SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No._______)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMERCIAL ASSETS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
|_| (1) Title of each class of securities to which transaction
applies:
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|_| (2) Aggregate number of securities to which transaction applies:
|_| (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:
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|_| (5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and
the date of its filing.
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(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[CAX LETTERHEAD]
April 30, 1998
To Our Stockholders:
You cordially are invited to the 1998 Annual Meeting of Stockholders
(the "Meeting") of Commercial Assets, Inc., a Maryland corporation (the
"Company") to be held at 1873 South Bellaire Street, Suite 1700, Denver,
Colorado on
Tuesday, June 30, 1998, at 1:00 p.m., local time.
The formal notice of the Meeting and a proxy statement describing the
matters to be acted upon at the Meeting are contained in the following
pages.
Enclosed is a proxy that enables you to vote your shares on the
matters to be considered at the Meeting even if you are unable to attend
the Meeting. Please mark the proxy to indicate your vote, date and sign the
proxy and return it in the enclosed postage-paid envelope as soon as
possible for receipt prior to the Meeting. Stockholders also are entitled
to vote on any other matter that properly comes before the Meeting.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE BE SURE YOU ARE
REPRESENTED AT THE MEETING BY ATTENDING IN PERSON OR BY RETURNING YOUR
PROXY AS SOON AS POSSIBLE. EVEN IF YOU PLAN TO ATTEND IN PERSON, PLEASE
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD.
SINCERELY,
TERRY CONSIDINE
Chairman of the Board and
Chief Executive Officer
COMMERCIAL ASSETS, INC.
3410 SOUTH GALENA STREET, SUITE 210
DENVER, COLORADO 80231
(303) 614-9410
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The 1998 Annual Meeting of Stockholders (the "Meeting") of Commercial
Assets, Inc. (the "Company") will be held at 1873 South Bellaire Street,
Suite 1700, Denver, Colorado, on Tuesday, June 30, 1998, at 1:00 p.m.,
local time, to consider and act upon the following matters:
1. election of Messrs. Bruce D. Benson and Donald L. Kortz,
two Class II Directors, to terms expiring in 2001;
2. approval of the Commercial Assets, Inc. 1998 Stock
Incentive Plan (the "1998 Stock Plan"); and
3. such other business as properly may come before the Meeting and
any adjournments or postponements thereof.
Only Stockholders of record at the close of business on May 11, 1998,
the record date for the Meeting, will be entitled to vote at the Meeting.
The Board of Directors of the Company desires to have maximum
representation at the Meeting and requests that you mark, date, sign and
timely return the enclosed proxy in the postage-paid envelope provided
whether or not you expect to attend the Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS,
David M. Becker
Secretary
April 30, 1998
COMMERCIAL ASSETS, INC.
3410 SOUTH GALENA STREET, SUITE 210
DENVER, COLORADO 80231
(303) 614-9410
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 30, 1998
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To Our Stockholders:
This proxy statement (the "Proxy Statement") is furnished in
connection with the solicitation by the Board of Directors of Commercial
Assets, Inc., a Maryland corporation (the "Company"), of proxies to be used
at the 1998 Annual Meeting of Stockholders of the Company (the "Meeting")
and at any adjournments or postponements thereof. The Meeting will be held
at 1873 South Bellaire Street, Suite 1700, Denver, Colorado, on Tuesday,
June 30, 1998, at 1:00 p.m., local time. The Meeting is being held for the
purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. This Proxy Statement, the accompanying proxy card and the
Notice of Annual Meeting (the "Proxy Materials") are first being mailed to
Stockholders beginning on or about May 12, 1998.
GENERAL INFORMATION
SOLICITATION
The enclosed proxy is being solicited by the Company. In addition to
solicitations by mail, solicitations may be made by personal interview,
telephone and telegram by Directors and officers of the Company. No
additional compensation will be paid to the Directors and officers of the
Company for the solicitation of proxies. The Company will employ Corporate
Investor Communications, Inc., to assist the Company in the solicitation of
proxies. The Company expects to incur a fee of approximately $10,000, plus
reimbursement of out-of-pocket expenses for this service. All costs of the
solicitation will be paid solely by the Company. The Company will reimburse
banks, brokers and others holding shares in their names or the names of
nominees or otherwise for reasonable out-of-pocket expenses incurred in
sending proxies and proxy materials to the beneficial owners of such
shares.
VOTING RIGHTS AND VOTES REQUIRED
Holders of record of shares of common stock, par value $.01 per share
of the Company (the "Common Stock") at the close of business on May 11,
1998, (the "Record Date") are entitled to notice of, and to vote at, the
Meeting. On the Record Date, ____________ shares of Common Stock were
outstanding. The presence, in person or by proxy, of holders of a majority
of the shares of Common Stock entitled to vote at the Meeting constitutes a
quorum for the transaction of business at the Meeting. Shares represented
by proxies that reflect abstentions or "broker non-votes" (i.e., shares
held by a broker or nominee which are represented at the Meeting, but with
respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Each share of Common Stock outstanding on the Record Date is entitled
to one vote on each matter presented at the Meeting. If you are voting by
proxy, for your vote to be counted, your properly completed proxy must be
received by the Secretary of the Company prior to the time the vote is
taken at the Meeting. If your shares are held by your broker or other
nominee in "street name," your broker will vote your shares only if you
provide instructions as to how to vote your shares. You should follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares. Without instructions, your shares may not be voted by
that broker.
The affirmative vote of a plurality of all of the votes cast at the
Meeting for the election of directors (assuming a quorum is present) is
necessary for the election of a director. For purposes of the election of
directors, abstentions or "broker non-votes" will not be counted as votes
cast and will have no effect on the result of the vote, although they will
count toward the presence of a quorum.
The affirmative vote of a majority of votes present in person or by
proxy and entitled to vote at the Meeting (assuming a quorum is present) is
required to approve and adopt the 1998 Stock Plan. For purposes of approval
of the 1998 Stock Plan, abstentions or "broker non-votes" will not be
counted as votes cast and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
VOTING OF PROXIES
Shares of Common Stock represented by all properly executed proxies
received prior to the vote at the Meeting will be voted as specified in the
proxy. Unless contrary instructions are indicated on the proxy, the shares
of Common Stock represented by such proxy will be voted "FOR" the election
of Messrs. Bruce D. Benson and Donald L. Kortz as Directors of the Company
and "FOR" approval of the 1998 Stock Plan. Management and the Board of
Directors of the Company currently know of no other business to be brought
before the Meeting other than as described herein. If any other matters are
presented properly to the Stockholders for action at the Meeting and any
adjournments or postponements thereof, the proxy holders named in the
enclosed proxy intend to vote in their discretion on all matters on which
the shares of Common Stock represented by such proxy are entitled to vote.
REVOCABILITY OF PROXY
You can change your vote at any time before the vote is taken at the
Meeting. You can do this in one of three ways. First, you can send a
written notice dated later than your proxy card stating that you would like
to revoke your current proxy. Second, you can complete and submit a new
proxy card dated later than your original proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to the Secretary of the Company. The Company must receive the
notice or new proxy card before the vote is taken at the Meeting. Third,
you can attend the Meeting and vote in person. Simply attending the
stockholder meeting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the directions
received from your broker as to how to change your vote.
DISSENTER'S RIGHTS OF APPRAISAL
Under applicable state law, stockholders are not entitled to
dissenter's rights of appraisal.
ANNUAL REPORT
The Company's 1997 Annual Report to Stockholders, including a copy of
the Company's 1997 Annual Report on Form 10-K (collectively, the "Annual
Report") contains financial and other information about the activities of
the Company including financial statements for the year ended December 31,
1997. This report is being mailed with this Proxy Statement to all holders
of record on the Record Date. Neither the Company's 1997 Annual Report on
Form 10-K nor the Company's 1997 Annual Report to Stockholders is
incorporated into this Proxy Statement by reference nor is it a part of the
proxy materials.
Upon written request addressed to the Secretary of the Company at the
address listed above, the Company will provide a copy of the Annual Report
to anyone whose proxy is being solicited in connection with this Proxy
Statement.
PROPOSAL 1: ELECTION OF DIRECTORS
The charter of the Company provides for three classes of Directors
with staggered terms of office. Nominees for each class serve for terms of
three years and until the election and qualification of their successors or
until their earlier resignation, death, disqualification or removal from
office. The Board of Directors currently consists of seven members,
including three Class I Directors whose terms expire in 2000, two Class II
Directors whose terms expires in 1998 and two Class III Directors whose
terms expire in 1999.
The By-laws of the Company require that at least three of the seven
members of the Board of Directors of the Company and each committee thereof
be comprised of persons who are "Independent Directors" of the Company. An
Independent Director is defined in the Company's By-laws as a person "who
is not affiliated, directly or indirectly, with the person or entity
responsible for directing or performing the day-to-day business affairs of
the corporation (the advisor), including a person or entity to which the
advisor subcontracts substantially all of such functions, whether by
ownership of, ownership interest in, employment by, any material business
or professional relationship with, or by serving as an officer or Director
of, the advisor or an affiliated business entity of the advisor." The
Independent Directors of the Company are Messrs. Baker, Kortz, Malone and
Fries.
Vacancies on the Board of Directors may be filled by a majority of
the remaining members; provided, however, that the Independent Directors
must nominate the replacements for vacancies among the Independent
Directors. Each Director elected by the Board of Directors to fill a
vacancy shall hold office until the next annual meeting of the Stockholders
at which time the Stockholders shall elect a Director to serve the
remaining term of the class into which such Director is elected.
At the Meeting, two Class II Directors will be elected to a term
expiring in 2001. Unless otherwise specified, the enclosed proxy will be
voted "FOR" the election of the Board of Directors' nominees, Messrs.
Benson and Kortz, as the Class II Directors of the Company. Mr. Kortz is
also being nominated for election as an Independent Director. Neither
management nor the Board of Directors of the Company knows of any reason
why Messrs. Benson or Kortz would be unavailable to serve as a Director.
Discretionary authority may be exercised by the proxy holders named in the
enclosed proxy to vote for a nominee proposed by the Board of Directors if
either of Messrs. Benson or Kortz become unavailable for election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
MESSRS. BENSON AND KORTZ TO THE BOARD OF DIRECTORS OF THE COMPANY.
PROPOSAL 2: APPROVAL OF THE COMMERCIAL
ASSETS, INC. 1998 STOCK INCENTIVE PLAN
The Board has adopted, subject to stockholder approval, the
Commercial Assets, Inc. 1998 Stock Incentive Plan (the "1998 Stock Plan"),
which provides for the grant of stock options, stock appreciation rights,
restricted stock, deferred stock and performance share awards to officers,
directors, employees, consultants and advisors of the Company and its
subsidiaries. The 1998 Stock Plan provides, in general, that the number of
shares of Common Stock reserved for issuance at any time pursuant to
outstanding awards under the plan will be limited to 15% of the sum of (i)
the number of then outstanding shares of Company Common Stock and (ii) the
number of then outstanding units of limited partnership of the Company's
operating partnerships, if any ("OP Units"). However, in no event will the
total number of shares of Common Stock issuable under the 1998 Stock Plan
exceed 3 million shares.
The Board has adopted the 1998 Stock Plan as part of its policy
to further the long-term growth in the Company's earnings by providing
incentives to those officers, directors, employees, consultants and
advisors who are or will be responsible for such growth; to facilitate the
ownership of the Company's stock by such individuals, thereby increasing
the identity of their interests with those of the Company's stockholders;
and to assist the Company in attracting and retaining officers, directors,
employees, consultants and advisors with experience and ability. The Board
has determined that, in light of the recent decision to redeploy the
Company's assets through the purchase of marinas and interests in marinas,
it will likely be desirable to have the flexibility to make awards directly
to persons performing services for the Company, rather than to continue to
rely solely upon AIC (as defined) to provide such compensation. The Board
also believes that the various types of awards provided for under the 1998
Stock Plan will permit a more flexible approach to stock-based incentive
compensation. Accordingly, the Board has adopted the 1998 Stock Plan to
address these issues, and the Company's existing 1993 Stock Option Plan
will be terminated upon stockholder approval of the 1998 Stock Plan. The
Board believes that the 1998 Stock Plan reflects the best interests of the
Company and recommends its approval by stockholders.
The full text of the 1998 Stock Plan is attached hereto as Annex A.
The summary that follows is subject to the actual terms of the 1998 Stock
Plan.
THE 1998 STOCK PLAN
The 1998 Stock Plan provides for the grant of (i) stock options
(including both "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
and options not intended to qualify as ISOs ("nonqualified options" or
"NSOs")), (ii) stock appreciation rights ("SARs") or limited stock
appreciation rights ("LSARs"), or both ("rights") and (iii) restricted
stock, deferred stock and performance share awards ("restricted awards") to
officers, directors, employees, consultants and advisors of the Company and
its subsidiaries. On April 27, 1998, the closing market price of the Common
Stock as reported on the American Stock Exchange was $6-11/16 per share.
PLAN ADMINISTRATION
The 1998 Stock Plan will be administered by the Board or a committee
thereof consisting solely of two or more non-employee directors of the
Company who qualify as "outside directors" for purposes of Section 162(m)
of the Code and "Non-Employee Directors" for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (such
Board or committee sometimes referred to herein as the "plan
administrator"). The 1998 Stock Plan provides that no member of the Board
or committee will be liable for any action or determination taken or made
in good faith with respect to the 1998 Stock Plan or any option, right or
restricted award granted thereunder.
Subject to the terms of the 1998 Stock Plan, the plan
administrator has the right to grant awards to eligible recipients and to
determine the terms and conditions of the award agreements evidencing the
grant of such awards, including the vesting schedule and exercise price of
such awards, and the effect, if any, of a change in control of the Company
on such awards.
SECURITIES SUBJECT TO THE PLAN
The 1998 Stock Plan provides, in general, that the number of
shares of Common Stock reserved for issuance at any time pursuant to
outstanding awards under the plan will be limited to 15% of the sum of (i)
the number of then outstanding shares of Company Common Stock and (ii) the
number of then outstanding OP Units. However, in no event will the total
number of shares of Common Stock issuable under the 1998 Stock Plan exceed
3 million shares. The aggregate number of shares of Common Stock as to
which options, rights and restricted awards may be granted to any
individual during any calendar year may not, subject to adjustment as set
forth below, exceed 80% of the shares reserved for issuance under the 1998
Stock Plan.
The 1998 Stock Plan provides that, in the event of changes in the
Common Stock by reason of a merger, reorganization, recapitalization,
common stock dividend, stock split or similar change, the plan
administrator will make appropriate adjustments in the aggregate number of
shares available for issuance under the 1998 Stock Plan, the purchase price
to be paid and/or the number of shares issuable upon the exercise
thereafter of any option previously granted and in the purchase price to be
paid and/or the number of shares issuable pursuant to restricted awards.
Similar adjustments will be made to outstanding rights. The plan
administrator will have the discretion to make other appropriate
adjustments. The plan administrator has the authority, in the event of any
such adjustment, to provide for the cancellation of awards granted under
the 1998 Stock Plan in exchange for payment in cash or other property.
ELIGIBILITY
Discretionary grants of options, rights and restricted awards
may be made to any officer (including officers who are directors),
director, employee, consultant or advisor of the Company or its direct and
indirect subsidiaries who is determined by the plan administrator to be in
a position to contribute to the long-term growth in earnings of the
Company.
The 1998 Stock Plan also provides that all non-employee
directors of the Company will receive an automatic annual grant of options
to purchase 7,500 shares of Common Stock (the "Annual Director Options").
This grant will occur concurrently with the election of the directors at
each annual meeting of stockholders. In addition, each year non-employee
directors will be permitted to elect to receive shares of Common Stock in
lieu of Board of Directors and committee meeting fees for such year.
ISO LIMITATION
The aggregate fair market value (determined as of the date of
grant) of the shares granted to any employee under the 1998 Stock Plan or
any other option plan of the Company or its subsidiaries that may become
exercisable for the first time in any calendar year is limited, with
respect to ISOs, to $100,000. This restriction does not apply to NSOs,
rights or restricted awards.
TERMS AND CONDITIONS OF OPTIONS
Options will vest and become exercisable according to a
schedule established by the plan administrator, except that Annual Director
Options will be vested in full as of the date of grant. In the case of
options exercisable by installment, options not exercised during any one
year may be accumulated and exercised at prescribed times during the
remaining years of the option. Options that are not exercised within ten
years from the date of grant will expire without value. Except as otherwise
determined by the plan administrator in accordance with Rule 16b-3, options
are exercisable during the optionee's lifetime only by the optionee.
Subject to the limitations set forth below, the purchase price
of Common Stock pursuant to the exercise of an option will be as determined
by the plan administrator and may be adjusted in accordance with the
antidilution provisions described in "Securities Subject to the 1998 Stock
Plan." The purchase price of NSOs may not be less than the par value of the
Common Stock on the date of grant. The purchase price of ISOs may not be
less than 100% of the fair market value of the Common Stock on the date of
grant. The purchase price of Annual Director Options will be equal to the
fair market value of the Common Stock on the date of grant. Upon the
exercise of any option, the purchase price must be fully paid in cash or by
check, or, at the discretion of the plan administrator (except with respect
to Annual Director Options), by delivery of Common Stock equal in market
value to the exercise price, by delivery of restricted awards equal in
market value to the exercise price, by means of a loan from the Company, by
means of any cashless exercise procedure approved by the plan
administrator, or by a combination of cash, Common Stock, restricted
awards, loans, or use of a cashless exercise procedure. If restricted
awards are used to pay the exercise price, certain of the shares acquired
upon exercise will also be subject to restriction.
STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
SARs and LSARs may be granted either alone ("Free Standing
Rights") or in conjunction with all or part of an option ("Related
Rights"). Upon the exercise of an SAR, a holder is entitled to receive
cash, unrestricted shares of Common Stock or any combination thereof, as
determined by the plan administrator, in an amount equal to the excess of
the fair market value of one share of Common Stock on the date of exercise
over the exercise price per share specified in the related option (or in
the case of a Free Standing Right, the price per share specified in such
right), multiplied by the number of shares in respect of which the SAR is
exercised. Upon the exercise of an LSAR, a holder is entitled to receive an
amount in cash equal in value to the excess of the Change in Control Price
(as defined in the award agreement evidencing such LSAR) of one share of
Common Stock on the date of exercise over the option price per share
specified in the related option (or in the case of an LSAR which is a Free
Standing Right, the price per share specified in such right), multiplied by
the number of shares in respect of which the LSAR is exercised.
With respect to SARs and LSARs that are Related Rights, each such SAR
and LSAR will terminate upon the termination or exercise of the pertinent
portion of the related option, and the pertinent portion of the related
option will terminate upon the exercise of any such SAR or LSAR. Unless
otherwise determined by the plan administrator at grant, if an SAR or LSAR
is granted with respect to less than the full number of shares covered by a
related option, the SAR or LSAR will only be reduced if and to the extent
that the number of shares covered by the exercise or termination of such
option exceeds the number of shares not covered by such SAR or LSAR. LSARs
that are Related Rights can only be exercised within the 30-day period
following a Change in Control (as defined in the award agreement evidencing
such LSAR) and only to the extent that the options to which they relate are
exercisable. SARs that are Related Rights may be exercised at any time that
the underlying option is exercisable or, at the discretion of the plan
administrator, in certain other limited circumstances. With respect to
NSOs, Related Rights may be granted at or after the grant of such NSOs. In
the case of ISOs, Related Rights may be granted only at the time of grant
of the ISOs.
SARs that are Free Standing Rights may be exercised at such
time or times and may be subject to such terms and conditions as may be
determined by the plan administrator at or after grant. LSARs that are Free
Standing Rights can only be exercised within the 30-day period following a
Change in Control. The term of each Free Standing Right will be fixed by
the plan administrator but may not exceed ten years from the date of grant.
The price per share for each Free Standing Right will be set by the plan
administrator but will not be less than 100% of the fair market value of a
share of Common Stock on the date of grant.
RESTRICTED AWARDS
A restricted stock award is an award of Common Stock that may
not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of for such period ("restricted period") from the date on which
the award is granted, as may be determined by the plan administrator. The
plan administrator may also impose such other restrictions and conditions
on an award as it deems appropriate. The plan administrator may provide
that the foregoing restrictions will lapse with respect to specified
percentages of the awarded shares on successive anniversaries of the date
of the award. In addition, the plan administrator has the authority to
cancel all or any portion of any outstanding restrictions prior to the
expiration of the restricted period. Deferred stock is the right to receive
Common Stock at the end of a specified deferral period. Performance shares
are shares of the Common Stock subject to restrictions based upon the
attainment of performance objectives.
Upon the award of any restricted stock or performance shares,
the participant will have the rights of a stockholder with respect to the
shares, including dividend rights, subject to the conditions and
restrictions generally applicable to restricted stock or specifically set
forth in the award agreement for the participant's restricted stock or
performance shares. Upon an award of deferred stock, the participant will
not have any rights of a stockholder, other than the right to receive
dividends, during the specified deferral period.
Recipients of restricted stock, deferred stock, or performance
shares will enter into an award agreement with the Company, in such form as
the plan administrator determines, which states the restrictions to which
the shares are subject and the date or dates on which such restrictions
will lapse. The plan administrator may permit such restrictions to lapse in
installments within the restricted period or may accelerate or waive such
restrictions at any time.
The vesting of restricted awards may be made subject to the
achievement of performance goals specified by the plan administrator at the
time of grant. Such goals may be based on funds from operations, adjusted
funds from operations, net income and stock price performance.
DEATH--TERMINATION OF EMPLOYMENT--RESTRICTIONS ON TRANSFER
Upon termination of employment or service for any reason,
including upon death, disability or retirement, outstanding options and
rights will remain exercisable for such period, and outstanding restricted
awards will be treated, in each case as set forth by the plan administrator
in the award agreement governing such award.
In no event may any option or right be exercisable more than
ten years from the date it is granted. Except as determined by the plan
administrator in accordance with Rule 16b-3, options and rights are
transferable.
AMENDMENT; TERMINATION
The Board may amend or terminate the 1998 Stock Plan at any
time, except that stockholder approval is required for any amendment to (i)
increase the maximum number of shares of stock which may be issued under
the 1998 Stock Plan (except for adjustments as described in "Securities
Subject to the Plan"), (ii) change the class of individuals eligible to
participate in the 1998 Stock Plan, or (iii) extend the term of the 1998
Stock Plan or the period during which any option, right or restricted award
may be granted or any option may be exercised, but in each such case only
to the extent required by Section 162(m) of the Code or other applicable
law, rule or regulation with respect to the material amendment of any
employee benefit plan maintained by the Company. Termination or amendment
of the 1998 Stock Plan will not, without the consent of any participant,
adversely affect previously granted options, rights or restricted awards,
which will continue in effect in accordance with their terms.
PAYMENT OF TAXES
Participants are required, no later than the date as of which
the value of an award first becomes includible in the gross income of the
participant for Federal income tax purposes, to pay to the Company, or make
arrangements satisfactory to the plan administrator regarding payment of,
any Federal, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under
the 1998 Stock Plan are conditional on the making of such payments or
arrangements, and the Company will have the right, to the extent permitted
by law, to deduct any such taxes from any payment of any kind otherwise due
to the participant.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is for general information only and is
based on the Federal income tax law now in effect, which is subject to
change, possibly retroactively. This summary does not discuss all aspects
of Federal income taxation which may be important to particular holders of
options, rights, restricted awards and Common Stock in light of their
individual investment circumstances or to certain types of holders subject
to special tax rules, nor does it address specific state, local or foreign
tax consequences. This summary assumes that the Common Stock acquired upon
exercise of an option or right or vesting of a restricted award will be
held as a "capital asset" (generally property held for investment) under
the Code.
Nonqualified Stock Options
A participant will generally not be subject to Federal income
tax upon the grant of an NSO. Rather, at the time of exercise of such NSO,
the participant will recognize ordinary income for Federal income tax
purposes in an amount equal to the excess of the fair market value of the
shares purchased over the exercise price. The Company will generally be
entitled to claim a deduction for Federal income tax purposes at such time
and in the same amount as the participant recognizes ordinary income.
A participant will recognize capital gain or loss upon a sale
or exchange of stock acquired upon exercise of an NSO in an amount equal to
the difference between the fair market value of such stock on the date it
was acquired and the amount realized in the sale or exchange.
Incentive Stock Options
A participant will not be subject to tax upon the grant of an
ISO or upon its timely exercise. Exercise of an ISO will be timely if made
during its term and if the participant remains an employee of the Company
or a subsidiary at all times during the period beginning on the date of
grant of the ISO and ending on the date three months before the date of
exercise (or one year before the date of exercise in the case of a disabled
employee). Exercise of an ISO will also be timely if made by the legal
representative of a participant who dies (i) while in the employ of the
Company or a subsidiary or (ii) within three months after termination of
employment (or one year in the case of a disabled employee). The tax
consequences of an untimely exercise of an ISO will be determined in
accordance with the rules applicable to NSOs. See "Nonqualified Stock
Options."
If stock acquired pursuant to a timely exercised ISO is later
disposed of, the participant will, except as noted below with respect to a
"disqualifying disposition," recognize capital gain or loss equal to the
difference between the amount realized upon such sale and the option price.
Under these circumstances, the Company will not be entitled to any
deduction for Federal income tax purposes in connection with either the
exercise of the ISO or the sale of such stock by the participant.
If, however, a participant disposes of stock acquired pursuant
to the exercise of an ISO prior to the expiration of two years from the
date of grant of the ISO or within one year from the date such stock is
transferred to him upon exercise (a "disqualifying disposition"), generally
(i) the participant will realize ordinary income at the time of the
disposition in an amount equal to the excess, if any, of the fair market
value of the stock at the time of exercise (or, if less, the amount
realized on such disqualifying disposition) over the option exercise price,
and (ii) any additional gain realized by the participant will be subject to
tax as capital gain. In such case, the Company may claim a deduction for
Federal income tax purposes at the time of such disqualifying disposition
for the amount taxable to the participant as ordinary income.
The amount by which the fair market value of the stock on the
exercise date of an ISO exceeds the option price will be an item of
adjustment for purposes of the "alternative minimum tax" imposed by Section
55 of the Code.
Exercise with Shares
According to a published ruling of the Internal Revenue Service, a
participant who pays the option price upon exercise of an NSO, in whole or
in part, by delivering shares of stock already owned by the participant
will recognize no gain or loss for Federal income tax purposes on the
shares surrendered, but otherwise will be subject to tax according to the
rules described above for NSOs. See "Nonqualified Stock Options." With
respect to shares acquired upon exercise which are equal in number to the
shares surrendered, (i) such shares will be treated as exchanged for the
shares surrendered in a non-taxable transaction, (ii) the basis of such
shares will be equal to the basis of the shares surrendered, and (iii) the
holding period of the shares acquired will include the holding period of
the shares surrendered. With respect to the additional shares received upon
exercise, (a) a participant will recognize ordinary income in an amount
equal to the fair market value of such shares on the date of receipt, (b)
the basis of such additional shares will be equal to the amount of income
recognized, and (c) the holding period for such additional shares will
commence on the date of receipt.
The Treasury Department has issued proposed regulations that, if
adopted in their current form, would appear to provide for the following
rules with respect to the exercise of an ISO by surrender of previously
owned shares of stock. If the shares surrendered in payment of the exercise
price of an ISO are "statutory option stock" (including stock acquired
pursuant to the exercise of an ISO) and if the surrender constitutes a
"disqualifying disposition" (as would be the case, for example, if, in
satisfaction of the option exercise price, the Company withholds shares
which would otherwise be delivered to the participant), any gain realized
on such surrender will be taxable to the optionee at such time, as
discussed above. Otherwise, when shares of stock are surrendered upon
exercise of an ISO, in general, (i) no gain or loss will be recognized as a
result of the exchange, (ii) the number of shares received that is equal in
number to the shares surrendered will have a basis equal to the basis of
the shares surrendered and (except for purposes of determining whether a
disposition will be a disqualifying disposition) will have a holding period
that includes the holding period of the shares exchanged, and (iii) any
additional shares received will have a zero basis and will have a holding
period that begins on the date of the exchange. If any of the shares
received are disposed of within two years of the date of grant of the ISO
or within one year after exercise, the shares with the lowest basis will be
deemed to be disposed of first, and such disposition will be a
disqualifying disposition giving rise to ordinary income at the time of
disposition as discussed above.
Rights
A grant of SARs or LSARs has no Federal income tax consequences at
the time of such grant. Upon the exercise of SARs or LSARs (other than a
Free Standing LSAR), the amount of any cash and the fair market value as of
the date of exercise of any shares of the Company's stock received is
taxable to the participant as ordinary income. With respect to a Free
Standing LSAR, however, a recipient should be required to include as
taxable income on the Change in Control date an amount equal to the amount
of cash that could be received upon the exercise of the LSAR, even if the
LSAR is not exercised until a date subsequent to the Change in Control
date. The Company will generally be entitled to claim a deduction for
Federal income tax purposes at the same time and in an amount equal to the
amount included in the participant's income. Upon the sale of shares
acquired upon the exercise of SARs or LSARs, a participant will recognize
capital gain or loss in an amount equal to the difference between the
amount realized upon such sale and the fair market value of the stock on
the date that governs the determination of his ordinary income.
Restricted Awards
In the case of a restricted award, a participant generally will
not be subject to tax upon the grant of such an award, but, rather, the
participant will recognize ordinary income in an amount equal to (i) the
fair market value of the stock at the time the shares become transferable
or are otherwise no longer subject to a substantial risk of forfeiture (as
defined in the Code), minus (ii) the price, if any, paid by the participant
to purchase such stock. A participant may elect under Section 83(b) of the
Code however, not later than 30 days after acquiring such shares, to
recognize ordinary income at the time the restricted shares are awarded in
an amount equal to their fair market value at that time, notwithstanding
the fact that such shares are subject to restrictions and a substantial
risk of forfeiture. If such an election is made, no additional taxable
income will be recognized by the participant at the time the restrictions
lapse. The Company will be entitled to claim a deduction for Federal income
tax purposes at the time when, and to the extent that, income is recognized
by the participant. Nevertheless, if shares in respect of which such
election was made are later forfeited, no tax deduction is allowable to the
participant for the forfeited shares, and the Company will be deemed to
recognize ordinary income equal to the amount of the deduction allowed to
the Company at the time of the election in respect of such forfeited
shares.
Maximum Tax Rates Applicable to Capital Gain
Net capital gain (i.e., generally, capital gain in excess of
capital loss) recognized by an individual participant upon a disposition of
stock that has been held for (i) more than 18 months will generally be
subject to tax at a rate not to exceed 20%, (ii) more than 12 months but
not more than 18 months will be subject to tax at a rate not to exceed 28%,
and (iii) 12 months or less will be subject to tax at ordinary income tax
rates.
NEW PLAN BENEFITS
No grants have yet been made under the 1998 Stock Plan.
Accordingly, it is not possible to determine at this time the awards that
will be granted under the 1998 Stock Plan. For informational purposes, the
table below sets forth the number of options awarded under the existing
1993 Stock Option Plan during fiscal year 1997 to the Company's most senior
executive officers, all current executive officers as a group (the
"Executive Group"), all current directors who are not executive officers as
a group (the "Non-Executive Director Group") and all employees, including
all current officers who are not executive officers, as a group (the
"Employee Group").
NAME AND POSITION OPTIONS GRANTED
- --------------------------------------- ---------------
TERRY CONSIDINE 0
Chairman of the Board and
Chief Executive Officer
THOMAS L. RHODES 0
Vice Chairman of the Board
DAVID M. BECKER 0
Chief Financial Officer and
Secretary
EXECUTIVE GROUP 0
NON-EXECUTIVE DIRECTOR GROUP 37,500
EMPLOYEE GROUP 0
REASON FOR AUTHORIZATION
The 1998 Stock Plan is being submitted for stockholder approval
pursuant to Sections 162(m) and 422 of the Code and the rules of the
American Stock Exchange. It is intended that awards granted under the 1998
Stock Plan may constitute "qualified performance based compensation" for
purposes of Section 162(m) of the Code.
VOTE REQUIRED
The affirmative vote of a majority of the votes present in
person or by proxy and entitled to vote at the Meeting (assuming a quorum
is present) is required to approve and adopt the 1998 Stock Plan. If the
stockholders do not approve the 1998 Stock Plan, the Board will consider
whether to adopt some alternative arrangement based on its assessment of
the Company's needs.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1998
STOCK PLAN.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to the nominees for election as
Directors, the continuing Directors and the executive officers of the
Company, as of April 28, 1998, appears below and was furnished in part by
each such person.
Each executive officer of the Company serves for a term of one year
and until his or her successor has been elected and qualified or until his
or her earlier resignation or removal by the Board of Directors. There are
no family relationships among any of the Directors and executive officers
of the Company.
NAME AGE FIRST ELECTED POSITION(S) HELD WITH THE COMPANY
- ------------------------------------------------------------------------------
TERRY CONSIDINE 51 SEPTEMBER CHAIRMAN OF THE BOARD OF DIRECTORS (CLASS
1996 III) AND CHIEF EXECUTIVE OFFICER
THOMAS L. RHODES 58 SEPTEMBER VICE CHAIRMAN OF THE BOARD OF DIRECTORS
1996 (CLASS I)
DAVID M. BECKER 38 DECEMBER CHIEF FINANCIAL OFFICER AND SECRETARY
1997
DONALD L. KORTZ 57 AUGUST INDEPENDENT DIRECTOR (CLASS II) AND MEMBER
1993 OF THE AUDIT AND COMPENSATION COMMITTEES
RAYMOND T. BAKER 47 AUGUST INDEPENDENT DIRECTOR (CLASS I) AND MEMBER
1993 OF THE AUDIT AND COMPENSATION COMMITTEES
ROBERT J. MALONE 53 AUGUST INDEPENDENT DIRECTOR (CLASS III) AND
1993 MEMBER OF THE AUDIT AND COMPENSATION
COMMITTEES
BRUCE D. BENSON 59 SEPTEMBER INDEPENDENT DIRECTOR (CLASS II)
1996
THOMAS C. FRIES 52 DECEMBER INDEPENDENT DIRECTOR (CLASS I) AND MEMBER
1996 OF THE AUDIT AND COMPENSATION COMMITTEES
TERRY CONSIDINE has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1998. From September 1996 to
April 1998 Mr. Considine served as Co-Chairman of the Board of Directors
and Co-Chief Executive Officer. He is the sole owner of Considine
Investment Co. Since July 1994, Mr. Considine has also been the Chairman of
the Board of Directors and Chief Executive Officer of Apartment Investment
and Management Company ("AIMCO"), one of the largest apartment REITs in the
United States. Mr. Considine currently serves as Chairman of the Board and
Chief Executive Officer of Asset Investors Corporation ("AIC"), a
manufactured housing real estate investment trust. Mr. Considine has been
and remains involved as a principal in a variety of real estate activities,
including the acquisition, renovation, development and disposition of
properties. Mr. Considine has also controlled entities engaged in other
businesses such as television broadcasting, gasoline distribution and
environmental laboratories. Mr. Considine received a B.A. from Harvard
College and a J.D. from Harvard Law School and is admitted as a member of
the Massachusetts Bar.
Mr. Considine has had substantial real estate experience. From 1975
through July 1994, partnerships or other entities in which Mr. Considine
had controlling interests invested in approximately 35 multifamily
apartment properties and commercial real estate properties. Six of these
real estate assets (four of which were multifamily apartment properties and
two of which were office properties) did not generate sufficient cash flow
to service their related indebtedness and were foreclosed upon by their
lenders, causing pre-tax losses of approximately $11.9 million to investors
and losses of approximately $2.7 million to Mr. Considine.
THOMAS L. RHODES has been Vice Chairman of the Board of Directors of
the Company and AIC since April 1998. From September 1996 to April 1998,
Mr. Rhodes served as Co-Chairman of the Board of Directors and Co-Chief
Executive Officer of the Company and AIC . Mr. Rhodes has also been a
Director of AIMCO since July 1994. Mr. Rhodes has served as the President
and a Director of National Review magazine since 1992. From 1976 to 1992,
he held various positions at Goldman, Sachs & Co. and was elected a General
Partner in 1986. He currently serves as a Director of Delphi Financial
Group, Inc. and its subsidiaries, Delphi International, Ltd., Oracle
Reinsurance and The Lynde and Harry Bradley Foundation. Mr. Rhodes is
Chairman of the Empire Foundation for Policy Research, a Trustee of The
Heritage Foundation and a Trustee of The Manhattan Institute.
DAVID M. BECKER has functioned as the Company's Chief Financial
Officer and Secretary since December 1997 and was appointed to such
position in April 1998. From September 1995 until joining the Company, he
was both the Chief Financial Officer of Westfield Development Company, Inc.
and Vice President-Finance of The Frederick Ross Co., related companies
involved in commercial real estate development, brokerage and management.
Prior to September 1995, he held various executive positions with CONCORD
Services, Inc., a privately-held company involved in multiple businesses
including trading, manufacturing and finance. CONCORD Services, Inc.
declared bankruptcy in February 1995. In addition, Mr. Becker was Chief
Financial Officer and General Counsel of Ramtron International Corporation,
a publicly-held semiconductor manufacturer, from October 1989 until July
1994. Mr. Becker is an attorney and certified public accountant. He
received a B.A. from the University of Northern Iowa and a J.D. from the
University of Denver.
DONALD L. KORTZ has served as a Director of the Company and a member
of its Audit and Compensation Committees since its organization in 1993. He
served as a Director of AIC from June 1988 until August 1993. Mr. Kortz
served as President and Chief Executive Officer of Fuller & Company, a
Denver-based commercial real estate broker, from April 1987 until October
1995, when he was appointed President and Chief Executive Officer of Rose
Community Foundation. Previously, Mr. Kortz served as Chairman of the Board
of Trustees of the Rose Health Care Systems, the holding company of Rose
Medical Center, Denver, Colorado and as a member of the Denver Board of
Water Commissioners. Mr. Kortz also is a member of the Society of Fellows
of the University of Denver and is a member of local, state and federal bar
associations and Realtors' associations and a member of the Key Bank, N.A.,
District of Colorado, Advisory Board.
RAYMOND T. BAKER has served as a Director of the Company, as a member
of its Compensation Committee and as Chairman of its Audit Committee since
the Company was organized in 1993. He served as a Director of AIC from
December 1991 until August 1993. He has been a partner of Gold Crown
Management Co., a Denver-based property management company, since 1974. Mr.
Baker was a member of the Colorado Economic Development Commission Advisory
Board, was a member and Chairman of the Colorado Economic Development
Commission, is Chairman of the Metropolitan Football Stadium District, is a
member and Chairman of the Denver Metropolitan Major League Baseball
District, and is a director of Alpine Bank.
ROBERT J. MALONE has served as a Director of the Company and a member
of the Audit and Compensation Committees since the Company was organized in
1993. He served as a Director of AIC from February 1992 until August 1993.
Mr. Malone is Chairman of US Banc (formerly Colorado National Bank, Denver
Colorado). From 1969 to 1993, Mr. Malone served in various capacities,
including chief executive and senior executive capacities, with Central
Banks/Bank Western, Western Capital Investment Corporation, First
Interstate Bank of Denver, First Interstate Bank of Idaho and Bank of
America, Los Angeles, California. He also serves on the boards of numerous
civic and charitable organizations including Chairman of the Board of
Directors of Colorado's Ocean Journey, past Trustee and member of the
Executive Committee of the Denver Art Museum, Director of Colorado UpLIFT,
Trustee of the Denver Area Council Boy Scouts of America and Trustee and
Chairman of the Nominating Committee of the Denver Zoological Foundation.
BRUCE D. BENSON has served as Director of the Company and AIC since
October 1, 1996 and previously served as a Director of the Company from
February 1992 through November 1993. In February 1998, Mr. Benson became
the Chairman of the Compensation Committee. For the past 32 years, he has
been President and owner of Benson Mineral Group, Inc., a domestic oil and
gas production company located in Denver, Colorado. He is also Chairman,
Chief Executive Officer and President of United States Exploration, Inc.,
an oil and gas exploration company listed on the American Stock Exchange.
He serves on numerous Boards of Trustees and Boards of Directors, including
President, Denver Zoological Foundation; Past Chairman and Past President,
Boy Scouts of America, Denver Area Council; Trustee and Past President of
the Board of Trustees, Berkshire School, Sheffield, Massachusetts; Past
Trustee, Smith College, Northampton, Massachusetts; Past Chairman, Colorado
Commission on Higher Education; and past member, Board of Directors,
University of Colorado Foundation and Chairman of the Major Capital
Campaign for the University of Colorado; and Chairman of the Total Learning
Environmental Capital Campaign of the University of Colorado. In 1994, he
was the Republican nominee for the Governor of Colorado.
THOMAS C. FRIES has served as a Director of the Company since
December 1996. Since 1986, Mr. Fries has been the President and Owner of CP
Company, a regional distributor and lessor of refrigeration equipment
located in Denver, Colorado. From 1980 to 1995, Mr. Fries served as
President and Owner of Cummins Power, Inc., the Rocky Mountain area
distributor for Cummins Engine Company, Inc. He has served as Board
Chairman of Colorado Outward Bound School and Junior Achievement. He is a
Board member of Mountain States Employers Council, Colorado Outward Bound
School and is a member of the American Alpine Club.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held seven meetings in 1997. During 1997, no
Director attended fewer than 75% of the aggregate number of meetings of the
Board of Directors and any committee thereof on which he served.
The Audit Committee of the Board of Directors (the "Audit Committee")
held two meetings in 1997. Messrs. Baker, Kortz, Malone and Fries are the
current members of this committee. Among other things, the Audit Committee
reviews and approves the scope of the annual audit undertaken by the
Company's independent certified public accountants and meets with them as
considered necessary to review the progress and results of their work as
well as their recommendations. The Audit Committee also reviews internal
audit procedures and reporting systems of the Company.
The Company does not have a Nominating Committee or any other
committee performing a similar function. Procedures for nominating persons
to the Board of Directors are contained in the Company's By-laws.
The Compensation Committee of the Board of Directors (the
"Compensation Committee") held no meetings in 1997. Messrs. Kortz, Baker,
Malone and Fries are the current members of the Compensation Committee. The
Compensation Committee determines and reports to the Board of Directors
regarding compensation for the Company's executive officers.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's executive officers and Directors are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes in
ownership of securities of the Company with the Securities and Exchange
Commission (the "SEC") and the American Stock Exchange, Inc. Copies of
those reports also must be furnished to the Company. Based solely upon a
review of the copies of reports furnished to the Company, the Company
believes that for the year ended December 31, 1997, all filing requirements
were complied with by its executive officers, directors and beneficial
owners of more than ten percent of the Company's stock except as follows:
Messrs. Baker, Kortz and Malone were each late in filing (or failed to
file) reports with respect to their receipt of options to purchase 7,500
shares of Common Stock; Messrs. Benson, Considine and Fries were each late
in filing reports with respect to their receipt of options to purchase
25,000, 103,561 and 32,500 shares of Common Stock, respectively; and
Messrs. Baker, Considine, Fries, Kortz and Malone were each late in filing
reports with respect to their receipt of 17,196, 10,000, 10,600 and 10,600
shares of Common Stock, respectively. Messrs. Baker, Benson, Considine,
Fries, Kortz and Malone were late in filing (or failed to file) 5, 2, 1, 3,
2 and 2 reports, respectively.
EXECUTIVE COMPENSATION
In the fiscal year ended December 31, 1997, neither Mr.
Considine nor Mr. Rhodes, who served as the Company's Co-Chief Executive
Officers until April 1998, received any compensation in his capacity as
such. No other executive officer of the Company received total salary and
bonus in 1997 in excess of $100,000.
Through the end of fiscal 1997, neither Mr. Considine nor Mr.
Rhodes, each of whom is a stockholder of the Company and AIC, had at any
time been granted options to acquire Common Stock.
DIRECTOR COMPENSATION
During 1997, each Independent Director of the Company received 5,300
shares of Common Stock of the Company plus $300 for each meeting of the
Board of Directors or Committee thereof attended. In addition, all
Directors are reimbursed for expenses related to attending Board of
Directors and Committee meetings.
Pursuant to the existing 1993 Stock Option Plan, on the date of the
1997 annual stockholders meeting, all non-employee directors of the Company
received an automatic grant of options to acquire 7,500 shares of Common
Stock with an exercise price equal to the closing price of the Common Stock
on such date. Such options were exercisable as to 50% of the shares
upon grant and will become exercisable as to an additional 25% on each of
the first and second anniversaries of grant. The options have a term of
five years.
If the 1998 Stock Plan is approved, the non-employee directors
of the Company will continue to be entitled to receive automatic annual
grants of market-price options to acquire 7,500 shares of Common Stock on
the date of each annual stockholder meeting. These options will be
immediately exercisable upon grant and have a term of ten years. If the
1998 Stock Plan is not approved, directors will continue to receive option
grants under the terms of the 1993 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Considine and Rhodes each served as Co-Chief
Executive Officer and Co-Chairman of the Board of the Company and AIC. Mr.
Considine is Chairman of the Board and Chief Executive Officer of AIMCO,
and Mr. Rhodes serves on the Compensation Committee of AIMCO.
PERFORMANCE GRAPH
The following graph compares the change in the cumulative total
return of the Common Stock for the period from October 13, 1993 (the first
day of trading of the Common Stock on the American Stock Exchange) to
December 31, 1997, with (i) the cumulative total return of the Standard &
Poor's 500 Stock Index ("S:P 500") and (ii) a peer group (the "Peer
Group"). The companies comprising the peer group are BRT Realty Trust,
Continental Mortgage and Equity Trust and PIMCO Commercial Mortgage
Securities, Inc.
The graph was prepared based on the following assumptions: (a) $100
was invested in (i) the Common Stock on October 13, 1993 (the first day of
trading of the Common Stock on the American Stock Exchange) at the close of
business; (ii) stock of the companies in the Standard & Poor's 500 Index on
September 30, 1993 at the close of business; and (iii) stock of the peer
group companies on October 13, 1993 at the close of business; and (b) all
dividends received were deemed reinvested. The stock price performance
shown on the graph is not necessarily indicative of future price
performance.
10/13/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
Company 100 99 96 109 147 170
Peer group 100 91 93 103 140 162
S&P 500 100 102 104 142 175 234
Notwithstanding anything to the contrary contained in any of the
Company's filings with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 or the Securities Exchange
Act of 1934, the foregoing Performance Graph shall not be incorporated into
any future filings with the Commission.
THE MANAGEMENT AGREEMENT
The Company entered into a management agreement (the "Management
Agreement") with predecessors of Financial Asset Management LLC ("FAM") on
August 20, 1993, pursuant to which FAM performed the services and
activities described below, among others, relating to the assets and
operations of the Company through November 1997. In September 1996, an
investor group led by Messrs. Considine, Rhodes and Benson acquired FAM. In
November 1997, the assets of FAM, including the Management Agreement, were
acquired by AIC who thereby became the manager under the Management
Agreement. Mr. Considine is the Chairman of the Board of Directors and
Chief Executive Officer of both AIC and the Company, Mr. Rhodes is the Vice
Chairman of the Board of Directors of both AIC and the Company, and Mr.
Benson is a director (and a current nominee for director) for both
companies. The Management Agreement provided for an initial term of one
year, subject to extension by agreement between the Company and AIC. The
Management Agreement has been extended through December 31, 1998. The terms
appearing below in quotes not defined herein are defined in the Management
Agreement and have the meanings ascribed to them therein.
AIC advises the Company on its business and oversees the Company's
day-to-day operations, subject to the supervision of the Board of Directors
of the Company. AIC also is obligated to present to the Company asset
acquisition opportunities consistent with the policies and objectives of
the Company and to furnish the Board of Directors of the Company with
information concerning the acquisition, holding and disposition of
portfolio assets.
The Management Agreement is approved annually by the Independent
Directors. It may be terminated by either party with or without cause at
any time upon 60 days' written notice. In addition, the Company has the
right to terminate the Management Agreement upon the occurrence of certain
specified events including, among other things, a breach by AIC of any
material provision which breach remains uncured for 30 days or the
bankruptcy of AIC. The Management Agreement also may be terminated at any
time by a majority vote of the Independent Directors or holders of the
Common Stock of the Company (excluding shares held by AIC). AIC is entitled
to certain termination payments in the event of an acquisition of the
Company which results in the termination of the Management Agreement.
AIC receives various fees for the advisory and other services
performed in connection with the Management Agreement. AIC, at its expense,
provides all personnel and certain overhead items necessary to conduct the
regular business of the Company.
The Company has agreed to indemnify AIC and its affiliates with
respect to all expenses, losses, damages, liabilities, demands, charges or
claims of any nature in respect of acts or omissions of AIC made in good
faith and in accordance with the standards set forth in the Management
Agreement.
Under the Management Agreement, AIC may receive a base fee, an
incentive fee, an acquisition fee and an administrative fee. The base fee,
payable quarterly, is 1% of the "average invested assets" of the Company
for such year.
The incentive fee is based on the Company's profitability. AIC is
entitled to the incentive fee only after the Company's income (calculated
in accordance with the Management Agreement) exceeds a return on the
Company's "Average Net Worth" equal to the "Ten-Year U.S. Treasury Rate"
plus 1%. Twenty percent of the Company's REIT income in excess of this
amount is paid to AIC as the incentive fee. The base fee and the incentive
fee are subject to reduction in the event that the "Total Operating
Expenses" of the Company exceeds certain amounts.
The acquisition fee equals 1/2 of 1% of the acquisition cost of each
portfolio (excluding transaction costs) asset which AIC assists the Company
in acquiring. The purpose of the acquisition fee is to reimburse AIC for
its employee costs related to the due diligence procedures it performs in
connection with the Company's acquisition of portfolio assets.
AIC also may perform certain bond administration and other related
services for the Company pursuant to the Management Agreement and receives
an administrative fee for such services in relation to the complexity of
the transaction and the services required.
The Company declared an aggregate of $11,475,000 in dividends to its
Stockholders for the year ended December 31, 1997. For the same period, FAM
earned base fees of $598,000, administrative fees of $56,000, incentive
fees of $1,450,000 and acquisition fees of $23,000, respectively. AIC
earned no fees during 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth, as of April 24, 1998, the number of
shares of Common Stock beneficially owned by (i) each person known to the
Company to be a beneficial owner of more than 5% of its Common Stock; (ii)
all Directors, individually, and each executive officer of the Company that
holds Common Stock, individually; and (iii) all of the Company's Directors
and executive officers as a group, which information was furnished in part
by each such person.
Amount and
Nature of
NAME OF BENEFICIAL OWNER (1) Beneficial Percent of
Ownership(2) Class (3)
- ------------------------------------------ ------------------- ------------
Asset Investors Corporation 2,761,126 26.6%
Terry Considine(4) 181,132 1.7%
Thomas L. Rhodes(5) 66,349 *
Donald L. Kortz(6) 103,641 1.0%
Raymond T. Baker(6) 109,211 1.0%
Robert J. Malone(6) 101,907 1.0%
Bruce D. Benson(7) 159,843 1.5%
Thomas C. Fries(8) 74,891 *
All Directors and executive officers 796,974 7.4%
as a group (7 persons)
- -----------------------
* Denotes ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Unless otherwise indicated, the address for each
stockholder is 3410 South Galena Street, Suite 210, Denver,
Colorado 80231
(2) Includes, where applicable, shares of Common Stock owned by such
person's minor children and spouse and by other related
individuals and entities. Unless otherwise indicated, such person
has sole voting and investment power as to the shares listed.
(3) All shares of Common Stock which a person had the right to acquire
within 60 days after the Record Date, were deemed to be
outstanding for the purpose of computing the "Percent of Class"
owned by such person but were not deemed to be outstanding for the
purpose of computing the "Percent of Class" owned by any other
person. On the Record Date, ______ shares of Common Stock were
outstanding.
(4) Includes 77,571 shares of Common Stock held by Titahotwo Limited
Partnership ("Titahotwo"), in which Mr. Considine serves as
general partner, and 103,561 options exercisable within 60 days
which are held by Titahotwo.
(5) Includes 40,151 options exercisable within 60 days.
(6) Includes 53,125 options exercisable within 60 days.
(7) Includes 100,663 options exercisable within 60 days.
(8) Includes 24,375 options exercisable within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed in August 1993 as a wholly owned subsidiary of
AIC. In October 1993, AIC distributed approximately 70% of the
outstanding shares of Common Stock of the Company to the Stockholders
of AIC (the "Distribution"). At the time of the Distribution, the
Company was approved for listing on the American Stock Exchange, Inc.
and, thereafter, commenced its operations. As reflected in the table
under "Security Ownership of Certain Beneficial Owners and Management,"
AIC currently owns approximately 27% of the Common Stock of the
Company. Messrs. Considine and Rhodes and the officers of the Company
are directors and the officers of AIC, respectively. In addition, Mr.
Benson is a director of AIC. The Company's day-to-day operations are
performed by AIC. See "The Management Agreement" above.
In connection with the Company's formation, AIC and the Company
entered into a Contribution Agreement pursuant to which, among other
things, AIC contributed approximately $75 million to the capital of the
Company. Each party agreed to indemnify the other against certain
liabilities and obligations.
The Company has determined that AIC's ownership of its Common Stock
does not jeopardize the qualification of the Company as a REIT, and has
exempted AIC from any restrictions on ownership of Common Stock which
may be adopted by the Company, unless there is a change in law or
regulation that causes AIC's ownership of the Common Stock to
jeopardize the Company's status as a REIT. If such a change in law or
regulation should occur, the Company may adopt such provisions as are
necessary to maintain its status as a REIT, provided that such
provisions, and the enforcement of such provisions, shall be in such a
manner as to cause the least interference with AIC's ownership of
securities of the Company and shall provide for the payment to AIC of
an amount at least equal to: (i) the closing price of the Common Stock
on the last business day prior to the redemption date on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading; or (ii) if not so listed or admitted to trading,
the closing bid price on such last business day as reported on the
NASDAQ System, if quoted thereon; or (iii) if not determinable as
aforesaid, the net asset value of the Common Stock redeemed, as
determined in good faith by the Board of Directors of the Company for
any such securities to be redeemed. Notwithstanding the foregoing, in
no event may the redemption price of the Common Stock be greater than
the net asset value of the Common Stock redeemed, as determined in good
faith by the Board of Directors.
See also "Compensation Committee Interlocks and Insider
Participation."
COMPANY'S RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors of the Company appointed the firm of Ernst &
Young LLP to audit the financial statements of the Company through
December 31, 1997. A
representative of Ernst & Young LLP is expected to be present at the
Meeting and available to respond to appropriate questions. Ernst &
Young LLP has indicated that it will not make a statement, although an
opportunity for a statement will be provided. Stockholders are not
being requested to ratify this appointment.
OTHER MATTERS
Management and the Board of Directors of the Company know of no
matters to be brought before the Meeting other than as set forth
herein. However, if any such other matters properly are presented to
the Stockholders for action at the Meeting and any adjournments or
postponements thereof, it is the intention of the proxy holders named
in the enclosed proxy to vote in their discretion on all matters on
which the shares represented by such proxy are entitled to vote.
STOCKHOLDER PROPOSALS TO BE INCLUDED IN THE 1999
PROXY STATEMENT
Stockholder proposals to be considered for inclusion in the proxy
statement for the 1999 Annual Meeting of Stockholders must be received
by the Company on or
before [_________].
BY ORDER OF THE BOARD OF DIRECTORS,
Terry Considine
Chairman of the Board
April 30, 1998
ANNEX A
COMMERCIAL ASSETS, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Commercial Assets, Inc. 1998 Stock
Incentive Plan (the "Plan"). The Plan was adopted by the Board on [ ],
1998, subject to the approval of the stockholders of the Company, which
approval was obtained on [ ], 1998. The purpose of the Plan is to
enable the Company to attract and retain highly qualified personnel who
will contribute to the Company's success by their ability, ingenuity
and industry and to provide incentives to the participating officers,
directors, employees, consultants and advisors that are linked directly
to increases in stockholder value and will therefore inure to the
benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(1) "Administrator" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee in accordance
with Section 2.
(2) "Annual Non-Employee Director Stock Option" means an annual
grant of stock options to a non-employee director of the Company
pursuant to Section 5A.
(3) "Board" means the Board of Directors of the Company.
(4) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(5) "Committee" means the Compensation Committee of the Board
or any committee the Board may subsequently appoint to administer the
Plan. To the extent applicable, the Committee shall be composed
entirely of individuals who meet the qualifications referred to in
Section 162(m) of the Code and Rule 16b-3 under the Securities Exchange
Act of 1934, as amended. If at any time or to any extent the Board
shall not administer the Plan, then the functions of the Board
specified in the Plan shall be exercised by the Committee.
(6) "Company" means Commercial Assets, Inc., a Maryland
corporation (or any successor corporation).
(7) "Deferred Stock" means an award made pursuant to Section 7
below of the right to receive Stock at the end of a specified
deferral period.
(8) "Effective Date" shall mean the date set forth in Section
11.
(9) "Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or any Subsidiary.
(10) "Fair Market Value" means, as of any given date, with
respect to any awards granted hereunder, (A) if the Stock is publicly
traded, the closing sale price of the Stock on such date as reported in
the Western Edition of the Wall Street Journal, (B) the fair market
value of the Stock as determined in accordance with a method prescribed
in the agreement evidencing any award hereunder, or (C) the fair market
value of the Stock as otherwise determined by the Administrator in the
good faith exercise of its discretion.
(11) "Incentive Stock Option" means any Stock Option intended
to be designated as an "incentive stock option" within the meaning of
Section 422 of
the Code.
(12) "Limited Stock Appreciation Right" means a Stock
Appreciation Right that can be exercised only in the event of a "Change
of Control" (as defined in Section 13 or as otherwise defined in the
award agreement evidencing such Limited Stock Appreciation Right).
(13) "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, including any Stock Option that
provides (as of the time such option is granted) that it will not be
treated as an Incentive Stock Option.
(14) "Parent Corporation" means any corporation (other the
Company) in an unbroken chain of corporations ending with the Company,
if each of the corporations in the chain (other than the Company) owns
stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in the chain.
(15) "Participant" means any Eligible Recipient selected by the
Administrator, pursuant to the Administrator's authority in Section 2
below, to receive grants of Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock awards, Deferred Stock
awards, Performance Shares or any combination of the foregoing.
(16) "Partnership" means any operating partnership which may
hereafter be formed by the Company.
(17) "Partnership Units" means units of limited partnership of
the Partnership.
(18) "Performance Share" means an award of shares of Stock
pursuant to Section 7 that is subject to restrictions based upon the
attainment of
specified performance objectives.
(19) "Restricted Stock" means an award granted pursuant to
Section 7 of shares of Stock subject to certain restrictions.
(20) "Stock" means the Common Stock, par value $.01 per share,
of the Company.
(21) "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 to receive an amount equal to the excess,
if any, of (A) the Fair Market Value, as of the date such Stock
Appreciation Right or portion thereof is surrendered, of the shares of
Stock covered by such right or such portion thereof, over (B) the
aggregate exercise price of such right or such portion thereof.
(22) "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5 or any Annual Non-Employee Director
Stock Option
granted pursuant to Section 5A.
(23) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company, if each of the corporations (other than the last corporation)
in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the
requirements of Section 162(m) of the Code (but only to the extent
necessary to maintain qualification of awards under the Plan under
Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
by the Board or by the Committee which shall be appointed by the Board
and which shall serve at the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall have
the power and authority to grant to Eligible Recipients pursuant to the
terms of the Plan: (a) Stock Options, (b) Stock Appreciation Rights or
Limited Stock Appreciation Rights, (c) Restricted Stock, (d)
Performance Shares, (e) Deferred Stock or (f) any combination of the
foregoing.
In particular, the Administrator shall have the authority:
(a) to select those Eligible Recipients who shall
be Participants;
(b) to determine whether and to what extent Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or a combination of the
foregoing, are to be granted hereunder to Participants;
(c) to determine the number of shares of Stock to be
covered by each such award granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, (x) the restrictions applicable to
Restricted Stock or Deferred Stock awards and the conditions under
which restrictions applicable to such Restricted Stock or Deferred
Stock shall lapse, and (y) the performance goals and periods applicable
to the award of Performance Shares); and
(e) to determine the terms and conditions, not
inconsistent with the terms of the Plan, which shall govern all written
instruments evidencing the Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock,
Performance Shares or any combination of the foregoing granted hereunder
to Participants.
The Administrator shall have the authority, in its discretion,
to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable;
to interpret the terms and provisions of the Plan and any award issued
under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan.
All decisions made by the Administrator pursuant to the
provisions of the Plan shall be final, conclusive and binding on all
persons, including the Company and the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The number of shares of Stock reserved for issuance at any time
pursuant to outstanding awards under the Plan shall be limited to 15%
of the sum of (i) the number of then outstanding shares of Stock and
(ii) the number of then outstanding Partnership Units; provided, that
in no event shall the total number of shares of Common Stock issuable
under the 1998 Stock Plan exceed 3 million shares of Stock. The
aggregate number of shares of Stock as to which Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock and Performance
Shares may be granted to any individual during any calendar year may
not, subject to adjustment as provided in this Section 3, exceed 80% of
the shares of Stock reserved for the purposes of the Plan in accordance
with the provisions of this Section 3.
Consistent with the provisions of Section 162(m) of the Code,
as from time to time applicable, to the extent that (i) a Stock Option
expires or is otherwise terminated without being exercised, or (ii) any
shares of Stock subject to any Restricted Stock, Deferred Stock or
Performance Share award granted hereunder are forfeited, such shares
shall again be available for issuance in connection with future awards
under the Plan. If any shares of Stock have been pledged as collateral
for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares are returned to the Company
in satisfaction of such indebtedness, such shares shall again be
available for issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i)
the aggregate number of shares reserved for issuance under the Plan,
(ii) the kind, number and option price of shares subject to outstanding
Stock Options granted under the Plan, and (iii) the kind, number and
purchase price of shares issuable pursuant to awards of Restricted
Stock, Deferred Stock and Performance Shares, in each case as may be
determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion.
An adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation
Right or Limited Stock Appreciation Right related to any Stock Option.
In connection with any event described in this paragraph, the
Administrator may provide, in its discretion, for the cancellation of
any outstanding awards and payment in cash or other property therefor.
SECTION 4. ELIGIBILITY.
Officers, directors and employees of the Company or any
Subsidiary, and consultants and advisors to the Company or any
Subsidiary, who are responsible for or are in a position to contribute
to the management, growth and/or profitability of the business of the
Company shall be eligible to be granted Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock awards, Deferred Stock awards or Performance Shares hereunder.
The Participants under the Plan shall be selected from time to time by
the Administrator, in its sole discretion, from among the Eligible
Recipients recommended by the senior management of the Company, and the
Administrator shall determine, in its sole discretion, the number of
shares of Stock covered by each award.
SECTION 5. DISCRETIONARY GRANTS OF STOCK OPTIONS.
Stock Options may be granted alone or in addition to other
awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Administrator may from time to time
approve, and the provisions of Stock Option awards need not be the same
with respect to each optionee. Recipients of Stock Options shall enter
into an award agreement with the Company, in such form as the
Administrator shall determine, which agreement shall set forth, among
other things, the exercise price of the option, the term of the option
and provisions regarding exercisability of the option granted
thereunder.
The Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any officer
or employee of the Company (including directors who are also officers
of the Company) Incentive Stock Options, Non-Qualified Stock Options,
or both types of Stock Options (in each case with or without Stock
Appreciation Rights or Limited Stock Appreciation Rights). Directors
who are not officers of the Company, consultants and advisors may only
be granted Non-Qualified Stock Options (with or without Stock
Appreciation Rights or Limited Stock Appreciation Rights). To the extent
that any Stock Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option. More than one
option may be granted to the same optionee and be outstanding concurrentl
hereunder.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
(1) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the
Administrator in its sole discretion at the time of grant but shall
not, in the case of Incentive Stock Options, be less than 100% of the
Fair Market Value of the Stock on such date and shall not, in any
event, be less than the par value (if any) of the Stock. If an employee
owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Parent Corporation
and an Incentive Stock Option is granted to such employee, the option
price of such Incentive Stock Option (to the extent required by the
Code at the time of grant) shall be no less than 110% of the Fair
Market Value of the Stock on the date such Incentive Stock Option is
granted.
(2) Option Term. The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more
than ten years after the date such Stock Option is granted; provided,
however, that if an employee owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any
Parent Corporation and an Incentive Stock Option is granted to such
employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five
years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant. The Administrator
may provide, in its discretion, that any Stock Option shall be
exercisable only in installments, and the Administrator may waive such
installment exercise provisions at any time in whole or in part based
on such factors as the Administrator may determine, in its sole
discretion.
(4) Method of Exercise. Subject to Section 5(3) above, Stock
Options may be exercised in whole or in part at any time during the
option period, by giving written notice of exercise to the Company
specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price in cash or its equivalent, as
determined by the Administrator. As determined by the Administrator,
in its sole discretion, payment in whole or in part may also be made
(i) by means of any cashless exercise procedure approved by the
Administrator, (ii) in the form of unrestricted Stock already owned by
the optionee or (iii) in the case of the exercise of a Non-Qualified
Stock Option, in the form of Restricted Stock or Performance Shares
subject to an award hereunder (based, in each case, on the Fair Market
Value of the Stock on the date the option is exercised); provided,
however, that in the case of an Incentive Stock Option, the right to
make payment in the form of already owned shares may be authorized
only at the time of grant. If payment of the option exercise price of
a Non-Qualified Stock Option is made in whole or in part in the form
of Restricted Stock or Performance Shares, the shares received upon
the exercise of such Stock Option shall be restricted in accordance
with the original terms of the Restricted Stock or Performance Share
award in question, except that the Administrator may direct that such
restrictions shall apply only to that number of shares equal to the
number of shares surrendered upon the exercise of such option. An
optionee shall generally have the rights to dividends and any other
rights of a stockholder with respect to the Stock subject to the Stock
Option only after the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (1) of Section 10.
The Administrator may require the voluntary surrender of all or
a portion of any Stock Option granted under the Plan as a condition
precedent to the grant of a new Stock Option. Subject to the provisions
of the Plan, such new Stock Option shall be exercisable at the price,
during such period and on such other terms and conditions as are
specified by the Administrator at the time the new Stock Option is
granted. Consistent with the provisions of Section 162(m), to the
extent applicable, upon their surrender, Stock Options shall be
canceled and the shares previously subject to such canceled Stock
Options shall again be available for grants of Stock Options and other
awards hereunder.
(5) Loans. The Company may make loans available to Stock
Option holders in connection with the exercise of outstanding options
granted under the Plan, as the Administrator, in its discretion, may
determine. Such loans shall (i) be evidenced by promissory notes
entered into by the Stock Option holders in favor of the Company, (ii)
be subject to the terms and conditions set forth in this Section 5(5)
and such other terms and conditions, not inconsistent with the Plan,
as the Administrator shall determine, (iii) bear interest, if any, at
such rate as the Administrator shall determine, and (iv) be subject to
Board approval (or to approval by the Administrator to the extent the
Board may delegate such authority). In no event may the principal
amount of any such loan exceed the sum of (x) the exercise price less
the par value (if any) of the shares of Stock covered by the option,
or portion thereof, exercised by the holder, and (y) any federal,
state, and local income tax attributable to such exercise. The initial
term of the loan, the schedule of payments of principal and interest
under the loan, the extent to which the loan is to be with or without
recourse against the holder with respect to principal or interest and
the conditions upon which the loan will become payable in the event of
the holder's termination of employment shall be determined by the
Administrator. Unless the Administrator determines otherwise, when a
loan is made, shares of Stock having a Fair Market Value at least
equal to the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid balance of
the loan, and such pledge shall be evidenced by a pledge agreement,
the terms of which shall be determined by the Administrator, in its
discretion; provided, however, that each loan shall comply with all
applicable laws, regulations and rules of the Board of Governors of
the Federal Reserve System and any other governmental agency having
jurisdiction.
(6) Transferability of Options. Stock Options shall be
transferable by the optionee, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee or
such transferee; provided, that the Administrator may, in its sole
discretion, provide for the non-transferability of Stock Options under
such terms and conditions as the Administrator shall determine and set
forth in the agreement evidencing such award. Notwithstanding the
foregoing, except to the extent permitted by Section 422 of the Code,
no Stock Option intended to qualify as an Incentive Stock Option shall
be transferable by the optionee.
(7) Termination of Employment or Service. If an optionee's
employment or service as a director, consultant or advisor terminates
by reason of death, disability or for any other reason, the Stock
Option may thereafter be exercised to the extent provided in the
applicable award agreement, or as otherwise determined by the
Administrator.
(8) Annual Limit on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of shares of Stock with respect to
which Incentive Stock Options granted to an Optionee under this Plan
and all other option plans of the Company or its Parent Corporation
become exercisable for the first time by the Optionee during any
calendar year exceeds $100,000, such Stock Options shall be treated as
Non-Qualified Stock Options.
SECTION 5A. ANNUAL NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
Immediately following each annual meeting of the Company's
stockholders, each then non-employee director of the Company shall
automatically be granted a Non-Qualified Stock Option to purchase 7,500
shares of Stock (an "Annual Non-Employee Director Stock Option"). The
terms and conditions of the Annual Non-Employee Director Stock Options
granted pursuant to this Section 5A shall be as follows:
(1) Option Term. The term of the option shall be ten (10) years
from the date of grant.
(2) Exercise Price. The exercise price per share of Stock
subject to such option shall be 100% of the Fair Market Value of the
Stock on the date of grant.
(3) Vesting and Exercisability. The option shall be 100% vested
and exercisable as of the date of grant.
(4) Transferability. The option shall be transferable as
provided in Section 5(6).
(5) Payment of Exercise Price. The exercise price of the option
shall be paid in cash or its equivalent as determined by the
Administrator.
(6) Termination of Service. Following termination of service as
a director for any reason, the option shall be exercisable as
determined by the Administrator at or after grant.
SECTION 5B. STOCK GRANTS TO NON-EMPLOYEE DIRECTORS IN LIEU OF
MEETING FEES
Each non-employee director of the Company may elect to receive
all or any portion of any Meeting Fees in shares of Stock. "Meeting
Fees" shall mean all annual retainers and other fees payable for
attendance at each regular or special meeting of the Board or any
committees attended by a non-employee director. If no such election is
timely received by the Company, such director shall receive any
Meeting Fees in cash. The number of shares of Stock issuable pursuant
to any such election shall be determined based on (i) the amount of
Meeting Fees subject to such election and (ii) the Fair Market Value
of the Stock as of the date of grant.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK
APPRECIATION RIGHTS.
(1) Grant and Exercise. Stock Appreciation Rights and Limited
Stock Appreciation Rights may be granted either alone ("Free Standing
Rights") or in conjunction with all or part of any Stock Option
granted under the Plan ("Related Rights"). In the case of a
Non-Qualified Stock Option, Related Rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an
Incentive Stock Option, Related Rights may be granted only at the time
of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in
conjunction with a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock
Option, except that, unless otherwise provided by the Administrator at
the time of grant, a Related Right granted with respect to less than
the full number of shares covered by a related Stock Option shall only
be reduced if and to the extent that the number of shares covered by
the exercise or termination of the related Stock Option exceeds the
number of shares not covered by the Related Right.
A Related Right may be exercised by an optionee, in accordance
with paragraph (2) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender,
the optionee shall be entitled to receive an amount determined in the
manner prescribed in paragraph (2) of this Section 6. Stock Options
which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the Related Rights have been so exercised.
(2) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Administrator, including the following:
(a) Stock Appreciation Rights that are Related Rights
("Related Stock Appreciation Rights") shall be exercisable only at such
time or times and to the extent that the Stock Options to which they
relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(b) Upon the exercise of a Related Stock Appreciation
Right, an optionee shall be entitled to receive up to, but not more
than, an amount in cash or that number of shares of Stock (or in some
combination of cash and shares of Stock) equal in value to the excess
of the Fair Market Value of one share of Stock as of the date of
exercise over the option price per share specified in the related Stock
Option multiplied by the number of shares of Stock in respect of which
the Related Stock Appreciation Right is being exercised, with the
Administrator having the right to determine the form of payment.
(c) Related Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying Stock
Option would be transferable under paragraph (6) of Section 5 of the
Plan.
(d) Upon the exercise of a Related Stock Appreciation
Right, the Stock Option or part thereof to which such Related Stock
Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 3 of the Plan on
the number of shares of Stock to be issued under the Plan, but only to
the extent of the number of shares issued under the Related Stock
Appreciation Right.
(e) A Related Stock Appreciation Right granted in
connection with an Incentive Stock Option may be exercised only if and
when the Fair Market Value of the Stock subject to the Incentive Stock
Option exceeds the exercise price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing
Rights ("Free Standing Stock Appreciation Rights") shall be exercisable
at such time or times and subject to such terms and conditions as shall
be determined by the Administrator at or after grant.
(g) The term of each Free Standing Stock Appreciation Right
shall be fixed by the Administrator, but no Free Standing Stock
Appreciation Right shall be exercisable more than ten years after the
date such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more
than, an amount in cash or that number of shares of Stock (or any
combination of cash or shares of Stock) equal in value to the excess
of the Fair Market Value of one share of Stock as of the date of
exercise over the price per share specified in the Free Standing Stock
Appreciation Right (which price shall be no less than 100% of the Fair
Market Value of the Stock on the date of grant) multiplied by the
number of shares of Stock in respect of which the right is being
exercised, with the Administrator having the right to determine the
form of payment.
(i) Free Standing Stock Appreciation Rights shall be
transferable only when and to the extent that a Stock Option would be
transferable under paragraph (6) of Section 5 of the Plan.
(j) In the event of the termination of employment or
service of a Participant who has been granted one or more Free Standing
Stock Appreciation Rights, such rights shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant.
(k) Limited Stock Appreciation Rights may only be
exercised within the 30-day period following a "Change of Control" (as
defined in Section 13 or as otherwise defined by the Administrator in
the award agreement evidencing such Limited Stock Appreciation Right)
and, with respect to Limited Stock Appreciation Rights that are Related
Rights ("Related Limited Stock Appreciation Rights"), only to the
extent that the Stock Options to which they relate shall be exercisable
in accordance with the provisions of Section 5 and this Section 6 of
the Plan.
(l) Upon the exercise of a Limited Stock Appreciation
Right, the recipient shall be entitled to receive an amount in cash
equal in value to the excess of the "Change of Control Price" (as
defined in the agreement evidencing such Limited Stock Appreciation
Right) of one share of Stock as of the date of exercise over (A) the
option price per share specified in the related Stock Option, or (B) in
the case of a Limited Stock Appreciation Right which is a Free Standing
Stock Appreciation Right, the price per share specified in the Free
Standing Stock Appreciation Right, such excess to be multiplied by the
number of shares in respect of which the Limited Stock Appreciation
Right shall have been exercised.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE
SHARES.
(1) General. Restricted Stock, Deferred Stock or Performance
Share awards may be issued either alone or in addition to other awards
granted under the Plan. The Administrator shall determine the Eligible
Recipients to whom, and the time or times at which, grants of
Restricted Stock, Deferred Stock or Performance Share awards shall be
made; the number of shares to be awarded; the price, if any, to be paid
by the recipient of Restricted Stock, Deferred Stock or Performance
Share awards; the Restricted Period (as defined in paragraph (3) of
this Section 7) applicable to Restricted Stock or Deferred Stock
awards; the performance objectives applicable to Restricted Stock,
Performance Share or Deferred Stock awards; the date or dates on which
restrictions applicable to such Restricted Stock or Deferred Stock
awards shall lapse during such Restricted Period; and all other
conditions of the Restricted Stock, Deferred Stock and Performance
Share awards. Subject to the requirements of Section 162(m) of the
Code, as applicable, the Administrator may also condition the grant of
Restricted Stock, Deferred Stock awards or Performance Shares upon the
exercise of Stock Options, or upon such other criteria as the
Administrator may determine, in its sole discretion. The provisions of
Restricted Stock, Deferred Stock or Performance Share awards need not
be the same with respect to each recipient. In the discretion of the
Administrator, loans may be made to Participants in connection with the
purchase of Restricted Stock under substantially the same terms and
conditions as provided in Section 5(5) with respect to the exercise of
stock options.
(2) Awards and Certificates. The prospective recipient of a
Restricted Stock, Deferred Stock or Performance Share award shall not
have any rights with respect to such award, unless and until such
recipient has executed an agreement evidencing the award (a "Restricted
Stock Award Agreement," "Deferred Stock Award Agreement" or
"Performance Share Award Agreement," as appropriate) and delivered a
fully executed copy thereof to the Company, within a period of sixty
days (or such other period as the Administrator may specify) after the
award date. Except as otherwise provided below in this Section 7(2),
(i) each Participant who is awarded Restricted Stock or Performance
Shares shall be issued a stock certificate in respect of such shares of
Restricted Stock or Performance Shares; and (ii) such certificate shall
be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Share awards hereunder be held in the
custody of the Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted Stock award or
Performance Share award, the Participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the
Restricted Period, stock certificates in respect of such shares of
Deferred Stock shall be delivered to the participant, or his legal
representative, in a number equal to the number of shares of Stock
covered by the Deferred Stock award.
(3) Restrictions and Conditions. The Restricted Stock, Deferred
Stock and Performance Share awards granted pursuant to this Section 7
shall be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan, and the
Restricted Stock Award Agreement, Deferred Stock Award Agreement or
Performance Share Award Agreement, as appropriate, governing such
award, during such period as may be set by the Administrator commencing
on the grant date (the "Restricted Period"), the Participant shall not
be permitted to sell, transfer, pledge or assign shares of Restricted
Stock, Performance Shares or Deferred Stock awarded under the Plan;
provided, however, that the Administrator may, in its sole discretion,
provide for the lapse of such restrictions (other than those pursuant
to any stockholders agreement) in installments and may accelerate or
waive such restrictions in whole or in part based on such factors and
such circumstances as the Administrator may determine, in its sole
discretion, including, but not limited to, the attainment of certain
performance related goals or the Participant's termination of
employment or service, death or disability.
(b) Except as provided in paragraph (3)(a) of this
Section 7, the Participant shall generally have, with respect to the
shares of Restricted Stock or Performance Shares, all of the rights of
a stockholder with respect to such stock during the Restricted Period.
The Participant shall generally not have the rights of a stockholder
with respect to stock subject to Deferred Stock awards during the
Restricted Period; provided, however, that dividends declared during
the Restricted Period with respect to the number of shares covered by a
Deferred Stock award shall be paid to the Participant. Certificates for
shares of unrestricted Stock shall be delivered to the Participant
promptly after, and only after, the Restricted Period shall expire
without forfeiture in respect of such shares of Restricted Stock,
Performance Shares or Deferred Stock, except as the Administrator, in
its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock
and Performance Share awards upon termination of employment or service
for any reason during the Restricted Period shall be set forth in the
Restricted Stock Award Agreement, Deferred Stock Award Agreement or
Performance Share Award Agreement, as appropriate, governing such
awards.
(d) With respect to awards intended to constitute
"qualified performance based compensation for purposes of Section
162(m) of the Code, the applicable performance goals shall be based on
funds from operations, adjusted funds from operations, net income and
stock price performance.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would
impair the rights of a Participant under any award theretofore granted
without such Participant's consent, or that, without the approval of
the stockholders (as described below), would:
(1) except as provided in Section 3, increase the total number
of shares of Stock reserved for the purpose of the Plan;
(2) change the class of directors, officers, employees,
consultants and advisors eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of
Section 5 of the Plan.
Notwithstanding the foregoing, stockholder approval under this
Section 8 shall only be required at such time and under such
circumstances as stockholder approval would be required under Section
162(m) of the Code or other applicable law, rule or regulation with
respect to any material amendment to any employee benefit plan of the
Company.
The Administrator may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without
his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general
creditor of the Company.
SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares
pursuant to a Stock Option or otherwise acquiring shares under the Plan
to represent to and agree with the Company in writing that such person
is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the
Administrator deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stock-transfer orders and other restrictions
as the Administrator may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any
stock exchange upon which the Stock is then listed, and any applicable
federal or state securities law, and the Administrator may cause a
legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval, if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases. The adoption of the Plan shall not confer upon any
officer, director, employee, consultant or advisor of the Company any
right to continued employment or service with the Company, as the case
may be, nor shall it interfere in any way with the right of the Company
to terminate the employment or service of any of its officers,
directors, employees, consultants or advisors at any time.
(3) Each Participant shall, no later than the date as of which
the value of an award first becomes includible in the gross income of
the Participant for federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Administrator regarding
payment of, any federal, state, or local taxes of any kind required by
law to be withheld with respect to the award. The obligations of the
Company under the Plan shall be conditional on the making of such
payments or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any
officer or employee of the Company acting on behalf of the Board or the
Administrator, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board or the Administrator
and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination
or interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on [ ], 1998,
the date the Company's stockholders formally approved the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock
Appreciation Right, Restricted Stock, Deferred Stock or Performance
Share award shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but awards theretofore granted may
extend beyond that date.
SECTION 13. CHANGE OF CONTROL
Except as otherwise determined by the Administrator in its sole
discretion, the exercisability and vesting of all awards granted under
the Plan shall be accelerated upon the occurrence of a Change of
Control.
For purposes of the Plan, except as otherwise determined by the
Administrator in its sole discretion, "Change of Control" shall mean
the occurrence of any of the following events:
(1) An acquisition (other than directly from the Company) of
any voting securities of the Company ("Voting Securities") by any
"person" (as used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
immediately after which such person has "beneficial ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
("Beneficial Ownership") of 20% or more of the combined voting power
of the Company's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred, the
acquisition of Voting Securities in a Non-Control Acquisition (as
hereinafter defined) shall not constitute a Change in Control.
"Non-Control Acquisition" shall mean an acquisition by (A) an employee
benefit plan (or a trust forming a part thereof) maintained by (i) the
Company or (ii) any corporation, partnership or other person of which
a majority of its voting power or its equity securities or other
equity interests is owned directly or indirectly by the Company or of
which the Company serves as a general partner or manager (a
"Subsidiary"), (B) the Company or any Subsidiary, or (C) any person in
connection with a Non-Control Transaction (as hereinafter defined); or
(2) The individuals who constitute the Board as of the
Effective Date (the "Incumbent Board") cease for any reason to
constitute at least two-thirds (2/3) of the Board; provided, however,
that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at least
two-thirds (2/3) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided, further,
that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of
either an actual or threatened "election contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) (an "Election
Contest") or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of: (A) a merger,
consolidation, share exchange or reorganization involving the Company,
unless (i) the stockholders of the Company, immediately before such
merger, consolidation, share exchange or reorganization, own, directly
or indirectly immediately following such merger, consolidation, share
exchange or reorganization, at least 80% of the combined voting power
of the outstanding voting securities of the corporation that is the
successor in such merger, consolidation, share exchange or
reorganization (the "Surviving Company") in substantially the same
proportion as their ownership of Voting Securities immediately before
such merger, consolidation, share exchange or reorganization, (ii) the
individuals who were members of the Incumbent Board immediately prior
to the execution of the agreement providing for such merger,
consolidation, share exchange or reorganization constitute at least
two-thirds (2/3) of the members of the board of directors of the
Surviving Company, and (iii) no person (other than the Company or any
Subsidiary, any employee benefit plan (or any trust forming a part
thereof) maintained by the Company, the Surviving Company or any
Subsidiary, or any person who, immediately prior to such merger,
consolidation, share exchange or reorganization had Beneficial
Ownership of 15% or more of the then outstanding Voting Securities)
has Beneficial Ownership of 15% or more of the combined voting power
of the Surviving Company's then outstanding voting securities
immediately following such merger, consolidation, share exchange or
reorganization (a transaction described in clauses (i) through (iii)
is referred to herein as "Non-Control Transaction"); (B) a complete
liquidation or dissolution of the Company; or (C) an agreement for the
sale or other disposition of all or substantially all of the assets of
the Company to any person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any person (a "Subject Person") acquires
Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company that, by reducing the number of Voting
Securities outstanding, increases the proportional number of shares
Beneficially Owned by such Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and
after such share acquisition by the Company, such Subject Person
becomes the Beneficial Owner of any additional Voting Securities that
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by such Subject Person, then a Change in Control
shall occur.
