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SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
IRVINE APARTMENT COMMUNITIES, INC.
(Name of Registrant as Specified in its Charter)
IRVINE APARTMENT COMMUNITIES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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IAC
IRVINE APARTMENT COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, California 92660
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 25, 1997
---------------------
The 1997 Annual Meeting of the shareholders of Irvine Apartment Communities,
Inc. will be held at the Hyatt Regency Irvine Hotel, 17900 Jamboree Boulevard,
Irvine, California 92614 on Friday, April 25, 1997 at 10:00 a.m. for the
following purposes:
1. To elect three directors of the Company: two to serve
until the Annual Meeting of the shareholders in 2000 and one
director to serve until the Annual Meeting of the shareholders
in 1998.
2. To approve the issuance of up to an aggregate of 3,950,000
shares of the Company's Common Stock or operating partnership
units in Irvine Apartment Communities, L.P. that are
exchangeable for Common Stock to The Irvine Company in
consideration for the purchase of land sites for future
apartment community development. This authority would extend
through the date of the Company's Annual Meeting in 2001. All
land purchases covered by this authority would be subject to
the Exclusive Land Rights and Non-Competition Agreement dated
November 21, 1993, as amended (the "Land Rights Agreement"),
among the Company, the Operating Partnership, The Irvine
Company and Mr. Donald Bren.
3. To approve the right of The Irvine Company to exchange 405,456
operating partnership units in Irvine Apartment Communities,
L.P. issued over the past two years in connection with three
land transactions under the Land Rights Agreement for shares of
Common Stock of the Company.
4. To transact such other business as may properly come
before the meeting and any and all adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on March 18, 1997 as the
record date for the determination of the shareholders entitled to notice of and
to vote at the meeting and at any adjournment or postponement thereof.
Shareholders are invited to attend the meeting. Whether or not you expect to
attend, we urge you to sign, date and promptly return the enclosed proxy card
in the enclosed postage prepaid envelope. If you attend the meeting, you may
vote your shares in person, which will revoke any previously executed proxy.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the meeting, you must obtain a letter from the broker, bank or
other nominee confirming your beneficial ownership of the shares and bring it
to the meeting. In order to vote your shares at the meeting, you must obtain
from the record holder a proxy issued in your name.
By Order of the Board of Directors,
James E. Mead
Senior Vice President, Chief
Financial Officer and Secretary
March 21, 1997
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IAC
IRVINE APARTMENT COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, California 92660
--------------------
PROXY STATEMENT
For Annual Meeting of Shareholders to be held April 25, 1997
--------------------
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Irvine Apartment Communities,
Inc., a Maryland corporation (the "Company"), for the 1997 Annual Meeting of the
shareholders of the Company (the "1997 Annual Meeting") to be held at the Hyatt
Regency Irvine Hotel, 17900 Jamboree Boulevard, Irvine, California 92614 on
Friday, April 25, 1997 at 10:00 a.m. The Notice of Annual Meeting, this proxy
statement and the accompanying proxy are first being mailed on or about March
21, 1997 to shareholders of record as of the close of business on March 18,
1997. You can ensure that your shares are voted at the meeting by signing,
dating and promptly returning the enclosed proxy in the envelope provided.
Sending in a signed proxy will not affect your right to attend the meeting and
vote in person. You may revoke your proxy at any time before it is voted by
notifying the Company's Transfer Agent, Boston EquiServe, L.P., 435 Tasso
Street, Suite 250, Palo Alto, California 94301 in writing, or by executing a
subsequent proxy, which revokes your previously executed proxy. Additionally,
if you attend the meeting, you may vote your shares in person, which will revoke
any previously executed proxy.
At the 1997 Annual Meeting, shareholders will have the opportunity to elect
three directors, two to serve until the Annual Meeting in 2000 and one to serve
until the Annual Meeting in 1998; to approve the Future L.P. Unit Proposal (as
defined herein); and to approve the Outstanding L.P. Unit Proposal (as defined
herein).
The Company's principal executive offices are located at 550 Newport Center
Drive, Newport Beach, California 92660.
VOTING OF PROXIES
Proxies will be voted as specified by the shareholders. Where specific choices
are not indicated, proxies will be voted FOR the election of all nominees for
Director (Proposal 1), FOR the Future L.P. Unit Proposal (Proposal 2) and FOR
the Outstanding L.P. Unit Proposal (Proposal 3). Under the Maryland General
Corporation Law (the "MGCL"), the Company's Articles of Amendment and
Restatement (the "Company Charter") and the Company's Bylaws (the "Company
Bylaws"), shares represented by proxies that reflect abstentions or "broker
non-votes" will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. The election of Directors
(Proposal 1) requires the affirmative vote of a plurality of the shares of
Common Stock present, in person or by proxy, and entitled to vote at the 1997
Annual Meeting. Accordingly, abstentions and broker non-votes have no effect on
the plurality of votes for election of directors. Each of the Future L.P. Unit
Proposal and the Outstanding L.P. Unit Proposal require the affirmative vote of
a majority of the aggregate votes cast by the holders of Common Stock, provided
that the total vote cast on each Proposal represents more than 50% of the total
number of votes entitled to be cast by the holders of Common Stock. Accordingly,
provided that more than 50% of the votes entitled to be cast at the
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1997 Annual Meeting are cast, abstentions and broker non-votes have no effect on
the majority vote required to approve these matters. The shares of Common Stock
do not have cumulative voting rights.
Shareholders will not be entitled to appraisal rights in connection with any
matter to be voted on at the 1997 Annual Meeting.
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ITEM 1. ELECTION OF DIRECTORS
At the 1997 Annual Meeting, two Directors are to be elected to serve
for a term to expire at the 2000 Annual Meeting of the shareholders and one
Director is to be elected to serve for a term to expire at the 1998 Annual
Meeting of the shareholders. The nominees for election to serve until the 2000
Annual Meeting of the shareholders are Michael D. McKee and Jack W. Peltason.
The nominee for election to serve until the 1998 Annual Meeting of the
shareholders is William H. McFarland. Mr. McFarland was appointed by the Board
of Directors in December 1996 to replace Norman J. Metcalfe who resigned as a
Director. Pursuant to the MGCL, the Company Charter and the Company Bylaws, Mr.
McFarland may serve until the 1997 Annual Meeting. Information regarding the
Board's nominees for directors is set forth below. Information regarding the
two remaining Directors whose terms expire in 1998 and the three Directors whose
terms expire in 1999 is set forth below.
Pursuant to the Company Charter, the Board of Directors consists of
not less than three nor more than 10 directors, with the initial number of
directors set at nine. The Board of Directors is divided into three classes
serving staggered terms, with each class consisting of one-third of the total
number of directors. Each class holds office until the third annual meeting
following the election of such class, except that in connection with the
reincorporation of the Company in Maryland in 1996 the initial terms of the
three classes expire in 1997, 1998 and 1999, respectively.
Mr. Steven P. Albert whose term as a director would have expired at
the 1997 Annual Meeting resigned as a director and the Chief Executive Officer
and President of the Company in February 1997. The Board of Directors of the
Company has not yet determined whether to fill the vacancy on the Board of
Directors created by the resignation of Mr. Albert or to reduce the size of the
Board to eight persons. Accordingly, at the 1997 Annual Meeting, shareholders
of the Company will vote for the election of only two directors, Messrs. McKee
and Peltason, of the class whose term will expire at the Annual Meeting of
shareholders in 2000. In the event that this vacancy is filled by the Board of
Directors after the 1997 Annual Meeting, pursuant to the MGCL, the Company
Charter and the Company Bylaws, the person so appointed will serve until the
Annual Meeting of shareholders in 1998.
The accompanying proxy will be voted for election of the Board's
nominees unless contrary instructions are given. If any of the Board's
nominees is unable to serve, which is not anticipated, the persons named as
proxies intend to vote, unless the number of nominees is reduced by the Board
of Directors, for such other person or persons as the Board of Directors may
designate. Proxies cannot be voted for a greater number of persons than the
number of nominees named in this Proxy Statement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS. MCKEE,
PELTASON AND MCFARLAND AS DIRECTORS, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON
THE ENCLOSED PROXY CARD.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A THREE-YEAR TERM TO EXPIRE
AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
MICHAEL D. MCKEE, 51. Mr. McKee has been a Director of the Company since
January 1995. Mr. McKee has been Executive Vice President and Chief Financial
Officer of The Irvine Company since January 1997 and was Executive Vice
President and Chief Legal Officer of The Irvine Company from April 1994 to
January 1997. Prior to joining The Irvine Company, Mr. McKee was the managing
partner of the Orange County office of Latham & Watkins, an international law
firm with which he was associated since 1979. Mr. McKee is a member of the
Board of Directors of Circus Circus Enterprises, Inc., Health Care Property
Investors, Inc. and Realty Income Corporation.
JACK W. PELTASON, 73. Mr. Peltason has been a Director of the Company since
December 8, 1993. Mr. Peltason was President of the University of California
from 1992 until his retirement in 1995. From 1984 to 1992 Mr. Peltason served
as Chancellor for the University of California,
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Irvine. He is a Professor of Political Science at University of California,
Irvine and a Fellow of the American Academy of Arts and Sciences. Mr. Peltason
is a director of AST Research, Inc. and Infotec, Inc. and a consultant to the
Bren Charitable Foundation.
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS FOR A ONE-YEAR TERM TO EXPIRE AT
THE 1998 ANNUAL MEETING OF SHAREHOLDERS
WILLIAM H. MCFARLAND, 57. Mr. McFarland became a Director of the Company in
December 1996. Mr. McFarland has been Executive Vice President, Land and
Residential Development of The Irvine Company since 1984 and was responsible for
the operations and development activities of the Company's predecessor prior to
the Company's formation in 1993. Prior to joining The Irvine Company in 1984,
Mr. McFarland served as President and Chief Executive Officer of the Bren
Company. Prior to working for the Bren Company, he also served as General
Manager of Kaiser Aetna's Ponderosa Homes North Bay Division and as President of
the McCarthy Company. Mr. McFarland served three years as an officer in the
U.S. Marine Corps. He was elected to the California Building Industry
Foundation Hall of Fame in 1996.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE; TERMS EXPIRE AT THE 1998
ANNUAL MEETING OF SHAREHOLDERS
ANTHONY M. FRANK, 65. Mr. Frank has been a Director of the Company since
December 8, 1993. Mr. Frank has been Chairman of Acrogen, Inc. and
Director/Consultant of Transamerica HomeFirst, Inc. since 1992. Prior to this,
Mr. Frank served as Postmaster General of the United States from March 1988 to
March 1992. From August 1971 through February 1988, Mr. Frank was Chairman and
Chief Executive Officer of First Nationwide Bank. He has also served as
Chairman of the Federal Home Loan Bank of San Francisco and Chairman of the
California Housing Finance Agency, and was the first Chairman of the Federal
Home Loan Mortgage Corporation Advisory Board. Mr. Frank is a director of
Temple-Inland Inc., Bedford Property Investors, Inc., Living Centers of America,
Inc., General American Investors Company, Inc., Crescent Real Estate Equities,
Charles Schwab Inc. and Financial Security Assurance, Inc.
JOHN F. SEYMOUR, JR., 59. Senator Seymour has been a Director of the Company
since December 8, 1993. Senator Seymour has been the Chief Executive Officer of
Southern California Housing Development Corporation since January 1995.
Previously he served as Executive Director of the California Housing Finance
Agency from December 1992 through December 1994. Prior to that, Senator Seymour
served as a United States Senator for the State of California from January 1991
to December 1992. From April 1982 to January 1991, Senator Seymour served as a
State Senator in the California state legislature. Senator Seymour also served
as a member of the Policy Advisory Board for the Center for Real Estate and
Urban Economics, University of California, Berkeley and the National Association
of Home Builders Mortgage Roundtable and as a director of the National Council
of State Housing Agencies. Senator Seymour is a director of Inco Homes
Corporation and Countrywide Investment Trust.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE; TERMS EXPIRE AT THE 1999
ANNUAL MEETING OF SHAREHOLDERS
DONALD BREN, 64. Mr. Bren has been Chairman of the Board of the Company since
its formation and President and Chief Executive Officer of the Company since
February 4, 1997. Mr. Bren has been Chairman of the Board of The Irvine Company
since 1983. Mr. Bren is a member of the Board of Overseers of the University of
California, Irvine, and is a member of the Board of Trustees of the California
Institute of Technology, the Los Angeles County Museum of Art and the Orange
County Museum of Art.
JOHN F. GRUNDHOFER, 58. Mr. Grundhofer has been a Director of the Company since
December 8, 1993. Mr. Grundhofer has been Chairman, President and Chief
Executive Officer of First Bank System, Inc., Minneapolis, Minnesota since
1990. From 1986 to 1990, Mr. Grundhofer served as Vice Chairman and Senior
Executive Officer for Southern California with Wells Fargo Bank, N.A. Prior to
joining Wells Fargo Bank in 1978, Mr. Grundhofer spent 18 years with Union Bank
in California. In addition to serving as Chairman of First Bank System, Mr.
Grundhofer is also a Trustee of Minnesota Mutual Life Insurance Company. Mr.
Grundhofer is Chairman of the Minnesota Business
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Partnership, Vice Chairman of Minnesota Meeting, a Director of the Minneapolis
Institute of Arts and of the United Way of the Minneapolis area, an Advisory
Director of the Metropolitan Economic Development Association, and a member of
the Bankers Roundtable and of the CEO Board of the School of Business
Administration at the University of Southern California.
BOWEN H. MCCOY, 59. Mr. McCoy has been a Director of the Company since
December 8, 1993. Mr. McCoy has been a real estate and business counselor with
Buzz McCoy Associates, Inc. since 1990. Prior to this, Mr. McCoy had a 28-year
career with Morgan Stanley & Co. Incorporated, and was President and Chairman of
Morgan Stanley Realty, Inc. Mr. McCoy is a Trustee of the Urban Land Institute
and The Hoover Institution. He is also President of The Real Estate Counselors
and President of the Urban Land Foundation. He has served as Chairman of the
Advisory Board for Stanford University Center for Economic Policy Research,
Chairman of the Los Angeles American Red Cross and Trustee of the Pacific School
of Religion.
REQUIREMENTS OF BOARD MEMBERS
Pursuant to the Company Charter and Bylaws a majority of the Directors
of the Company must be persons who are not (i) affiliates, or an officer,
director or employee, of The Irvine Company or (ii) the spouse, ancestor and
lineal descendant or brother or sister of Mr. Bren ("Unaffiliated Directors").
In addition, The Irvine Company has certain rights to nominate persons for
election to the Board of Directors as described below.
COMMITTEES OF THE BOARD - BOARD MEETINGS
The Board of Directors held five meetings in 1996. In addition,
management conferred frequently with Directors on an informal basis to discuss
Company affairs. During 1996, all Directors attended 75% or more of the
aggregate of the total number of meetings of the Board of Directors and meetings
of all committees of the Board on which they served, except for Mr. Frank who
attended 70% of such meetings.
The Board of Directors has the following standing committees:
Audit Committee. The Audit Committee is responsible for making
recommendations concerning the engagement of independent public accountants,
for reviewing with the independent public accountants the plans and results of
the audit engagement, for approving professional services provided by the
independent public accountants, for reviewing the independence of the
independent public for considering the range of audit and non-audit fees and
for reviewing the adequacy of the Company's accounting controls. As required
by the Company Bylaws, the Audit Committee consists of three Directors, at
least two of whom are Unaffiliated Directors.
The members of the Audit Committee are Messrs. Grundhofer (Chairman),
Frank and Peltason. Two Audit Committee meetings were held in 1996.
Executive Committee. The Executive Committee has been delegated
authority in the Company Bylaws to act in lieu of the Board of Directors on all
matters permitted by law other than with respect to matters which, pursuant to
the Company Charter and Bylaws, must be approved by the Independent Directors
Committee or by a vote of more than 75% of the whole Board of Directors (the
"Required Directors").
The members of the Executive Committee during 1996 were Messrs. Bren
(Chairman), McCoy, McFarland, McKee and Steven P. Albert, the Company's former
Chief Executive Officer and President.
Independent Directors Committee. The Independent Directors Committee
is responsible for approving all transactions between the Company, Irvine
Apartment Communities, L.P., a Delaware limited partnership (the "Operating
Partnership"), and The Irvine Company and affiliates of The Irvine Company and
Mr. Bren, including, but not limited to, whether or not the Company shall
exercise any of its rights under the Exclusive Land Rights and Non-Competition
Agreement (the "Land Rights Agreement") with The Irvine Company and the terms of
any agreement
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between the Company and the Operating Partnership and The Irvine Company or
affiliates of The Irvine Company or Mr. Bren. In addition, the Independent
Directors Committee is responsible for selecting the independent appraiser on
behalf of the Company pursuant to the Land Rights Agreement. Pursuant to the
Company Bylaws, the Independent Directors Committee consists of at least five
persons, each of whom is an Unaffiliated Director and a person who has not been
employed by The Irvine Company or any of its subsidiaries within the five years
preceding such person's election as a director of the Company.
The members of the Independent Directors Committee are Messrs. Frank
(Chairman), Grundhofer, McCoy, Peltason and Seymour. Three Independent
Directors Committee meetings were held in 1996.
Compensation Committee. The Compensation Committee determines
compensation for the Company's executive officers and administers the Company's
stock-based incentive plans. As required by the Company Bylaws, the
Compensation Committee consists entirely of Unaffiliated Directors and does not
include any officer of the Company.
The members of the Compensation Committee are Messrs. McCoy (Chairman)
and Seymour. One Compensation Committee meetings were held in 1996.
Compensation Committee Interlocks and Insider Participation. Messrs.
McCoy and Seymour served on the Compensation Committee during 1996. No
Compensation Committee interlocks or insider participation existed in 1996.
The Company does not have a nominating committee.
COMPENSATION OF DIRECTORS
The Company pays its Directors who are neither officers of the Company
nor officers or directors of The Irvine Company fees for their services as
directors. Directors receive annual compensation of $18,000 plus a fee of
$1,500 for attendance (in person or by telephone) at each meeting of the Board
of Directors or any committee thereof, except that only one $1,500 fee will be
paid if a Board and committee meeting occur on the same day. The Company has
also established the 1993 Stock Option Plan for Directors, pursuant to which
each Director who: (i) is not an employee of the Company or any of its
subsidiaries or affiliates, (ii) is unaffiliated with The Irvine Company and
Mr. Bren and has not been employed by The Irvine Company within the preceding
five years and (iii) has not received a stock award within the preceding year
under an employee stock plan of the Company, is awarded an option to purchase
5,000 shares of the Company's Common Stock upon initial appointment or election
to the Board and an option to purchase 1,000 shares of the Company's Common
Stock at each subsequent annual meeting other than an eligible Director first
elected to the Board within the twelve months immediately preceding and
including such meeting. The exercise price of any such option is equal to the
fair market value of the Common Stock on the date of grant. Such options are
exercisable at all times during the period beginning on the date of grant and
ending on the earlier of (i) the tenth anniversary of the date of grant or (ii)
the first anniversary of the date on which the optionee ceases to be an
Eligible Director, as defined in the plan.
CERTAIN RIGHTS OF THE IRVINE COMPANY WITH RESPECT TO THE BOARD OF DIRECTORS
Pursuant to the Miscellaneous Rights Agreement, The Irvine Company has
the right, and will continue to have the right so long as it, its shareholders
or its affiliates beneficially own at least 20% of the outstanding Common Stock
(including for this purpose Common Stock issuable upon exchange of limited
partnership interests ("L.P. Units") in the Operating Partnership), to nominate
three persons (each, an "Irvine Company Board Representative") for election to
the Board of Directors of the Company. In the event this ownership falls below
20% but is at least 15%, The Irvine Company will have the right to nominate two
persons for election to the Board of Directors; and if this ownership falls
below 15% but is at least 10%, The Irvine Company will have the right to
nominate one person for election to the Board of Directors. The three current
Directors nominated by The Irvine Company are Messrs. Bren, McFarland and
McKee.
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Two provisions of the Company Charter give The Irvine Company
additional rights with respect to the Company's Board of Directors:
First, the Company Charter provides that a majority of the total
number of Directors of the Company including at least one Irvine Company Board
Representative shall constitute a quorum for Board of Directors action at any
meeting.
Second, the Company Charter provides that approval of the Required
Directors is required to approve (i) a change of control (as defined therein)
of the Company or the Operating Partnership; (ii) any amendment to the Company
Charter or Bylaws or the partnership agreement of the Operating Partnership;
(iii) any waiver or modification of the ownership limit provisions of the
Company Charter; (iv) any merger, consolidation, statutory share exchange or
sale of all or substantially all of the assets of the Company or the Operating
Partnership; (v) subject to certain exceptions, the issuance of equity
securities of the Company; (vi) the Company taking title to assets or to
conduct business other than through the Operating Partnership, or for the
Company or the Operating Partnership to engage in another line of business;
(vii) the Company or the Operating Partnership making a general assignment for
the benefit of creditors or instituting (or consent to the institution of)
proceedings in bankruptcy or for the liquidation, dissolution, reorganization
or winding up of the Company or the Operating Partnership; and (viii)
termination of the Company's status as a real estate investment trust for
federal income tax purposes.
ITEM 2. THE FUTURE L.P. UNIT PROPOSAL
THE FOLLOWING PROPOSAL ADDRESSES THE ABILITY OF THE COMPANY TO USE COMMON STOCK
OR LIMITED PARTNERSHIP UNITS EXCHANGEABLE FOR COMMON STOCK AS FULL PAYMENT FOR
THE PURCHASE PRICE FOR FUTURE LAND SITES ACQUIRED FROM THE IRVINE COMPANY. THE
ABILITY TO DO SO SIGNIFICANTLY BENEFITS THE COMPANY, IN PARTICULAR PROVIDING AN
ADDITIONAL SOURCE OF EQUITY TO FINANCE THE COMPANY'S GROWTH. TO THE EXTENT THE
COMPANY IS UNABLE TO USE COMMON STOCK OR EXCHANGEABLE LIMITED PARTNERSHIP UNITS
IN FULL PAYMENT FOR LAND SITES, ITS ABILITY TO FINANCE FUTURE LAND ACQUISITIONS
WOULD BE LIMITED AND ITS AVAILABLE BORROWINGS UNDER ITS REVOLVING CREDIT
FACILITY WOULD BE ADVERSELY AFFECTED. THE INDEPENDENT DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDED THAT THE COMPANY'S SHAREHOLDERS VOTE FOR APPROVAL OF
THIS PROPOSAL.
GENERAL
One of the Company's principal assets is the Exclusive Land Rights and
Non-Competition Agreement dated November 21, 1993, as amended (the "Land Rights
Agreement"), among the Company, the Operating Partnership, The Irvine Company
and Mr. Donald Bren, pursuant to which through July 31, 2020 the Company has
the exclusive right, but not the obligation, to acquire from The Irvine Company
all land sites on the Irvine Ranch entitled for residential use and designated
for apartment community development.
Pursuant to the Land Rights Agreement the Company may pay for land sites in
cash, through the issuance of Common Stock or L.P. Units in the Operating
Partnership exchangeable for Common Stock or a combination of cash and either
exchangeable L.P. Units or Common Stock. The ability to use Common Stock or
L.P. Units exchangeable for Common Stock as the purchase currency for a land
site rather than cash is an important benefit to the Company and any limitation
on the Company's ability to use either Common Stock or exchangeable L.P. Units
would be adverse to the Company. See "--Board of Directors Considerations"
below.
As more fully described under "Background to the Proposal" below, under certain
circumstances the rules of the New York Stock Exchange (the "NYSE Rules"),
absent shareholder approval, would limit the ability of the Company to use
Common Stock or L.P. Units exchangeable for Common Stock as the purchase
currency for land acquisitions under the Land Rights Agreement expected to
occur over the next four years. Accordingly, at the 1997 Annual Meeting, the
shareholders of the Company will be asked to consider and vote upon a proposal
to approve the
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issuance to The Irvine Company or its nominee from time to time through the
date of the Company's Annual Meeting in 2001, upon the approval of the
Independent Directors Committee of the Board of Directors of the related land
acquisition, of up to an aggregate of 3,950,000 shares of Common Stock or L.P.
Units in the Operating Partnership exchangeable for Common Stock in
consideration for the purchase by the Company of land sites designated by The
Irvine Company as ready for apartment community development (the "Future L.P.
Unit Proposal").
APPROVAL OF THE FUTURE L.P. UNIT PROPOSAL BY SHAREHOLDERS WILL NOT RESULT IN
ANY CHANGES TO THE REQUIREMENTS OF THE LAND RIGHTS AGREEMENT WHICH MUST BE
SATISFIED PRIOR TO THE COMPANY'S PURCHASE OF A LAND SITE FROM THE IRVINE
COMPANY AND WILL NOT REQUIRE ANY OTHER AMENDMENT TO THAT AGREEMENT. SEE "--THE
LAND RIGHTS AGREEMENT" BELOW.
The Board of Directors at its regularly scheduled meeting held on February 4,
1997, in which The Irvine Company Board Representatives, Messrs. Bren, McKee
and McFarland, did not participate in the consideration of the Future L.P. Unit
Proposal, unanimously concluded that the Future L.P. Unit Proposal is advisable
and is fair to, and in the bests interests of, the Company and its
shareholders, and unanimously adopted a resolution recommending that the
Company's shareholders vote FOR approval of the Future L.P. Unit Proposal.
BACKGROUND TO THE PROPOSAL AND VOTE REQUIRED
In general, under the NYSE Rules, the Company is prohibited absent shareholder
approval from issuing Common Stock or securities convertible into Common Stock,
including L.P. Units, to any "substantial security holder" (as defined in such
rules) of the Company in connection with the acquisition of assets or property
from such person if the number of shares of Common Stock or Common Stock
equivalents exceeds 1% of the number of shares of Common Stock outstanding
before the issuance (the "1% Limitation"). Since The Irvine Company is a
"substantial security holder" within the meaning of the NYSE Rules, the Company
is prohibited, absent shareholder approval, from issuing to The Irvine Company
and its affiliates Common Stock or L.P. Units exchangeable for Common Stock for
the purchase of land sites pursuant to the Land Rights Agreement if the number
of shares of Common Stock or the number of exchangeable L.P. Units issued in
the transaction exceeds 1% of the then outstanding Common Stock of the Company.
For purposes of the NYSE Rules, Common Stock excludes all Common Stock issuable
upon exchange of L.P. Units beneficially owned by The Irvine Company or any
other person.
Since the Company's initial public offering in 1993 (the "Initial Public
Offering"), the Company has purchased 10 land sites (the "Completed Land
Acquisitions") from The Irvine Company pursuant to the Land Rights Agreement.
The purchase price of eight of those land sites was in an amount which, if paid
solely in Common Stock or exchangeable L.P. Units, would have exceeded the 1%
Limitation, and three of such Completed Land Acquisitions resulted in the
issuance of a number of L.P. Units in excess of the 1% Limitation. See "Item
3. Approval of The Irvine Company's Right To Exchange Certain Outstanding L.P.
Units for Common Stock."
Because the Company anticipates that individual land site acquisitions from The
Irvine Company over the next four years are also likely to result in the
issuance of Common Stock or L.P. Units exchangeable for Common Stock in excess
of the 1% Limitation, the Board of Directors of the Company has determined to
present the Future L.P. Unit Proposal to the shareholders in order to permit
the Company to consummate acquisitions of land sites pursuant to Land Rights
Agreement in excess of the 1% Limitation.
Pursuant to the Land Rights Agreement the number of shares or L.P. Units issued
in connection with the closing of a land transaction thereunder is equal to the
Land Purchase Price (as defined below) for such site, net of any cash
consideration paid (or debt assumed), divided by the average of the closing
prices of the Common Stock of the NYSE for the 10 trading days immediately
preceding the closing date of such transaction. As more fully described below,
the determination to purchase a land site from the Irvine Company is made
solely by the Independent Directors Committee of the Company's Board of
Directors and the Land Purchase Price for a site may not exceed 95% of the
value of such site as determined by independent appraisals.
8
<PAGE> 11
Under the Future L.P. Unit Proposal, not more than an aggregate of 3,950,000
shares of Common Stock and L.P. Units exchangeable for Common Stock (the "L.P.
Unit Basket Amount") may be issued in connection with Independent Director
Committee approved land transactions consummated between the date of the 1997
Annual Meeting and the date of the Company's Annual Meeting in 2001 in which
the 1% Limitation is exceeded. The L.P. Unit Basket Amount represents 19.9% of
the Common Stock outstanding as of the record date for the 1997 Annual Meeting.
All of the shares of Common Stock or L.P. Units exchangeable for Common Stock
issued in connection with a transaction under the Land Rights Agreement in
which the 1% Limitation is exceeded at the time of the closing of such
transaction will be counted against the L.P. Unit Basket Amount. However, if
the number of shares of Common Stock or L.P. Units exchangeable for Common
Stock to be issued in connection with the acquisition of a land site pursuant
to the Land Rights Agreement does not exceed the 1% Limitation at the time of
the closing of such acquisition, such shares or L.P. Units may be freely
issued by the Company or the Operating Partnership, respectively, and will not
be counted against the L.P. Unit Basket Amount.
Under Maryland law, there is no requirement that the Future L.P. Unit Proposal
be approved by the shareholders of the Company. Under the NYSE Rules, approval
of the Future L.P. Unit Proposal requires a majority of the aggregate votes
cast by the holders of Common Stock, provided that the total vote cast on the
Proposal represents more than 50% of the total number of votes entitled to be
cast by the holders of Common Stock.
THE LAND RIGHTS AGREEMENT
General
The Irvine Company owns substantially all development sites for future
rental apartment communities in close proximity to the major employment centers
on the Irvine Ranch. The Company and The Irvine Company intend for all future
development of new rental apartment communities on the Irvine Ranch to be
conducted by the Company. To that end, in connection with the Company's
Initial Public Offering, the parties entered into the Land Rights Agreement
pursuant to which, through July 31, 2020, the Company has the exclusive right,
but not the obligation, to acquire all land sites entitled for residential use
and designated by The Irvine Company as ready for apartment community
development.
The purchase price for all future sites ,which are currently
unidentified, can be no greater than 95% of the fair market value determined by
independent appraisal. Independent appraisals are obtained by each of the
Company and The Irvine Company prior to the Independent Directors Committee of
the Company's Board of Directors determining whether the Company will exercise
its right to purchase a land site. If the Company elects not to exercise its
option for any site, pursuant to the Land Rights Agreement, the Company will
thereafter have a right of first refusal on the sale of such site to a third
party if the terms of such sale are more favorable than those offered to the
Company. The determination to exercise an option or the right of first refusal
with respect to a site will be made solely by the Independent Directors
Committee. In order to preserve the Company's exclusive rights to acquire and
develop all future land sites for rental apartment community purposes, through
July 31, 2020 any transfer by The Irvine Company, Mr. Bren or their affiliates
of any fee or leasehold interest in undeveloped land on the Irvine Ranch must
include a prohibition against apartment community use and development in the
deed or ground lease.
The Irvine Company's overall planning process will determine which
land will be designated as single family, for-sale homes or condominiums or as
rental apartment communities. This process takes into account a number of
factors, including surrounding land uses, marketing considerations and the
preferences of various jurisdictions. While The Irvine Company controls the
overall development of the Irvine Ranch, the actual development of an apartment
community on sites purchased by the Company is controlled by the Company. The
design, configuration and amenities will be determined by the Company and will
be used by the Independent Directors Committee in determining the fairness of
the purchase price.
While the Irvine Ranch contains numerous potential sites for
development of rental apartment communities, only certain of those potential
sites have been earmarked by The Irvine Company for such development and, as of
the date of this Proxy Statement, no additional land sites have been designated
by The Irvine Company as subject to the
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<PAGE> 12
Company's option under the Land Rights Agreement. The process of obtaining
village related entitlements has only recently begun with respect to some of
the potential sites and there can be no assurance as to when village related
entitlements will be obtained. In addition, while the development of
additional rental apartment communities is necessary for the future build out
of the Irvine Ranch, no assurance can be given that additional land sites will
be designated by The Irvine Company as subject to the Company's option under
the Land Rights Agreement.
Determination of Land Purchase Price
The Irvine Company must deliver an independent appraisal ("Irvine's
Appraisal") for each land site to the Company at such time as the Company's
option to acquire such site is triggered under the Land Rights Agreement (the
"Option Commencement"). The Independent Directors Committee of the Company's
Board of Directors is required to obtain a separate independent appraisal
("Company's Appraisal") of each land site, and the agreed fair market value of
each land site will be the average of Irvine's Appraisal and Company's
Appraisal. However, if the value set forth in each Appraisal is more than 10%
above the other Appraisal, then the two appraisers are required to appoint a
third independent appraiser to appraise the land site and the agreed fair
market value of the land site will be the average of the third appraisal and
the original appraisal that is closest to the third appraisal. All of the
appraisers appraise the fair market value of the land site based on rental
apartment use and a number of apartment units as reasonably determined by The
Irvine Company.
As soon as possible following the Option Commencement for a land site,
the Company is required to submit to The Irvine Company a proposed purchase
price for the site, based on a Company prepared pro forma cost analysis for
development of the site by the Company. Thereafter the Company and The Irvine
Company attempt to agree on a purchase price for the site. If the parties are
able to agree on a purchase price within 30 days following the Option
Commencement for the land site, then the purchase price for the site (the "Land
Purchase Price") will be as agreed between the parties; provided that in no
event will the Land Purchase Price for any land site exceed 95% of the agreed
fair market value of the site determined by independent appraisal as set forth
above. If the parties are unable to agree on the Land Purchase Price for the
land site within such 30-day period, the Land Purchase Price for the site will
be no greater than 95% of the agreed fair market value of the site determined
by independent appraisal as set forth above. In addition, the Land Purchase
Price for apartment sites encompassing the first 1,800 apartment units
developed by the Company commencing in mid 1995 must be set at an amount such
that each project's budgeted pro forma unleveraged return on costs for the
first 12 months following stabilized occupancy is between 10.0% and 10.5%. The
November 1995, the three 1996 and the one 1997 land site acquisitions were
purchased under this arrangement. See "Certain Transactions--Transactions with
The Irvine Company" for additional information with respect to such purchases.
As of the date of this Proxy Statement, future apartment sites encompassing 505
apartment units remain to be purchased under this arrangement. If the actual
number of units to be constructed on the land site is more or less than that
assumed in determining the Land Purchase Price as described above, the Land
Purchase Price is adjusted proportionately.
Through July 31, 2000, the Land Purchase Price for each land site may
be paid, at the option of the Company, in cash, L.P. Units or Common Stock, or
a combination of cash and either L.P. Units or Common Stock. After July 31,
2000, the choice of consideration will revert to The Irvine Company. If paid
in L.P. Units or Common Stock, the number of shares or L.P. Units (based on one
L.P. Unit being equivalent to one share of Common Stock, subject to adjustment
as provided in the Amended Partnership Agreement) payable will be equal to the
Land Purchase Price in dollars divided by the average of the closing prices of
Common Stock on the New York Stock Exchange for the 10 trading days immediately
preceding the Land Closing Date (as defined below). If paid in L.P. Units,
such Units will be subject to the Exchange Rights and the Cash Tender Rights
set forth in the Amended Partnership Agreement. If paid in Common Stock, such
shares will be subject to the registration rights granted to The Irvine
Company. See "Certain Charter, Amended Partnership Agreement and Miscellaneous
Rights Agreement Provisions Applicable to Common Stock and L.P. Units
Beneficially Owned by The Irvine Company."
Pursuant to the Land Rights Agreement and the Company's Bylaws, the
decision to purchase a land site at the Land Purchase Price is made solely by
the Independent Directors Committee of the Company's Board of Directors.
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<PAGE> 13
The Company must determine whether or not to purchase a land site
within a period of 11 months following the earlier of (the "Negotiated Price
Date") (i) the date the Company and The Irvine Company agree in writing on the
Land Purchase Price for the land site or (ii) 30 days following the Option
Commencement for such site. If the Company elects to purchase the site, the
closing of the land acquisition will occur on the earlier of (i) the date the
Company has obtained both the final tract map and building permit for the site
or (ii) one year following the Negotiated Price Date for the site. In no
event, however, will the closing occur before The Irvine Company has satisfied
certain conditions to the closing, including completion of such of the master
infrastructure as is necessary for the Company to commence construction on the
site.
Right of First Refusal
If the Company elects not to purchase a land site, for a period of one
year thereafter, The Irvine Company may sell the rejected site to a third party
but only for a price not less than the Land Purchase Price originally
determined for the site and otherwise on terms not more favorable to the buyer
than those offered to the Company. Thereafter, if The Irvine Company decides
to sell the rejected site on any terms, The Irvine Company must first notify
the Company of the price and terms of the proposed sale and the Company will
have a 30-day period in which to decide to purchase such site for such price
and on such terms. If the Company does not indicate its agreement within such
30 day period, The Irvine Company may for a period of one year thereafter sell
the site to a third party but only for a price not less than the price offered
to the Company and otherwise on terms not more favorable to the buyer than
those stated in The Irvine Company's original notice. The determination to
exercise the right of first refusal under the Land Rights Agreement with
respect to any site will be made solely by the Independent Directors Committee.
CERTAIN CHARTER, AMENDED PARTNERSHIP AGREEMENT AND MISCELLANEOUS RIGHTS
AGREEMENT PROVISIONS APPLICABLE TO COMMON STOCK AND L.P. UNITS BENEFICIALLY
OWNED BY THE IRVINE COMPANY
Exchange Rights and Cash Tender Rights
The Irvine Company and certain related persons have certain rights,
exercisable once in each twelve-month period, to exchange (the "Exchange
Rights") generally up to one-third of the L.P. Units owned by them for shares
of Common Stock (subject to the applicable Ownership Limit Provision of the
Company's Charter discussed below) and to tender (the "Cash Tender Rights")
generally up to one-third of the L.P. Units owned by them to the Company for
cash payable solely out of the net proceeds of an offering of the Company's
Common Stock.
Registration Rights
The Company has granted certain "demand" and "piggyback" registration
rights with respect to shares of Common Stock owned by The Irvine Company or
any of its affiliates, whether acquired pursuant to the Exchange Rights, in
connection with the Land Rights Agreement, in the open market or otherwise.
Restrictions on Ownership and Transfer of Common Stock
Because the Company expects to continue to qualify as a real estate
investment trust, the Company's Charter contains certain restrictions on the
number of shares of Common Stock that individual shareholders, including The
Irvine Company and its affiliates, may own in order for the Company to qualify
as a real estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). The ownership limit for The Irvine Company and certain
related person is 20% of the issued and outstanding Common Stock in the
aggregate.
BOARD OF DIRECTORS CONSIDERATIONS
In making its decision to recommend approval of the Future L.P. Unit
Proposal, the Board of Directors considered each of the factors listed in
paragraphs (i)- (vii) below, but it did not assign any particular weight to any
11
<PAGE> 14
single factor. The Board based its determination regarding the fairness of the
Future L.P. Unit Proposal on all the factors identified in paragraphs (i)
through (vii) below, taken together.
(i) The Company's growth is largely dependent on its ability to
acquire new land and assets for the development of rental apartment
communities. Since The Irvine Company controls all available land on the
Irvine Ranch, the Land Rights Agreement provides a long-term source of
development land to the Company.
(ii) Payment for land under the Land Rights Agreement with
exchangeable L.P. Units and, to a lesser extent Common Stock, was fundamental
to the parties when the Agreement was entered into in connection with the
Initial Public Offering.
(iii) The Company significantly benefits from the issuance of L.P.
Units and Common Stock for land as it provides a source of equity capital to
the Company. To the extent that Common Stock and L.P. Units exchangeable for
Common Stock could not be used for the purchase of land sites, the Company's
ability to finance such land acquisitions would be limited and the Company's
cash flow or available borrowings under its revolving credit facility would be
adversely affected. In this connection the Board of Directors specifically
noted that through July 31, 2000 the Company has the sole option to determine
whether the currency used to purchase a land site will be either cash, L.P.
Units or Common Stock.
(iv) The contribution of land to the Operating Partnership by The
Irvine Company in exchange for L.P. Units exchangeable for Common Stock is a
nontaxable transaction for The Irvine Company under the Code. In contrast, The
Irvine Company would be subject to tax if Common Stock or cash is utilized.
Accordingly, the ability of the Company to use exchangeable L.P. Units as full
consideration for land sites gives an incentive to The Irvine Company to provide
new land to the Company. The Irvine Company has advised the Board that it
strongly prefers to receive L.P. Units exchangeable for Common Stock as the full
consideration for the land sites and that the Company's ability to use
exchangeable L.P. Units as full consideration for the potential land site would
cause The Irvine Company to favorably consider whether such potential land sites
should be designated as land sites under the Land Rights Agreement. The Board
noted that such consideration could result in such potential sites being
designated as land sites under the Land Rights Agreement, since such sites would
not be replaced by other less desirable land sites in which the tax effect on
The Irvine Company would be minimized. Accordingly, the Board noted that any
limitation on the Company's ability to use L.P. Units exchangeable for Common
Stock as full consideration for the land sites could result in reduced growth
and the impairment of shareholder values.
(v) Taken together, the Land Rights Agreement appraisal process,
Independent Director Committee approval process and the method of determining
the number of L.P. Units or Common Stock issuable in respect of the Land
Purchase Price for a land site, are fair and reasonable to the Company and its
shareholders and ensure that individual land transactions under the Land Rights
Agreement are fair and reasonable to, and in the best interests of, the Company
and its shareholders.
(vi) The Future L.P. Unit Proposal does not obligate the Company to
purchase any land sites pursuant to the Land Rights Agreement. Each individual
acquisition will be separately reviewed once a site is designated by the Irvine
Company, with the terms of each potential acquisition being separately analyzed
by the Independent Directors Committee for fairness and whether the
construction of a rental apartment community on that site is in the best
interests of the Company and its shareholders.
(vii) While the Company could use L.P. Units which are not
exchangeable for Common Stock in payment of the Land Purchase Price for a land
site without violating the New York Stock Exchange rules discussed under
"--General--Background to the Proposal" above, the use of exchangeable L.P.
Units as a purchase currency was fundamental to The Irvine Company when the
Company was formed in connection with the Initial Public Offering as evidenced
by the Exchange Rights and Cash Tender Rights and provides The Irvine Company
with a more liquid investment than non-exchangeable L.P. Units. The use of
non-exchangeable L.P. Units would thus seriously detract from the potential
benefits reasonably anticipated by The Irvine Company at the time the Land
Rights Agreement was
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<PAGE> 15
entered into and would potentially result in a disincentive to The Irvine
Company to sell new land to the Company pursuant to the Land Rights Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FUTURE L.P. UNIT PROPOSAL,
WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON THE ENCLOSED PROXY CARD.
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<PAGE> 16
ITEM 3. APPROVAL OF THE IRVINE COMPANY'S RIGHT TO EXCHANGE CERTAIN
OUTSTANDING L.P. UNITS FOR COMMON STOCK
At the 1997 Annual Meeting, the shareholders of the Company will be
asked to consider and vote upon a proposal to approve the exchange of 405,456
outstanding L.P. Units in the Operating Partnership beneficially owned by The
Irvine Company for shares of Common Stock of the Company as more fully
described below (the "Outstanding L.P. Unit Proposal").
The Board of Directors at its regularly scheduled meeting held on
February 4, 1997, in which The Irvine Company Board Representatives, Messrs.
Bren, McKee and McFarland, did not participate in the consideration of the
Outstanding L.P. Unit Proposal, unanimously concluded that the Outstanding L.P.
Unit Proposal is advisable and is fair to, and in the bests interests of, the
Company and its shareholders, and unanimously adopted a resolution recommending
that the Company's shareholders vote FOR approval of the Outstanding L.P. Unit
Proposal.
BACKGROUND TO THE PROPOSAL AND VOTE REQUIRED
In March 1995, December 1996 and February 1997, the Operating
Partnership issued 336,432 L.P. Units, 244,857 L.P. Units and 313,439 L.P.
Units to The Irvine Company, respectively, as full or partial consideration for
the purchase of three land sites pursuant to the Land Rights Agreement. See
"Certain Transactions--Transactions with The Irvine Company". Except as
discussed below, such L.P. Units are exchangeable for Common Stock of the
Company pursuant to the Amended Partnership Agreement on basis of one L.P. Unit
for each share of Common Stock, subject to adjustment and certain limitations
as set forth in the Amended Partnership Agreement. However, in order to permit
the Company to comply with the 1% Limitation of the NYSE Rules, The Irvine
Company, in separate agreements entered into at the time of the closing of each
land sale, agreed with the Company and the Operating Partnership that it would
not exchange or, subject to certain exceptions, transfer 218,432 L.P. Units,
59,301 L.P. Units and 127,723 L.P. Units, respectively (collectively, the
"Excess L.P. Units"), received in connection with the three completed
transactions unless and until approval of the Company's shareholders of the
right of The Irvine Company to exchange such Excess L.P. Units has been
obtained. The Company agreed to present a proposal seeking approval of the
right of The Irvine Company to exchange and transfer the Excess L.P. Units to
the Company's shareholders at the 1997 Annual Meeting.
Under Maryland law, there is no requirement that the Outstanding L.P.
Unit Proposal be approved by the shareholders of the Company. Under the NYSE
Rules, approval of the Outstanding L.P. Unit Proposal requires a majority of
the aggregate votes cast by the holders of Common Stock, provided that the
total vote cast on the Proposal represents more than 50% of the total number of
votes entitled to be cast by the holders of Common Stock.
BOARD OF DIRECTORS CONSIDERATIONS
In making its decision to recommend approval of the Outstanding L.P.
Unit Proposal, the Board of Directors considered the factors listed in
paragraphs (ii) and (vii) under "Item 2. The Future L.P. Unit Proposal--Board
of Directors Considerations," as well as its belief that The Irvine Company, as
the beneficial owner of the Excess L.P. Units, should have the same right to
transfer and exchange for Common Stock the Excess L.P. Units as all other
outstanding L.P. Units beneficially owned by The Irvine Company. The Board did
not assign any particular weight to any of the foregoing but based its
determination regarding the fairness of the Outstanding L.P. Unit Proposal on
all the foregoing, taken together.
Accordingly, the Board of Directors is presenting to the Company's
shareholders this proposal to approve the right of The Irvine Company or any
other holder of any Excess L.P. Units to transfer the Excess L.P. Units,
subject to the provisions of the Amended Partnership Agreement, and to exchange
in accordance with the Amended Partnership Agreement the Excess L.P. Units for
shares of Common Stock.
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<PAGE> 17
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE OUTSTANDING L.P. UNIT
PROPOSAL, WHICH IS DESIGNATED AS PROPOSAL NO. 3 ON THE ENCLOSED PROXY CARD.
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<PAGE> 18
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock by each of the Company's
directors, the Company's new Chief Executive Officer, Donald Bren who became
Chief Executive Officer in February 1997, each of the four most highly
compensated executive officers who were serving as executive officers at the
end of 1996, other than the Company's former Chief Executive Officer, the
Company's former Chief Executive Officer, the Company's former Executive Vice
President and Chief Financial Officer, all directors and officers as a group
and each person who is known by the Company to beneficially own five percent or
more of any class of the Company's voting securities as of February 14, 1997.
The Company has relied upon information supplied by its officers, directors,
and certain shareholders and upon information contained in filings with the
Securities and Exchange Commission (the "SEC").
<TABLE>
<CAPTION>
Name Number of Percent of Number of Percent of Percent of
Shares of All Shares L.P. Units All All Shares
Common Stock of Common L.P. Units of Common
Beneficially Stock Stock/L.P.
Owned Units(1)
<S> <C> <C> <C> <C> <C> <C>
Directors and Officers
Donald Bren 183,325(2) 1.0% (2) -- (3) -- (3) * (3)
Anthony M. Frank 9,000(4) * -- -- *
John F. Grundhofer 8,000 * -- -- *
Bowen H. McCoy 12,000(4) * -- -- *
Michael D. McKee 5,000 * -- -- *
William H. McFarland 20,647 * -- -- *
Jack W. Peltason 7,600(4) * -- -- *
John F. Seymour, Jr. 7,100(4) * -- -- *
Steven P. Albert 35,333(5) * -- -- *
Richard E. Moran Jr. 35,500(6) * -- -- *
James E. Mead 61,167(7) * -- -- *
Tyler H. Rose 29,316(7) * -- -- *
Richard E. Lamprecht 39,333(7) * -- -- *
Scott A. Reinert 24,333(7) * -- -- *
All current directors and
officers as a group (18
persons) 489,143(8) 2.6% (8) -- -- 55.4% (3)
5% shareholders (9)
The Irvine Company (3)(10)
550 Newport Center Drive
Newport Beach, CA 92660 -- -- 22,200,097 (11) 99.7(12) 54.4% (3)
Travelers Group Inc.(14)
388 Greenwich Street
New York, NY 10013 1,292,219 7.0% -- -- 3.2%(13)
Cohen & Steers Capital
Management, Inc. (15)
757 Third Avenue
New York, NY 10017 1,925,700 10.4% -- -- 4.7%(13)
LaSalle Advisors Limited
Partnership and ABKB/ LaSalle
Securities Limited
Partnership(16)
11 South LaSalle Street
Chicago, IL 60603 1,314,600 7.1% -- -- 3.2%(13)
</TABLE>
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<PAGE> 19
* Less than 1.0%
(1) Assumes all of the L.P. Units beneficially owned by The Irvine Company
are exchanged for shares of Common Stock, without regard to certain
ownership limit provisions set forth in the Company Charter. It is
not anticipated that these ownership limit provisions will be waived.
The Irvine Company has the right, once in every twelve month period
beginning on December 8 of each year, generally to exchange up to one
third of the L.P. Units for shares of Common Stock, at an exchange
ratio on one L.P. Unit for each share of Common Stock, subject to
adjustment. The Company Charter places a limit on ownership by The
Irvine Company, Mr. Bren and their affiliates, in the aggregate, of
20% of the outstanding Common Stock.
(2) Shares are held by a trust of which Mr. Bren is trustee.
(3) Mr. Bren may be deemed the beneficial holder of the L.P. Units owned
by The Irvine Company due to his status as the majority shareholder
and Chairman of the Board of Directors of The Irvine Company.
Assuming the exchange of all L.P. Units beneficially owned by The
Irvine Company for shares of Common Stock (other than the L.P. Units
referred to in note 11 below), Mr. Bren would be deemed to
beneficially own 54.9% of the Common Stock and all directors and
officers as a group (18 persons) would be deemed to beneficially own
55.4% of the Common Stock (which percentage interest also reflects the
exchange of 74,523 L.P. Units for shares of Common Stock owned by a
limited partner of the Operating Partnership and as to which three
officers of the Company not named in the table may be deemed the
beneficial owner). If the Outstanding L.P. Unit Proposal (Proposal 3)
is adopted at the 1997 Annual Meeting, the L.P. Units referred to in
note 11 below will be exchangeable for Common Stock by The Irving
Company and, accordingly, the foregoing percentages would increase to
55.3% and 55.8%, respectively.
(4) Includes currently exercisable options to purchase 7,000 shares of
Common Stock at prices ranging from $15.625 to $20.0625 per share
granted to each of Messrs. Frank, McCoy, Peltason and Seymour pursuant
to the 1993 Stock Option Plan for Directors.
(5) Mr. Albert resigned as the Chief Executive Officer and President and a
Director of the Company in February 1997. Represents currently
exercisable options to purchase shares of Common Stock pursuant to the
1993 Long-Term Stock Incentive Plan and 2,000 shares owned by such
person.
(6) Mr. Moran resigned as the Executive Vice President, Chief Financial
Officer and Secretary of the Company in December 1996.
(7) Represents currently exercisable options to purchase shares of Common
Stock granted pursuant to the 1993 Long-Term Stock Incentive Plan and,
with respect to Messrs. Mead, Rose, Lamprecht and Reinert 4,500
shares, 2,650 shares, 1,000 shares and 1,000 shares of Common Stock,
respectively, owned by such persons.
(8) Includes 236,145 shares of Common Stock, including those referred to
in notes (2), (4) and (7), and currently exercisable options to
purchase 252,998 shares of Common Stock under the 1993 Long-Term Stock
Incentive Plan and the 1993 Stock Option Plan for Directors, including
those referred to in notes (4) and (7).
(9) Information based on a review of Schedule 13Ds or 13Gs filed with the
SEC as of February 21, 1997.
(10) Represents L.P. Units owned directly or indirectly by subsidiaries of
The Irvine Company.
(11) Excludes 405,456 L.P. Units which pursuant to agreements with the NYSE
are not exchangeable for Common Stock by The Irvine Company. If the
Outstanding L.P. Unit Proposal (Proposal 3) is adopted at the 1997
Annual Meeting, such L.P. Units will be exchangeable for Common Stock
by The Irvine Company and, accordingly, the percentage set forth in
the table would increase to 54.9%.
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<PAGE> 20
(12) 99.7% both before and after giving effect to the L.P. Units referred
to in note 11 above.
(13) 3.1% for Travelers, 4.7% for Cohen & Steers and 3.2% for LaSalle if
the Outstanding L.P. Unit Proposal (Proposal 3) is adopted at the 1997
Annual Meeting and the L.P. Units referred to in note 11 above become
exchangeable for Common Stock.
(14) Based on information provided in Amendment No. 3 to a Schedule 13G
filed on January 30, 1997 by Travelers Group Inc. ("TGI") and Smith
Barney Holdings Inc. ("SBHI"), a wholly-owned subsidiary of TGI. As
of December 31, 1996, SBHI and TGI had shared voting and dispositive
power with respect to all of such shares. Each of TGI and SBHI
disclaim beneficial ownership of all such shares.
(15) Based on information provided in Amendment No. 3 to a Schedule 13G
filed on February 4, 1997 by Cohen & Steers Capital Management ("Cohen
& Steers"). As of December 31, 1996, Cohen & Steers had sole
dispositive power with respect to all of such shares, and sole voting
power with respect to 1,665,600 of such shares.
(16) Based on information provided in a Schedule 13G filed on February 14,
1997 by LaSalle Advisors Limited Partnership ("LALP"), ABKB/LaSalle
Securities Limited Partnership ("ABKB"), and two of their principals.
As of December 31, 1996 (i) LALP had sole voting and dispositive power
with respect to 354,700 shares, shared voting power with respect to
131,300 shares and shared dispositive power with respect to 361,500
shares; (ii) ABKB had sole voting and dispositive power with respect
to 122,400 shares, shared voting power with respect to 369,675 shares
and shared dispositive power with respect to 476,000 shares; and (iii)
each of the principals of LALP and ABKB had sole voting and
dispositive power with respect to 477,100 shares, shared voting power
with respect to 500,975 shares and shared dispositive power with
respect to 837,500 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE IRVINE COMPANY
The Company and The Irvine Company have entered into an administrative
services agreement, as amended, pursuant to which The Irvine Company provides
the Company with certain administrative services, including, but not limited
to, income tax services, risk management and other support services. During
1996, the Company incurred costs of approximately $108,000 pursuant to the
administrative services agreement.
The Company and The Irvine Company have also entered into a lease
pursuant to which the Company leases space from The Irvine Company. Pursuant
to the lease, $239,000 was incurred in 1996. Base rent payable by the Company
under the lease is approximately $236,000 per annum through 1998. The Company
also incurred parking costs to The Irvine Company of approximately $33,000 in
1996. The Company also rents retail space for its Leasing and Information
Center from an affiliate of The Irvine Company. Pursuant to such lease $74,000
was incurred in 1996. Base rent payable by the Company under such lease is
approximately $58,000 per annum through 1997. Additionally, the Company has
entered into a short term lease with The Irvine Company to provide for offsite
parking adjacent to one of the Company's construction sites for storing
materials and parking for laborers. The lease commenced September 1, 1996 at
$1,500 per month. The total amount incurred in 1996 was $6,000.
Two of the Company's apartment communities are financed by mortgage
notes payable to The Irvine Company. These mortgage notes totaled $51,227,000
at December 31, 1996. The mortgage notes are collateralized by all-inclusive
trust deeds on each of the apartment communities financed, bore fixed interest
rates of 5.75% at December 31, 1996, are fully amortizing, and mature in 2015
and 2024. Interest incurred on the mortgage notes payable to The Irvine
Company totaled $2,996,000 for the year ended December 31, 1996. The mortgage
notes payable to The Irvine Company "wrap around" secured first trust deed
notes payable to third party financial
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<PAGE> 21
institutions. The secured first trust deed notes totaled $51,363,000 as of
December 31, 1996. The largest aggregate amount of indebtedness outstanding
under each note was $17,676,000 and $34,334,000 during 1996. As of February
28, 1997, the amount outstanding under each note was $17,158,000 and
$33,933,000.
On July 3, 1996, the Company sold in a direct placement 1,490,700
shares of Common Stock at $20.125 per share. Concurrently therewith, The
Irvine Company, pursuant to its rights under the Partnership Agreement,
purchased 1,490,700 L.P. Units at $20.125 per unit. In addition, during 1996
the Company sold in the aggregate 13,280 shares of Common Stock at varying
prices ranging from $19.784 to $23.875 per share pursuant to its Dividend
Reinvestment and Additional Cash Investment Plan. In connection with such
sales, The Irving Company, pursuant to its rights under the Partnership
Agreement, purchased an aggregate of 15,581 L.P. Units at varying prices
ranging from $19.784 to $23.875 per L.P. Unit. All of the foregoing L.P.
Units are exchangeable for Common Stock on a one for one basis, subject to
adjustment and certain limitations.
The Company and The Irvine Company are parties to the Land Rights
Agreement. As more fully discussed under "Item 2. The Future L.P. Unit
Proposal", this Agreement, which extends through July 31, 2020, provides the
Company the exclusive right, but not the obligation, to acquire additional land
sites which have been entitled for residential use and designated by The Irvine
Company as ready for apartment development in accordance with the Master Plan.
The determination to exercise an option with respect to a site is made solely
by a majority of the Independent Directors Committee of the Company's Board of
Directors. In addition, The Irvine Company and Donald Bren have agreed to
conduct their apartment community development and ownership activities on the
Irvine Ranch solely through the Company.
Under the terms of the Land Rights Agreement, through July 31, 2000,
the purchase price for any apartment community sites acquired may be paid with
either cash, Common Stock or L.P. Units, at the option of the Company. After
July 31, 2000, the choice of consideration will revert to The Irvine Company.
In no event shall the purchase price for any apartment community land site
exceed 95% of the value of such site as determined by independent appraisals.
In addition, the purchase price for future apartment sites encompassing the
first 1,800 apartment units the Company develops starting in mid 1995 will be
set at an amount such that each project's budgeted pro forma unleveraged return
on costs for the first 12 months following stabilized occupancy will be between
10.0% and 10.5%. Five land sites, including the four discussed below have been
purchased under this arrangement and as of the date of this Proxy Statement
future apartment sites encompassing 505 apartment units remain to be purchased
under this arrangement.
In March, 1996, the Company acquired a 227-unit development site known
as Santa Maria for $3,343,000 from The Irvine Company. As partial financing
for the acquisition of the site, the Company elected to assume $2,771,000 in
tax-exempt assessment district debt. The balance of $572,000 was paid through
the issuance of 28,358 additional L.P. Units in the Operating Partnership to
The Irvine Company. In July 1996 the Company acquired a 245-unit development
site known as The Colony for $3,545,000 from The Irvine Company. The purchase
price for this site was through the issuance of 115,544 additional L.P. Units
in the Operating Partnership and $1,143,000 in cash. In December 1996, the
Company acquired a 207-unit development site known as Santa Rosa II for
$5,999,000 from The Irvine Company. The purchase price was paid through the
issuance of 244,857 additional L.P. Units in the Operating Partnership. The
foregoing L.P. Units are exchangeable for Common Stock of the Company on a one
for one basis, subject to adjustment and certain limitations, except that
pursuant to an agreement with the NYSE 59,301 of the L.P. Units issued to The
Irvine Company in connection with the Santa Rosa II acquisition are not
exchangeable for Common Stock absent shareholder approval of such exchange. If
the Outstanding L.P. Unit Proposal (Proposal 3) is adopted by the shareholders
at the 1997 Annual Meeting such agreement and restriction on exchange will
terminate and, accordingly, such 59,301 L.P. Units will be exchangeable for
Common Stock by The Irvine Company.
On February 10, 1997, the Company acquired a 316-unit development site
known as Rancho Santa Fe for $8,408,000 from The Irvine Company. The purchase
price was paid through the issuance of 313,439 additional L.P. Units in the
Operating Partnership. Pursuant to the terms of this acquisition a portion of
the purchase price is
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<PAGE> 22
refundable, through the forfeiture of a portion of such L.P. Units, if the
apartment community to be constructed on the site does not achieve a 10%
unleveraged return on costs for the first twelve months following stabilized
occupancy. The 313,439 L.P. Units are exchangeable for Common Stock of the
Company on a one for one basis, subject to adjustment and certain limitations,
except that pursuant to an agreement with the NYSE 127,723 of such L.P. Units
are not exchangeable for Common Stock absent shareholder approval of such
exchange. If the Outstanding L.P. Unit Proposal (Proposal 3) is adopted by the
shareholders at the 1997 Annual Meeting such agreement and restriction on
exchange will terminate and, accordingly, such 127,723 L.P. Units will be
exchangeable for Common Stock by The Irvine Company.
Independent appraisals were obtained for each of the sites referred to
above, prior to the Independent Directors Committee determining that the
Company would exercise its right to purchase such land sites. If the Company
elects not to exercise its option for any site, the Company will thereafter
have a right of first refusal on the sale of such site to a third party if the
terms of such sale are more favorable than those offered to the Company. The
determination to exercise an option or the right of first refusal under the
Land Rights Agreement with respect to any site will be made solely by a
majority of the Independent Directors Committee.
Pursuant to the Land Rights Agreement, The Irvine Company and Mr. Bren
have agreed not to directly or indirectly acquire or develop, or acquire an
equity interest in any entity that has an ownership interest in, any rental
apartment community whether on or off the Irvine Ranch. This prohibition
terminates, with respect to communities on the Irvine Ranch, on July 31, 2020,
and with respect to communities off the Irvine Ranch, when (i) no nominee of
The Irvine Company is a member of the Company's Board of Directors and (ii) The
Irvine Company and certain related persons beneficially own less than 20% of
the outstanding Common Stock in the aggregate (including for this purpose
Common Stock issuable upon exchange of L.P. Units).
The Land Rights Agreement is subject to early termination upon the
occurrence of certain events including (i) the failure of the shareholders of
the Company to elect as directors of the Company the number of directors which
The Irvine Company is entitled to nominate to the Company's Board of Directors,
(ii) in the event of a vacancy on the Board of Directors of an Irvine Company
Board Representative, the remaining directors shall not promptly elect a person
designated by The Irvine Company to fill such vacancy and (iii) during the
period The Irvine Company has the right to nominate three persons to the
Company's Board of Directors, the provisions of the Charter and the Bylaws
requiring approval of the Required Directors to take certain actions shall be
repealed, modified or amended without the prior written consent of The Irvine
Company.
Three Directors of the Company, Messrs. Bren, McFarland and McKee, are
affiliated with The Irvine Company. Mr Bren is Chairman of the Board and the
majority shareholder of The Irvine Company. Mr. McFarland is Executive Vice
President, Land and Residential Development of The Irvine Company. Mr. McKee
is Executive Vice President and Chief Financial Officer of The Irvine Company.
The respective interests of the Company and The Irvine Company in the
Operating Partnership were 45.4% and 54.6%, respectively, at December 31, 1996
and 1995.
OTHER TRANSACTIONS
Mr. Grundhofer is Chairman, President and Chief Executive Officer of
First Bank System, Inc. which, through an affiliate, is a member of the bank
syndicate that provides the Company's $175,000,000 revolving line of credit
facility. There was no outstanding balance under the revolving line of credit
facility as of February 28, 1997. Based on this bank's percentage
participation in this credit facility (and the predecessor facilities), the
Company estimates that the amount of interest and fees paid to the affiliate
totaled $245,000 in 1996.
Mr. McKee was a partner of Latham & Watkins, an international law
firm, until April 1994. Latham & Watkins was retained by the Company in
several matters in 1994, 1995 and 1996, and may be retained for other matters
in 1997.
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<PAGE> 23
EXECUTIVE COMPENSATION
Set forth below are tables prescribed by the proxy rules of the SEC which
present compensation information for the Company's former chief executive
officer who resigned in February 1997, the four other most highly
compensated executive officers who were serving as executive officers at
the end of 1996 and the Company's former Executive Vice President and Chief
Financial Officer (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation Awards
------------------------- --------------------------
Restricted
Stock All Other
Salary (2) Bonus (3) Awards (4) Options (5) Compensation (6)
Name and Principal Position Year ($) ($) ($) (#) ($)
--------------------------- ------- ----------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Steven P. Albert(7) 1996 $275,000 $7,563
Former Chief Executive 1995 $174,041 $100,000 $1,746,250 100,000 $27,058
Officer and President
James E. Mead 1996 $200,000 $145,000 $8,250
Senior Vice President, 1995 $200,000 $140,000 $403,125 40,000 $8,250
Chief
Financial Officer and 1994 $187,397 $150,000 30,000 $8,250
Secretary
Richard E. Moran Jr.(7) 1996 $247,500 $ $82,212
Former Executive Vice 1995 $270,000 $110,000 $403,125 50,000 $11,250
President, Chief Financial 1994 $270,000 $110,000 $11,250
Officer and Secretary
Tyler H. Rose 1996 $180,000 $130,000 $8,250
Senior Vice President, and 1995 $154,849 $110,000 $403,125 40,000 $7,938
Treasurer
Richard E. Lamprecht 1996 $135,000 $55,000 $6,300
Vice President, Development 1995 $135,000 $50,000 $161,250 35,000 $4,050
1994 $118,780 $60,000 $4,893
Scott A. Reinert 1996 $135,000 $55,000 $6,582
Vice President, Asset 1995 $135,000 $50,000 $161,250 35,000
Management 1994 $2,077 $52,659
</TABLE>
(1) The officers listed in this table receive certain personal benefits;
however, such benefits do not exceed the lesser of $50,000 or 10% of any
such officer's salary and bonus for any period reported.
(2) The start dates for Messrs. Albert, Mead, Rose and Reinert were May 1, 1995,
January 24, 1994, February 21, 1995 and December 28, 1994, respectively.
(3) The bonuses for each year were paid in February or March of the following
year.
(4) 1995 amounts represent 25,000, 25,000, 25,000, 10,000 and 10,000 restricted
stock unit awards granted to Messrs. Moran, Mead, Rose, Lamprecht and
Reinert as of March 1, 1995 and 110,000 performance unit awards granted to
Mr. Albert as of May 1, 1995. All of the foregoing awards vest as
described below based on the achievement of certain funds available for
distribution ("FAD") targets established by the Compensation Committee.
Dividend equivalents are paid on all of the foregoing awards outstanding
during the vesting period. None of the restricted stock unit awards or
performance unit awards are available for vesting in the
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<PAGE> 24
year in which the award was granted. 20% of a person's award may
be earned in each of the three years following the year the award
was granted and 40% of such person's award may be earned in the fourth
year following the year of grant, in each case upon the achievement of
established FAD targets. Performance and restricted stock unit awards
not earned in any year in which they are available for vesting may be
earned in a subsequent year. The number of shares in respect of which
awards granted to Messrs. Albert, Mead, Moran Rose, Lamprecht and
Reinert were outstanding as of December 31, 1996 was 110,000, 25,000,
22,951, 25,000, 10,000 and 10,000, respectively. The value of Messrs.
Albert's, Mead's, Moran's, Rose's, Lamprecht's and Reinert's awards as
of December 31, 1996 was $2,750,000, $625,000, $573,775, $625,000,
$250,000 and $250,000, respectively. Mr. Albert's and Mr. Moran's
restricted stock unit awards which had not previously vested and been
earned were forfeited in connection with their resignations in
February 1997 and December 1996, respectively, though they did receive
dividend equivalent payments for dividends paid through, and in
respect of, the fourth quarter and third quarter of 1996,
respectively. The Company did not grant any restricted stock unit
awards to the Named Executive Officers in 1996.
(5) Reflects options granted pursuant to the 1993 Long-Term Stock
Incentive Plan. The Company did not grant any options to the Named
Executive Officers in 1996.
(6) These amounts represent the Company's aggregate contributions to the
Company's 401(k) savings plan except that, with respect to Mr.
Albert, the 1995 amount solely represents relocation expenses, with
respect to Mr. Moran, the 1996 amount includes $22,500 of consulting
payments and $48,462 of accrued vacation pay, and with respect to Mr.
Reinert, the 1994 amount solely represents relocation expenses. See
"Employment and Termination of Employment Agreements".
(7) Mr. Albert and Mr. Moran resigned from the Company in February 1997
and December 1996, respectively. Upon Mr. Albert's resignation, Mr.
Bren, the Chairman of the Board of Directors of the Company, assumed
the position of Chief Executive Officer and President. Mr. Bren did
not receive any compensation from the Company in 1996 and will not
receive any compensation from the Company in 1997 for serving in such
capacities.
OPTION EXERCISES IN 1996 AND
DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at December 31, at December 31, 1996
Name Exercise(1) Realized(1) 1996 (#) ($)(2)
- ----------------------- ----------- ----------- ------------------------ --------------------
<S> <C> <C> <C> <C>
Steven P. Albert Exercisable 33,333 $912,500
Unexercisable 66,667
James E. Mead Exercisable 33,333 $580,000
Unexercisable 36,667
Tyler H. Rose Exercisable 13,333 $355,000
Unexercisable 26,667
Richard E. Lamprecht Exercisable 26,666 $423,125
Unexercisable 23,334
Scott A. Reinert Exercisable 11,666 $310,625
Unexercisable 23,334
Richard E. Moran Jr. 66,667 $472,386 0 0
</TABLE>
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<PAGE> 25
(1) Except for Mr. Moran, none of the Named Executive Officers exercised
any stock options in 1996.
(2) Represents the difference between the closing price of the Company's
Common Stock on the NYSE on December 31, 1996 of $25.00 per share and
the exercise price of the options, but not less than zero.
EMPLOYMENT AND TERMINATION OF EMPLOYMENT AGREEMENTS
Mr. Albert was appointed as Chief Executive Officer and President of
the Company on May 1, 1995. Pursuant to an offer letter, Mr. Albert received
an annualized base salary of $275,000 for 1995, subject to increases in future
years at the discretion of the Board, and is eligible to earn an annual bonus
of up to 60% of his base salary based upon both his and the Company's
performance. For 1995, Mr. Albert was guaranteed a minimum cash bonus of
$90,000 assuming his continued employment through December 31, 1995. In
addition, the letter provides that Mr. Albert will be a participant in the
Company's fringe benefits programs and long-term incentive plans. Upon hire,
he received stock options with respect to 100,000 shares of the Company's
common stock and performance unit awards with respect to 110,000 shares of the
Company's common stock. If Mr. Albert's employment had been terminated by the
Company prior to December 31, 1996 for reasons other than gross misconduct, he
would have been entitled to receive a lump-sum severance payment of $182,500.
On February 7, 1997, Mr. Albert entered into a Confidentiality Agreement and
General Release with the Company whereby he resigned from the Company.
Pursuant to the Agreement, Mr. Albert will provide consulting services to the
Company in exchange for 12 monthly payments of $22,917 each. Mr. Albert also
received a severance payment in the amount of $141,000, stock dividend
equivalent payments for dividends paid in respect of the fourth quarter of
1996, and the Company agreed to continue his coverage, at the Company's
expense, under the Company's group insurance plans through February 28, 1997
and to pay him $2,500 per month for twelve months thereafter in order to assist
him with purchasing his own benefits. In consideration of the foregoing, Mr.
Albert is subject to a confidentiality covenant and has given the Company and
its owners, directors, officers, employees, representatives and agents a
general release.
On November 1, 1996, Mr. Moran entered into a Confidentiality
Agreement and General Release with the Company whereby he resigned from the
Company as of December 1, 1996. Pursuant to the Agreement, Mr. Moran will
provide consulting services to the Company in exchange for 12 monthly payments
of $22,500 each. Mr. Moran also received $38,000 of stock dividend equivalent
payments for dividends paid in respect of the third quarter of 1996, 11/12ths
of his restricted stock units available for vesting in 1996 were earned upon
achievement of FAD targets as determined by the Compensation Committee in
February 1997, and the Company agreed to continue his coverage, at the
Company's expense, under the Company's group insurance plans through December
31, 1996 and to pay him $2,500 per month for twelve months thereafter in order
to assist him with purchasing his own benefits. In consideration of the
foregoing, Mr. Moran is subject to a confidentiality covenant and has given the
Company and its owners, directors, officers, employees, representatives and
agents a general release.
23
<PAGE> 26
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible
for administering the executive compensation plans and programs of the Company
and for making recommendations to the Board of Directors regarding the
compensation of and benefits provided to the Chief Executive Officer and the
other executive officers. The names of the Compensation Committee members are
set forth below this report.
General Policies Regarding Compensation of Executive Officers
In establishing compensation for executive officers, the Committee
seeks to: (1) attract and retain individuals of superior ability and managerial
talent, (2) motivate executive officers to increase Company performance for the
benefit of its shareholders, and (3) reward executives for exceptional
individual contributions to the achievement of the Company's business
objectives. To these ends, the Company's executive compensation package
consists of salary, variable annual cash compensation (bonus) and stock-based
long-term incentive awards.
Base Salary. Salary levels of executive officers are established
after a subjective review of REIT issuers and other real estate companies
deemed comparable to the Company. In general, the Committee attempts to set
base salaries at the conservative end of the competitive spectrum with the
expectation that as Company performance improves, individual performance will
be rewarded with incentives and bonuses. The Committee generally compares the
Company's performance with that of other REITs and real estate companies
engaged in activities similar to those engaged in by the Company.
Annual Bonus. The Committee's practice with regard to awarding annual
bonuses to executive officers is to review the Company's performance after the
close of the year, taking into account whatever measures of performance the
Committee determines in its sole discretion to be appropriate under the
circumstances, and assigning such weight to any such factors as it determines
to be appropriate. See "1996 Compensation" below. In addition, the Committee
may from time to time pay bonuses to selected individuals on an ad hoc basis in
connection with special events or projects.
Long-Term Incentive Compensation. Stock-based incentives constitute
the long-term portion of the Company's executive compensation package. Stock
options granted at 100% of the stock's fair market value on the grant date
provide an incentive for executives to increase the Company's stock price and,
therefore, the return to the Company's shareholders. Stock options were
granted in 1996 to one of the Company's executive officers at the time he
commenced employment with the Company. In addition, the Committee granted
performance-based awards to this executive officer. Such awards will vest over
five years upon achievement of FAD targets established by the Committee. None
of such awards will vest in 1996. The Committee has not heretofore granted
stock appreciation rights, although it has the authority to do so under the
Company's stock-based award plans. In granting stock-based awards, the
Committee takes into account such factors as it determines to be appropriate
under the circumstances, including without limitation the extent of an
executive's equity ownership in the Company and the amounts and value of
long-term compensation and stock-based compensation received by similarly
situated executives at competitor firms.
Limitation on Deductibility of Executive Compensation. Section 162(m)
of the Internal Revenue Code, enacted as part of the Revenue Reconciliation Act
of 1993, limits the deductibility of compensation paid to certain executive
officers of the Company. To qualify for deductibility under Section 162(m),
compensation in excess of $1,000,000 per year paid to the Chief Executive
Officer and the four other most highly compensated executive officers at the
end of such fiscal year generally must be "performance-based" compensation as
determined under Section 162(m).
The Committee generally intends to comply with the requirements for
full deductibility of executive compensation under Section 162(m). However,
the Committee will balance the costs and burdens involved in such compliance
against the value to the Company and its shareholders of the tax benefits to be
obtained by the Company
24
<PAGE> 27
thereby, and may in certain instances pay compensation that is not fully
deductible if in its determination such costs and burdens outweigh such
benefits.
1996 Compensation
Base salaries for the executive officers named in the Summary
Compensation Table were not increased in 1996. The amounts shown as 1996 bonus
in the Summary Compensation Table were paid in February 1997 and were based on
achievement of the Company's business plan targets, new apartment community
development, occupancy levels and earnings without assigning relative weight to
any such factors, as well as the Committee's subjective assessment of the
executives' respective individual performance. In establishing such amounts,
the Committee noted that the Company exceeded its 1996 business plan FAD budget
and continued to produce growth in revenues and operating profits. In this
regard, the Committee also noted that in 1996, the Company achieved a total
return to shareholders of 37.1%, increased gross operating margins to 67.2%
from 64.9%, achieved stabilized occupancy on five projects totaling 2,207
units, completed a $60 million direct equity placement and successfully
improved pricing and terms on its bank line.
The above-described approach to the compensation of executive officers
in 1996 was fully applicable to the compensation of Mr. Steven P. Albert, the
Company's former Chief Executive Officer who resigned as Chief Executive
Officer and President and as a director of the Company in February 1997.
Bowen H. McCoy
John F. Seymour, Jr.
25
<PAGE> 28
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below compares cumulative total
shareholder return (assuming reinvestment of dividends) of the Company, the New
York Stock Exchange, Inc. ("NYSE") Composite Index and the National
Association of Real Estate Investment Trust (NAREIT) Equity REIT Total Return
Index for the period beginning December 8, 1993, the date on which trading of
the Company's Common Stock commenced, through December 31, 1996. The Company's
closing Common Stock price was $25.00 on December 31, 1996. The stock price
performance of the Company's Common Stock depicted in the graph below
represents past performance only and is not indicative of future performance.
The Stock Price Performance Graph assumes $100 was invested on December 8,
1993.
[GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
12/03/93 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Irvine Apartment Communities $100.00 $103.62 $101.36 126.09 167.77
- -----------------------------------------------------------------------------------------------------------
NAREIT Equity Index $100.00 $99.83 $107.56 123.98 167.71
- -----------------------------------------------------------------------------------------------------------
NYSE Composite Index $100.00 $101.68 $98.49 129.33 153.97
- -----------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as the Company's independent
accountants for fiscal 1996. This firm has advised the Company that it has no
direct or indirect financial interest in the Company. Representatives of this
firm are expected to be present at the 1997 Annual Meeting, with the
opportunity to make a statement, should they desire to do so, and will be
available to respond to appropriate questions from shareholders. The Audit
Committee will select the Company's independent accountants for 1997.
OUTSTANDING VOTING SECURITIES
On March 18, 1997, the record date for the 1997 Annual Meeting, there
were outstanding and entitled to vote ___________ shares of Common Stock of the
Company, entitled to one vote per share.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's executive officers and directors, and
beneficial owners of more than 10% of the Common Stock of the Company, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the NYSE. Executive officers and directors are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors,
the Company noted that no individual who, at any time during 1996, was a
director, officer or beneficial owner of more than 10% of the Common Stock of
the Company failed to file the reports required by Section 16(a) of the 1934
Act on a timely basis, except that Mr. McFarland, a director of the Company,
did not file his initial statement of beneficial ownership on Form 3 on a
timely basis.
SOLICITATION OF PROXIES
The cost of soliciting proxies for the 1997 Annual Meeting will be
borne by the Company. In addition to solicitation by mail, solicitations may
also be made by personal interview, telegram and telephone. The Company has
engaged Georgeson & Company to assist in soliciting proxies for a fee of
approximately $12,500 plus reasonable out-of-pocket expenses. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals, and the
Company will reimburse them for expenses in so doing. Consistent with the
Company's confidential voting procedure, directors, officers and other regular
employees of the Company, as yet undesignated, may also request the return of
proxies by telephone or telegram, or in person.
ANNUAL REPORT
The Company's audited financial statements and notes thereto,
including selected financial data and management's discussion and analysis of
financial condition and results of operations for the year ended December 31,
1996, are included on pages 19 through 26 of the Company's Annual Report, which
is being mailed to all shareholders with this proxy statement. THE FINANCIAL
STATEMENTS, THE REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, THEREON,
SELECTED FINANCIAL DATA AND MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS INCLUDED IN THE 1996 ANNUAL REPORT ARE
INCORPORATED HEREIN BY REFERENCE. IN ADDITION, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE
SEC, WILL BE SENT TO ANY SHAREHOLDER WITHOUT CHARGE, UPON WRITTEN REQUEST TO
IRVINE APARTMENT
27
<PAGE> 30
COMMUNITIES, INC., 550 NEWPORT CENTER DRIVE, NEWPORT BEACH, CALIFORNIA 92660,
ATTENTION: INVESTOR RELATIONS.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at an Annual Meeting,
including proposals for the nomination of directors, must be received by the
Company at its principal executive offices not less than 60 days nor more than
90 days in advance of the Annual Meeting to be considered (unless less than 70
days' notice of the Annual Meeting is given, in which case the proposal must be
received by the Company within 10 days of the notice of the Annual Meeting).
The requirements for submitting such proposals are set forth in the Company
Bylaws.
Shareholder proposals intended to be considered for inclusion in the
proxy statement for presentation at the 1998 Annual Meeting must be received by
the Company at its principal executive offices by November 14, 1997, unless the
date of the 1998 Annual Meeting is more than 30 days prior to or subsequent to
April 25, 1998, in which case proposals must be received a reasonable time
before the mailing of the proxy statement relating to the 1998 Annual Meeting.
OTHER MATTERS
The Board of Directors does not know of any matter other than that
described in this proxy statement that will be presented for action at the
meeting. If other matters properly come before the meeting, the persons named
as proxies intend to vote the shares they represent in accordance with their
judgment.
By Order of the Board of Directors,
James E. Mead
Senior Vice President, Chief Financial
Officer and Secretary
March 21, 1997
28
<PAGE> 31
IRVINE APARTMENT COMMUNITIES, INC.
P The undersigned, a shareholder of Irvine Apartment
Communities, Inc. (the "Company") hereby appoints Donald Bren and James
R E. Mead, and each of them individually as Proxies to represent and vote
all of the Company's Common Stock held of record by the undersigned, each
O with full power of substitution, at the Annual Meeting of Shareholders
of the Company, to be held at The Hyatt Regency Irvine Hotel, 17900
X Jamboree Boulevard, Irvine, California 92614, on Friday, April 25, 1997
at 10:00 a.m., local time, and at any adjournment or postponement thereof,
Y as follows on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE> 32
<TABLE>
<S> <C>
[ X ] Please mark
votes as in
this example.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS
MADE BELOW. IF A CHOICE IS NOT INDICATED WITH RESPECT TO ANY OF ITEMS (1), (2) OR (3) BELOW, THIS PROXY WILL BE VOTED
"FOR" SAID PROPOSAL OR PROPOSALS. THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS EXERCISED.
1. To (i) elect 2 Directors of the Company for a 2. To approve the Future L.P. Unit FOR AGAINST ABSTAIN
term of three years and (ii) elect 1 Director Proposal (as defined in the [ ] [ ] [ ]
of the Company for a term of one year. accompanying Proxy
Statement).
Nominees: (i) Michael D. McKee and Jack W.
Peltason and (ii) William H. McFarland
FOR WITHHELD
[ ] [ ]
3. To approve the Outstanding FOR AGAINST ABSTAIN
L.P. Unit Proposal (as [ ] [ ] [ ]
defined in the accompanying
Proxy Statement).
[ ]__________________ MARK HERE
For all nominees except as noted above. FOR ADDRESS [ ]
CHANGE AND
NOTE BELOW
4. In their discretion, the
Proxies are authorized to vote
upon such other business
as may properly come before
the meeting or any adjournment or
postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT
OF A COPY OF THE NOTICE OF ANNUAL
MEETING AND ACCOMPANYING PROXY STATEMENT
DATED MARCH 21, 1997.
Joint owners must each sign. Please sign
exactly as your name(s) appear(s) on the
Stock Certificate. When signing as an
attorney, trustee, executor, administrator
or guardian, please give your full title. If
signer is a corporation, please sign the
full corporation name and full title of signing
officer.
Signature:_______________ Date_______________
Signature:_______________ Date_______________
</TABLE>
