Fimberg served as President of Fimberg
Realty, Inc., a co-venturer of Lexford
Properties, a Texas joint venture and manager of
multi-family properties and successor to
Brentwood Properties, from 1988 until July 1996.
Mr. Fimberg has devoted his energies solely to
real estate investment activities since 1970.
Prior to that time, Mr. Fimberg served as an
attorney with O'Melveny & Myers and worked in
the office of the Tax Legislative Counsel of the
U.S. Treasury Department in Washington, D.C.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH NOMINEE FOR DIRECTOR NAMED ABOVE.
3
<PAGE> 7
CONTINUING DIRECTORS
CLASS III DIRECTORS SERVING UNTIL THE 1998 ANNUAL MEETING
<TABLE>
<CAPTION>
HAS SERVED
AS
DIRECTOR PRINCIPAL OCCUPATION
NAME AGE SINCE AND BUSINESS EXPERIENCE
- ---- ----- ------------ ------------------------------------------------
<S> <C> <C> <C>
John B. Bartling, Jr. 39 1995 President and Chief Executive Officer of the
Company since December 1, 1995. From April 1993
until December 1995, Mr. Bartling was a Director
in the Real Estate Products Group of CS First
Boston, an investment banking firm. He was an
executive officer of NHP, Inc., a company
specializing in the development, ownership and
management of real estate assets, from June 1987
to April 1993. In addition, Mr. Bartling served
as Executive Vice President of NHP Real Estate
Corp., NHP Capital Corp. and NHP Servicing Inc.,
wholly owned subsidiaries of NHP, Inc., from
1991 to April 1993.
George R. Oberer, Sr. 69 1992 Chairman of the Board and past President and CEO
of Oberer Development Company since the early
1970s. He was President of the predecessor
corporation, Oberer Construction Company, since
1953. Mr. Oberer is President and CEO of Gold
Key Realty Company. Oberer Development Company
and Gold Key Realty Company are engaged in real
estate development and management, respectively.
Robert J. Weiler 61 1992 A central Ohio real estate developer, Mr. Weiler
joined The Robert Weiler Company in 1957 and has
been Chairman of the Board since 1987. A real
estate consultant since 1970, Mr. Weiler also is
a licensed real estate appraiser and a member of
the Appraisal Institute, having served as
President of the Ohio Chapter. He was a Director
of the National and Ohio Association of Realtors
and is a past President of the Columbus Board of
Realtors. Formerly, he was a Director of Main
Federal, Freedom Federal and Buckeye Federal
Savings & Loan.
</TABLE>
CLASS I DIRECTORS SERVING UNTIL THE 1999 ANNUAL MEETING
<TABLE>
<S> <C> <C> <C>
Robert V. Gothier, Sr. 49 1992 President of RVG Management & Development
Company, a manager and developer of residential
and commercial properties, since 1976 and
general partner of Rostan Associates, a real
estate holding company associated with RVG
Management and Development Company, since 1986.
Mr. Gothier also is a member of the Harrisburg
Board of Realtors and the legislative board of
the Pennsylvania Manufactured Home Association.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
H. Jeffrey Schwartz 42 1992 Partner in the law firm of Benesch, Friedlander,
Coplan & Aronoff LLP ("BFCA") since 1988 and
Chairman of the firm's Bankruptcy and Commercial
Department. Prior to joining BFCA in 1983, Mr.
Schwartz was a law clerk to the Honorable
William J. O'Neill, United States Bankruptcy
Court for the Northern District of Ohio, from
1982 to 1983 and to the Honorable Joseph T.
Molitoris, United States Bankruptcy Court for
the Northern District of Ohio from 1980 to 1982.
Mr. Schwartz is a faculty member of the
Bankruptcy Litigation Institute, has written
numerous articles on bankruptcy law and is the
former Chairman of the Section of Bankruptcy and
Commercial Law of the Cleveland Bar Association.
Gerald E. Wedren 60 1992 President of Craig Capital Co., a Washington,
D.C.-based merger and acquisition firm, since
1973. Mr. Wedren has been Managing Partner of
Tavern Real Estate Limited Partnership and
Wedren Associates, which own and lease
properties in the Washington and Baltimore area,
since 1988. Mr. Wedren was President of G.E.W.,
Inc., an owner of fast food restaurants, from
1981 to 1988; was of counsel with the Columbus
law firm of Brownfield, Bowen, Bally & Sturtz
from 1973 to 1981; and was Acting Director of
the Department of Commerce and Commissioner of
Securities for the State of Ohio in 1971 and
1972. He is a Director of Marwed Corporation and
Tavern Realty Co.
</TABLE>
INFORMATION RELATING TO THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF
DIRECTORS
The Board held 11 meetings during 1996. Each incumbent director attended at
least 75% of the aggregate number of meetings of the Board and all committees on
which he served during 1996.
The Board has established four committees: an Executive Committee, a
Nominating Committee, an Audit Committee and a Compensation Committee. The
general functions and composition of each Board committee and the number of
committee meetings held by each committee during the last fiscal year are set
forth below.
Executive Committee
The Executive Committee is authorized to exercise all of the powers of the
Board, except the power to fill vacancies on the Board or a committee of the
Board. The Executive Committee held eight meetings during 1996. The composition
of the Executive Committee is as follows:
Joseph E. Madigan, Chairman
John B. Bartling, Jr.
George R. Oberer, Sr.
H. Jeffrey Schwartz
Robert J. Weiler
Nominating Committee
The Nominating Committee is authorized to make nominations to fill
vacancies on the Board or a committee of the Board. The Nominating Committee
will consider nominees recommended by shareholders in future years. Such a
recommendation will be considered if a timely written notice is submitted to the
5
<PAGE> 9
Company c/o "Chairman, Nominating Committee" at its principal executive offices.
To be timely, a nomination by a shareholder must be received by the Company not
less than 60 nor more than 90 calendar days prior to the annual meeting date;
provided, however, that in the event the Company has not issued a press release
announcing the annual meeting date at least 75 calendar days prior to the annual
meeting date, a nomination by a shareholder must be received by the Company not
later than ten calendar days following the day on which a public announcement of
the annual meeting date is first made. The nomination must include (i) the name
and address of the shareholder and the beneficial owner, if any, on whose behalf
the nomination is made, (ii) a representation that such shareholder is a
shareholder of record entitled to vote at such meeting and intends to nominate
the person specified in the nomination at the meeting, (iii) the number of
shares of the Company owned beneficially and of record by the shareholder and by
the beneficial owner, if any, on whose behalf the nomination is made, (iv) a
description of all arrangements or understandings between or among the
shareholder, the beneficial owner, if any, the nominee, and any other persons
involved with such nomination, (v) such other information regarding each nominee
as would be required in the proxy statement and (vi) a written indication of the
consent of the proposed nominee. Candidates for nomination as director are
considered on the basis of their business, financial and public service
experience, and should not represent any particular constituency, but rather the
shareholders generally. The nominees should be highly regarded for capability
and integrity within their fields or professions. In addition, the activities or
associations of the nominees should not constitute conflicts of interest or
legal impediments that might preclude service as a Company director. Moreover,
nominees must be able, and must have expressed a willingness, to devote the time
required to serve effectively as a director and as a member of one or more Board
committees.
The Nominating Committee also reviews the performance of Board members,
develops and administers the Board's self-evaluation and other policies and has
the authority to establish policies to evaluate the performance of Board members
and to prescribe requirements and qualifications for individuals nominated for
election to the Board. The Nominating Committee held four meetings during 1996.
The composition of the Nominating Committee is as follows:
H. Jeffrey Schwartz, Chairman
George J. Neilan
Gerald E. Wedren
Audit Committee
The primary functions of the Audit Committee are to review the services
provided by the Company's independent auditors and the independence of such firm
from the management of the Company. The Audit Committee also assists the Board
in discharging its duties relating to the internal control, accounting and
reporting practices of the Company. The Audit Committee also reviews the scope
of audits by the Company's independent auditors, the annual financial statements
of the Company, the Company's systems of internal accounting controls and such
other matters with respect to the accounting, auditing and financial reporting
practices and procedures of the Company as it may find appropriate or as may be
brought to its attention. The Audit Committee held two meetings during 1996. The
composition of the Audit Committee is as follows:
Robert V. Gothier, Sr., Chairman
Glenn C. Pollack
Robert J. Weiler
Compensation Committee
The Compensation Committee is authorized to: (i) administer the Company's
various compensation plans; (ii) review and recommend to the Board of Directors
compensation levels for executive officers, evaluate executive management's
performance; (iii) consider executive management succession and related matters;
(iv) review the Company's benefit plans in which officers and directors of the
Company or its affiliates are eligible to participate; (v) periodically review
the equity compensation plans of the Company and the grants under such plans;
(iv) carry out the duties of the Compensation Committee contained in stock
option plans or other employee benefit plans adopted by the Company; and (vii)
approve, take and implement
6
<PAGE> 10
any and all such actions and exercise any and all such additional powers as may
be necessary or incidental to any of the foregoing powers. The Compensation
Committee held fourteen meetings during 1996. The composition of the
Compensation Committee is as follows:
Glenn C. Pollack, Chairman
George R. Oberer, Sr.
Gerald E. Wedren
Director Compensation
Each director of the Company who is not an employee of the Company is paid
an annual retainer fee of $15,000, plus (a) meeting fees of $1,000 for
attendance at each meeting of the Board and (b) $750 for each committee meeting
that occurs on a date when the full Board does not meet. Pursuant to the
Company's 1992 Incentive Equity Plan, as amended (the "Incentive Equity Plan"),
each member of the Board at September 1992 who was not employed by the Company
was granted a stock option to purchase shares of the Company's Common Stock
representing 0.1875% of the Company's "Total Committed Equity", subject to
certain vesting requirements, which was subsequently calculated to be an option
to purchase 7,500 shares of the Company's Common Stock for each such director
(6,750 shares of which are currently exercisable). The foregoing stock options
expire on September 19, 2002. "Total Committed Equity" is defined in the
Incentive Equity Plan as the total number of shares of the Company's Common
Stock (a) issued upon the allowance of claims (as defined in Section 101(5) of
the Bankruptcy Code) pursuant to the Third Amended Plan of Reorganization of the
Company and its substantively consolidated subsidiaries (the "Plan of
Reorganization") that was confirmed by the United States Bankruptcy Court for
the Southern District of Ohio, Eastern Division (the "Bankruptcy Court") on
August 26, 1992 and became effective on September 11, 1992 and (b) issued or
reserved for issuance under the Incentive Equity Plan as of September 11, 1992.
In addition, each incumbent director was granted on November 30, 1995, May 23,
1996, and each "eligible" director will be granted annually on the day after the
Company's Annual Meeting of Shareholders, so long as each such eligible director
remains a director of the Company, an option to purchase 2,000 shares of the
Company's Common Stock with an exercise price equal to the fair market value on
the date of the grant, a ten year term from date of grant and a vesting period
of the lesser of one year or the period from the date of the grant to the next
annual meeting of shareholders. An "eligible" director is a director who is not
an employee of the Company and who has served continuously as a director for at
least ten months preceding the date of option grant.
At the Company's annual shareholders meeting held on May 22, 1996, the
shareholders approved the Company's Non-Employee Director Restricted Stock Plan
(the "Directors Restricted Stock Plan"). Under the terms of the Directors
Restricted Stock Plan, each non-employee director of the Company may elect to
receive shares of the Company's Common Stock in lieu of cash directors fees
otherwise payable to him. The Company has reserved 50,000 shares for issuance
under the Directors Restricted Stock Plan and is also authorized to purchase
shares of the Company's Common Stock on the open market or in private
transactions in order to provide for the payment of shares of the Company's
Common Stock to non-employee directors under the Directors Restricted Stock
Plan. Each non-employee director who participates in the Directors Restricted
Stock Plan receives shares of restricted Common Stock in lieu of cash
compensation with the shares paid to such director being valued at a 20%
discount from their fair market value on the date of payment. The payment date
for such shares is the last business day of each calendar quarter. Shares of
restricted Common Stock issued or paid to directors under the Directors
Restricted Stock Plan have a restriction period of 3 years. The director may not
sell, exchange, transfer, pledge, hypothecate, assign or otherwise dispose of
the shares during the restriction period, except by bequest pursuant to a will
or by intestacy. All restrictions will lapse and the holder of the restricted
Common Stock will be entitled to receipt of the shares following the earliest of
(a) 3 years from the date of the issuance or payment of the restricted Common
Stock to the holder; (b) the date of the holder's death or disability; (c) the
date the holder, after being nominated by the Board, is not elected by the
shareholders in an election for the Board; or (d) the date on which the Board
determines that the holder will not be nominated for election to the Board.
Shares of the restricted Common Stock will be forfeited to the Company in the
event that, during the restriction period, the holder (a) resigns (other than by
reason of disability) or is dismissed for cause from the Board during his
7
<PAGE> 11
elected term as a director; (b) declines to stand for an election to the Board
after having been nominated by the Board; or (c) sells, exchanges, transfers,
pledges, hypothecates, assigns or otherwise attempts to dispose of shares of
restricted Common Stock except by bequest pursuant to a will or intestacy. As of
the end of the Company's 1996 fiscal year, each non-employee director had
elected to participate in the Directors Restricted Stock Plan by electing to
receive shares of restricted Common Stock in lieu of a percentage of directors
fees otherwise payable in cash, such elective percentages ranging from 25% to
100% of directors fees.
Subject to the approval of the shareholders at the meeting, each
non-employee director will also participate in the Company's 1997 Performance
Equity Plan. The Company's 1997 Performance Equity Plan is more fully described
in item 3 of this Proxy Statement and the actual text of the 1997 Performance
Equity Plan, together with the form of Award Agreement to be entered into
between the Company and each person who will participate in such Plan, is
attached to this Proxy Statement as Annex A.
ITEM 2: PROPOSAL TO APPROVE AMENDMENT TO
ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME
On February 20, 1997, the Board of Directors of the Company adopted,
subject to shareholder approval, an amendment of the Company's Restated Articles
of Incorporation ("Articles") to change the name of the Company to "Lexford,
Inc." The current name of the Company is "Cardinal Realty Services, Inc."
Cardinal Industries, Inc., predecessor to the Company ("CII"), was founded
in 1954. From 1970 until its Chapter 11 bankruptcy filing in May 1989, CII
became one of the largest manufacturers of a standardized modular housing
product for use in various configurations for several product lines, including
single-story multi-family housing, motels and retirement villages. In response
to changes in the federal income tax laws taking effect in 1976 that permitted
substantial tax shelter opportunities for limited partner investors, CII created
one of the nation's largest broker/dealer networks to market interests in
limited partnerships formed to acquire, develop and own multi-family residential
real estate projects constructed with CII's products. However, the enactment of
significant federal income tax law changes in 1986 virtually eliminated the
prior tax shelter opportunities for investors in real estate and changed the
structure of investment tax credits. Nonetheless, CII continued to manufacture
modular housing units intended for use in multi-family housing, motel and
retirement village developments to be financed through syndicated limited
partnership offerings. During 1987 and 1988 CII unsuccessfully attempted to
finance approximately 200 developments through such limited partnership
offerings and, in each instance, had to fund virtually all equity capital
required for each such development from internal funds and debt financing
sources. During the same period as CII's loan obligations increased and its cash
flow declined, CII and certain of its subsidiaries had insufficient funds with
which to make timely payments in respect of their loan obligations (most of
which subsidiaries' loan obligations were also guaranteed by CII). The 1986
income tax law changes and defaults under loan obligations served as the
catalysts for CII's bankruptcy filing. Pursuant to the Findings of Fact,
Conclusions of Law and Order Confirming Third Amended Plan of Reorganization of
Jay Alix, Chapter 11 Trustee, For Cardinal Industries, Inc. and its
Substantively Consolidated Subsidiaries (the "Chapter 11 Bankruptcy Plan of
Reorganization") as entered in Case No. 2-89-02779 in the United States
Bankruptcy Court for the Southern District of Ohio, Eastern Division, on August
26, 1992, CII's name was changed to Cardinal Realty Services, Inc. The "new"
company (i.e., the Company) became a publicly held corporation by issuing stock
to its creditors and registering the Common Stock under the Securities Exchange
Act of 1934 with the Securities and Exchange Commission on June 29, 1993. While
over the years the name "Cardinal" achieved a distinctive place in the annals of
the manufacturing, ownership and management of multi-family housing in the
United States, it is also associated with syndicated real estate limited
partnership programs that have lost their appeal and met with general investor
disfavor. The name "Cardinal" also conjures the image of a formerly bankrupt
company among many industry and investment community participants and observers.
The Board believes it is appropriate at this time to adopt as the Company's
name the name Lexford, Inc. to better associate the Company with its
well-respected wholly-owned subsidiary, Lexford Properties, Inc., and positively
emphasize the Company's management services business.
8
<PAGE> 12
Management believes that the costs associated with the name change will not
be material. Virtually no advertising will be required, for example, because
most advertising already carries the Lexford name and logo. The Company has
already substantially accomplished the integration of its pre-existing
management services business with the operations of Lexford Properties, Inc.
since the Company's acquisition of Lexford Properties, Inc. in August 1996. At
present, substantially all of the Company's management services are conducted
under the Lexford name.
The Company's remaining business, its investment management business, does
not require significant media advertising or public relations exposure inasmuch
as it relates principally to the Company's ownership of, and investment in, real
estate assets and the provision of services to passive limited partner investors
with whom the Company has a long established relationship. In turn, the
apartment communities in which the Company maintains ownership interests conduct
business in their own partnership names. Accordingly, substantial expenses which
might otherwise follow a name change by way of signage requirements, et cetera,
will not impact the Company.
Before adopting the Amendment to the Company's Articles, the Board and
management solicited input from industry participants and investment banking and
other investment community professionals as to the image associated with the
name "Cardinal." In addition, management, unfortunately, was often faced with
unsolicited negative reaction to the name "Cardinal" from investment industry
participants as well as commercial mortgage loan originators and government
sponsored, as well as private, participants in the secondary mortgage loan
market. It is principally the realization of the images with which these
important individuals and entities associated the Company's name that led
management and the Board to consider and adopt the proposal to amend the
Articles.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO AMEND THE ARTICLES.
ITEM 3: PROPOSAL TO APPROVE 1997 PERFORMANCE EQUITY PLAN
There will be presented to the meeting a proposal to approve the Company's
1997 Performance Equity Plan (the "Performance Plan"). The Performance Plan was
developed and approved by the Compensation Committee of the Board of Directors
(the "Committee") with the assistance of, and specific input from, an outside
independent compensation consultant. The following summary of the Performance
Plan is qualified in its entirety by reference to the Performance Plan and the
forms of the Award Agreements to be entered into between the Company and each
person who will participate in the Plan, copies of each of which are attached to
this Proxy Statement as Annex A.
PURPOSE
The Board of Directors of the Company has adopted the Performance Plan
subject to shareholder approval. The Performance Plan is intended to provide and
promote a unity of interests with the Company's shareholders by rewarding
certain officers of the Company and its wholly owned subsidiary, Lexford
Properties, Inc., and Company non-employee directors for attaining performance
goals based on earnings growth and enhanced shareholder value.
SHARES GRANTED UNDER THE PERFORMANCE PLAN
The Performance Plan authorizes the grant of restricted stock awards to
certain officers and non-employee directors. A total of 318,000 shares of
restricted Company Common Stock are available for grants under the Performance
Plan. The Committee will administer the Performance Plan.
Restricted stock awards under the Performance Plan consist of grants of
shares of Company Common Stock subject to forfeiture and other restrictions
established by the Committee. Until the restrictions with respect to a
restricted stock award lapse, the shares will be held by the Company and may not
be sold or otherwise transferred by the recipient of the award.
9
<PAGE> 13
VESTING OF SHARES UPON ATTAINMENT OF PERFORMANCE GOALS
Vesting under the Performance Plan occurs only upon attainment of specified
performance goals. The Performance Plan has a three year term (1997-1999), with
increasing performance goals associated with each year of the term (each
"Performance Year"). The performance goals for each Performance Year consist of
a share price target and an Adjusted EBITDA (as defined below) target (the
"Performance Targets"). Share price is measured with reference to the share
price of Company Common Stock (the "Share Price"). Adjusted EBITDA is measured
by the amount of the Company's EBITDA (earnings before interest, taxes,
depreciation and amortization) determined in accordance with generally accepted
accounting principles, with the following adjustments: (1) non-recurring items
(including expenses related to the grant or vesting of Awards) are disregarded;
(2) the amount is reduced by mortgage interest on the properties wholly-owned by
the Company; and (3) for properties sold by the Company after December 31, 1996,
the net sale proceeds from the sale of any such property is included in the
amount by amortizing the proceeds over a five year period together with interest
deemed to accrue on the unamortized amount of such proceeds at a rate equal to
the Company's cost of capital as the imputed interest rate ("Adjusted EBITDA").
Vesting of awards associated with each Performance Year occurs at two
levels based upon annual growth in either of the Performance Targets: Level I
vesting occurs if such annual growth equals or exceeds 12%; and Level II vesting
occurs if such annual growth equals or exceeds 18%. The awards of Company Common
Stock associated with each of the three Performance Years are as follows:
<TABLE>
<CAPTION>
LEVEL I LEVEL II
----------- -----------
<S> <C> <C>
Mr. Bartling................................... 10,000 Shs. 14,000 Shs.
Mr. Thompson................................... 7,000 Shs. 9,000 Shs.
Mr. Koegler.................................... 2,000 Shs. 3,500 Shs.
Mr. Sosh....................................... 2,000 Shs. 3,500 Shs.
Ms. Souder..................................... 2,000 Shs. 3,500 Shs.
Each Non-Employee Director..................... 2,000 Shs. 3,500 Shs.
</TABLE>
In the event that an individual (for example, Mr. Fimberg) becomes a
non-employee director after May 14, 1997, awards will be made to the individual
at the level indicated above for non-employee directors adjusted to reflect the
portion of the Performance Years during which the individual did not serve as a
director, but only to the extent there are sufficient reserved shares of Company
Common Stock (including any such shares forfeited under the Performance Plan)
available for such awards. The Committee may make additional awards to officers
under the Performance Plan to the extent that there are sufficient reserved
shares of Company Common Stock (including any such shares forfeited under the
Performance Plan) available for such awards, provided, however, that additional
awards to the officers identified above will not be made unless the Committee
determines that such additional awards are an appropriate response to a
significant increase in the individual's duties and responsibilities to the
Company.
For 1997, growth in the Performance Targets is measured against the initial
baseline amounts (the "Initial Baselines") described below. The initial baseline
for Adjusted EBITDA equals the Company's Adjusted EBITDA for the year ended
December 31, 1996. The initial baseline for Share Price will equal the share
price of Company Common Stock on the date as of which the Performance Plan is
approved by the Company's shareholders.
10
<PAGE> 14
For the 1998 and 1999 Performance Years, the baselines used in measuring
growth are reset at the Level II targets for the preceding year. Accordingly,
the growth targets for each of the Performance Years, expressed as a percentage
of the Initial Baselines, are as follows:
<TABLE>
<CAPTION>
TARGETS AS A
PERCENTAGE OF
THE INITIAL
BASELINES
--------------------
LEVEL I LEVEL II
PERFORMANCE YEAR VESTING VESTING
---------------- ------- --------
<S> <C> <C>
1997.............................................. 112.00% 118.00%
1998.............................................. 132.16% 139.24%
1999.............................................. 155.95% 164.30%
</TABLE>
The amount of awards that vest for a Performance Year is determined by
comparing average Share Price over the last 20 days of the year and the Adjusted
EBITDA for the year with the baselines for the Performance Year. Level I vesting
of the awards associated with the Performance Year occurs if either of the
Performance Targets for the year exceed the baseline amount by at least 12%.
Additional Level II vesting occurs if the baseline is exceeded by at least 18%.
In recognition of the cumulative nature of the baselines, vesting at Level I or
Level II for a Performance Year results in the vesting of any non-vested shares
associated with a prior Performance Year. If, for a Performance Year, the Share
Price as of the end of the year or the Adjusted EBITDA for the year exceeds a
Performance Target for a subsequent Performance Year, the awards associated with
the subsequent Performance Year will vest early, at the level that would
otherwise occur in such subsequent year.
Any awards that remain non-vested after the third Performance Year will be
forfeited. If a recipient of an award who is an employee dies, is terminated by
the Company or any subsidiary for any reason other than Misconduct (as defined
in the Performance Plan), or if the recipient resigns for Good Reason (as
defined in the Performance Plan), the recipient will vest in awards based on
performance actually achieved for the Performance Year of termination as if the
recipient were employed for the full year, otherwise, the remaining non-vested
awards will be forfeited. If a non-employee director ceases to be a director for
any reason, and if the performance goals are satisfied for such year, the
director will vest in shares for such year in the same proportion as the number
of days he served as a director during the year bears to the total number of
days during the year. The remainder of the shares will be forfeited. Shares of
Company Common Stock that are forfeited will be cancelled by the Company.
Assuming that all of the awards all vest at Level II for all three
Performance Years, the number of shares of Company Common Stock awarded and
vested under the Performance Plan would be as follows: (i) for the executive
officers of the Company and its subsidiary, Lexford Properties, Inc.: Mr.
Bartling -- 72,000, Mr. Thompson -- 48,000, Mr. Koegler -- 16,500, Mr.
Sosh -- 16,500, Ms. Souder -- 16,500; (ii) for the non-employee directors of the
Company: Mr. Madigan -- 16,500, Mr. Neilan -- 16,500, Mr. Weiler -- 16,500, Mr.
Gothier -- 16,500, Mr. Pollack -- 16,500, Mr. Schwartz -- 16,500, Mr.
Oberer -- 16,500, Mr. Wedren -- 16,500 and Mr. Fimberg -- ; and (iii) for
all officers and directors as a group -- .
CHANGE IN CONTROL OF THE COMPANY
In the event of a change in control of the Company (as defined in the
Performance Plan), vesting of awards occurs immediately to the extent that the
Share Price at the time of the change equals or exceeds the normal targets
associated with each year's awards except that, for a change in control
occurring in 1997 or 1998, the awards associated with 1999 will fully vest if
the Share Price at the time of the change equals or exceeds 110% of the 1998
Level II Share Price target.
11
<PAGE> 15
CASH PAYMENTS BY THE COMPANY
The Performance Plan provides that the Company will make a cash payment to
any participant who becomes subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") on "excess parachute
payments" contingent on a change in control. The amount of the cash payment is
determined in a manner designed to put the individual in the same position he or
she would have been in had the excise tax not applied. As such, this make-whole
cash payment covers the initial excise tax, the additional excise tax on the
cash payment and the federal, state and local income taxes on the cash payment.
The Company recognizes that this cash payment feature has the effect of adding
to the cost of future potential change in control transactions.
DEFERRAL OF COMPANY STOCK INTO THE RABBI TRUST
Each individual who has received an award of restricted stock may make a
written election to defer receipt of such shares when the restrictions lapse (a
"Deferral Election"). Shares deferred under this arrangement will be contributed
to the Cardinal Realty Services, Inc. Executive Deferred Compensation Rabbi
Trust (the "Rabbi Trust") (see "-- Compensation Committee Report on Executive
Compensation -- Deductibility") and held in the Rabbi Trust until the executive
terminates employment or the non-employee director ceases to be a director. So
long as Company Common Stock remains in the Rabbi Trust, dividends paid on such
stock will also be held in the Rabbi Trust. Also, if Code Section 162(m) would
operate to limit the Company's federal income tax deduction resulting in tax
liability to the Company with respect to remuneration payable to the recipient
of an award, the shares will automatically be deferred into the Rabbi Trust to
the extent necessary to avoid such tax liability and held for the benefit of the
individual until the year in which the Company would no longer have any tax
liability relating to remuneration payable to such individual.
AWARDS NOT SUBJECT TO ASSIGNMENT
An award will not be transferable, other than by will or the laws of
descent and distribution, or in certain circumstances, pursuant to a qualified
domestic relations order.
TERM OF THE PERFORMANCE PLAN
The Performance Plan will terminate after the disposition of shares is
completed, either by vesting or by forfeiture, after the first to occur of a
change in control, or December 31, 1999.
The Performance Plan may be amended by the Board of Directors of the
Company, provided that no amendment may impair any rights of any holder of an
award previously granted under the Performance Plan without the holder's
consent.
FEDERAL INCOME TAX CONSEQUENCES
Generally, an individual to whom a restricted stock award is made under the
Performance Plan will recognize ordinary income for federal income tax purposes
in an amount equal to the fair market value of the shares of Company Common
Stock received at the time the shares first become transferable or are no longer
subject to a substantial risk of forfeiture and such amount will generally then
be deductible for federal income tax purposes by the Company. However, to the
extent awards are deferred into the Rabbi Trust, the recipient will not
recognize taxable income and the Company will not be allowed a deduction until
the amounts are distributed from the Rabbi Trust. For tax purposes, in addition
to other restrictions, the Company Common Stock is considered to be subject to a
substantial risk of forfeiture as long as the sale of the shares could subject
the participant to suit under the "short swing profit" provisions of Section 16
of the Securities Exchange Act of 1934, as amended ("Section 16"). Under Section
16, the grant of restricted stock award pursuant to the Performance Plan will
generally be exempt from the "short swing profit" provisions only if the Company
Common Stock is held at least six months prior to its sale. Therefore, the
taxation of a restricted stock award to a person subject to Section 16 will
generally be deferred for such six-month period. The vesting of restricted stock
is generally exempt for Section 16 purposes.
12
<PAGE> 16
Any cash payment received in conjunction with an award of restricted stock
under the Performance Plan will be taxed to the recipient as ordinary income at
the time he or she receives it, and the Company will generally be entitled,
subject to the limitations of Sections 280G and 162(m) of the Code, to a
corresponding tax deduction at such time. Under Code Section 280G, the
make-whole cash payments made to an individual for the Code Section 4999 excise
tax (as described above) would not be deductible to the Company. Section 162(m)
of the Code will generally limit to $1.0 million the Company's federal income
tax deduction for compensation paid in any year to its chief executive officer
and its four highest paid executive officers, to the extent that such
compensation is not "performance based." Restricted stock awards under the
Performance Plan, other than the awards associated with 1997, may qualify as
"performance based" compensation exempt from the Section 162(m) limitation;
however, the Company does not intend to seek a ruling from the Internal Revenue
Service on this issue. If an award of restricted stock to an individual referred
to above is not "performance based," the amount that would otherwise be
deductible by the Company in respect of such award will be disallowed to the
extent that the executive's aggregate non-performance based compensation paid in
the relevant year exceeds $1.0 million. The Performance Plan contains a deferral
mechanism to prevent application of the Section 162(m) deduction limit if the
limit would result in federal income tax liability to the Company.
It is the Company's intention to facilitate executives' ability to defer
taxable compensation, which will also result in a deferral of the Company's
deduction with respect to such compensation. Since the Company is offsetting
current income taxes with its net operating loss and passive activity loss carry
forwards, it is beneficial to be able to defer its deduction with respect to
executive compensation. The 1997 Performance Equity Plan of Cardinal Realty
Services, Inc. provides that, to the extent that Code section 162(m) would
operate to limit the Company's federal income tax deduction for remuneration
with respect to a participant, resulting in federal income tax liability to the
Company, receipt of compensation is deferred into the Rabbi Trust until section
162(m) no longer operates to result in such federal income tax liability to the
Company. The deferral mechanism is only triggered if the deductibility limit
imposed by section 162(m) results in federal income tax liability to the
Company. If deductibility is limited due to Code section 162(m), but, due to the
net operating loss and passive activity loss carry forwards for federal income
tax purposes, there is no tax liability created by the limit on the deduction,
the deferral mechanism will not be triggered.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Company Common Stock
issued and outstanding and held by persons other than those persons to whom
shares may be issued pursuant to the Performance Plan will be required to
approve the Performance Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE PERFORMANCE PLAN.
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS
In addition to John B. Bartling, Jr., Chief Executive Officer, President
and a director of the Company, listed below are the executive officers of the
Company as of June 1, 1997. Each executive officer will serve
13
<PAGE> 17
until his or her successor is selected by the Board or until his or her earlier
resignation or removal. There are no family relationships among these officers.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE DURING THE PAST FIVE YEARS
- ---- ----- ------------------------------------------------------------
<S> <C> <C>
Mark D. Thompson 39 Chief Financial Officer and Executive Vice President of the
Company since October 31, 1996. Prior to that time, Mr.
Thompson was Executive Vice President of Corporate
Acquisitions of the Company since April 1, 1996. Mr.
Thompson was a partner in the law firm of McDonald, Hopkins,
Burke & Haber from January 1995 to such time. Prior to that
time, Mr. Thompson was an associate and partner in the law
firm of Benesch, Friedlander, Coplan & Aronoff LLP from
January 1985 and October 1992, respectively.
Leslie B. Fox 38 Executive Vice President of Investment Management of the
Company since June 1, 1997. Ms. Fox is the former President
and Chief Operating Officer of each of Asset Investors
Corporation ("AIC") and Commercial Assets, Inc. ("CAI"),
both publicly traded real estate investment trusts with
combined market capitalization of approximately $128 mil-
lion, from October 1996 through May, 1997. Prior to that
time, Ms. Fox served as Executive Vice President and Chief
Operating Officer of CAI and AIC from February 1995 through
September 1996. From November 1993 through February 1995,
Ms. Fox served as a Vice President of AIC. From November
1993 through February 1995, Ms. Fox was an Executive Vice
President, Chief Investment Officer and Assistant Secretary
of CAI. Ms. Fox served as Senior Vice President of NHP
Capital Corp., a subsidiary of NHP, Inc., from 1991 to 1993
and Vice President of Finance/MIS of NHP Property Management
Inc., a subsidiary of NHP, Inc., from 1987 to 1991.
Paul R. Selid 34 Senior Vice President of the Company since April 15, 1996.
Prior to that time, Mr. Selid was Vice President of
Acquisitions of NHP, Inc. since December 1994. Mr. Selid
also served as Vice President of Asset Management &
Underwriting of NHP, Inc. from September 1992 to December
1994. Mr. Selid previously served as Vice President of
Finance of Hall Financial Group, Inc. from January 1990 to
September 1992.
Michele R. Souder 35 Vice President of the Company since January 16, 1996 and
Chief Financial Officer of Lexford Properties, Inc., a
wholly owned subsidiary of the Company, since November 1,
1996. Prior to that time, Ms. Souder was Director of Audit
of the Company since August 1993. From October 1992 to
August 1993, she served as an Associate in the Turnaround
and Crisis Management division of Jay Alix & Associates, a
management consulting firm. She previously served in various
positions as Portfolio Analyst, Product Manager and Manager
of Asset Management of the Company, from July 1987 to
October 1992.
Ronald P. Koegler 44 Vice President and Controller of the Company since December
20, 1996. Mr. Koegler served as Vice President and Treasurer
of the Company from January 16, 1996 to December 20, 1996.
Prior to that time, Mr. Koegler was Controller of the
Company since April 1992. He served as Assistant Controller
of the Company from October 1989 to April 1992. Mr. Koegler
holds a B.S.B.A. degree in accounting from The Ohio State
University, where he graduated Summa Cum Laude.
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE DURING THE PAST FIVE YEARS
- ---- -------- ------------------------------------------------------------
<S> <C> <C>
Michael F. Sosh 35 Vice President and Treasurer of the Company since January 9,
1997. Prior to that time, Mr. Sosh served as Divisional Vice
President and Assistant Treasurer of The Bon-Ton Stores,
Inc. since March 1995. He previously served as Manager of
Financial Planning and Financial Analyst of The Bon-Ton
Stores, Inc. from 1987 to 1995. Mr. Sosh was a banking
officer with Meridian Bancorp, Inc. from 1983 to 1987.
</TABLE>
CERTAIN SIGNIFICANT EMPLOYEES
In addition to the executive officers named above, listed below are certain
officers of the Company and its wholly owned subsidiary, Lexford Properties,
Inc., as of June 1, 1997. Each officer will serve until his or her successor is
selected by the Board or until his or her earlier resignation or removal. There
are no family relationships among these officers.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE DURING THE PAST FIVE YEARS
- ---- -------- ------------------------------------------------------------
<S> <C> <C>
Annette Hoover 68 Vice President of Lexford Properties, Inc., a wholly owned
subsidiary of the Company, since August 1, 1996. From 1988
to August 1996, Ms. Hoover was Vice President of Lexford
Partners, a property management firm.
Bruce P. Woodward 45 Vice President of Lexford Properties, Inc., a wholly owned
subsidiary of the Company, since August 1, 1996. From 1988
to August 1996, Mr. Woodward was Vice President of Lexford
Partners, a property management firm.
James D. Alexander 47 Vice President of Lexford Properties, Inc., a wholly owned
subsidiary of the Company, since August 1, 1996. From
February 1992 to August 1996, Mr. Alexander was Vice
President of Lexford Partners, a property management firm.
From May 1988 to February 1992, Mr. Alexander served as
Executive Vice President and Director of Portfolio
Management at Southwest Savings Bank, where he handled asset
management and marketing services for the bank's $3 billion
real estate portfolio.
Peggy C. Smith 45 Vice President of the Company since December 20, 1996 and
Vice President of Lexford Properties, Inc., a wholly owned
subsidiary of the Company, since August 1, 1996. From 1988
to August 1996, Ms. Smith was Vice President of Lexford
Partners, a property management firm.
Thomas Trubiana 45 Vice President of Lexford Properties, Inc., a wholly owned
subsidiary of the Company, since August 1, 1996. Mr.
Trubiana served as Vice President of the Company from 1988
to 1996. Prior to joining the Company, Mr. Trubiana was
Regional Manager and Director of Development with Allen &
O'Hara, Inc., a real estate development and management firm,
from 1982 to 1987.
Dain C. Akin 44 Vice President and Acting General Counsel of the Company
since March 18, 1996. From February 1992 to March 1996, Mr.
Akin served as Director of Tax of the Company.
Jeffrey D. Meyer 31 Secretary and Associate General Counsel of the Company since
February 26, 1996. Mr. Meyer was an associate in the law
firm of Benesch, Friedlander, Coplan and Aronoff LLP from
May 1992 to February 1996.
</TABLE>
15
<PAGE> 19
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Company's
Chief Executive Officer during 1996 and the other four most highly compensated
executive officers (and two additional individuals for whom disclosure would
have been provided but for the fact such individuals were not serving as
executive officers at the end of the last completed fiscal year) for services
rendered in all capacities to the Company during 1996 as well as 1995 and 1994,
where applicable.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------------
----------------------------------- SECURITIES
OTHER UNDER-
ANNUAL RESTRICTED LYING
COMPEN- STOCK OPTIONS/ LTIP
NAME AND SALARY BONUS(ES) SATION AWARD(S) SARS PAYOUTS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------------- ---- -------- --------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
John B. Bartling, Jr. 1996 $285,000 $171,000 (1) $503,800(2) $402,188(3) 20,000(4) --
Chief Executive Officer 1995 $ 23,750(6) -- $ 13,250(7) -- -- --
and President 1994 -- -- -- -- -- --
Mark D. Thompson 1996 $127,885(8) $157,491 (9) $216,635(10) $136,875(11) 12,500(12) --
Chief Financial Officer and 1995 -- -- -- -- -- --
Executive Vice President 1994 -- -- -- -- -- --
Paul R. Selid 1996 $ 86,538(14) $112,500 (15) $137,163(16) -- 12,500(17) --
Senior Vice President 1995 -- -- -- -- -- --
1994 -- -- -- -- -- --
Michele R. Souder 1996 $100,245 $ 45,110 (19) -- -- 2,500(20) --
Vice President and Chief 1995 $ 77,476 $ 15,037 (22) -- -- -- --
Financial Officer of 1994 $ 77,025 $ 7,500 (23) -- $ 39,500(24) -- --
Lexford Properties, Inc.
Ronald P. Koegler 1996 $ 84,492 $ 38,250 (19) -- -- 2,500(25) --
Vice President and 1995 $ 75,194 $ 15,450 (22) -- -- -- --
Controller 1994 $ 71,655 $ 10,100 (23) -- $ 23,250(27) -- --
David P. Blackmore 1996 $130,668(28) $ 84,012 (29) -- -- -- --
Former Chief Financial Officer 1995 $116,730 $117,096 (22) -- -- -- --
and Executive Vice President 1994 $107,214 $ 76,000 (23) -- $ 29,868(32) -- --
Michael F. Carbone 1996 $205,905(33) $102,953 (34) -- -- -- --
Former Chief Financial Officer 1995 $201,643(36) $155,500 (23) $ 6,000(37) -- -- --
and Vice President 1994 $191,322 $ 6,000(37) $ 6,288(39) -- --
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ------------------------------- ------------
<S> <C>
John B. Bartling, Jr. $ 7,371(5)
Chief Executive Officer --
and President --
Mark D. Thompson $ 934(13)
Chief Financial Officer and --
Executive Vice President --
Paul R. Selid $ 3,576(18)
Senior Vice President --
--
Michele R. Souder $ 2,600(21)
Vice President and Chief $ 2,140(21)
Financial Officer of $ 1,949(21)
Lexford Properties, Inc.
Ronald P. Koegler $ 6,218(26)
Vice President and $ 5,603(26)
Controller $ 3,860(26)
David P. Blackmore $ 20,543(30)
Former Chief Financial Officer $ 3,197(31)
and Executive Vice President $ 3,022(31)
Michael F. Carbone $578,138(35)
Former Chief Financial Officer $ 7,314(38)
and Vice President $ 4,112(38)
</TABLE>
- ---------------
(1) This amount includes a cash bonus for 1996 paid in 1997 in the amount of
$27,862. This amount also includes an award of 6,940 shares of Common Stock
as a stock bonus for 1996 granted in 1997. The value of the stock bonus was
determined by multiplying the number of shares subject to this award by the
closing price of the Common Stock at fiscal year-end, which was $20.625.
(2) This amount includes an award of 10,000 shares of Common Stock in 1997
pursuant to the terms of Mr. Bartling's Employment Agreement with the
Company, which stated that Mr. Bartling would receive one share of Common
Stock for each share of Common Stock purchased by him, up to a maximum of
10,000 shares. The value of 5,000 shares subject to this award was
determined by multiplying such shares by the closing price of the Common
Stock on June 10, 1996, the date of his matching purchase, which was
$19.875. In addition, pursuant to an amendment to Mr. Bartling's Employment
Agreement, Mr. Bartling elected to cause the Company to issue shares of
Common Stock to the Trustee (as defined below) for his benefit in lieu of
cash bonus compensation otherwise payable to him on account of the
Company's 1996 fiscal year. The shares of Common Stock were issued based on
a valuation of $20.625 per share, being the closing price of the Common
Stock on December 31, 1996. The shares issued to the Trustee for the
benefit of Mr. Bartling pursuant to this election qualified as shares
purchased for the grant of matching stock and accordingly the value of
these 5,000 shares of matching stock was determined by multiplying such
shares by the closing price of the Common Stock on December 31, 1996, the
date applicable to such qualified matching purchase, which was $20.625. Mr.
Bartling elected to defer receipt of the shares subject to each of the
foregoing awards and, accordingly, said shares were issued to The Provident
Bank, a state chartered bank, as trustee ("Trustee") of the Cardinal Realty
Services, Inc. Executive Deferred Compensation Rabbi Trust for Mr.
Bartling's benefit. This amount also includes (a) payments of $12,500 per
month from January 1, 1996 to November 30, 1996 for Mr. Bartling's
relocation and temporary living expenses, as well as a payment of $154,800
to compensate Mr. Bartling for any taxes relating to such monthly payments,
and (b) a car allowance of $750 per month.
(3) Mr. Bartling received an award of 22,500 shares of restricted Common Stock
on April 5, 1996, one-third of which vest on the third, fourth and fifth
anniversaries of such date. Mr. Bartling elected to defer receipt of these
shares, which were issued to the Trustee for Mr. Bartling's benefit. The
value of this award was determined by multiplying the number of shares
subject to this grant by the closing price of the Common
16
<PAGE> 20
Stock on April 5, 1996, $17.875. The value of this award at the end of the
1996 fiscal year was $464,063 based on the fiscal year-end price of $20.625
per share. The Trustee is entitled to receive dividends, if paid, on this
restricted Common Stock to be held for Mr. Bartling's benefit and remaining
subject to forfeiture until such stock vests.
(4) Mr. Bartling received an option to purchase 20,000 shares of Common Stock
at $17.875 per share on April 5, 1996, one-fourth of which options vest on
the second, third, fourth and fifth anniversaries of the date of grant.
(5) Includes the Company's payment of a premium in the amount of $1,190 for a
term life insurance policy with a death benefit of $2,000,000 and the
Company's portion of the cost of group term life insurance, health
insurance and disability insurance paid on behalf of Mr. Bartling in the
aggregate amount of $6,181.
(6) Salary for the period from December 1, 1995, when Mr. Bartling commenced
his employment with the Company, to December 31, 1995.
(7) Includes a payment of $12,500, which sum was required to be paid monthly
from December 1, 1995 to November 30, 1996 for Mr. Bartling's relocation
and temporary living expenses, and (b) a car allowance of $750 for the
month of December, 1995.
(8) Salary for the period from April 1, 1996, when Mr. Thompson commenced his
employment with the Company, to December 31, 1996.
(9) This amount includes a cash bonus for 1996 paid in 1997 in the amount of
$27,203. This amount also includes an award of 6,317 shares of Common Stock
issued to the Trustee for Mr. Thompson's benefit as a stock bonus for 1996
granted in 1997. The value of the stock award was determined by multiplying
the number of shares subject to this grant by the closing price of the
Common Stock at fiscal year-end, which was $20.625.
(10) Includes an award of 5,000 shares of Common Stock in 1997 pursuant to the
terms of Mr. Thompson's Employment Agreement with the Company, which stated
that Mr. Thompson would receive one share of Common Stock for each share of
Common Stock purchased by him, up to a maximum of 5,000 shares. The value
of 2,500 shares subject to this award was determined by multiplying such
shares by the closing price of the Common Stock on June 10, 1996, the date
of his matching purchase, which was $19.875. In addition, pursuant to an
amendment to Mr. Thompson's Employment Agreement, Mr. Thompson elected to
cause the Company to issue shares of Common Stock to the Trustee for his
benefit in lieu of cash bonus compensation otherwise payable to him on
account of the Company's 1996 fiscal year. The shares of Common Stock were
issued based on a valuation of $20.625 per share, being the closing price
of the Common Stock on December 31, 1996. The shares issued to the Trustee
for Mr. Thompson's benefit pursuant to this election qualified as shares
purchased for the grant of matching stock and accordingly the value of
these 2,500 shares of matching stock was determined by multiplying such
shares by the closing price of the Common Stock on December 31, 1996, the
date applicable to such qualified matching purchase, which was $20.625.
This amount also includes a relocation bonus of $60,000 paid in 1997 for
moving his principal residence to Columbus, Ohio, as well as payment of
$55,385 to compensate Mr. Thompson for any taxes relating to such
relocation bonus.
(11) Mr. Thompson received an award of 7,500 shares of restricted Common Stock
on April 15, 1996, one-third of which vests on the third, fourth and fifth
anniversaries of such date. Mr. Thompson elected to defer receipt of these
shares, which were issued to the Trustee for Mr. Thompson's benefit. The
value of this award was determined by multiplying the number of shares
subject to this grant by the closing price of the Common Stock on April 15,
1996, $18.25. The value of this award at the end of the 1996 fiscal year
was $154,688 based on the fiscal year-end price of $20.625 per share. The
Trustee is entitled to receive dividends, if paid, on this restricted
Common Stock to be held for Mr. Thompson's benefit and remain subject to
forfeiture until such stock vests.
(12) Mr. Thompson received an option to purchase 12,500 shares of Common Stock
at $17.625 per share on April 1, 1996, one-fifth of which vest options on
the first, second, third, fourth and fifth anniversaries of the date of
grant.
(13) Includes the Company's portion of the cost of group term life insurance and
disability insurance paid on behalf of Mr. Thompson in the aggregate amount
of $934.
(14) Salary for the period from April 15, 1996, when Mr. Selid commenced his
employment with the Company, to December 31, 1996.
(15) This amount includes a cash bonus for 1996 paid in 1997 in the amount of
$27,484. This amount also includes an award of 4,122 shares of Common Stock
issued to the Trustee for Mr. Selid's benefit as a stock bonus for 1996
granted in 1997. The value of the stock bonus was determined by multiplying
the number of shares subject to this grant by the closing price of the
Common Stock at fiscal year-end, which was $20.625.
(16) This amount includes an award of 2,500 shares of Common Stock in 1997
pursuant to the terms of Mr. Selid's Employment Agreement with the Company,
which stated that Mr. Selid would receive one share of Common Stock for
each share of Common Stock purchased by him, up to a maximum of 2,500
shares. The value of 1,250 shares subject to this award was determined by
multiplying such shares by the closing price of the Common Stock on June
10, 1996, the date of his matching purchase, which was $19.875. In
addition, pursuant to an amendment to Mr. Selid's Employment Agreement, Mr.
Selid elected to cause the Company to issue shares of Common Stock to the
Trustee for his benefit in lieu of cash bonus compensation otherwise
payable to him on account of the Company's 1996 fiscal year. The shares of
Common Stock were issued based on a valuation of $20.625 per share, being
the closing price of the Common Stock on December 31, 1996. The shares
issued to the Trustee for Mr. Selid's benefit pursuant to this election
qualified as shares purchased for the grant of matching stock and
accordingly the value of these 1,250 shares of matching stock was
determined by multiplying such shares by the closing price of the Common
Stock on December 31, 1996, the date applicable to such qualified matching
purchase, which was $20.625. This amount also includes payments aggregating
$45,000 pursuant to the terms of Mr. Selid's Employment Agreement, all of
which sums were paid to Mr. Selid during 1996 for Mr. Selid's relocation
and temporary living expenses, as well as a payment of $41,538 to
compensate Mr. Selid for income taxes relating to such payments.
(17) Mr. Selid received an option to purchase 12,500 shares of Common Stock at
$18.25 per share on April 15, 1996, one-fifth of which options vest on the
first, second, third, fourth and fifth anniversaries of the date of grant.
17
<PAGE> 21
(18) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Mr. Selid in
the aggregate amount of $3,576.
(19) Cash bonus for 1996 paid in 1997.
(20) Ms. Souder received an option to purchase 2,500 shares of Common Stock at
$19.25 per share on June 27, 1996, one-third of which options vest on the
first, second and third anniversaries of the date of grant.
(21) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Ms. Souder.
(22) Cash bonus for 1995 paid in 1996.
(23) Cash bonus for 1994 paid in 1995.
(24) Ms. Souder received an award of 3,000 shares of restricted Common Stock on
February 24, 1994, one-third of which vested on the first, second and third
anniversaries of such date. The value of this award was determined by
multiplying the number of shares subject to this grant by $8.00 being the
bid price of the Common Stock in the Over The Counter market on February
24, 1994. Ms. Souder also received an award of 1,000 shares of restricted
Common Stock on October 11, 1994, one-third of which vested on the first,
second and third anniversaries of such date. The value of this award was
determined by multiplying the number of shares subject to this grant by
$15.50 being the bid price of the Common Stock in the Over The Counter
market on October 11, 1994.
(25) Mr. Koegler received an option to purchase 2,500 shares of Common Stock at
$19.25 per share on June 27, 1996, one-third of which options vest on the
first, second and third anniversaries of the date of grant.
(26) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Mr. Koegler.
(27) Mr. Koegler received an award of 1,500 shares of restricted Common Stock on
October 11, 1994, one-third of which vested on the first, second and third
anniversaries of such date. The value of this award was determined by
multiplying the number of shares subject to this grant by $15.50 being the
bid price of the Common Stock in the Over The Counter market on October 11,
1994.
(28) Salary for the period from January 1, 1996 to October 31, 1996, the
effective date of Mr. Blackmore's resignation.
(29) This amount includes a cash bonus for 1996 paid in 1997 in the amount of
$37,338. This amount also includes an award of 2,263 shares of Common Stock
as a stock bonus for 1996 granted in 1997. The value of the stock bonus was
determined by multiplying the number of shares subject to this grant by the
closing price of the Common Stock at fiscal year-end, which was $20.625.
(30) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Mr. Blackmore
and the Company's matching contribution, in the form of the Company's
Common Stock, made pursuant to Mr. Blackmore's contribution in the
Company's 401(k) Savings Plan in the aggregate amount of $3,238. This
amount also includes $17,305 paid to Mr. Blackmore in 1996 pursuant to the
terms of Mr. Blackmore's Severance Agreement and Mutual Release and
Consulting Agreement with the Company (See "-- Employment Agreements and
Termination of Employment -- Termination of Employment of Certain Executive
Officers").
(31) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Mr. Blackmore
and the Company's matching contribution, in the form of the Company's
Common Stock, made pursuant to Mr. Blackmore's contribution in the
Company's 401(k) Savings Plan.
(32) Mr. Blackmore received an award of deferred Common Stock equal to 0.19% of
the Company's Total Committed Equity. The value of the award was estimated
based on (a) a projection as to the number of shares of Common Stock that
management believed would be issued pursuant to the Plan of Reorganization
and (b) a per share valuation of the Common Stock based on the estimated
value of the Common Stock of $3.93 per share, the value upon which issuance
of the Deferred Stock was contingent at the date of grant. Mr. Blackmore
received approximately 7,600 shares of Deferred Stock. Mr. Blackmore is
fully vested in the Deferred Stock. In the event the Company were to
declare a dividend on its Common Stock, the dividend would be paid on the
Deferred Stock awarded to Mr. Blackmore.
(33) See "-- Employment Agreements and Termination of Employment -- Termination
of Employment of Certain Executive Officers".
(34) Cash bonus for 1996 paid in 1997. See "-- Employment Agreements and
Termination of Employment -- Termination of Employment of Certain Executive
Officers".
(35) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance paid on behalf of Mr. Carbone.
This amount also includes severance payments of $427,953 and consulting
fees of $150,000 (See "-- Employment Agreements and Termination of
Employment -- Termination of Employment of Certain Executive Officers").
(36) See "-- Employment Agreements and Termination of Employment -- Termination
of Employment of Certain Executive Officers".
(37) Includes car allowance of $500 per month.
(38) Includes the Company's portion of the cost of group term life insurance,
health insurance and disability insurance. Also includes the Company's
matching contribution, in the form of the Company's Common Stock, made
pursuant to Mr. Carbone's participation in the Company's 401(k) Savings
Plan.
(39) Mr. Carbone received an award of deferred Common Stock equal to 0.04% of
the Company's Total Committed Equity. The value of the award was estimated
based on (a) a projection as to the number of shares of Common Stock that
management believed would be issued pursuant to the Plan of Reorganization
and (b) a per share valuation of the Common Stock based on the estimated
value of the Common Stock of $3.93 per share, the value upon which issuance
of the Deferred Stock was contingent at the date of grant. Mr. Carbone
received
18
<PAGE> 22
approximately 1,600 shares of Deferred Stock. Mr. Carbone is fully vested
in the Deferred Stock. In the event the Company were to declare a dividend
on its Common Stock, the dividend would be paid on the Deferred Stock
awarded to Mr. Carbone.
STOCK OPTIONS GRANTS TABLE
The following table sets forth the information noted for all grants of
stock options to each of the executive officers named in the Summary
Compensation Table during 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
- --------------------------------------------------------------------------------------------- REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE OF FOR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------------- --------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John B. Bartling, Jr.,
Chief Executive Officer
and President........................ 20,000(1) 33% $17.875 4/5/06 $224,830 $569,763
Mark D. Thompson,
Chief Financial Officer
and Executive Vice
President............................ 12,500(2) 21% $17.625 4/1/06 $138,553 $351,121
Paul R. Selid,
Senior Vice President................ 12,500(3) 21% $ 18.25 4/15/06 $143,467 $363,572
Michele R. Souder,
Vice President....................... 2,500(4) 4% $ 19.25 6/27/06 $ 30,266 $ 76,699
Ronald P. Koegler,
Vice President and
Controller........................... 2,500(5) 4% $ 19.25 6/27/06 $ 30,266 $ 76,699
David P. Blackmore,
Former Chief Financial
Officer and Executive
Vice President....................... -- -- -- -- -- --
Michael F. Carbone,
Former Chief Financial
Officer and Vice
President............................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Bartling received an option to purchase 20,000 shares of Common Stock
with an exercise price of $17.875 per share on April 5, 1996, one-fourth of
which options vest on the second, third, fourth and fifth anniversaries of
the date of grant.
(2) Mr. Thompson received an option to purchase 12,500 shares of Common Stock
with an exercise price of $17.625 per share on April 1, 1996, one-fifth of
which options vest on the first, second, third, fourth and fifth
anniversaries of the date of grant.
(3) Mr. Selid received an option to purchase 12,500 shares of Common Stock with
an exercise price of $18.25 per share on April 15, 1996, one-fifth of which
options vest on the first, second, third, fourth and fifth anniversaries of
the date of grant.
(4) Ms. Souder received an option to purchase 2,500 shares of Common Stock with
an exercise price of $19.25 per share on June 27, 1996, one-third of which
options vest on the first, second and third anniversaries of the date of
grant.
(5) Mr. Koegler received an option to purchase 2,500 shares of Common Stock with
an exercise price of $19.25 per share on June 27, 1996, one-third of which
options vest on the first, second and third anniversaries of the date of
grant.
19
<PAGE> 23
STOCK OPTIONS VALUE TABLE
The following table sets forth the fiscal year-end value of unexercised
stock options for each of the executive officers named in the Summary
Compensation Table for the 1996 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------------------ -------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
John B. Bartling, Jr., Chief
Executive 0 Exercisable/ N/A Exercisable/
Officer and President.............. 0 0 20,000 Unexercisable(1) $55,000 Unexercisable(2)
Mark D. Thompson, Chief Financial 0 Exercisable/ N/A Exercisable/
Officer and Executive Vice
President........................ 0 0 12,500 Unexercisable(3) $37,500 Unexercisable(4)
Paul R. Selid, 0 Exercisable/ N/A Exercisable/
Senior Vice President.............. 0 0 12,500 Unexercisable(5) $29,688 Unexercisable(6)
Michele R. Souder 0 Exercisable/ N/A Exercisable/
Vice President..................... 0 0 2,500 Unexercisable(7) $3,438 Unexercisable(8)
Ronald P. Koegler 0 Exercisable/ N/A Exercisable/
Vice President and Controller...... 0 0 2,500 Unexercisable(9) $3,438 Unexercisable(10)
David P. Blackmore, Former Chief
Financial Officer and Executive
Vice
President.......................... 4,378 $78,804 (11) N/A N/A
Michael F. Carbone, Former Chief
Financial Officer.................. 0 0 N/A N/A
</TABLE>
- ---------------
(1) Mr. Bartling received an option to purchase 20,000 shares of Common Stock
with an exercise price of $17.875 per share on April 5, 1996, one-fourth of
which options vest on the second, third, fourth and fifth anniversaries of
the date of grant.
(2) The value of the stock option was calculated by multiplying the number of
underlying securities by the difference between (a) $20.625 per share being
the closing price of the Common Stock at fiscal year-end on the Nasdaq
National Market tier of the Nasdaq Stock Market(sm), and (b) the exercise
price of the option, $17.875 per share.
(3) Mr. Thompson received an option to purchase 12,500 shares of Common Stock
with an exercise price of $17.625 per share on April 1, 1996, one-fifth of
which options vest on the first, second, third, fourth and fifth
anniversaries of the date of grant.
(4) The value of the stock option was calculated by multiplying the number of
underlying securities by the difference between (a) $20.625 per share being
the closing price of the Common Stock at fiscal year-end on the Nasdaq
National Market tier of the Nasdaq Stock Market(sm), and (b) the exercise
price of the options, $17.625 per share.
(5) Mr. Selid received an option to purchase 12,500 shares of Common Stock with
an exercise price of $18.25 per share on April 15, 1996, one-fifth of which
options vest on the first, second, third, fourth and fifth anniversaries of
the date of grant.
(6) The value of the stock option was calculated by multiplying the number of
underlying securities by the difference between (a) $20.625 per share being
the closing price of the Common Stock at fiscal year-end on the Nasdaq
National Market tier of the Nasdaq Stock Market(sm), and (b) the exercise
price of the options, $18.25 per share.
(7) Ms. Souder received an option to purchase 2,500 shares of Common Stock with
an exercise price of $19.25 per share on June 27, 1996, one-third of which
options vest on the first, second and third anniversaries of the date of
grant.
(8) The value of the stock option was calculated by multiplying the number of
underlying securities by the difference between (a) $20.625 per share being
the closing price of the Common Stock at fiscal year-end on the Nasdaq
National Market tier of the Nasdaq Stock Market(sm), and (b) the exercise
price of the option, $19.25 per share.
(9) Mr. Koegler received an option to purchase 2,500 shares of Common Stock
with an exercise price of $19.25 per share on June 27, 1996, one-third of
which vest on the first, second and third anniversaries of the date of
grant.
(10) The value of the stock option was calculated by multiplying the number of
underlying securities by the difference between (a) $20.625 per share being
the closing price of the Common Stock at fiscal year-end on the Nasdaq
National Market tier of the Nasdaq Stock Market(sm), and (b) the exercise
price of the option, $19.25 per share.
(11) On September 11, 1992, Mr. Blackmore was granted a stock option to purchase
4,378 shares of Common Stock with an exercise price of $1.42 per share. On
October 23, 1996, Mr. Blackmore exercised his option to purchase such
shares. The value of this exercise was determined by multiplying the number
of shares subject to this stock option by $19.88, being the closing price
of the Common Stock on October 23, 1996.
20
<PAGE> 24
LONG-TERM INCENTIVE PLANS TABLE
The following table sets forth the information noted for all long-term
incentive plans awards granted to each of the executive officers named in the
Summary Compensation Table during 1996:
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS
PERIOD UNDER NON-STOCK PRICE-BASED PLANS
UNTIL ------------------------------------------------
NUMBER OF MATURATION THRESHOLD TARGET MAXIMUM
NAME SHARES(#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- -------------------------------- --------- ----------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
John B. Bartling, Jr............ 20,000(1) (1) 0 Shares (1) 6,667, 13,333 or 20,000 Shares(1)
Chief Executive Officer and 20,000 Shares(1)
President
Mark D. Thompson................ 9,000(2) (2) 0 Shares (2) 3,000, 6000 or 9,000 Shares(2)
Chief Financial Officer and 9,000 Shares(2)
Executive Vice President
Paul R. Selid................... 9,000(2) (2) 0 Shares (2) 3,000, 6000 or 9,000 Shares(2)
Senior Vice President 9,000 Shares(2)
Michele R. Souder............... -- N/A N/A N/A N/A
Vice President
Ron Koegler..................... -- N/A N/A N/A N/A
Vice President and Controller
David P. Blackmore.............. -- N/A N/A N/A N/A
Former Chief Financial Officer
and Executive Vice President
Michael F. Carbone.............. -- N/A N/A N/A N/A
Former Chief Financial Officer
and Vice President
</TABLE>
- ---------------
(1) Mr. Bartling received an award of the right to receive 20,000 deferred
shares of Common Stock on April 5, 1996, providing that so long as Mr.
Bartling remains in the employ of the Company, one-third of such shares will
be earned and will be issued when the average number of issued and
outstanding shares of Common Stock over ten consecutive trading days
multiplied by the average closing price of the Common Stock on the Nasdaq
National Market tier of the Nasdaq Stock Market(SM) over such period (or if
the Common Stock is not listed or admitted to trading on such exchange, the
principal securities exchange on which the Common Stock is listed or
admitted to trading) plus the liquidation value of all issued and
outstanding preferred stock of the Company ("Market Capitalization"),
exceeds $90 million, one-third of which shall vest when the Market
Capitalization exceeds $120 million, and the final one-third of which shall
vest when the Market Capitalization exceeds $150 million. The terms of the
deferred share awards provide for acceleration upon a change of control of
the Company or the termination of Mr. Bartling's employment other than for
cause. The shares, if earned, will be contributed to the Cardinal Realty
Services, Inc. Executive Deferred Compensation Rabbi Trust. As of April 10,
1997, one-third of such shares (6,667 shares) have been earned.
(2) Mr. Thompson and Mr. Selid each received an award of the right to receive
9,000 deferred shares of Common Stock on April 15, 1996, providing that so
long as Mr. Thompson and Mr. Selid remain in the employ of the Company one-
third of such shares will be earned and will be issued when the average
number of issued and outstanding shares of Common Stock over 90 consecutive
trading days multiplied by the average closing price of the Common Stock on
the Nasdaq National Market tier of the Nasdaq Stock Market(SM) over such
period (or if the Common Stock is not listed or admitted to trading on such
exchange, the principal securities exchange on which the Common Stock is
listed or admitted to trading) plus the liquidation value of all issued and
outstanding preferred stock of the Company ("Market Capitalization"),
exceeds $90 million, one-third of which shall vest when the Market
Capitalization exceeds $120 million, and the final one-third of which shall
vest when the Market Capitalization exceeds $150 million. The terms of the
deferred share awards provide for acceleration upon a change of control of
the Company or the termination of Mr. Thompson's and Mr. Selid's employment
other than for cause. The shares, if earned, will be contributed to the
Cardinal Realty Services, Inc. Executive Deferred Compensation Rabbi Trust.
As of April 10, 1997, one-third of the shares (3,000 shares in the case of
each of Messrs. Thompson and Selid) have been earned.
21
<PAGE> 25
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
John B. Bartling, Jr. Employment Agreement
The Company and Mr. Bartling entered into an employment agreement, dated as
of December 1, 1995 (the "Bartling Employment Agreement") for an original term
through December 31, 1998 and an annual base salary of $285,000 ("Bartling's
Base Salary"), plus an annual cash bonus of 2% of Bartling's Base Salary for
each 1% increase in the Company's recurring earnings before interest (other than
interest paid on mortgage loans secured by the Company's Wholly Owned
Properties), taxes, depreciation and amortization determined in accordance with
generally accepted accounting principles without regard to extraordinary gains
or losses ("Adjusted EBITDA") from the previous fiscal year's Adjusted EBITDA,
limited to 60% of Bartling's Base Salary.
Under the terms of the Bartling Employment Agreement, the Company granted
Mr. Bartling (i) 22,500 shares of Restricted Stock (see footnote 3 of the
Summary Compensation Table), (ii) the right to receive up to 20,000 deferred
shares of Restricted Stock (see footnote 1 of the Long-Term Incentive Plans
Table), (iii) one share of the Company's Common Stock, at no additional cost to
him, for each share of the Company's Common Stock purchased by Mr. Bartling in
1996 up to a maximum of 10,000 shares (the "Bartling Matching Shares"), and (iv)
options to purchase 20,000 shares of the Company's Common Stock (see footnote 1
of the Stock Options Grants Table).
The Bartling Employment Agreement was amended effective as of December 20,
1996 to provide that Mr. Bartling could elect to receive shares of the Company's
Common Stock in lieu of his cash bonus earned in 1996. Shares of Common Stock
made subject to such election would be valued at the December 31, 1996 closing
price for the Company's Common Stock. Such amendment further provided that any
such shares which Mr. Bartling might elect to receive in lieu of his cash bonus
earned for 1996 would qualify for the grant of the 5,000 Bartling Matching
Shares not yet awarded to Mr. Bartling as of such date. In March, 1997, Mr.
Bartling elected to receive 6,940 shares in lieu of a portion of his 1996 cash
bonus (see footnote 1 of the Summary Compensation Table). Accordingly, pursuant
to Mr. Bartling's election, Mr. Bartling was entitled to receive the balance of
the 5,000 Bartling Matching Shares not yet awarded to him as of such date.
Upon termination of Mr. Bartling's employment without cause, Mr. Bartling
would be entitled to receive: (i) any of Bartling's Base Salary, and any other
benefits due him under the Bartling Employment Agreement, payable for the
remaining period of the original term or any extension thereof; (ii) the cash
bonus, if any, applicable to the fiscal year in which such termination without
cause occurs; and (iii) all of the shares of Restricted Stock, all shares of
deferred Common Stock (whether or not any of the Market Capitalization targets
are then met) and stock options, fully vested, and otherwise free of any
forfeiture provisions or other restrictions imposed under the documents
evidencing such awards, except for any restrictions or limitations imposed by
applicable state and federal securities laws and regulations.
Furthermore, in the event the Company's Market Capitalization exceeds $150
million or there is a change in control of the Company, the vesting of all
Restricted Stock and stock options awarded to Mr. Bartling will be accelerated.
The Bartling Employment Agreement and related Award Agreements were amended
to permit Mr. Bartling to defer the receipt of all shares of the Company's
Common Stock which would otherwise be payable to him under the terms of the
Bartling Employment Agreement and the related Award Agreements. Pursuant to
these amendments made in conjunction with the adoption of the Cardinal Realty
Services, Inc. Executive Deferred Compensation Plan, all such shares of Common
Stock have been or will be issued for the benefit of Mr. Bartling to the
Trustee.
The Bartling Employment Agreement has been further amended effective as of
January 1, 1997 to increase Mr. Bartling's base salary to $340,000; $298,750 of
which is payable in cash and the balance is payable in the form of 2,000 shares
of the Company's Common Stock (valued at $20.625 per share, being the closing
price of the Company's Common Stock on December 31, 1996) issuable to the
Trustee for Mr. Bartling's benefit.
22
<PAGE> 26
Mark D. Thompson Employment Agreement
The Company and Mr. Thompson entered into an employment agreement, dated as
of April 1, 1996 (the "Thompson Employment Agreement") for an original term
through April 14, 1997 and an annual base salary of $175,000 ("Thompson's Base
Salary"), plus annual bonuses under which Mr. Thompson may become entitled to
receive cash and stock bonuses of up to 60% and 30%, respectively, of Thompson's
Base Salary based on incremental increases in the Company's Adjusted EBITDA from
the previous fiscal year's Adjusted EBITDA.
Under the terms of the Thompson Employment Agreement and the Incentive
Equity Plan, the Company granted Mr. Thompson 7,500 shares of Restricted Stock
(see footnote 11 of the Summary Compensation Table), (ii) the right to receive
up to 9,000 deferred shares of Restricted Stock (see footnote 2 of the Long-Term
Incentive Plans Table), (iii) one share of the Company's Common Stock, at no
additional cost to him, for each share of the Company's Common Stock purchased
by Mr. Thompson in 1996 up to a maximum of 5,000 shares (the "Thompson Matching
Shares"), and (iv) options to purchase 12,500 shares of the Company's Common
Stock (see footnote 2 of the Stock Options Grants Table).
The Thompson Employment Agreement was amended effective as of December 20,
1996 to provide that Mr. Thompson could elect to receive shares of the Company's
Common Stock in lieu of his cash bonus earned in 1996. Shares of Common Stock
made subject to such election would be valued at the December 31, 1996 closing
price for the Company's Common Stock. Such amendment further provided that any
such shares which Mr. Thompson might elect to receive in lieu of his cash bonus
earned for 1996 would qualify for the grant of the 2,500 Thompson Matching
Shares not yet awarded to Mr. Thompson as of such date. In March, 1997, Mr.
Thompson elected to receive 3,772 shares in lieu of a portion of his 1996 cash
bonus (see footnote 8 of the Summary Compensation Table). Accordingly, pursuant
to Mr. Thompson's election, Mr. Thompson was entitled to receive the balance of
the 2,500 Thompson Matching Shares not yet awarded to him as of such date.
Upon termination of Mr. Thompson's employment without cause, Mr. Thompson
would be entitled to receive: (i) any of Thompson's Base Salary, and any other
benefits due him under the Thompson Employment Agreement, payable for the
remaining period of the original term, if any, plus the immediately succeeding
nine months; (ii) a prorated portion of the cash bonus, if any, applicable to
the fiscal year in which such termination without cause occurs; and (iii) all of
the shares of Restricted Stock (other than those shares of Restricted Stock
based on Market Capitalization which have not theretofore vested) and stock
options, fully vested, and otherwise free of any forfeiture provisions or other
restrictions imposed under the documents evidencing such awards, except for any
restrictions or limitations imposed by applicable state and federal securities
laws and regulations.
Furthermore, in the event the Company's Market Capitalization exceeds $150
million or there is a change in control of the Company, the vesting of all
Restricted Stock and stock options awarded to Mr. Thompson will be accelerated.
The Thompson Employment Agreement and related Award Agreements were amended
to permit Mr. Thompson to defer the receipt of all shares of the Company's
Common Stock which would otherwise be payable to him under the terms of the
Thompson Employment Agreement and the related Award Agreements. Pursuant to
these amendments made in conjunction with the adoption of the Cardinal Realty
Services, Inc. Executive Deferred Compensation Plan, all such shares of Common
Stock have been or will be issued for the benefit of Mr. Thompson to the
Trustee.
The Thompson Employment Agreement has been further amended effective as of
January 1, 1997 to extend the term of the Thompson Employment Agreement for an
additional year through April 14, 1998 and increase Mr. Thompson's base salary
to $230,000, of which $200,000 is payable in cash and the balance is payable in
the form of 1,455 shares of the Company's Common Stock (valued at $20.625 per
share, being the closing price of the Company's Common Stock on December 31,
1996) issuable to the Trustee for Mr. Thompson's benefit.
23
<PAGE> 27
Paul R. Selid Employment Agreement
The Company and Mr. Selid entered into an employment agreement, dated as of
April 15, 1996 (the "Selid Employment Agreement") for an original term through
April 14, 1997 and an annual base salary of $125,000 ("Selid's Base Salary"),
plus annual bonuses under which Mr. Selid may become entitled to receive cash
and stock bonuses of up to 60% and 30%, respectively, of Selid's Base Salary
based on incremental increases in the Company's percentage return on investment
("ROI") from the previous fiscal year's ROI. The Selid Employment Agreement has
been extended for an additional one year term through April 14, 1998.
Under the terms of the Selid Employment Agreement and the Incentive Equity
Plan, the Company granted Mr. Selid (i) the right to receive up to 9,000
deferred shares of Restricted Stock (see footnote 2 of the Long-Term Incentive
Plans Table), (ii) one share of the Company's Common Stock, at no additional
cost to him, for each share of the Company's Common Stock purchased by Mr. Selid
in 1996 up to a maximum of 2,500 shares (the "Selid Matching Shares"), and (iii)
options to purchase 12,500 shares of the Company's Common Stock (see footnote 3
of the Stock Options Grants Table).
The Selid Employment Agreement was amended effective as of December 20,
1996 to provide that Mr. Selid could elect to receive shares of the Company's
Common Stock in lieu of his cash bonus earned in 1996. Shares of Common Stock
made subject to such election would be valued at the December 31, 1996 closing
price for the Company's Common Stock. Such amendment further provided that any
such shares which Mr. Selid might elect to receive in lieu of his cash bonus
earned for 1996 would qualify for the grant of the 1,250 Selid Matching Shares
not yet awarded to Mr. Selid as of such date. In March, 1997, Mr. Selid elected
to receive 2,304 shares in lieu of a portion of his 1996 cash bonus (see
footnote 15 of the Summary Compensation Table). Accordingly, pursuant to Mr.
Selid's election, Mr. Selid was entitled to receive the balance of the 1,250
Selid Matching Shares not yet awarded to him as of such date.
Upon termination of Mr. Selid's employment without cause, Mr. Selid would
be entitled to receive: (i) any of Selid's Base Salary, and any other benefits
due him under the Selid Employment Agreement, payable for the remaining period
of the original term, if any, plus the immediately succeeding nine months; (ii)
a prorated portion of the cash bonus, if any, applicable to the fiscal year in
which such termination without cause occurs; and (iii) all of the stock options,
fully vested, and otherwise free of any forfeiture provisions or other
restrictions imposed under the documents evidencing such awards, except for any
restrictions or limitations imposed by applicable state and federal securities
laws and regulations.
Furthermore, in the event the Company's Market Capitalization exceeds $150
million or there is a change in control of the Company, the vesting of all
Restricted Stock and stock options awarded to Mr. Selid will be accelerated.
The Selid Employment Agreement and related Award Agreements were amended to
permit Mr. Selid to defer the receipt of all shares of the Company's Common
Stock which would otherwise be payable to him under the terms of the Selid
Employment Agreement and the related Award Agreements. Pursuant to these
amendments made in conjunction with the adoption of the Cardinal Realty
Services, Inc. Executive Deferred Compensation Plan, all such shares of Common
Stock have been or will be issued for the benefit of Mr. Selid to the Trustee.
Termination of Employment of Certain Executive Officers
Michael F. Carbone resigned as Vice President and Chief Financial Officer
of the Company effective as of January 16, 1996 and entered into a Severance
Agreement and Mutual Release (the "Carbone Severance Agreement") and a
consulting agreement (the "Carbone Consulting Agreement") each dated as of
January 16, 1996. The Carbone Severance Agreement provided that Mr. Carbone
would receive (i) regular payments of base annual compensation through December
31, 1996; (ii) a cash bonus equal to 50% of his annual base salary (being a cash
payment of $102,952.50); and (iii) an additional cash bonus in the amount of
$325,000 in compromise of any and all disputes regarding cash bonuses earned or
to be earned for fiscal years 1995 and 1996. In addition, in consideration of
Mr. Carbone's release of any and all claims against the
24
<PAGE> 28
Company, his irrevocable proxy and covenants of confidentiality and cooperation,
Mr. Carbone received a cash payment of $102,952.50 and a tax loan to cover his
income tax obligations incurred as a result of the exercise of his stock
options. The Carbone Consulting Agreement provides that Mr. Carbone will provide
financial and business consulting services as requested by the Company for up to
12 hours per month during the one year period beginning June 1, 1996 and in
consideration therefor, Mr. Carbone received a payment in the amount of
$150,000. The Carbone Consulting Agreement also provides that Mr. Carbone will
be entitled to an incentive fee (at market rates to be agreed upon between the
Company and Mr. Carbone) in consideration for any financings obtained by the
Company from financing sources solicited by Mr. Carbone on the Company's behalf;
provided that the financings are completed within one year following the
completion of the term of consulting services. In consideration of the Carbone
Consulting and Carbone Severance Agreements, Mr. Carbone granted the Company's
nominees an irrevocable proxy for the voting of all shares of the Company's
Common Stock held by him over a specified period of time ending not later than
July 1, 1999, or if later, the date of final adjournment of the Company's 1999
annual shareholders meeting.
David P. Blackmore resigned as Chief Financial Officer and Executive Vice
President of the Company effective October 31, 1996 and entered into a Severance
Agreement and Mutual Release (the "Blackmore Severance Agreement") and a
Consulting Agreement (the "Blackmore Consulting Agreement") with the Company
each dated as of September 4, 1996. The Blackmore Severance Agreement provided
that Mr. Blackmore would receive (i) a payment in the amount of $112,500 payable
over nine months representing a bonus for Mr. Blackmore's prior services as an
executive officer of the Company, (ii) 83 1/3% of the cash bonus and stock bonus
he would otherwise have been entitled to receive pursuant to the Company's 1996
Incentive Compensation Plan (which, based upon the Company's fiscal year 1996
results amounted to $37,338 in cash and 1,818 shares of Common Stock valued at
$20.625 per share), (iii) an award of an additional 2,000 shares of Common Stock
issued in conjunction with the payment of the cash bonus and stock bonus and
(iv) executive outplacement services and certain other benefits. The Blackmore
Consulting Agreement provided that Mr. Blackmore would receive the sum of
$50,000 payable over nine months. In consideration of the Blackmore Severance
and Blackmore Consulting Agreements, Mr. Blackmore granted the Company's
nominees an irrevocable proxy for the voting of all shares of the Company's
Common Stock held by him over a specified period of time ending not later than
July 1, 1999, or if later, the date of final adjournment of the Company's 1999
annual shareholders meeting. The Company also agreed to provide Mr. Blackmore
with a tax loan to cover his tax obligations incurred as a result of the
exercise of his stock options.
The Company currently maintains a policy of providing its executive
officers with nine months of their base salary in the event of a termination of
their employment without cause.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee and the Performance
Graph included in this Proxy Statement shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this Report or the Performance Graph by reference
therein, and shall not be deemed soliciting material or otherwise deemed filed
under either of such Acts.
The Compensation Committee administers the Company's various compensation
plans and reviews and recommends to the Board of Directors compensation levels
for executive officers, evaluates executive management's performance and
considers executive management succession and related matters. The Compensation
Committee is composed exclusively of independent, non-employee directors.
25
<PAGE> 29
Philosophy of Compensation Committee
The Compensation Committee believes that executive compensation should
reflect the value created for the Company's shareholders while supporting the
Company's long-term strategic goals. It is the belief of the Compensation
Committee that executive compensation should serve to:
- reward individuals for significant contribution to the Company's success;
- align the interests of executives with those of the Company's long-term
investors;
- retain, motivate and attract qualified executives; and
- provide incentives to executives to achieve strategic objectives in a
manner consistent with the Company's values.
Executive Officer Compensation
Individual executive officer compensation consists of three components:
base salary, annual cash and stock incentive bonuses and long-term equity
incentives. Each component will be discussed below.
In 1996, the Company through the efforts of its Chief Executive Officer and
the Compensation Committee, retained an entirely new group of executive
officers, some of whom were newly hired by the Company and others of whom
received promotions based upon their prior superior performance in non-executive
officer positions with the Company. In 1996, the Company also accepted the
resignations of, and negotiated severance agreements with, all former executive
officers (other than its Chief Executive Officer whose term of employment
commenced only on December 1, 1995). In addition, in 1996 the Company acquired
Lexford Properties which now, as the Company's wholly owned subsidiary, performs
all of the Company's fee based property management services. An integral part of
the negotiation of the Company's acquisition of Lexford Properties was the
structuring negotiation and documentation of terms of employment between Lexford
Properties, Inc. and the former equity owners of Lexford Properties engaged in
the active management of that entity, including, without limitation, Patrick M.
Holder who is now an executive officer of the Company. In determining the annual
salaries of each new executive officer and significant employee retained or
promoted during 1996, the Compensation Committee retained a nationally
recognized executive compensation and benefits consultant in order to obtain and
benefit from its advice and assistance concerning appropriate levels of
executive compensation and information regarding compensation trends and levels
of compensation paid by comparable companies participating in the multi-family
residential real estate industry generally. With the assistance of the executive
compensation and benefits consultant, the Compensation Committee analyzed the
proposed salary structure for management, including the Company's chief
executive officer, by reference to the compensation paid by other companies
included within the Dow Jones Real Estate Investment Index, with particular
emphasis being given to such of those companies that, like the Company, had not
made an election to be taxed as a real estate investment trust ("REIT") for
federal income tax purposes. The Compensation Committee also analyzed the
relative size of the Company's market capitalization, total assets, total
liabilities and overall financial, operational, marketing and administrative
complexities as compared to a number of the other companies included within the
Dow Jones Real Estate Investment Index as well as the comparative duties and
responsibilities for each of the Company's executive officers, the number of
employees under each such officer's supervision and the number of support staff
and other employees devoted to supporting such executive officer within his or
her respective policy making area. In addition, the Compensation Committee also
considered the relative experience and employment background of each executive
officer recruited by the Company as well as that executive officer's employment
status and compensation at his or her then current employer for each executive
officer recruited from another company. Taking all of the foregoing information
into account and as well as its consultant's advice to the effect that it is
often necessary to establish compensation higher than the industry median in
order to attract qualified executive officer candidates from other positions,
the Compensation Committee established its top four executive officers' annual
base salaries as follows:
26
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND TITLE ANNUAL BASE SALARY
---------------------------------------------------------- ------------------
<S> <C>
John B. Bartling, President and $285,000
Chief Executive Officer
Mark D. Thompson, Executive Vice President $175,000
of Corporate Development (currently Executive
Vice President and Chief Financial Officer)
David P. Blackmore, Executive Vice $175,000
President and Chief Financial Officer
Paul R. Selid, Senior Vice President $125,000
</TABLE>
Effective January 1, 1997, the Compensation Committee increased the annual
base salary for Mr. Bartling to $340,000 based upon Mr. Bartling's and the
Company's superior financial performance and for Mr. Thompson to $230,000 based
upon Mr. Thompson's superior performance and his assumption of the additional
duties as the Company's Chief Financial Officer. A substantial portion of each
such annual salary increase is payable in shares of CRSI's common stock rather
than cash. The Compensation Committee believes that the base annual salaries, as
well as the compensation packages taken as a whole, for the Company's executive
officers are generally within the second quartile of the ranges of executive
compensation payable by companies included within the Dow Jones Real Estate
Investment Index to their respective executive officers.
While the Company's executive officers' respective annual base salaries are
not tied to or contingent upon the Company's financial or other performance
measures, a significant portion of each executive officer's potential annual
compensation is derived through incentive based bonuses which are directly
related to the Company's financial performance.
The Compensation Committee met several times in 1996 and thoroughly
deliberated the complete compensation packages payable to each such newly
retained or promoted executive officer and significant employee.
Salaries for executive officers are reviewed by the Compensation Committee
on an annual basis and may be increased based on (a) individual performance and
contribution and (b) increases in competitive pay levels.
The Compensation Committee believes that the compensation packages agreed
to with its executive officers and other significant employees genuinely
preserves its philosophical objectives by placing significant emphasis on the
latter two components of the Compensation Committee's stated compensation
components, namely, annual cash and stock incentive bonus and long term equity
incentives. In this regard, the Company's compensation arrangements are weighted
heavily towards incentive bonuses based upon the Company's financial performance
measured in terms of its earnings before interest, taxes, depreciation, and
amortization without regard to extraordinary gains or losses ("Adjusted EBITDA")
and awards of restricted stock which will vest on the basis of growth in the
Company's market capitalization. It should be noted that the Compensation
Committee, in consultation with the full Board, the Company's Chief Executive
and Financial Officers and industry analysts, continued to refine the best
measure of the Company's growth in financial results from period to period
during 1996. The Company announced the results of these deliberations in its
Form 10-Q for the nine months ended September 30, 1996 by stating that Adjusted
EBITDA represented, in the Company's view, the best measure of recurring
financial performance from period to period. These analyses and definitive
results represented in the opinion of the Compensation Committee, the full Board
and Company's management, a definitive departure from emphasizing non-recurring
gains and income from the sale of non-core assets thereby re-defining the
Company as a growth company with the goal of expanding its business, operations,
revenues, assets and profits. In addition, in 1996, the Compensation Committee
continued its expanding emphasis on stressing compensation of management in the
form of management's equity ownership in the Company as the best means of
aligning the long-term goals of management with the long-terms goals of the
Company's shareholders. A significant portion of management's compensation takes
the form of equity ownership in the Company. In this way, the Compensation
Committee believes that Mr. Bartling's Chief Executive Officer compensation
package and the compensation packages of the
27
<PAGE> 31
Company's other executive officers implements its goal of aligning his interests
with those of the Company's long-term investors.
The Compensation Committee has confirmed that all base salaries for the
Company's executive officers, including Mr. Bartling's base compensation, are
reasonable and competitive, based upon the surveys compiled by management, as
well as the advice and consultation of the representatives of the consulting
firm.
Management Incentive Plan
Annual bonuses for the executive officers on account of the Company's 1996
fiscal year were governed by the Company's 1996 Incentive Compensation Plan (the
"Incentive Compensation Plan"), which was specifically designed to link
executive compensation to the Company's achieving certain operating goals and
exceeding certain projected increases in specific financial measures applicable
to the specific role in which each executive officer (and each other employee of
the Company participating in the Incentive Compensation Plan) is engaged. The
financial measures include Adjusted EBIDTA for the Company's Chief Executive
Officer and senior financial and legal officers, net income from property
management for the Company's property management employees, and return on equity
for the Company's Investment Management division employees (i.e., those
employees committed to maximizing the Company's return on its investments in
real property assets). Under the terms of the Incentive Compensation Plan, upon
achieving increases in the designated financial performance measure when
compared to the Company's 1995 results, the executive officers and other
participating employees are entitled to certain cash and stock awards.
For example, the 1996 Incentive Compensation Plan provided that Mr.
Bartling could earn a cash bonus of up to 60% of his base annual compensation,
provided that the Company increase its Adjusted EBITDA by at least 30% when
compared to the Company's 1995 Adjusted EBITDA. The Company realized Adjusted
EBITDA of approximately $11,991,000 in 1996 compared to 1995 Adjusted EBITDA of
approximately $8,213,000, or an approximate increase of 46%. While Mr.
Bartling's employment agreement provided for the development of additional
specific performance goals for Mr. Bartling, the Compensation Committee
determined, and Mr. Bartling agreed, that Mr. Bartling's performance was
essential in influencing and improving the Company's Adjusted EBITDA and,
therefore, Adjusted EBITDA could serve for fiscal year 1996, and possibly
thereafter, as the only necessary performance goal applicable to Mr. Bartling's
annual bonus compensation. Similarly, the Company enjoyed an increase of
approximately 85.5% in its return on equity as measured under the 1996 Incentive
Plan and, therefore, employees earning cash and stock bonuses based on that
performance measure (for example, Mr. Selid, the Company's Senior Vice President
for Property Operations), also became entitled to the full amount of their cash
and stock bonuses for 1996 (for Mr. Selid, a cash bonus 60% of annual base
salary (a portion of which he subsequently elected, with the authorization of
the Compensation Committee, to receive in Company common stock in lieu of cash)
and 30% of annual base salary payable in Company common stock valued at its
December 31, 1996 closing price).
In order to align the interests of the Company's executive officers with
those of its shareholders and to provide the executive officers with long term
equity incentives, the Compensation Committee determined to grant stock option
and restricted stock awards to a number of executive officers, especially those
who were newly retained by the Company in 1996. In determining the nature and
amount of such awards, the Company also consulted with, and relied in part upon,
the advice of its nationally known executive compensation and benefits
consultant (including, without limitation, the consultant's sophisticated stock
option and restricted stock valuation analyses and comparability surveys). The
Compensation Committee believes that the long term incentive equity awards
granted to the Company's executive officers in 1996 are commensurate with those
made available to executive officers by the companies included within the Dow
Jones Real Estate Investment Index.
As discussed above and disclosed elsewhere in this Proxy Statement, a
significant part of Mr. Bartling's compensation package includes the award of
the aggregate of 42,500 shares of restricted stock which will vest in part based
upon Mr. Bartling's continued employment and in part upon increases in the
Company's market capitalization as well as the award of stock options and
matching stock. These awards were provided for in Mr. Bartling's Employment
Agreement, which became effective on December 1, 1995, while the shares of
28
<PAGE> 32
restricted stock as well as the stock option award were issued on April 5, 1996.
Similar awards, albeit in lesser amounts, were granted to the Company's new
Executive Vice President and Chief Financial Officer and Senior Vice President
when such executive officers were retained in April 1996.
Deductibility
In 1996, the Company established the Cardinal Realty Services, Inc.
Executive Deferred Compensation Rabbi Trust (the "Rabbi Trust") for the purpose
of providing its non-employee directors and its executives with the ability to
defer taxable incentive compensation. The Rabbi Trust is a grantor trust, the
assets of which remain subject to the claims of the Company's general creditors
in the event of the Company's insolvency. The Company intends that the Rabbi
Trust constitute an unfunded arrangement and that it not affect the status of
any of the Company's deferred compensation plans or arrangements as unfunded
plans or arrangements maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended.
Pursuant to the Company's Executive Deferred Compensation Plan, the
Company's non-employee directors and highly compensated executive officers can
elect to direct the Company to issue any shares of the Company's common stock to
The Provident Bank, as Trustee under the Rabbi Trust, rather than directly to
the director or officer. The select group of management and highly compensated
employees also has the option of deferring receipt of stock bonuses awarded
under the 1996 Incentive Compensation Plan, as well as other common stock awards
payable to them by the Company pursuant to the terms of individual employment or
award agreements, to the Rabbi Trust. This deferral mechanism enables the
employee to defer the recognition of taxable income for federal income tax
purposes.
The Company intends, to the extent practicable, to preserve the
deductibility under the Internal Revenue Code of compensation paid to its
executive officers, while maintaining compensation programs that will attract
and retain its executives in a competitive environment; provided, that, in light
of the Company's ability to offset current income taxes through the utilization
of net operating loss carry forwards and passive activity loss carry forwards,
the Compensation Committee will consider facilitating executives' ability to
defer taxable incentive compensation (thereby also deferring, but not reducing,
the Company's deductibility of such items). In keeping with this philosophy to
provide for maximizing compensation payable in the form of the Company's Common
Stock, as well as to provide its executives with the ability to defer taxable
incentive compensation, the Company adopted its Executive Deferred Compensation
Plan and Executive Deferred Compensation Rabbi Trust in 1996. Pursuant to the
Executive Deferred Compensation Plan, the Company's highly compensated executive
officers can elect to direct the Company to issue any shares of the Company's
Common Stock to The Provident Bank, as Trustee under the Executive Deferred
Compensation Rabbi Trust, rather than directly to the employee otherwise
entitled to receive the shares of Common Stock, thereby deferring the
recognition of taxable income for federal income tax purposes. The Company
believes that, for the foreseeable future, this practice will not otherwise
result in increased income tax liability to the Company due to the availability
of net operating and passive activity loss carry forwards for federal income tax
purposes. The Executive Deferred Compensation Rabbi Trust is a grantor trust,
the assets of which remain subject to the claims of general creditors of the
Company.
Conclusion
In conclusion, the Compensation Committee will enable the Company to retain
highly qualified executive management and motivate its officers with respect to
the attainment of important goals and objectives. The Compensation Committee
believes the focus on Common Stock ownership by the executive officers and other
long-term stock programs has aligned and will continue to align the interests of
management with the interests of shareholders of the Company. The Compensation
Committee further believes that its continuing efforts to refine the best
measures of the Company's long-term growth and improving financial results are
reflected in the terms of the 1996 Incentive Compensation Plan and will continue
to be reflected in future management incentive programs.
29
<PAGE> 33
Compensation Committee of the Board of Directors
Glenn C. Pollack, Chairman
George R. Oberer, Sr.
Gerald E. Wedren
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock, to that of the Dow Jones Real Estate Investment Index
and the Dow Jones Market Index. In calculating cumulative total shareholder
return, reinvestment of dividends is assumed. This graph is shown for the four
full fiscal years in which the Company's Common Stock (Nasdaq: CRSI) has been
registered under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CRSI MARKET DOW JONES DOW JONES
(FISCAL YEAR COVERED) VALUE REAL ESTATE EQUITY MKT
<S> <C> <C> <C>
12/31/92 100 100 100
12/31/93 250 112 107
12/31/94 350 103 104
12/31/95 583 121 139
12/31/96 687 150 167
</TABLE>
30
<PAGE> 34
SECURITY OWNERSHIP OF CERTAIN PERSONS
On May 22, 1997, the Company had outstanding 4,486,592 shares of Common
Stock. The following table sets forth the information as of May 22, 1997
regarding Common Stock owned beneficially by (a) each person known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (b) each director of the Company and executive officer named in the
Summary Compensation table above and (c) all present executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK(1)
----------------------------------------------------- ---------- ---------------
<S> <C> <C>
Bank of America National 513,929 11.46%
Trust & Savings Association
333 South Hope Street
Los Angeles, CA 90071
Directors and Executive Officers Named in "Summary Compensation Table"
John B. Bartling, Jr. 65,440(2) 1.46%
Mark D. Thompson 33,545(3) *
Paul R. Selid 19,372(4) *
Michele R. Souder 4,370(5) *
Ronald P. Koegler 6,520(6) *
David P. Blackmore 41,469(7) *
Michael F. Carbone 50,726(8) 1.13%
Robert V. Gothier, Sr. 14,533(9)(10) *
Joseph E. Madigan 15,066(9)(11) *
George J. Neilan 11,355(9)(12) *
George R. Oberer, Sr. 32,063(9)(13) *
Glenn C. Pollack 14,786(9)(14) *
H. Jeffrey Schwartz 22,475(9)(15) *
Gerald E. Wedren 11,556(9)(16) *
Robert J. Weiler 47,937(9)(17) 1.07%
All present executive officers and directors of the 474,948(18) 10.59%
Company as a group (15 persons not including
Messrs. Blackmore and Carbone)
</TABLE>
- ---------------
* Less than one percent (1%)
(1) The shares and percentages of Common Stock indicated in the table are based
on 4,486,592 issued and outstanding shares of Common Stock; provided,
however, that in the event that the number of shares deemed beneficially
owned by a named individual or group includes the shares as to which the
named person or group has the right to acquire beneficial ownership on or
before May 22, 1997, then in such event, in calculating the percentages
shown, the number of the Company's issued and outstanding shares of Common
Stock is increased by a similar number of shares.
(2) Mr. Bartling received awards of restricted Common Stock in the aggregate of
54,440 shares under his Employment Agreement and related Award Agreements
with the Company (see footnotes 2 and 3 to the Summary Compensation Table
and footnote 1 to the Long-Term Incentive Plans Table). This amount also
includes 10,000 shares purchased by Mr. Bartling. This amount also includes
1,000 shares of Common Stock issued or to be issued to the Trustee for Mr.
Bartling's benefit for the first and second quarters of the 1997 fiscal
year in lieu of an increase in base compensation.
(3) Mr. Thompson received awards of restricted Common Stock in the aggregate of
25,681 shares under the his Employment Agreement and related Award
Agreements with the Company (see footnotes 10 and 11 to the Summary
Compensation Table and footnote 2 to the Long-Term Incentive Plans Table).
This amount includes 5,000 shares purchased by Mr. Thompson. This amount
also includes 728 shares of
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<PAGE> 35
Common Stock issued or to be issued to the Trustee for Mr. Thompson's
benefit for the first and second quarters of the 1997 fiscal year in lieu
of an increase in base compensation. This amount also includes 2,500
currently exercisable shares subject to an option to purchase 12,500 shares
which vests over five years.
(4) Mr. Selid received awards of restricted Common Stock in the aggregate of
14,372 shares under the Incentive Equity Plan (see footnote 16 to the
Summary Compensation Table and footnote 2 to the Long-Term Incentive Plans
Table). This amount includes 2,500 shares purchased by Mr. Selid. This
amount also includes 2,500 currently exercisable shares subject to an
option to purchase 12,500 shares which vests over five years.
(5) Ms. Souder received awards of restricted Common Stock in the aggregate of
4,000 shares under the Incentive Equity Plan (see footnote 24 to the
Summary Compensation Table). This amount also includes 370 shares of Common
Stock issued or to be issued to the Trustee for Ms. Souder's benefit for
the first and second quarters of the 1997 fiscal year in lieu of an
increase in base compensation.
(6) Mr. Koegler received 5,510 shares of Restricted Stock under the Incentive
Equity Plan, 4,500 shares of which have vested. Mr. Koegler received a
currently exercisable option to purchase 1,355 shares of Common Stock
pursuant to the Trustee's Second Employee Retention Plan which was approved
by the Bankruptcy Court during the Company's bankruptcy proceedings. Mr.
Koegler's account is allocated with approximately 343 shares of Common
Stock pursuant to his participation in the Company's 401(k) Plan. This
amount also includes 242 shares of Common Stock issued or to be issued to
the Trustee for Mr. Koegler's benefit for the first and second quarters of
the 1997 fiscal year in lieu of an increase in base compensation.
(7) Mr. Blackmore received 24,061 shares of Restricted Stock, which has vested
under the Incentive Equity Plan. Mr. Blackmore also received an award of
deferred Common Stock (the "Deferred Stock") under the Incentive Equity
Plan of 7,619 shares, contingent upon (i) the average price per share of
the Common Stock during the six-month period from March 11, 1995 to
September 11, 1995 being at least $3.93 and (ii) Mr. Blackmore being in the
employ of the Company on September 11, 1995. The Compensation Committee of
the Board of Directors accelerated the vesting of the Deferred Stock and
such shares were issued to Mr. Blackmore on January 18, 1995. Mr. Blackmore
also received stock option grants of 4,378 shares pursuant to the Trustee's
Second Employee Retention Plan which was approved by the Bankruptcy Court
during the Company's bankruptcy proceedings. Mr. Blackmore exercised such
option and retained these shares. Mr. Blackmore has been attributed with
1,758 shares of Common Stock pursuant to his participation in the Company's
401(k) plan. Mr. Blackmore also received 535 shares for an unsecured Claim
under the Plan of Reorganization. Mr. Blackmore purchased 1,300 shares of
Common Stock in April 1995. Mr. Blackmore sold 2,000 shares in January
1997. Mr. Blackmore has been attributed with 3,818 shares which he is to
receive pursuant to his Severance Agreement and Mutual Release with the
Company.
(8) Mr. Carbone, the Company's former Chief Financial Officer and Vice
President, received an award of restricted Common Stock (the "Restricted
Stock") equal to 0.75% of the Company's Total Committed Equity under the
Incentive Equity Plan, estimated to be 30,076 shares of Restricted Stock.
Mr. Carbone received an award of deferred Common Stock (the "Deferred
Stock") equal to 0.04% of the Company's Total Committed Equity under the
Incentive Equity Plan, estimated to be 1,604 shares, contingent upon (i)
the average price per share of the Common Stock during the six-month period
from March 11, 1995 to September 11, 1995 being at least $3.93 and (ii) Mr.
Carbone being in the employ of the Company on September 11, 1995. The
Compensation Committee of the Board of Directors accelerated the vesting of
the Deferred Stock and such shares were issued to Mr. Carbone on January
18, 1995. Mr. Carbone has been attributed with 2,288 shares of Common Stock
pursuant to his participation in the Company's 401(k) Savings Plan in which
the Company matches a portion of an employee's contribution. InnVestors
Limited, of which Mr. Carbone was President and is a shareholder, received
14,758 shares of Common Stock for an unsecured Claim under the Plan of
Reorganization. Mr. Carbone also purchased 2,000 shares of Common Stock.
32
<PAGE> 36
(9) In September 1992, each non-employee director of the Company was granted a
stock option to purchase 7,500 shares of Common Stock equal to 0.1875% of
the Company's Total Committed Equity. The options are exercisable to the
extent of 10% of the shares of Common Stock covered by the grant after the
optionee has served continuously as a director of the Company for six
months and to the extent of an additional 10% of such shares after each of
the next nine successive six month periods of continuous service;
therefore, 6,750 shares of Common Stock underlying this stock option are
attributable to each non-employee director (except Mr. Gothier, who has
exercised his option to purchase 3,750 shares, leaving an option to
purchase 3,000 shares exercisable within 60 days), because such shares will
be exercisable within 60 days based on the commencement of each director's
term on September 11, 1992. In addition, on December 1, 1995, each director
was granted an option to purchase 2,000 shares of Common Stock, with an
exercise price equal to $17.25 and a vesting period of the earlier of one
year or the period from the date of the grant to the next annual meeting of
shareholders. On May 23, 1996, each director was granted an option to
purchase 2,000 shares of Common Stock, with an exercise price of $21.25 and
a vesting period of the earlier of one year or the period from the date of
the grant to the next annual meeting of shareholders. All such shares
underlying the foregoing options are attributed to each non-employee
director because such shares are exercisable or will be exercisable within
60 days.
(10) This amount includes (a) 300 shares of Common Stock purchased by Mr.
Gothier through his Individual Retirement Account, (b) 2,375 shares of
Common Stock purchased by RVG Management and Development Company, of which
Mr. Gothier is President and a shareholder, (c) 1,108 shares of restricted
Common Stock granted to Mr. Gothier pursuant to his participation in the
Company's Non-Employee Director Restricted Stock Plan, in which he received
such shares in lieu of director's fees and (d) 3,750 shares purchased by
Mr. Gothier through the exercise of a stock option.
(11) Mr. Madigan received an award of restricted Common Stock on December 1,
1995 and December 1, 1996 (the "1996 Award"), each in the amount of 2,000
shares under the Incentive Equity Plan, each of which will vest equally
over a three year period from the date of grant. Mr. Madigan elected to
defer the receipt of the shares subject to the 1996 Award, which were
instead issued to the Trustee for his benefit. This amount also includes
316 shares of restricted Common Stock granted to Mr. Madigan pursuant to
his participation in the Company's Non-Employee Director Restricted Stock
Plan, in which he received such shares in lieu of director's fees.
(12) This amount includes 605 shares of restricted Common Stock granted to Mr.
Neilan pursuant to his participation in the Company's Non-Employee Director
Restricted Stock Plan, in which he received such shares in lieu of
director's fees.
(13) This amount includes (a) 5,788 shares of Common Stock received by Oberer
Development Company, of which Mr. Oberer is President and a shareholder,
for an unsecured claim under the Company's Plan of Reorganization, (b)
14,000 shares of Common Stock held by Mr. Oberer, individually, and (c)
1,525 shares of restricted Common Stock granted to Mr. Oberer pursuant to
his participation in the Company's Non-Employee Director Restricted Stock
Plan, in which he received such shares in lieu of director's fees.
(14) This amount includes (a) 2,500 shares of Common Stock held by Mr. Pollack,
individually, and (b) 1,536 shares of restricted Common Stock granted to
Mr. Pollack pursuant to his participation in the Company's Non-Employee
Director Restricted Stock Plan, in which he received such shares in lieu of
director's fees.
(15) This amount includes (a) 10,000 shares of Common Stock held by Mr.
Schwartz, individually, and (b) 1,725 shares of restricted Common Stock
granted to Mr. Schwartz pursuant to his participation in the Company's
Non-Employee Director Restricted Stock Plan, in which he received such
shares in lieu of director's fees.
(16) This amount includes 806 shares of restricted Common Stock granted to Mr.
Wedren pursuant to his participation in the Company's Non-Employee Director
Restricted Stock Plan, in which he received such shares in lieu of
director's fees.
(17) This amount includes (a) 36,000 shares of Common Stock held by Mr. Weiler's
wife and (b) 1,187 shares of restricted Common Stock granted to Mr. Weiler
pursuant to his participation in the
33
<PAGE> 37
Company's Non-Employee Director Restricted Stock Plan, in which he received
such shares in lieu of director's fees.
(18) This amount includes shares individually held by the directors and
executive officers listed in this chart excluding Messrs. Blackmore and
Carbone, former executive officers. This amount also includes shares held
by or attributed to Patrick M. Holder and Michael F. Sosh, executive
officers of the Company. Mr. Holder received 175,000 shares of Restricted
Stock in connection with the Company's acquisition of Lexford Properties,
of which 125,000 shares are subject to forfeiture if the Company's net
income from property management operations does not achieve certain
specified increases during the three full fiscal years ending with the
Company's 1999 fiscal year.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Company's Common Stock, to
file initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5) of Common Stock of the Company
with the Securities and Exchange Commission (the "SEC"). Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all such forms they file.
To the Company's knowledge, based on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no additional forms were required for those persons, the Company believes that
during the previous fiscal year, all filing requirements applicable to its
officers, directors, and greater than 10% beneficial owners were complied with
except as follows. In August 1996, Patrick M. Holder received shares of
restricted Common Stock in connection with the Company's acquisition of Lexford
Properties, Inc., some of which shares are subject to forfeiture, and the
appropriate Form 4 was not filed on his behalf within the required time period.
Effective January 1997, options were granted to Michele R. Souder and Ronald P.
Koegler and the appropriate Form 4 was not filed on their behalf within the
required time period because the option grants were automatically effective on
January 1, 1997 subject to subsequent confirmation of the Company's 1996 fiscal
year financial results. Form 4 for Mr. Holder was filed promptly after the
failure to file such form was discovered. Forms 4 for Mr. Koegler and Ms. Souder
were filed promptly following the completion of the Company's audited 1996
financial statements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph E. Madigan, Chairman of the Company's Board of Directors, received a
retainer in 1996 of $4,000 per month (which amount was increased in December
1996 to $5,000 per month). Mr. Madigan also received in December 1996, and will
receive annually during his tenure as chairman, an award of 2,000 shares of
restricted Common Stock, one-third of which shares vest annually over a three
year period. Mr. Madigan elected to defer receipt of the shares of Common Stock,
which were issued to the Trustee for Mr. Madigan's benefit.
H. Jeffrey Schwartz, director of the Company, is a partner in the law firm
of Benesch, Friedlander, Coplan & Aronoff LLP, which serves as outside legal
counsel to the Company.
Robert J. Weiler, a director of the Company, is a principal of Americana
Investment Company, the lessor of the building housing the Company's principal
executive offices. Mr. Weiler did not participate in the Company's decision to
select its office space or in the lease negotiations. Management believes that
the lease
34
<PAGE> 38
terms for the Company's executive offices are competitive with commercial lease
rates in the Columbus, Ohio market. The annual lease payments are as follows:
<TABLE>
<S> <C>
1997 (thru 10/31) $282,580 ($6.50/sq.ft.)
</TABLE>
AUDITORS
The Company selected Ernst & Young, LLP, formerly known as Kenneth
Leventhal & Company, as independent auditors for the 1997 fiscal year.
Representatives of Ernst & Young, LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if they desire to do so, and will
be available to answer questions.
OTHER BUSINESS
In addition to the matters described above, John B. Bartling, Jr. Chief
Executive Officer and President of the Company, will address the shareholders
and answer questions.
Management knows of no other business to be presented for action at the
meeting. If other matters properly come before the meeting or any adjournment or
postponements thereof, the shareholders in attendance and the persons named as
proxies, using their best judgment, will vote upon such matters.
SHAREHOLDER PROPOSALS
All shareholder proposals for the Company's 1998 Annual Meeting of
Shareholders must be received in writing by the Secretary of the Company at 6954
Americana Parkway, Reynoldsburg, Ohio 43068 no later than December 17, 1997.
ANNUAL REPORT
A copy of the Company's Annual Report to shareholders for the 1996 fiscal
year, which contains Consolidated Financial Statements of the Company and its
subsidiaries, is being sent simultaneously to shareholders as of the Record
Date.
By Order of the Board of Directors,
LOGO
Jeffrey D. Meyer,
Secretary
Dated: [ , 1997]
35
<PAGE> 39
ANNEX A
1997 PERFORMANCE EQUITY PLAN
OF
CARDINAL REALTY SERVICES, INC.
1. PURPOSE OF THE PLAN. This 1997 Performance Equity Plan of Cardinal
Realty Services, Inc. adopted this 14th day of May, 1997, subject to shareholder
approval, is a performance based program intended to provide and promote a unity
of interests with the Company's shareholders by rewarding certain officers and
directors of the Company and Lexford for attaining specific performance goals
based on earnings growth and enhanced shareholder value. The opportunity so
provided is intended to foster in Participants an incentive to put forth maximum
effort for the continued success and growth of the Company and its subsidiaries
and to aid in retaining individuals who put forth such efforts.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Adjusted EBITDA" means, with respect to any calendar year, the
amount of the Company's earnings before interest, taxes, depreciation and
amortization determined in accordance with GAAP, with the following
adjustments (all are determined in accordance with GAAP): (a) non-recurring
items (which, for purposes of the Plan, include any expenses related to the
grant or vesting of Awards) shall be disregarded (to the extent such items
are otherwise included); (b) earnings shall nonetheless be reduced by
mortgage interest accruing on loans secured by real property assets
included in the Company's consolidated balance sheet (to the extent such
interest is otherwise included); and (c) with respect to any of the
Company's consolidated real estate assets, or interests therein, sold by
the Company after December 31, 1996, the net sale proceeds resulting from
the sale of any of such assets or any equity interest therein shall be
added to the Company's earnings over a five-year period, beginning with the
year of the sale, on a basis providing level amortization of such proceeds
(inclusive of imputed interest thereon) over such five-year period using
the Company's cost of capital in the year of sale as the imputed interest
rate. For purposes of the immediately preceding clause (c), the Company's
"cost of capital" applicable to any sales proceeds will equal the weighted
average cost of capital on the Company's debt and equity as determined by
the Company in the normal course of business. The Committee has the
discretionary authority to interpret and administer this provision in an
equitable manner, consistent with the purposes of the Plan.
2.2 "Average Share Price" means a 20 day average of the Share Price
determined based upon the number of business days during such 20 day period
and, for any business day for which no sales in the respective Shares are
reported, Fair Market Value for such business day shall be assumed to be
the value on the next preceding business day for which sales are reported.
2.3 "Award" means a Restricted Stock Award.
2.4 "Board" means the Board of Directors of Cardinal Realty Services,
Inc.
2.5 "Change in Control" means the occurrence of one of the following
events:
(a) the Company merges itself into, or is merged or consolidated
with, another corporation and as a result of such merger or
consolidation less than sixty percent (60%) of the outstanding voting
securities of the surviving or resulting corporation are owned in the
aggregate by the former shareholders of the Company as the same shall
have existed immediately prior to such merger or consolidation;
(b) the Company shall sell or transfer to one or more persons,
corporations or entities, in a single transaction or a series of related
transactions, more than one-half of the assets of the Company unless by
an affirmative vote of two-thirds of the members of the Board, the
transaction or transactions are exempted from the operation of this
provision based on a good faith finding that the transaction or
transactions are not within the intended scope of this definition for
purposes of this Plan;
A-1-1
<PAGE> 40
(c) a "person" (within the meaning of Section 3(a)(9) or Section
13(d)(3) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Exchange Act Rule 13d-3), of forty percent (40%) or more of
the outstanding voting securities of the Company; or
(d) any shareholder of the Company shall nominate a person to the
Board, which nominee shall be elected to the Board without receiving the
prior endorsement of the Board.
2.6 "Code" means the Internal Revenue Code of 1986, as in effect at
the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and reference to any specific provisions of the
Code shall refer to the corresponding provisions of the Code as it may
hereafter be amended or replaced.
2.7 "Committee" means the Compensation Committee of the Board or any
other committee appointed by the Board which is invested by the Board with
responsibility for the administration of the Plan and whose members meet
the requirements for eligibility to serve as set forth in Exchange Act Rule
16b-3 and in the Plan.
2.8 "Company" means Cardinal Realty Services, Inc.
2.9 "Company Shares" means shares of the Company's common stock.
2.10 "ERISA" means the Employee Retirement Income Security Act of
1974, as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of ERISA shall refer to the corresponding provisions of ERISA as
it may hereafter be amended or replaced.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as in
effect at the time of reference, or any successor law which may hereafter
be adopted in lieu thereof, and any reference to any specific provisions of
the Exchange Act shall refer to the corresponding provisions of the
Exchange Act as it may hereafter be amended or replaced.
2.12 "Fair Market Value" means, with respect to the Shares, the
closing price of such Shares on the New York Stock Exchange, Inc. or other
national securities exchange or interdealer quotation system, on the last
business day prior to the date on which the value is to be determined, as
reported in the Wall Street Journal or such other source of quotations for,
or report of trading of, the Shares as the Committee may reasonably select
from time to time; provided, however, if the Shares are not then traded on
such an exchange or interdealer quotation system, but are then traded on
the over-the-counter market, Fair Market Value means the mean between the
high and the low bid and asked prices for the Shares on the
over-the-counter market on the last business day prior to the date on which
the value is to be determined (or the next preceding day on which sales
occurred if there were no sales on such date).
2.13 "GAAP" means generally accepted accounting principles,
consistently applied.
2.14 "Initial Baseline" means the baseline standards against which the
1997 Performance Goals are measured. The Initial Baseline for measuring the
1997 Adjusted EBITDA Performance Goal shall be Adjusted EBITDA for the 1996
calendar year. The Initial Baseline for measuring the Share Price
Performance Goal shall be the Fair Market Value of a Company Share on the
date the Plan is approved by the Company's shareholders.
2.15 "Lexford" means Lexford Properties, Inc., a wholly owned
subsidiary of the Company.
2.16 "Participant" means each officer of the Company or Lexford and
each non-employee director identified as eligible for participation in the
Plan as set forth on Exhibit A. In addition, the term Participant includes
any individual who becomes eligible to participate in the Plan pursuant to
Section 5.
2.17 "Performance Year" or "Performance Years" means the 12 month
fiscal year of the Company ending December 31, 1997 and the two succeeding
years ending December 31, 1998 and December 31, 1999.
A-1-2
<PAGE> 41
2.18 "Performance Goal" or "Performance Goals" means the Share Price
and the Adjusted EBITDA targets as set forth in Section 6.4 which must be
satisfied in order for Participants to vest in any Awards associated with
such Performance Year as described in Section 6.4 and the Restricted Stock
Award Agreements.
2.19 "Plan" means the 1997 Performance Equity Plan of Cardinal Realty
Services, Inc.
2.20 "Rabbi Trust" means the Cardinal Realty Services, Inc. Executive
Deferred Compensation Rabbi Trust.
2.21 "Restricted Stock Award" means the right to receive Company
Shares, but subject to forfeiture and/or other restrictions set forth in
the related Restricted Stock Award Agreement and the Plan.
2.22 "Restricted Stock Award Agreement" means a written agreement in
such form as may be hereafter approved by the Committee, which shall be
duly executed by the Company and the Participant and which shall set forth
the terms and conditions of a Restricted Stock Award under the Plan.
2.23 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at the
time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.24 "Shares" means the Company Shares and/or any other securities of
the Company or any other issuer which may hereafter become the subject of
Restricted Stock Awards in accordance with the provisions of Section 13.
2.25 "Share Price" means the Fair Market Value of a Company Share at
the relevant time.
2.26 "Successor" means the legal representative of the estate of a
deceased Participant or the person or persons who shall acquire the right
to receive a Restricted Stock Award by bequest or inheritance or by reason
of the death of the Participant.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
issuance of Restricted Stock Awards granted under the Plan, an aggregate of
three hundred eighteen thousand (318,000) Company Shares issued by the Company.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than two (2) Non-Employee Directors as defined
in Rule 16b-3. Subject to the provisions of the Plan, the Committee shall have
full authority, in its discretion, to determine the officers and directors of
the Company and Lexford to whom Restricted Stock Awards shall be granted, the
number of Company Shares to be covered by each of the Restricted Stock Awards,
and the terms of any such Award; to interpret the Plan; to prescribe, amend, and
rescind rules and regulations relating to the Plan, and generally to interpret
and determine any and all matters whatsoever relating to the administration of
the Plan. The Board may from time to time appoint members to the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a quorum.
Any action of the Committee may be taken by a written instrument signed by all
of the members, and any action so taken shall be fully as effective as if it had
been taken by a vote of a majority of the members at a meeting duly called and
held. The Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable and shall appoint a Secretary who shall keep
minutes of its meetings and records of all action taken in writing without a
meeting. No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his or her service on the
Committee.
5. OFFICERS AND DIRECTORS TO WHOM RESTRICTED STOCK AWARDS MAY BE GRANTED.
The officers and directors initially eligible for participation in the Plan
and the levels of their Awards are set forth in Exhibit A. In the event that an
individual becomes a non-employee director of the Company after
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<PAGE> 42
the date hereof, that individual will automatically become a Participant and
shall receive a grant of Awards at the level of the initial non-employee
director Participants, adjusted to reflect the portion of the Performance Years
during which the individual did not serve as a director as equitably determined
by the Committee at its discretion; provided, however, that such Awards shall
only be made to the extent that the Company Shares reserved under Section 3,
including any previously awarded Company Shares forfeited back to the Company,
are sufficient to enable the Awards. After the date hereof, the Committee, at
its discretion, may identify additional officers as eligible to be Participants
hereunder and may make additional Awards to officers at the levels determined by
the Committee taking into account the recommendations of the Company's
management as to the duties and potential contribution of the respective
individuals; provided, however, that: (a) the Committee shall not make any
additional Awards under this sentence to any individual officer identified on
Exhibit A unless the Committee, at its discretion, determines that such
additional Awards are an appropriate response to a significant increase in the
individual's duties and responsibilities to the Company; and (b) such Awards
shall only be made to the extent that the Company Shares reserved under Section
3, including any previously awarded Company Shares forfeited back to the
Company, are sufficient to enable the Awards.
6. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under the Plan
will vest upon the achievement of the Performance Goals described in Section
6.4. Restricted Stock Awards shall be granted in accordance with, and subject
to, the provisions set forth below.
6.1 Issuance of Shares. Each Restricted Stock Award shall be
evidenced by a Restricted Stock Award Agreement which shall set forth the
number of Company Shares granted under the Restricted Stock Award. Subject
to the restrictions in Section 6.3 of the Plan, and set forth in the
related Restricted Stock Award Agreement, the number of Company Shares
granted under a Restricted Stock Award shall be issued in the recipient
Participant's name on the date of grant of such Restricted Stock Award or
as soon as reasonably practicable thereafter.
6.2 Rights of Participants. Shares granted pursuant to Restricted
Stock Awards shall be transferred to the Participant, and a certificate or
certificates for such Shares shall be issued in the Participant's name.
Subject to the restrictions in Section 6.3 of the Plan, and set forth in
the related Restricted Stock Award Agreement, the Participant shall
thereupon be a shareholder with respect to all the Shares represented by
such certificate or certificates and shall have all the rights of a
shareholder with respect to such Shares, including the right to vote such
Shares and to receive dividends and other distributions paid with respect
to such Shares, subject to the restrictions and risks of forfeiture set
forth in the Plan. The certificate or certificates for Shares awarded
hereunder, together with a suitably executed stock power signed by such
Participant, shall be held by the Company in its control for the account of
such Participant:
(i) until the restrictions in Section 6.3 of the Plan and in the
related Restricted Stock Award Agreement lapse pursuant to the Plan, at
which time a certificate for the appropriate number of Shares; in each
case, free of all restrictions imposed by the Plan or the Restricted
Stock Award Agreement shall be delivered to the Participant, subject to
the provisions of Section 8 and Section 9; or
(ii) until such Shares are forfeited and cancelled as described in
Section 6.3 and in the related Restricted Stock Award Agreement.
6.3 Restrictions. Each Share issued pursuant to a Restricted Stock
Award Agreement shall be subject to the following restrictions until such
restrictions have lapsed pursuant to Section 6.4 of the Plan:
(a) Disposition. The Shares awarded to a Participant and held by
the Company pursuant to Section 6.2, and the right to vote such Shares
or receive dividends on such Shares, may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of; provided,
however, that such Shares may be transferred upon the death of the
Participant to the Participant's Successor. Any transfer or purported
transfer of Shares in violation of the restrictions outlined in this
Section 6.3 shall be null and void and shall result in the forfeiture of
the Company Shares transferred or purportedly transferred to the Company
without notice and without consideration.
A-1-4
<PAGE> 43
(b) Forfeiture. Any Shares awarded to a Participant under a
Restricted Stock Award and held by the Company pursuant to Section 6.2
of the Plan shall be forfeited without notice and without consideration
therefor immediately in accordance with the following:
(i) if a Participant is an officer and the Participant's
employment with the Company or Lexford is terminated, the Shares
shall forfeit as provided in the Participant's Restricted Stock Award
Agreement;
(ii) if the Participant is a non-employee director of the
Company and ceases to be a director, the Shares shall forfeit as
provided in the Participant's Restricted Stock Award Agreement; and
(iii) all Participants will forfeit all Shares granted to them
under Restricted Stock Award Agreements with respect to any Shares
that remain non-vested after the end of the final Performance Year.
Any Company Shares forfeited under the Plan shall be returned to the
Company and shall be available for additional Awards under Section 5.
Any dividends previously paid with respect to any forfeited Shares shall
also be forfeited and returned with the Shares so forfeited.
6.4 VESTING OF RESTRICTED STOCK.
(a) The restrictions on Shares set forth in Section 6.3 shall
lapse, and certificates for such Shares held for the Participant in
accordance with Section 6.2 shall be distributed to the Participant as
described in this Section 6.4. The Performance Goals for the Awards
associated with each Performance Year, expressed as a percentage of the
Initial Baselines, are as follows:
SHARE PRICE AND ADJUSTED EBITDA PERFORMANCE GOALS
AS A PERCENTAGE OF THE INITIAL BASELINES
<TABLE>
<CAPTION>
LEVEL I LEVEL II
------- --------
<S> <C> <C>
1997 Performance Year........................... 112.00% 118.00%
1998 Performance Year........................... 132.16% 139.24%
1999 Performance Year........................... 155.95% 164.30%
</TABLE>
(b) The amount of Awards that vest for a Performance Year is
determined by comparing the Average Share Price over the last 20 days of
such year and Adjusted EBITDA for such year with the Performance Goals
indicated in Section 6.4 (a) above. If either of the Performance Goals
for a level of vesting is achieved, the number of Shares awarded with
respect to attainment of such Performance Goal shall vest as soon as
practicable following the end of the Performance Year used in
determining the Share Price or Adjusted EBITDA, as the case may be.
Satisfaction of a Performance Goal for a Performance Year at Level I or
Level II results in the vesting of non-vested Awards associated with any
prior Performance Year. If the Average Share Price over the last 20 days
of a Performance Year or Adjusted EBITDA for such Performance Year
equals or exceeds one or more of the Level I and/or Level II Performance
Goals for a subsequent Performance Year, the Awards associated with
achievement of such Performance Goals shall vest as soon as practicable
following the end of the Performance Year as of which such Share Price
and/or Adjusted EBITDA, as the case may be, is measured.
7. CHANGE IN CONTROL.
(a) Notwithstanding anything in this Plan to the contrary, upon a
Change in Control during any Performance Year, each Participant will vest
in Shares in accordance with the following. These provisions shall apply to
any Participant who is employed by the Company or Lexford at the time of
the Change in Control, as well as to any Participant who is terminated in
anticipation of the Change in Control, as determined by the Committee, and
any non-employee directors of the Company who are serving as directors at
the time of the Change in Control.
A-1-5
<PAGE> 44
(b) Upon a Change in Control, each Participant shall immediately vest
in the non-vested Shares associated with any Performance Year, but only if
the Share Price as of the date of the Change in Control equals or exceeds
the Share Price Performance Goal associated with such Awards; provided,
however, that if the Change in Control occurs in 1997 or 1998, the
Performance Goals for 1999 (both Level I and Level II) shall be deemed
satisfied if the Share Price as of the date of the Change in Control equals
or exceeds 110% of the Level II Share Price Performance Goal for 1998
(i.e., 153.16% of the Share Price Initial Baseline).
(c) A Participant will vest in Shares as described in this Section 7,
regardless of whether the Participant continues with the Company or any
successor to the Company as an employee or director.
8. DEFERRAL OF COMPANY SHARES INTO RABBI TRUST. Within ten (10) days of
the approval of this Plan by the shareholders of the Company and prior to the
issuance of any Shares under the Plan, each Participant may make a written
election to defer the Shares that would otherwise be transferred to him or her
upon the vesting of such Shares pursuant to Section 6 and/or Section 7 of the
Plan. Such election shall be binding upon such Participant with respect to all
Shares he or she would be entitled to receive upon attainment of the Performance
Goals as described in Sections 6 and 7 except that any election to receive
shares is subject to the provisions of Section 9. If the Participant elects to
defer receipt of Shares, such Shares shall be contributed to the Rabbi Trust and
held for his or her benefit under the terms of the Rabbi Trust until the
Participant's termination of employment with the Company or Lexford or the
cessation of the Participant's non-employee directorship, as the case may be,
subject to forfeiture under Section 6.3(b). Cash dividends payable with respect
to any Shares subject to an Award under the Plan shall be automatically deferred
into the Rabbi Trust, invested under the terms thereof and, to the extent not
forfeited under Section 6.3(b), distributed at such time as the Shares in
respect of which such dividends are payable become taxable to the individual.
9. CODE SECTION 162(m) LIMITATION. Notwithstanding anything in this Plan
to the contrary, to the extent that Code Section 162(m) would operate to limit
the Company's federal income tax deduction for remuneration with respect to a
Participant, resulting in federal income tax liability to the Company, receipt
of Shares shall be deferred into the Rabbi Trust until Section 162(m) no longer
operates to result in such federal income tax liability to the Company. The
determination of whether Code Section 162(m) operates to limit the Company's
deduction in a manner resulting in federal income tax liability to the Company
will be determined by the Committee. Payment of the deferred Shares shall occur
in the following calendar year (or, if necessary, each subsequent calendar year)
to the extent such payment, when added to other remuneration subject to the
Section 162(m) limit for such year, does not result in federal income tax
liability to the Company. In administering the deferral mechanism of this
Section 9, the determinations by the Committee shall be final; however, the
Committee shall act promptly in making its determinations hereunder and shall
not unnecessarily delay transfer of the Shares. Shares deferred hereunder shall
be fully vested and shall not be forfeited for any reason, including, without
limitation, termination of employment, except as expressly set forth in the
Rabbi Trust.
10. "GROSS-UP" FOR EXCISE TAXES. In the event that any Participant becomes
subject to the excise tax imposed by Code Section 4999 (the "Excise Tax"), the
Company shall pay in cash to the Participant at the time specified below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Participant shall be equal to the amount that would have been retained had
such excise tax not applied, as determined below.
The following shall govern the determination of the amount of the cash
payment described above:
(i) any other payments or benefits received or to be received by the
Participant in connection with a "change in control" of the Company (as
defined in Code section 280G) shall be treated as "parachute payments"
within the meaning of section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of the
Company's independent auditors, such other payments or benefits (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the
Code,
A-1-6
<PAGE> 45
(iii) For purposes of determining the amount of the Gross-Up Payment,
the Participant shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of the
Participant's residence upon the change in control, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
The amount of any Gross-Up Payment shall be paid to the Participant at the
time of the Change in Control. If the Participant has elected to defer receipt
of all Shares into the Rabbi Trust pursuant to Section 8, such deferral shall
also apply to any Gross-Up Payment. In the event that the Excise Tax is
subsequently determined by the Company's independent auditors to be less than
the amount taken into account hereunder at the time of the Change in Control,
the Participant shall repay to the Company the excess portion of the Gross-Up
Payment plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. If the Gross-Up Payment was deferred into the
Rabbi Trust as described above, any return of any portion of the Gross-Up
Payment shall be made from the Rabbi Trust. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
Change in Control, (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
11. RIGHTS OF AWARD HOLDER. Participants shall not have any of the rights
of a shareholder with respect to the Shares granted in a Restricted Stock Award
except as described in Sections 6.2 and 6.3.
12. NONTRANSFERABILITY OF RESTRICTED STOCK AWARDS. A Restricted Stock
Award shall not be transferable other than: (a) by will or the laws of descent
and distribution, or (b) pursuant to a qualified domestic relations order, as
defined in the Code or ERISA or the rules thereunder.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in
all of the outstanding Company Shares by reason of stock dividends, stock
splits, reclassifications, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations, reorganizations or
liquidations, or similar events, or in the event of extraordinary cash or
non-cash dividends or distributions being declared with respect to the Shares,
or similar transactions or events, the number and class of Shares available
under the Plan in the aggregate, the number and class of Shares which remain and
become subject to Restricted Stock Awards theretofore granted including, without
limitation, property (including cash) or securities distributed in respect of
Shares theretofore the subject of Restricted Stock Awards which have not yet
vested, and all other applicable provisions (including, without limitation, the
provisions of Section 6.4 regarding the Performance Goals), shall, subject to
the provisions of the Plan, be equitably adjusted by the Committee. The
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee, in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Award. Any property (including cash) or
securities distributed in respect of Shares theretofore the subject of
Restricted Stock Awards which have not vested shall become part of the Awards,
subject to the restrictions otherwise applicable to Company Shares and shall not
result in a direct distribution of the dividend to the Participant.
14. FORMS OF RESTRICTED STOCK AWARDS. Nothing contained in the Plan nor
any resolution adopted or to be adopted by the Board or by the shareholders of
the Company shall constitute the granting of any Restricted Stock Award. An
Award shall be granted hereunder only by action taken by the Committee. Upon the
Committee's designation of an officer or director for the receipt of a
Restricted Stock Award, the Company's secretary, or such other person as the
Committee may designate, shall forthwith send notice thereof to the appropriate
individual, in such form as the Committee shall approve, stating the number of
Company Shares subject to the Restricted Stock Award, and the other terms and
conditions thereof. The notice shall be accompanied by a Restricted Stock Award
Agreement, which shall have been duly executed by or on behalf of the Company.
Execution by the individual to whom such Award is granted of said Restricted
Stock Award
A-1-7
<PAGE> 46
Agreement in accordance with the provisions set forth in this Plan shall be a
condition precedent to the receipt of any Award.
15. RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the right to
require a Participant who vests in Shares under the Plan to pay the Company the
amount of any taxes which the Company is or will be required to withhold with
respect to such Shares before the certificates for such Shares is delivered to
the Participant in accordance with the terms of this Plan and the Restricted
Stock Award Agreement. Furthermore, the Company may elect to deduct such taxes
from any other amounts then payable in cash or in Shares or from any other
amounts payable any time thereafter to the Participant.
16. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
shareholders of the Company shall be made if shareholder approval under the
rules of the national securities exchange on which the Company Shares are then
listed or Exchange Act Rule 16b-3 would be required. Notwithstanding the
authority granted to the Committee in Section 4 of the Plan, no amendment of the
Plan or any Restricted Stock Award granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Restricted
Stock Award theretofore granted under the Plan.
17. DELIVERY OF SHARES. Delivery of certificates for Shares pursuant to
the vesting of a Restricted Stock Award may be postponed by the Company for such
period as may be required for it to exercise reasonable diligence to comply with
any applicable requirements of any federal, state or local law or regulation or
any administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Participant to furnish the Company with appropriate
representations and a written investment letter prior to the delivery of any
Shares pursuant to an Award.
18. FEES AND COSTS. The Company shall pay all original issue taxes on the
issuance of any Restricted Stock Award granted under the Plan and all other fees
and expenses necessarily incurred by the Company in connection therewith.
19. EFFECTIVENESS OF THE PLAN. The Plan was previously approved by the
Board subject to the approval of the Committee and the ratification of the
Executive Committee of the Board. The Committee approved the Plan and, on May
14, 1997, the Executive Committee of the Board ratified the approval. The Plan
shall be submitted to the Company's shareholders at the next annual meeting and
unless the Plan is approved by the affirmative votes of the holders of shares
having a majority of the voting power of all Company Shares issued and
outstanding, excluding, however, issued and outstanding Company Shares held by
any person listed on Exhibit A hereto or nominated for election as a
non-employee director at such meeting, the Plan shall terminate and no
Restricted Stock Awards shall be granted thereunder.
20. OTHER PROVISIONS. As used in the Plan, and in Restricted Stock Award
Agreements, and other documents prepared in implementation of the Plan,
references to the masculine pronoun shall be deemed to refer to the feminine or
neuter, and references in the singular or the plural shall refer to the plural
or the singular, as the identity of the person or persons or entity or entities
being referred to may require. The captions used in the Plan and in such Awards
and other documents prepared in implementation of the Plan are for convenience
only and shall not affect the meaning of any provision hereof or thereof.
21. OHIO LAW TO GOVERN. This Plan shall be governed by and construed in
accordance with the laws of the State of Ohio.
A-1-8
<PAGE> 47
EXHIBIT A
The awards of Company Shares associated with each of the three Performance
Years are as follows:
<TABLE>
<CAPTION>
LEVEL I LEVEL II
------------ ------------
<S> <C> <C>
Mr. Bartling.............................................. 10,000 Shs. 14,000 Shs.
Mr. Thompson.............................................. 7,000 Shs. 9,000 Shs.
Mr. Koegler............................................... 2,000 Shs. 3,500 Shs.
Mr. Sosh.................................................. 2,000 Shs. 3,500 Shs.
Ms. Souder................................................ 2,000 Shs. 3,500 Shs.
Each Non-Employee Director*............................... 2,000 Shs. 3,500 Shs.
</TABLE>
- ---------------
* Mr. Madigan, Mr. Neilan, Mr. Weiler, Mr. Gothier, Mr. Pollack, Mr. Schwartz,
Mr. Oberer, and Mr. Wedren.
A-1-9
<PAGE> 48
[DIRECTOR]
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (the "Agreement") is made as of the
day of , 1997 between CARDINAL REALTY SERVICES, INC., an Ohio
corporation (the "Company"), and , a director of the Company (the
"Participant").
WHEREAS, the Company has heretofore adopted the 1997 Performance Equity
Plan of Cardinal Realty Services, Inc. (the "Plan"); and
WHEREAS, it is a requirement of the Plan that a Restricted Stock Award
Agreement be executed to evidence the Restricted Stock Award granted to the
Participant.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto have
agreed, and do hereby agree, as follows:
2. GRANT OF AWARD. The Company hereby grants to the Participant a
Restricted Stock Award of an aggregate of ( ) shares of the common
stock, with no par value, of the Company ("Shares") on the terms and conditions
set forth herein.
3. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under the Plan
will vest upon the achievement of the Performance Goals described in Section
3.4. Restricted Stock Awards shall be granted in accordance with, and subject
to, the provisions set forth below.
3.1 Issuance of Shares. Subject to the restrictions in Section 6.3 of
the Plan, and set forth in this Agreement, the number of Company Shares
granted under a Restricted Stock Award shall be issued in the recipient
Participant's name on the date of grant of such Restricted Stock Award or
as soon as reasonably practicable thereafter.
3.2 Rights of Participants. Shares granted pursuant to Restricted
Stock Awards shall be transferred to the Participant, and a certificate or
certificates for such Shares shall be issued in the Participant's name.
Subject to the restrictions in Section 6.3 of the Plan, the Participant
shall thereupon be a shareholder with respect to all the Shares represented
by such certificate or certificates and shall have all the rights of a
shareholder with respect to such Shares, including the right to vote such
Shares and to receive dividends and other distributions paid with respect
to such Shares, subject to the restrictions and risks of forfeiture set
forth in the Plan. The certificate or certificates for Shares awarded
hereunder, together with a suitably executed stock power signed by such
Participant, shall be held by the Company in its control for the account of
such Participant:
(i) until the restrictions in Section 6.3 of the Plan and in this
Agreement lapse pursuant to the Plan, at which time a certificate for
the appropriate number of Shares; in each case, free of all restrictions
imposed by the Plan or this Agreement shall be delivered to the
Participant, subject to the provisions of Section 5 and Section 6; or
(ii) until such Shares are forfeited and cancelled as described in
Section 6.3 of the Plan and in this Agreement.
3.3 Restrictions. Each Share issued pursuant to this Agreement shall
be subject to the following restrictions until such restrictions have
lapsed pursuant to Section 6.4 of the Plan:
(a) Disposition. The Shares awarded to a Participant and held by
the Company pursuant to Section 6.2 of the Plan, and the right to vote
such Shares or receive dividends on such Shares, may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of;
provided, however, that such Shares may be transferred upon the death of
the Participant to the Participant's Successor. Any transfer or
purported transfer of Shares in violation of the restrictions outlined
in this Section 3.3 shall be null and void and shall result in the
forfeiture of the Company Shares transferred or purportedly transferred
to the Company without notice and without consideration.
A-2-1
<PAGE> 49
(b) Forfeiture. Any Shares awarded to a Participant under a
Restricted Stock Award and held by the Company pursuant to Section 6.2
of the Plan shall be forfeited without notice and without consideration
therefor immediately in accordance with the following:
(i) if the Participant ceases to be a director, he or she will
vest in Shares based upon performance actually achieved for the
Performance Year of such cessation in the same proportion as the
number of days the Participant served as a director during the year
bears to the total number of days during the year (to the extent
non-vested Shares do not vest as a result of this provision, such
Shares shall be forfeited); and
(ii) the Participant will forfeit all Shares granted to him or
her under this Agreement with respect to any Shares that remain
non-vested after the end of the final Performance Year.
Any Company Shares forfeited under the Plan shall be returned to the
Company. Any dividends previously paid with respect to any forfeited Shares
shall also be forfeited and returned with the Shares so forfeited.
3.4 Vesting of Restricted Stock.
(a) The restrictions on Shares set forth in Section 3.3 shall
lapse, and certificates for such Shares held for the Participant in
accordance with Section 3.2 shall be distributed to the Participant as
described in this Section 3.4. The Performance Goals for the Awards
associated with each Performance Year, expressed as a percentage of the
Initial Baselines, are as follows:
SHARE PRICE AND ADJUSTED EBITDA PERFORMANCE GOALS
AS A PERCENTAGE OF THE INITIAL BASELINES
<TABLE>
<CAPTION>
LEVEL I LEVEL II
------- --------
<S> <C> <C>
1997 Performance Year...................... 112.00% 118.00%
1998 Performance Year...................... 132.16% 139.24%
1999 Performance Year...................... 155.95% 164.30%
</TABLE>
(b) The amount of Awards that vest for a Performance Year is
determined by comparing the Share Price and Adjusted EBITDA as of the
last day of such year with the Performance Goals indicated in Section
3.4 (a) above. If either of the Performance Goals for a level of vesting
is achieved, the number of Shares awarded with respect to attainment of
such Performance Goal shall vest as soon as practicable following the
end of the Performance Year used in determining the Share Price or
Adjusted EBITDA, as the case may be. Satisfaction of a Performance Goal
for a Performance Year at Level I or Level II results in the vesting of
non-vested Awards associated with any prior Performance Year. If the
Share Price or Adjusted EBITDA as of the last day of a Performance Year
equals or exceeds one or more of the Level I and/or Level II Performance
Goals for a subsequent Performance Year, the Awards associated with
achievement of such Performance Goals shall vest as soon as practicable
following the end of the Performance Year as of which such Share Price
and/or Adjusted EBITDA, as the case may be, is measured.
4. CHANGE IN CONTROL.
(a) Notwithstanding anything in this Plan to the contrary, upon a
Change in Control during any Performance Year, each Participant will vest
in Shares in accordance with the following. These provisions shall apply to
the Participant if he or she is serving as a director at the time of the
Change in Control.
(b) Upon a Change in Control, each Participant shall immediately vest
in the non-vested Shares associated with any Performance Year, but only if
the Share Price as of the date of the Change in Control equals or exceeds
the Share Price Performance Goal associated with such Awards; provided,
however, that if the Change in Control occurs in 1997 or 1998, the
Performance Goals for 1999 (both Level I and Level II) shall be deemed
satisfied if the Share Price as of the date of the Change in Control equals
or
A-2-2
<PAGE> 50
exceeds 110% of the Level II Share Price Performance Goal for 1998 (i.e.,
153.16% of the Share Price Initial Baseline).
(c) A Participant will vest in Shares as described in this Section 4,
regardless of whether the Participant continues to serve as a director.
5. DEFERRAL OF COMPANY SHARES INTO RABBI TRUST. Within ten (10) days of
the approval of this Plan by the shareholders of the Company and prior to the
issuance of any Shares under the Plan, each Participant may make a written
election to defer the Shares that would otherwise be transferred to him or her
upon the vesting of such Shares pursuant to Section 6 and/or Section 7 of the
Plan. Such election shall be binding upon such Participant with respect to all
Shares he or she would be entitled to receive upon attainment of the Performance
Goals as described in Sections 3 and 4 except that any election to receive
shares is subject to the provisions of Section 6. If the Participant elects to
defer receipt of Shares, such Shares shall be contributed to the Rabbi Trust and
held for his or her benefit under the terms of the Rabbi Trust until the
Participant's cessation of his or her directorship, subject to forfeiture under
Section 3.3(b). Cash dividends payable with respect to any Shares subject to an
Award under the Plan shall be automatically deferred into the Rabbi Trust,
invested under the terms thereof and, to the extent not forfeited under Section
3.3(b), distributed at such time as the Shares in respect of which such
dividends are payable become taxable to the individual.
6. CODE SECTION 162(M) LIMITATION. Notwithstanding anything in this Plan
to the contrary, to the extent that Code Section 162(m) would operate to limit
the Company's federal income tax deduction for remuneration with respect to a
Participant, resulting in federal income tax liability to the Company, receipt
of Shares shall be deferred into the Rabbi Trust until Section 162(m) no longer
operates to result in such federal income tax liability to the Company. The
determination of whether Code Section 162(m) operates to limit the Company's
deduction in a manner resulting in federal income tax liability to the Company
will be determined by the Committee. Payment of the deferred Shares shall occur
in the following calendar year (or, if necessary, each subsequent calendar year)
to the extent such payment, when added to other remuneration subject to the
Section 162(m) limit for such year, does not result in federal income tax
liability to the Company. In administering the deferral mechanism of this
Section 6, the determinations by the Committee shall be final; however, the
Committee shall act promptly in making its determinations hereunder and shall
not unnecessarily delay transfer of the Shares. Shares deferred hereunder shall
be fully vested and shall not be forfeited for any reason, except as expressly
set forth in the Rabbi Trust.
7. "GROSS-UP" FOR EXCISE TAXES. In the event that any Participant becomes
subject to the excise tax imposed by Code Section 4999 (the "Excise Tax"), the
Company shall pay in cash to the Participant at the time specified below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Participant shall be equal to the amount that would have been retained had
such excise tax not applied, as determined below.
The following shall govern the determination of the amount of the cash
payment described above:
(i) any other payments or benefits received or to be received by the
Participant in connection with a "change in control" of the Company (as
defined in Code Section 280G) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of the
Company's independent auditors, such other payments or benefits (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the
Code; and
(ii) For purposes of determining the amount of the Gross-Up Payment,
the Participant shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of the
Participant's residence upon the change in control, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
A-2-3
<PAGE> 51
The amount of any Gross-Up Payment shall be paid to the Participant at the
time of the Change in Control. If the Participant has elected to defer receipt
of all Shares into the Rabbi Trust pursuant to Section 5, such deferral shall
also apply to any Gross-Up Payment. In the event that the Excise Tax is
subsequently determined by the Company's independent auditors to be less than
the amount taken into account hereunder at the time of the Change in Control,
the Participant shall repay to the Company the excess portion of the Gross-Up
Payment plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. If the Gross-Up Payment was deferred into the
Rabbi Trust as described above, any return of any portion of the Gross-Up
Payment shall be made from the Rabbi Trust. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
Change in Control, (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
8. RIGHTS OF AWARD HOLDER. Participants shall not have any of the rights
of a shareholder with respect to the Shares granted in a Restricted Stock Award
except as described in Sections 3.2 and 3.3.
9. NONTRANSFERABILITY OF RESTRICTED STOCK AWARDS. A Restricted Stock Award
shall not be transferable other than: (a) by will or the laws of descent and
distribution, or (b) pursuant to a qualified domestic relations order, as
defined in the Code or ERISA or the rules thereunder.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in
all of the outstanding Company Shares by reason of stock dividends, stock
splits, reclassifications, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations, reorganizations or
liquidations, or similar events, or in the event of extraordinary cash or
non-cash dividends being declared with respect to the Shares, or similar
transactions or events, the number and class of Shares available under the Plan
in the aggregate, the number and class of Shares subject to Restricted Stock
Awards theretofore granted, and all other applicable provisions, shall, subject
to the provisions of the Plan, be equitably adjusted by the Committee. The
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee, in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Award.
11. FORMS OF RESTRICTED STOCK AWARDS. Nothing contained in the Plan nor
any resolution adopted or to be adopted by the Board or by the shareholders of
the Company shall constitute the granting of any Restricted Stock Award. An
Award shall be granted only by action taken by the Committee. Upon the
Committee's designation of the Participant for the receipt of a Restricted Stock
Award, the Company's secretary, or such other person as the Committee may
designate, shall forthwith send notice thereof to the Participant, in such form
as the Committee shall approve, stating the number of Company Shares subject to
the Restricted Stock Award, and the other terms and conditions thereof. The
notice shall be accompanied by this Agreement, which shall have been duly
executed by or on behalf of the Company. Execution by the Participant to whom
such Award is granted of this Agreement in accordance with the provisions set
forth in the Plan shall be a condition precedent to the receipt of any Award.
12. RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the right to
require a Participant who vests in Shares under the Plan to pay the Company the
amount of any taxes which the Company is or will be required to withhold with
respect to such Shares before the certificates for such Shares are delivered to
the Participant in accordance with the terms of the Plan and this Agreement.
Furthermore, the Company may elect to deduct such taxes from any other amounts
then payable in cash or in Shares or from any other amounts payable any time
thereafter to the Participant.
13. DELIVERY OF SHARES. Delivery of certificates for Shares pursuant to
the vesting of a Restricted Stock Award may be postponed by the Company for such
period as may be required for it to exercise reasonable diligence to comply with
any applicable requirements of any federal, state or local law or regulation or
any administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Participant to furnish the Company with
A-2-4
<PAGE> 52
appropriate representations and a written investment letter prior to the
delivery of any Shares pursuant to an Award.
14. INCORPORATION OF PROVISIONS OF THE PLAN. All of the provisions of the
Plan pursuant to which this Agreement is made are hereby incorporated by
reference and made a part hereof as if specifically set forth herein, and to the
extent of any conflict between this Agreement and the terms in the aforesaid
Plan, the Plan shall control. To the extent any capitalized terms are not
otherwise defined herein, they shall have the meaning set forth in the Plan.
15. INVALIDITY OF PROVISIONS. The invalidity or unenforceability of any
provision of this Agreement as a result of a violation of any state or federal
law, or of the rules or regulations of any governmental regulatory body, or any
securities exchange shall not affect the validity or enforceability of the
remainder of this Agreement.
16. WAIVER AND MODIFICATION. The provisions of this Agreement may not be
waived or modified unless such waiver or modification is in writing and signed
by the parties hereto.
17. INTERPRETATION. All decisions or interpretations made by the Committee
with regard to any question arising under the Plan or this Agreement shall be
binding and conclusive on the Company and the Participant.
18. MULTIPLE COUNTERPARTS. This Restricted Stock Award Agreement may be
signed in multiple counterparts, all of which taken together shall constitute an
original agreement. The execution by one party of any counterpart shall be
sufficient execution by that party, whether or not the same counterpart has been
executed by any other party.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Participant has hereunto set
his hand, all as of the day and year first above written.
CARDINAL REALTY SERVICES, INC.
By:
(PARTICIPANT)
By:
A-2-5
<PAGE> 53
[EXECUTIVE]
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (the "Agreement") is made as of the
day of , 1997 between CARDINAL REALTY SERVICES, INC., an Ohio
corporation (the "Company"), and , an employee of the
Company or Lexford (the "Participant").
WHEREAS, the Company has heretofore adopted the 1997 Performance Equity
Plan of Cardinal Realty Services, Inc. (the "Plan"); and
WHEREAS, it is a requirement of the Plan that a Restricted Stock Award
Agreement be executed to evidence the Restricted Stock Award granted to the
Participant.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto have
agreed, and do hereby agree, as follows:
2. GRANT OF AWARD. The Company hereby grants to the Participant a
Restricted Stock Award of an aggregate of ( ) shares of
the common stock, with no par value, of the Company ("Shares") on the terms and
conditions set forth herein.
3. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under the Plan
will vest upon the achievement of the Performance Goals described in Section
3.4. Restricted Stock Awards shall be granted in accordance with, and subject
to, the provisions set forth below.
3.1 Issuance of Shares. Subject to the restrictions in Section 6.3 of
the Plan, and set forth in this Agreement, the number of Company Shares
granted under a Restricted Stock Award shall be issued in the recipient
Participant's name on the date of grant of such Restricted Stock Award or
as soon as reasonably practicable thereafter.
3.2 Rights of Participants. Shares granted pursuant to Restricted
Stock Awards shall be transferred to the Participant, and a certificate or
certificates for such Shares shall be issued in the Participant's name.
Subject to the restrictions in Section 6.3 of the Plan, the Participant
shall thereupon be a shareholder with respect to all the Shares represented
by such certificate or certificates and shall have all the rights of a
shareholder with respect to such Shares, including the right to vote such
Shares and to receive dividends and other distributions paid with respect
to such Shares, subject to the restrictions and risks of forfeiture set
forth in the Plan. The certificate or certificates for Shares awarded
hereunder, together with a suitably executed stock power signed by such
Participant, shall be held by the Company in its control for the account of
such Participant:
(i) until the restrictions in Section 6.3 of the Plan and in this
Agreement lapse pursuant to the Plan, at which time a certificate for
the appropriate number of Shares; in each case, free of all restrictions
imposed by the Plan or this Agreement shall be delivered to the
Participant, subject to the provisions of Section 5 and Section 6; or
(ii) until such Shares are forfeited and cancelled as described in
Section 6.3 of the Plan and in this Agreement.
3.3 Restrictions. Each Share issued pursuant to this Agreement shall
be subject to the following restrictions until such restrictions have
lapsed pursuant to Section 6.4 of the Plan:
(a) Disposition. The Shares awarded to a Participant and held by
the Company pursuant to Section 6.2 of the Plan, and the right to vote
such Shares or receive dividends on such Shares, may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of;
provided, however, that such Shares may be transferred upon the death of
the Participant to the Participant's Successor. Any transfer or
purported transfer of Shares in violation of the restrictions outlined
in this Section 3.3 shall be null and void and shall result in the
forfeiture of the Company Shares transferred or purportedly transferred
to the Company without notice and without consideration.
A-3-1
<PAGE> 54
(b) Forfeiture. Any Shares awarded to a Participant under a
Restricted Stock Award and held by the Company pursuant to Section 6.2
of the Plan shall be forfeited without notice and without consideration
therefor immediately in accordance with the following:
(i) if the Participant's employment with the Company or Lexford
is terminated, the non-vested Shares shall forfeit except that if the
Participant terminates employment for "Good Reason" (as defined
below) or if the Company terminates the Participant's employment for
other than "Misconduct" (as defined below), the Participant will vest
in awards based upon performance actually achieved for the
Performance Year of such termination as if the Participant were
employed for the full Performance Year (to the extent non-vested
Shares do not vest as a result of performance during such final
Performance Year of employment, such Shares shall be forfeited); and
(ii) the Participant will forfeit all Shares granted to him or
her under this Agreement with respect to any Shares that remain
non-vested after the end of the final Performance Year.
Any Company Shares forfeited under the Plan shall be returned to the
Company. Any dividends previously paid with respect to any forfeited Shares
shall also be forfeited and returned with the Shares so forfeited.
3.4 Vesting of Restricted Stock.
(a) The restrictions on Shares set forth in Section 3.3 shall
lapse, and certificates for such Shares held for the Participant in
accordance with Section 3.2 shall be distributed to the Participant as
described in this Section 3.4. The Performance Goals for the Awards
associated with each Performance Year, expressed as a percentage of the
Initial Baselines, are as follows:
SHARE PRICE AND ADJUSTED EBITDA PERFORMANCE GOALS
AS A PERCENTAGE OF THE INITIAL BASELINES
<TABLE>
<CAPTION>
LEVEL I LEVEL II
------- --------
<S> <C> <C>
1997 Performance Year...................... 112.00% 118.00%
1998 Performance Year...................... 132.16% 139.24%
1999 Performance Year...................... 155.95% 164.30%
</TABLE>
(b) The amount of Awards that vest for a Performance Year is
determined by comparing the Share Price and Adjusted EBITDA as of the
last day of such year with the Performance Goals indicated in Section
3.4 (a) above. If either of the Performance Goals for a level of vesting
is achieved, the number of Shares awarded with respect to attainment of
such Performance Goal shall vest as soon as practicable following the
end of the Performance Year used in determining the Share Price or
Adjusted EBITDA, as the case may be. Satisfaction of a Performance Goal
for a Performance Year at Level I or Level II results in the vesting of
non-vested Awards associated with any prior Performance Year. If the
Share Price or Adjusted EBITDA as of the last day of a Performance Year
equals or exceeds one or more of the Level I and/or Level II Performance
Goals for a subsequent Performance Year, the Awards associated with
achievement of such Performance Goals shall vest as soon as practicable
following the end of the Performance Year as of which such Share Price
and/or Adjusted EBITDA, as the case may be, is measured.
4. CHANGE IN CONTROL.
(a) Notwithstanding anything in this Plan to the contrary, upon a
Change in Control during any Performance Year, each Participant will vest
in Shares in accordance with the following. These provisions shall apply if
the Participant is employed by the Company or Lexford at the time of the
Change in Control, or if the Participant is terminated in anticipation of
the Change in Control, as determined by the Committee.
A-3-2
<PAGE> 55
(b) Upon a Change in Control, each Participant shall immediately vest
in the non-vested Shares associated with any Performance Year, but only if
the Share Price as of the date of the Change in Control equals or exceeds
the Share Price Performance Goal associated with such Awards; provided,
however, that if the Change in Control occurs in 1997 or 1998, the
Performance Goals for 1999 (both Level I and Level II) shall be deemed
satisfied if the Share Price as of the date of the Change in Control equals
or exceeds 110% of the Level II Share Price Performance Goal for 1998
(i.e., 153.16% of the Share Price Initial Baseline).
(c) A Participant will vest in Shares as described in this Section 4,
regardless of whether the Participant continues to be employed by the
Company or any successor to the Company.
5. DEFERRAL OF COMPANY SHARES INTO RABBI TRUST. Within ten (10) days of
the approval of this Plan by the shareholders of the Company and prior to the
issuance of any Shares under the Plan, each Participant may make a written
election to defer the Shares that would otherwise be transferred to him or her
upon the vesting of such Shares pursuant to Section 6 and/or Section 7 of the
Plan. Such election shall be binding upon such Participant with respect to all
Shares he or she would be entitled to receive upon attainment of the Performance
Goals as described in Sections 3 and 4 except that any election to receive
shares is subject to the provisions of Section 6. If the Participant elects to
defer receipt of Shares, such Shares shall be contributed to the Rabbi Trust and
held for his or her benefit under the terms of the Rabbi Trust until the
Participant's termination of employment with the Company or Lexford, subject to
forfeiture under Section 3.3(b). Cash dividends payable with respect to any
Shares subject to an Award under the Plan shall be automatically deferred into
the Rabbi Trust, invested under the terms thereof and, to the extent not
forfeited under Section 3.3(b), distributed at such time as the Shares in
respect of which such dividends are payable become taxable to the individual.
6. CODE SECTION 162(M) LIMITATION. Notwithstanding anything in this Plan
to the contrary, to the extent that Code Section 162(m) would operate to limit
the Company's federal income tax deduction for remuneration with respect to a
Participant, resulting in federal income tax liability to the Company, receipt
of Shares shall be deferred into the Rabbi Trust until Section 162(m) no longer
operates to result in such federal income tax liability to the Company. The
determination of whether Code Section 162(m) operates to limit the Company's
deduction in a manner resulting in federal income tax liability to the Company
will be determined by the Committee. Payment of the deferred Shares shall occur
in the following calendar year (or, if necessary, each subsequent calendar year)
to the extent such payment, when added to other remuneration subject to the
Section 162(m) limit for such year, does not result in federal income tax
liability to the Company. In administering the deferral mechanism of this
Section 6, the determinations by the Committee shall be final; however, the
Committee shall act promptly in making its determinations hereunder and shall
not unnecessarily delay transfer of the Shares. Shares deferred hereunder shall
be fully vested and shall not be forfeited for any reason, including, without
limitation, termination of employment, except as expressly set forth in the
Rabbi Trust.
7. "GROSS-UP" FOR EXCISE TAXES. In the event that any Participant becomes
subject to the excise tax imposed by Code Section 4999 (the "Excise Tax"), the
Company shall pay in cash to the Participant at the time specified below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Participant shall be equal to the amount that would have been retained had
such excise tax not applied, as determined below.
The following shall govern the determination of the amount of the cash
payment described above:
(i) any other payments or benefits received or to be received by the
Participant in connection with a "change in control" of the Company (as
defined in Code Section 280G) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of the
Company's independent auditors, such other payments or benefits (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the
Code; and
A-3-3
<PAGE> 56
(ii) For purposes of determining the amount of the Gross-Up Payment,
the Participant shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of the
Participant's residence upon the change in control, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
The amount of any Gross-Up Payment shall be paid to the Participant at the
time of the Change in Control. If the Participant has elected to defer receipt
of all Shares into the Rabbi Trust pursuant to Section 5, such deferral shall
also apply to any Gross-Up Payment. In the event that the Excise Tax is
subsequently determined by the Company's independent auditors to be less than
the amount taken into account hereunder at the time of the Change in Control,
the Participant shall repay to the Company the excess portion of the Gross-Up
Payment plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. If the Gross-Up Payment was deferred into the
Rabbi Trust as described above, any return of any portion of the Gross-Up
Payment shall be made from the Rabbi Trust. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
Change in Control, (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
8. DEFINITION OF MISCONDUCT AND GOOD REASON.
8.1 "Good Reason" in connection with a Participant's termination of
employment with the Company or Lexford means:
(a) any reduction in aggregate direct remuneration, position,
responsibilities, or duties provided for in accordance with the
Participant's employment arrangement, or any material reduction in the
aggregate of employee benefits, perquisites, or fringe benefits provided
to the Participant pursuant to his employment arrangement if such
reduction or material reduction occurs within the six month period
immediately preceding the date of the voluntary termination;
(b) any good faith determination by the Participant that as the
result of any Change in Control of the Company, he is unable to carry
out the responsibilities, duties, authorities, powers, or functions
attached to his position;
(c) imposition by the Company of any requirement that the
Participant's principal place of work be relocated, following a Change
in Control of the Company, to a place more than 25 miles from his
principal place of work immediately before the Change in Control, or
that the Participant travel in connection with his employment to a
substantially greater degree than was customary for him prior to the
Change in Control; or
(d) any liquidation, dissolution, consolidation, or merger of the
Company, or transfer of all or a significant portion of its assets,
unless a successor or successors (by merger, consolidation, or
otherwise) to which all, or a significant portion, of the Company's
assets have been transferred shall have assumed all of the duties and
obligations of the Company pursuant to the Plan.
In addition, termination due to the Participant's death or
disability (within the meaning of the Company's disability insurance
program or disability policy) shall be deemed to be Good Reason
hereunder.
8.2 "Misconduct" in connection with a Participant's termination of
employment with the Company or Lexford means:
(a) an intentional act of fraud, embezzlement, theft or any other
material violation of law in connection with the Participant's duties or
in the course of his employment with the Company or Lexford;
A-3-4
<PAGE> 57
(b) intentional wrongful damage to material assets of the Company
or Lexford;
(c) intentional wrongful disclosure of material confidential
information of the Company or Lexford;
(d) intentional wrongful engagement in any competitive activity
which would constitute a material breach of the duty of loyalty; or
(e) breach of any material term of the Participant's employment
agreement.
9. RIGHTS OF AWARD HOLDER. Participants shall not have any of the rights
of a shareholder with respect to the Shares granted in a Restricted Stock Award
except as described in Sections 3.2 and 3.3.
10. NONTRANSFERABILITY OF RESTRICTED STOCK AWARDS. A Restricted Stock
Award shall not be transferable other than: (a) by will or the laws of descent
and distribution, or (b) pursuant to a qualified domestic relations order, as
defined in the Code or ERISA or the rules thereunder.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in
all of the outstanding Company Shares by reason of stock dividends, stock
splits, reclassifications, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations, reorganizations or
liquidations, or similar events, or in the event of extraordinary cash or
non-cash dividends being declared with respect to the Shares, or similar
transactions or events, the number and class of Shares available under the Plan
in the aggregate, the number and class of Shares subject to Restricted Stock
Awards theretofore granted, and all other applicable provisions, shall, subject
to the provisions of the Plan, be equitably adjusted by the Committee. The
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee, in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Award.
12. FORMS OF RESTRICTED STOCK AWARDS. Nothing contained in the Plan nor
any resolution adopted or to be adopted by the Board or by the shareholders of
the Company shall constitute the granting of any Restricted Stock Award. An
Award shall be granted only by action taken by the Committee. Upon the
Committee's designation of the Participant for the receipt of a Restricted Stock
Award, the Company's secretary, or such other person as the Committee may
designate, shall forthwith send notice thereof to the Participant, in such form
as the Committee shall approve, stating the number of Company Shares subject to
the Restricted Stock Award, and the other terms and conditions thereof. The
notice shall be accompanied by this Agreement, which shall have been duly
executed by or on behalf of the Company. Execution by the Participant of this
Agreement in accordance with the provisions set forth in the Plan shall be a
condition precedent to the receipt of any Award.
13. RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the right to
require a Participant who vests in Shares under the Plan to pay the Company the
amount of any taxes which the Company is or will be required to withhold with
respect to such Shares before the certificates for such Shares are delivered to
the Participant in accordance with the terms of the Plan and this Agreement.
Furthermore, the Company may elect to deduct such taxes from any other amounts
then payable in cash or in Shares or from any other amounts payable any time
thereafter to the Participant.
14. DELIVERY OF SHARES. Delivery of certificates for Shares pursuant to
the vesting of a Restricted Stock Award may be postponed by the Company for such
period as may be required for it to exercise reasonable diligence to comply with
any applicable requirements of any federal, state or local law or regulation or
any administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Participant to furnish the Company with appropriate
representations and a written investment letter prior to the delivery of any
Shares pursuant to an Award.
15. INCORPORATION OF PROVISIONS OF THE PLAN. All of the provisions of the
Plan pursuant to which this Agreement is made are hereby incorporated by
reference and made a part hereof as if specifically set forth herein, and to the
extent of any conflict between this Agreement and the terms in the aforesaid
Plan, the Plan
A-3-5
<PAGE> 58
shall control. To the extent any capitalized terms are not otherwise defined
herein, they shall have the meaning set forth in the Plan.
16. INVALIDITY OF PROVISIONS. The invalidity or unenforceability of any
provision of this Agreement as a result of a violation of any state or federal
law, or of the rules or regulations of any governmental regulatory body, or any
securities exchange shall not affect the validity or enforceability of the
remainder of this Agreement.
17. WAIVER AND MODIFICATION. The provisions of this Agreement may not be
waived or modified unless such waiver or modification is in writing and signed
by the parties hereto.
18. INTERPRETATION. All decisions or interpretations made by the Committee
with regard to any question arising under the Plan or this Agreement shall be
binding and conclusive on the Company and the Participant.
19. MULTIPLE COUNTERPARTS. This Restricted Stock Award Agreement may be
signed in multiple counterparts, all of which taken together shall constitute an
original agreement. The execution by one party of any counterpart shall be
sufficient execution by that party, whether or not the same counterpart has been
executed by any other party.
20. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Participant has hereunto set
his hand, all as of the day and year first above written.
CARDINAL REALTY SERVICES, INC.
By:
------------------------------------
(PARTICIPANT)
By:
------------------------------------
A-3-6
<PAGE> 59
CARDINAL REALTY SERVICES, INC.
PROXY/VOTING INSTRUCTIONS CARD
THIS IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING ON [ ], 1997
The undersigned hereby appoints John B. Bartling, Jr., Mark D. Thompson and
Paul R. Selid, and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as designated
herein all the shares of common stock, without par value, of Cardinal Realty
Services, Inc. (the "Company") represented hereby and held of record by the
undersigned on [ ], 1997, at the Annual Meeting of Shareholders to be held
at [ ], Columbus, Ohio, on [ ], 1997, at [ ] a.m.
(local time) and at any postponements or adjournments thereof, upon all subjects
that may properly come before the meeting, including the matters described in
the proxy statement furnished herewith. This proxy, when properly executed, will
be voted in the manner directed herein by the undersigned shareholder and in
accordance with the determination of the named proxies, and any of them, on any
other matters that may properly come before the meeting. If this proxy is signed
and returned and no directions are given, this proxy will be voted "FOR" Items
1, 2, and 3 shown on this card, and in accordance with the determination of the
named proxies, and any of them, on any other matters that may properly come
before the meeting. If you have made any comments on this card, please mark the
Comments box on the reverse of this card.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees below.
(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only certain
individual nominees. To withhold authority to vote for any individual
nominee, strike a line through the nominee's name below and check "FOR").
CLASS I DIRECTOR: PATRICK M. HOLDER
CLASS II DIRECTORS: JOSEPH E. MADIGAN GEORGE J. NEILAN
GLENN C. POLLACK STANLEY R. FIMBERG
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY TO LEXFORD, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Continued on Other Side)
3. APPROVAL OF THE COMPANY'S 1997 PERFORMANCE EQUITY PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. I PLAN TO ATTEND THE ANNUAL MEETING [ ]
5. I HAVE NOTED COMMENTS BELOW [ ]
Please sign this proxy and return it promptly whether or not you plan to
attend the meeting. If signing for a corporation or partnership, or as an agent,
attorney or fiduciary, indicate the capacity in which you are signing. If you do
attend the meeting and decide to vote by ballot, such vote will supersede this
proxy.
Dated: , 1997
------------------
------------------------------
(Signature)
------------------------------
(Signature)
Signature(s) must agree with
the name(s) printed on this
proxy. If shares are
registered in two names, both
shareholders should sign this
proxy.
If signing as attorney,
executor, administrator,
trustee or guardian, please
give your full title as such.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
