<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
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:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
BAY APARTMENT COMMUNITIES, INC.
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
BAY APARTMENT COMMUNITIES, INC.
4340 STEVENS CREEK BOULEVARD, SUITE 275
SAN JOSE, CALIFORNIA 95129
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 1997
------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of Bay Apartment Communities, Inc. (the "Company") will be
held on Friday, April 25, 1997 at 10:00 a.m. at the offices of the Company, 4340
Stevens Creek Boulevard, Suite 275, San Jose, California, for the following
purposes:
1. To elect the following directors to serve until the 1998 Annual Meeting
of Stockholders and until their respective successors are duly elected
and qualified: Gilbert M. Meyer, Geoffrey L. Baker, Max L. Gardner,
Bruce A. Choate, John J. Healy, Jr., Brenda J. Mixson and Thomas H.
Nielsen.
2. To ratify the 1994 Stock Incentive Plan, as amended and restated.
3. To ratify the appointment of Coopers & Lybrand L.L.P. to serve as
independent accountants for the Company for the fiscal year ending
December 31, 1997.
4. To transact such other business that may be properly brought before the
Annual Meeting and at any adjournments thereof.
Any action may be taken on the foregoing matters at the Annual Meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the Annual Meeting may be adjourned.
The Board of Directors has fixed the close of business on March 14, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and at any adjournments thereof. Only stockholders of
record of the Company's common stock, par value $0.01 per share, at the close of
business on that date will be entitled to notice of and to vote at the Annual
Meeting and at any adjournments thereof.
You are requested to fill in and sign the enclosed Proxy Card, which is
being solicited by the Board of Directors, and to mail it promptly in the
enclosed postage-prepaid envelope. Any proxy may be revoked by a writing
delivered to the Company stating that the proxy is revoked or by delivery of a
later dated proxy. Stockholders of record who attend the Annual Meeting may vote
in person, even if they have previously delivered a signed proxy.
By Order of the Board of Directors
/s/ Geoffrey L. Baker
Geoffrey L. Baker
Secretary
San Jose, California
March 31, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 3
BAY APARTMENT COMMUNITIES, INC.
4340 STEVENS CREEK BOULEVARD, SUITE 275
SAN JOSE, CALIFORNIA 95129
------------------------
PROXY STATEMENT
------------------------
FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 1997
March 31, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Bay Apartment Communities, Inc. (the
"Company") for use at the 1997 Annual Meeting of Stockholders of the Company to
be held on Friday, April 25, 1997 and at any adjournments thereof (the "Annual
Meeting"). At the Annual Meeting, stockholders will be asked to (i) vote upon
the election of seven directors of the Company, (ii) ratify the 1994 Stock
Incentive Plan, as amended and restated (the "Stock Incentive Plan"), (iii)
ratify the appointment of Coopers & Lybrand L.L.P. to serve as independent
accountants for the Company for the fiscal year ending December 31, 1997, and
(iv) to act upon any other matters properly brought before them.
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are first being sent to stockholders on or about March 31, 1997. The
Board of Directors has fixed the close of business on March 14, 1997 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting (the "Record Date"). Only stockholders of record of
the Company's common stock, par value $.01 per share (the "Common Stock"), at
the close of business on the Record Date will be entitled to notice of and to
vote at the Annual Meeting. As of the Record Date, there were 20,441,510 shares
of Common Stock outstanding and entitled to vote at the Annual Meeting. Holders
of Common Stock outstanding as of the close of business on the Record Date will
be entitled to one vote for each share held.
The presence, in person or by proxy, of holders of a majority of the shares
of Common Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. The affirmative vote of a
majority of the votes cast with a quorum present at the Annual Meeting is
required for the election of the directors, the ratification of the Stock
Incentive Plan, the ratification of the appointment of Coopers & Lybrand L.L.P.
to serve as independent accountants for the Company and such other matters
properly brought before the stockholders, provided that with respect to the
ratification of the Stock Incentive Plan, the total number of votes cast on such
proposal must represent greater than 50% of all shares entitled to vote on such
proposal. The Company will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum, but as
not voting for purposes of determining the approval of any matter submitted to
the stockholders for a vote. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary voting authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will be
treated as abstentions with respect to that matter.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY RECEIVED PRIOR TO THE
VOTE AT THE ANNUAL MEETING AND NOT REVOKED WILL BE VOTED AT THE ANNUAL MEETING
AS DIRECTED ON THE PROXY. IF A PROPERLY EXECUTED PROXY IS SUBMITTED BUT NOT
MARKED AS TO A PARTICULAR ITEM, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE
SEVEN NOMINEES FOR DIRECTORS OF THE COMPANY NAMED IN THIS PROXY STATEMENT, FOR
THE RATIFICATION OF THE STOCK INCENTIVE PLAN, AND FOR THE APPOINTMENT OF THE
DESIGNATED INDEPENDENT ACCOUNTANTS. IT IS NOT ANTICIPATED THAT ANY MATTERS OTHER
THAN THOSE SET FORTH IN THE PROXY STATEMENT WILL BE PRESENTED AT THE ANNUAL
MEETING. IF OTHER MATTERS ARE PRESENTED, PROXIES WILL BE VOTED IN ACCORDANCE
WITH THE DISCRETION OF THE PROXY HOLDERS.
<PAGE> 4
A stockholder of record may revoke a proxy at any time before it has been
exercised by filing a written revocation with the Secretary of the Company at
the address of the Company set forth above, by filing a duly executed proxy
bearing a later date, or by appearing in person and voting by ballot at the
Annual Meeting. Any stockholder of record as of the Record Date attending the
Annual Meeting may vote in person whether or not a proxy has been previously
given, but the presence (without further action) of a stockholder at the Annual
Meeting will not constitute revocation of a previously given proxy.
The Company's 1996 Annual Report, including financial statements for the
fiscal year ended December 31, 1996, is being mailed to stockholders
concurrently with this Proxy Statement. The Annual Report, however, is not part
of the proxy solicitation material. A copy of the Company's Annual Report filed
with the Securities and Exchange Commission on Form 10-K may be obtained by
writing to Bay Apartment Communities, Inc., 4340 Stevens Creek Boulevard, Suite
275, San Jose, California 95129, Attention: Chief Financial Officer.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of seven members. At the
Annual Meeting, seven directors will be elected to serve until the 1998 Annual
Meeting and until their successors are duly elected and qualified. The Board of
Directors has nominated Gilbert M. Meyer, Geoffrey L. Baker, Max L. Gardner,
Bruce A. Choate, John J. Healy, Jr., Brenda J. Mixson and Thomas H. Nielsen to
serve as directors (the "Nominees"). Each of the Nominees currently serves as a
director of the Company. The Board of Directors anticipates that each of the
Nominees, if elected, will serve as a director. However, if any person nominated
by the Board of Directors is unable to accept election, the proxies will be
voted for the election of such other person or persons as the Board of Directors
may recommend. The Board of Directors will consider a nominee for election to
the Board of Directors recommended by a stockholder of record if the stockholder
submits the nomination in compliance with the requirements of the Company's
Bylaws. See "Other Matters--Stockholder Proposals for Annual Meetings" for a
summary of these requirements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL OF THE
NOMINEES.
INFORMATION REGARDING NOMINEES AND EXECUTIVE OFFICERS
The following table and biographical descriptions set forth certain
information with respect to the seven Nominees for election as directors at the
Annual Meeting and the executive officers who are not directors based on
information furnished to the Company by each director and executive officer.
There is no family relationship between any director or executive officer of the
Company. The following information is as of February 3, 1997, unless otherwise
specified.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL PERCENT
DIRECTOR OWNERSHIP OF OF
NAME OF NOMINEE AGE SINCE COMMON STOCK(1) CLASS
- - -------------------------------------------- ---- -------- --------------- -------
<S> <C> <C> <C> <C>
Gilbert M. Meyer............................ 52 1978 1,013,113(2) 4.93%
Geoffrey L. Baker........................... 36 1993 65,784(3) *
Max L. Gardner.............................. 45 1996 31,000(4) *
Bruce A. Choate............................. 49 1994 11,000(5) *
John J. Healy, Jr........................... 50 1996 8,000(6) *
Brenda J. Mixson............................ 44 1994 12,000(5) *
Thomas H. Nielsen........................... 66 1994 21,000(5)(7) *
</TABLE>
- - ---------------
* Less than one percent.
(1) Except as otherwise noted, each individual in this table has sole voting and
investment power over the shares listed.
2
<PAGE> 5
(2) Includes 115,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997.
(3) Includes 50,000 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
(4) Includes 25,000 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
(5) Includes 11,000 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
(6) Includes 5,000 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
(7) Mr. Nielsen is a co-trustee of a trust that holds 2,000 shares of Common
Stock. He shares voting and investment power over the shares held by the
trust with his wife and with the U.S. Trust Company of California pursuant
to an investment management agreement.
Nominees for Election as Directors
Gilbert M. Meyer is the founder, Chairman of the Board of Directors,
President and Chief Executive Officer of the Company and, since 1978, has been
continuously involved with the Company as an executive officer, director and
stockholder. Mr. Meyer also was the founder and stockholder of certain
affiliates of the Company. Prior to founding the Company, Mr. Meyer was Chief
Financial Officer for BAS Homes and prior to that was a Vice President
responsible for real estate workouts for Boise Cascade Credit Corporation. Mr.
Meyer is a licensed Certified Public Accountant and General Contractor, and
holds a B.A. degree from St. Mary's College of California and an M.B.A. degree
from the University of California, Berkeley.
Geoffrey L. Baker has been a Director of the Company since December 1993,
and he served as the Company's Vice President and Chief Operating Officer from
December 1993 until December 1995. Mr. Baker resigned as the Company's Chief
Operating Officer in order to become the Company's Vice President and Chief
Development & Acquisitions Officer in December 1995. From April 1992 to December
1993, Mr. Baker was a Project Manager for the Company. From 1989 to 1992, Mr.
Baker was a Vice President in the commercial real estate group of Bank of
America. Prior to 1989, Mr. Baker was Director of Acquisitions and Finance for
Anthony Brown Development Company. Mr. Baker holds B.A. and M.B.A. degrees from
the University of Michigan, Ann Arbor.
Max L. Gardner has been a Director of the Company since May 1996, and he
has served as Executive Vice President and Chief Operating Officer of the
Company since December 1995. From 1988 to 1995, Mr. Gardner served as President
and Chief Executive Officer of West RS, Inc. (d/b/a Trammell Crow Residential
Services), a company which specializes in the development, construction, finance
and management of residential apartment properties. Mr. Gardner graduated from
Duke University with a degree in Political Science, and he received a Master of
Professional Accountancy degree from Georgia State University.
Bruce A. Choate is a Director of the Company and has been Chief Financial
Officer of Watson Land Company, a privately-held real estate investment trust
("REIT") in Carson, California since 1991. Prior to joining Watson Land Company,
Mr. Choate was employed by Bixby Ranch Company, a privately-held real estate
investment company in Seal Beach, California as Senior Vice President and Chief
Financial Officer. Mr. Choate graduated from the University of California, Los
Angeles and attended the Graduate School of Business at the University of
Southern California.
John J. Healy, Jr. has been a Director of the Company since May 1996, and
is the founder and President of Hyde Street Holdings, Inc. From 1988 to 1996,
Mr. Healy was a founder and a managing principal of the Hanford/Healy Companies,
a national commercial real estate services company acquired by General Motors
Acceptance Corporation--CM in September 1996. Mr. Healy was also a managing
principal of Hanford/Healy Appraisal Company, a national real estate appraisal
and consulting firm, and a principal of
3
<PAGE> 6
Hanford/Healy Asset Management Company, a national real estate asset management
firm. Mr. Healy graduated from Hofstra University with a B.B.A. in Finance,
Investment and Banking and a Master of Business Administration.
Brenda J. Mixson is a Director of the Company and has been Managing
Director of the Emerging Markets, Fixed Income Department for ING Barings (U.S.)
Securities, Inc., a member of the ING Group, since February 1996. Ms. Mixson
previously served as Vice President--Real Estate Finance of ING Capital
Corporation from March 1995 to February 1996. She served as an Executive Vice
President and Chief Operating Officer of Reichmann International from April 1994
to March 1995. From 1989 to 1994, she was an Executive Vice President and
Managing Director and a Regional Manager, Northeast Region, of Travelers Realty
Investment Company. Prior to joining Travelers Realty Investment Company, Ms.
Mixson was employed by Chemical Bank as a Vice President and Regional Manager.
Ms. Mixson graduated from the University of Minnesota with a B.S. degree in
Economics.
Thomas H. Nielsen is a Director of the Company and has been a self-employed
consultant for large-scale real estate development projects since 1991. In 1993,
Mr. Nielsen was named a Managing Director of the Orange County Office of U.S.
Trust of California, N.A., and he held that position until July 1995, at which
time he was named Consulting Director. He also served as Chief Executive Officer
of the Orange County Performing Arts Center from 1993 to 1995. From 1978 to
1990, Mr. Nielsen served in various positions for The Irvine Company, a
privately-held real estate development company, including President and Vice
Chairman, and he presently serves as a Director. Mr. Nielsen holds a B.S. degree
in Civil Engineering from the University of Washington and an M.B.A. degree from
Stanford University.
Executive Officers Who Are Not Directors
Jeffrey B. Van Horn has been Vice President and Chief Financial Officer of
the Company since June 1996. Prior to joining the Company, Mr. Van Horn was a
partner in the real estate services group with the accounting firm Arthur
Andersen LLP. Mr. Van Horn joined Arthur Andersen in June 1982, was admitted as
a partner in September 1995 and has worked with a wide variety of West Coast
REITs and real estate companies. He has been involved in a number of initial
public offerings, mergers and acquisitions and other audit, business and tax
advisory services. In addition, Mr. Van Horn was a member of Arthur Andersen's
national REIT tax specialty team. Mr. Van Horn earned a B.A. degree in
Accounting from California State University--Stanislaus and is a licensed
Certified Public Accountant.
Morton L. Newman has been Vice President--Construction of the Company since
1985. In that capacity, Mr. Newman has managed the design, construction, and
warranty services for over 5,000 apartments and single-family homes that the
Company and its affiliates have built during that period. Previously, Mr. Newman
was President of Newman Construction Company and has over 30 years experience in
all aspects of residential and commercial construction. Mr. Newman is a graduate
of the University of Pennsylvania and is a registered Civil Engineer in
Pennsylvania and California.
Daniel E. Murphy has been Vice President--Development of the Company since
March 1997, and was the Company's Director of Development from September 1994 to
March 1997. From 1992 to 1994, Mr. Murphy worked for Landtech Investment
Corporation and provided real estate consulting services. Between 1990 and 1991,
Mr. Murphy served as Vice President--Development of Rosewood Property Company.
Mr. Murphy also previously completed various development projects with
Prometheus Development Company as Project Manager. Mr. Murphy received a B.S.
degree in Civil Engineering from Cleveland State University and he received an
M.S. degree in Civil Engineering/Construction Management from Stanford
University.
Debra Lynn Shotwell has been Vice President--Human Resources of the Company
since July 1995. From July 1990 to June 1995, she was the Director--Corporate
Human Resources of PacifiCare Health Systems, Inc. Ms. Shotwell graduated from
California State University--Sacramento with a degree in Business
Administration.
4
<PAGE> 7
BOARD OF DIRECTORS AND ITS COMMITTEES
Board of Directors. The Company is managed by a seven-member Board of
Directors, a majority of whom are independent of the Company's management. The
Board of Directors met three times in person and held 13 telephonic meetings
during 1996. Each of the directors attended at least 75% of the total number of
meetings of the Board of Directors and meetings of the committees of the Board
of Directors that he or she was eligible to attend.
Audit Committee. The Board of Directors has established an Audit Committee
consisting of Bruce A. Choate, Brenda J. Mixson and John J. Healy, Jr. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews the plans and results of the audit engagement with the
independent public accountants, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. The Audit Committee
met two times during 1996.
Compensation Committee. The Company's Board of Directors has established a
Compensation Committee to determine compensation for the Company's executive
officers. The current members of the Compensation Committee are Bruce A. Choate,
Brenda J. Mixson and Thomas H. Nielsen. The Compensation Committee exercises all
powers of the Board of Directors in connection with compensation matters,
including incentive compensation and benefit plans. The Compensation Committee
also has authority to grant awards under the Stock Incentive Plan to the
directors, management and other employees of the Company and its subsidiaries.
The Compensation Committee met two times during 1996.
The Board of Directors does not have a standing nominating committee. The
full Board of Directors performs the function of such a committee.
DIRECTOR COMPENSATION
Directors of the Company who are also employees receive no additional
compensation for their services as directors. Each non-employee director of the
Company received an annual director's fee of $15,000 in fiscal year 1996.
Commencing in 1997, each non-employee director of the Company will receive an
annual director's fee of $18,000. Each non-employee director also receives
$1,000 for each regular quarterly meeting of the Board of Directors attended,
$1,000 for each special meeting of the Board of Directors attended, $500 for
participating in each special telephonic meeting of the Board of Directors and
$1,000 for each committee meeting attended, other than committee meetings that
are held on the same date as a regular or special meeting for which a fee is
already paid. Under the Stock Incentive Plan, on the fifth business day
following each annual meeting of stockholders, each of the Company's
non-employee directors automatically receives options to purchase 5,000 shares
of Common Stock at the last reported sale price of the Common Stock on the New
York Stock Exchange (the "NYSE") on the date of grant. In addition, on January
24, 1997 the Board of Directors approved a discretionary grant of options to
purchase 5,000 shares of Common Stock to each non-employee director. These
options are subject to the same conditions and vesting provisions, and shall be
granted on the same date, as those options that will be granted automatically to
the non-employee directors on the fifth business day following the Annual
Meeting. All of such stock options granted to non-employee directors become
exercisable one year after the date of grant.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth, for each of the Company's last three fiscal
years, the annual compensation awarded to the Company's chief executive officer
and six of its other executive officers during 1996 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -----------------------------
COMPENSATION SECURITIES RESTRICTED
----------------------------- UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) OPTIONS(#)(3) AWARDS($)(4) COMPENSATION($)(5)
- - ---------------------------------- ---- --------- -------- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Gilbert M. Meyer.................. 1996 $244,231 $183,173 100,000 $727,500(6) $1,000
Chairman of the Board, President 1995 194,900 97,400 40,000 0 1,000
and Chief Executive Officer 1994 121,400 45,500 160,000 0 500
Max L. Gardner(7)................. 1996 209,427 150,000 20,000 36,375(8) 1,250
Executive Vice President and 1995 11,500 5,800 100,000 110,000(9) 0
Chief Operating Officer
Geoffrey L. Baker................. 1996 149,846 86,308 20,000 163,250(10) 1,000
Vice President and Chief 1995 134,000 46,900 10,000 0 1,000
Development and Acquisitions 1994 101,600 26,700 70,000 0 500
Officer
Jeffrey B. Van Horn(11)........... 1996 83,823 36,190 45,000(12) 61,750(13) 25,099(14)
Vice President and Chief
Financial Officer
Morton L. Newman.................. 1996 141,365 87,788 10,000 36,375(8) 1,000
Vice President--Construction 1995 135,800 61,100 5,000 0 1,000
1994 135,300 15,200 35,000 0 500
Daniel E. Murphy(15).............. 1996 128,346 74,321 30,000(16) 36,375(8) 1,250
Vice President--Development 1995 93,998 45,000 10,000 0 0
1994 20,077 1,690 0 0 0
Debra Lynn Shotwell(7)............ 1996 118,919 48,273 5,000 18,188(17) 936
Vice President--Human Resources 1995 52,300 14,900 25,000 0 0
</TABLE>
- - ---------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Bonuses may be paid under the Company's Incentive Bonus Plan in the
discretion of the Compensation Committee to executive officers, subject to
certain performance-based criteria. For a general description of the
Incentive Bonus Plan, see "Compensation Committee Report on Executive
Compensation."
(3) Unless otherwise noted, the Compensation Committee authorized the grant of
all of the options to purchase Common Stock listed for 1996 on January 24,
1997.
(4) As of December 31, 1996, 10,000 of the 11,000 shares of Restricted Stock
granted by the Company to the Named Executive Officers since March 1994
remained subject to their respective vesting conditions. Based on the last
reported sale price of the Company's Common Stock on the NYSE on December
31, 1996 of $36 per share, the aggregate dollar value of these 10,000
shares of Restricted Stock was $360,000.
(5) Unless otherwise noted, consists of amounts contributed by the Company to
the Named Executive Officer's 401(k) account.
(6) Consists of 20,000 shares of Restricted Stock awarded as of February 3,
1997, valued at $36.375 per share. These shares vest in five equal annual
installments beginning on February 3, 1998. Dividends are payable on these
shares.
(7) The following Named Executive Officers began employment in 1995: Max L.
Gardner, December 4, 1995; Debra Lynn Shotwell, July 13, 1995.
6
<PAGE> 9
(8) Consists of 1,000 shares of Restricted Stock awarded as of February 3,
1997, valued at $36.375 per share. These shares vest in five equal annual
installments beginning on February 3, 1998. Dividends are payable on these
shares.
(9) Consists of 5,000 shares of Restricted Stock awarded on December 4, 1995,
valued at $22.00 per share. These shares vest in five equal annual
installments beginning on December 4, 1996. Dividends are payable on these
shares.
(10) Consists of (i) 5,000 shares of Restricted Stock awarded on August 6, 1996,
valued at $25.375 per share, which vest in five equal annual installments
beginning on January 26, 1997, and (ii) 1,000 shares of Restricted Stock
awarded as of February 3, 1997, valued at $36.375 per share, which vest in
five equal annual installments beginning on February 3, 1998. Dividends are
payable on these shares.
(11) Mr. Van Horn began employment on June 19, 1996.
(12) Includes 25,000 options to purchase Common Stock granted on June 19, 1996.
(13) Consists of (i) 1,000 shares of Restricted Stock awarded on August 6, 1996,
valued at $25.375 per share, which vest in five equal annual installments
beginning on June 19, 1997, and (ii) 1,000 shares of Restricted Stock
awarded as of February 3, 1997, valued at $36.375 per share, which vest in
five equal annual installments beginning on February 3, 1998. Dividends are
payable on these shares.
(14) Includes $20,682 reimbursed to Mr. Van Horn for all moving-related expenses
incurred in connection with his hiring in June 1996 and $3,578 of imputed
interest income derived from Mr. Van Horn's interest-free loan from the
Company. For a more detailed discussion of the loan, see "Certain
Relationships and Related Transactions--Indebtedness of Management."
(15) Mr. Murphy began employment on September 26, 1994.
(16) Includes 20,000 options to purchase Common Stock granted on August 28,
1996.
(17) Consists of 500 shares of Restricted Stock awarded as of February 3, 1997,
valued at $36.375 per share. These shares vest in five equal annual
installments beginning on February 3, 1998. Dividends are payable on these
shares.
OPTION GRANTS WITH RESPECT TO FISCAL YEAR 1996
Option Grants with respect to Fiscal Year 1996. The following table sets
forth the options granted with respect to the fiscal year ended December 31,
1996 to the Company's Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM
GRANTED FOR FISCAL PRICE EXPIRATION -------------------------
NAME (#)(1) YEAR 1996(2) ($/SH) DATE 5%($) 10%($)
- - ---------------------------- --------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gilbert M. Meyer............ 100,000 23.22% $ 36.625 1/24/07 $2,303,328 $5,837,082
Max L. Gardner.............. 20,000 4.64% 36.625 1/24/07 460,666 1,167,417
Geoffrey L. Baker........... 20,000 4.64% 36.625 1/24/07 460,666 1,167,417
Jeffrey B. Van Horn......... 20,000 4.64% 36.625 1/24/07 460,666 1,167,417
25,000(3) 5.80% 25.375 6/19/06 398,955 1,011,030
Morton L. Newman............ 10,000 2.32% 36.625 1/24/07 230,333 583,708
Daniel E. Murphy............ 10,000 2.32% 36.625 1/24/07 230,333 583,708
20,000(4) 4.64% 27.750 8/28/06 349,037 884,527
Debra Lynn Shotwell......... 5,000 1.16% 36.625 1/24/07 115,166 291,854
</TABLE>
- - ---------------
(1) All of these options will vest in four equal installments on the first,
second, third and fourth anniversaries of the date of grant. Unless
otherwise noted, the date of grant of all of these options was January 24,
1997. This chart excludes options granted on January 26, 1996 with respect
to the fiscal year ended December
7
<PAGE> 10
31, 1995 in the following amounts: Mr. Meyer, 40,000; Mr. Baker, 10,000; and Mr.
Newman, 5,000. The grant of those options was disclosed in the Company's 1996
Proxy Statement.
(2) A total of 430,700 options were granted to employees of the Company with
respect to the fiscal year ended December 31, 1996.
(3) These options were granted to Mr. Van Horn on June 19, 1996.
(4) These options were granted to Mr. Murphy on August 28, 1996.
Option Exercises and Year-End Holdings. The following table sets forth the
aggregate number of options exercised in 1996 and the value of options held as
of December 31, 1996 by the Company's Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND
FISCAL YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END YEAR-END
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE(#) EXERCISABLE/UNEXERCISABLE($)(1)
- - ------------------------ ----------- ----------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Gilbert M. Meyer........ 0 0 65,000/135,000 $ 1,064,375/2,098,125
Max L. Gardner.......... 0 0 25,000/75,000 400,000/1,200,000
Geoffrey L. Baker....... 0 0 30,000/50,000 488,125/790,625
Jeffrey B. Van Horn..... 0 0 0/25,000 0/265,625
Morton L. Newman........ 0 0 15,000/25,000 244,063/395,313
Daniel E. Murphy........ 0 0 2,500/27,500 40,938/287,813
Debra Lynn Shotwell..... 6,250 $78,906 0/18,750 0/307,031
</TABLE>
- - ---------------
(1) Based on the last reported sale price of the Company's Common Stock on the
NYSE on December 31, 1996 of $36 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each an "Employment
Agreement") with each of Messrs. Meyer, Baker, Gardner, Van Horn and Newman. The
Employment Agreements of Messrs. Meyer, Baker and Newman are automatically
renewed on each anniversary of the closing of the Company's initial public
offering unless otherwise terminated by the Company or the respective employee,
and the Employment Agreements of Messrs. Gardner and Van Horn terminate on the
third anniversary of the date of such agreement. Pursuant to their respective
Employment Agreements, as amended, Mr. Meyer serves as President of the Company,
Mr. Gardner serves as Executive Vice President and Chief Operating Officer, Mr.
Van Horn serves as Vice President and Chief Financial Officer, Mr. Baker serves
as Vice President and Chief Development and Acquisitions Officer, and Mr. Newman
serves as Vice President -- Construction. The Employment Agreements provide for
base salaries in the amounts of $300,000, $210,000, $180,000, $165,000, and
$152,000, respectively. The Employment Agreements of Messrs. Meyer, Baker and
Newman provide for base salary increases based on increases in the consumer
price index, and all of the Employment Agreements provide for base salary
increases in the discretion of the Compensation Committee. In addition, Messrs.
Meyer, Gardner, Van Horn, Baker and Newman are eligible for additional
compensation in the form of bonuses under the Company's Incentive Bonus Plan
(the "Incentive Bonus Plan").
Under the Employment Agreements, each of the officers has agreed to devote
substantially all of his working time to the business and affairs of the
Company. Mr. Meyer's Employment Agreement provides that during the term of
employment, and for two years thereafter in the event that he is terminated for
cause or voluntarily terminates his employment other than for cause, he will be
prohibited from competing directly or indirectly with the Company with respect
to any development or acquisition project undertaken or being
8
<PAGE> 11
considered by the Company at the time of termination or actively engaging in the
development, construction or management of multifamily real estate property,
without the prior written consent of the Board of Directors.
If the employment of Mr. Meyer is terminated without cause after a "change
in control," or upon the occurrence of certain other events, Mr. Meyer will be
entitled to receive a severance amount (the "Meyer Severance Amount") equal to
three times the sum of his base salary and his bonus for the preceding year. In
the event that the Meyer Severance Amount payable exceeds three times his
average total annual compensation during the preceding five years, the excess of
such payment would constitute an "excess golden parachute payment" under the
Internal Revenue Code of 1986, as amended (the "Code"), and would not be
deductible by the Company. If the employment of either Mr. Gardner or Mr. Van
Horn is terminated without cause within one year after a "change in control" or
upon the occurrence of certain other events, such officer will be entitled to
receive a severance amount equal to his base salary for the preceding year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Objectives of Executive Compensation. The Company's executive compensation
program is intended to attract, retain and reward experienced, highly motivated
executives who are capable of leading the Company effectively and continuing its
growth and profitability. The Company's objective is to utilize a combination of
cash and equity-based compensation to provide appropriate incentives for
executives while aligning their interests with those of the Company's
stockholders.
The Company compensates its executive officers through a combination of
annual base salary, annual cash bonuses and awards under the Stock Incentive
Plan. The Company's goal is to provide total compensation to its executive
officers which is competitive with those levels of total compensation paid in
the REIT industry for companies with similar property portfolios and of similar
size, makeup and financial performance. For purposes of evaluating relative
executive compensation amounts, the Compensation Committee reviewed the total
compensation paid by comparable REITs that were selected based primarily on
financial performance, property type, geographical location and market
capitalization.
The Company's compensation program has three principal elements: base
salary, performance incentive bonuses under the Incentive Bonus Plan and awards
under the Stock Incentive Plan.
Base Salary. The Company establishes base salary levels for its key
executives relative to base salary levels for key executives of comparable
REITs. For fiscal year 1996, base salaries of the Company's President, Chief
Operating Officer and Chief Financial Officer were set at rates that the Company
believes were generally lower than the median base salaries earned by officers
holding similar positions within other comparable REITs. This is consistent with
the Company's policy to place greater emphasis on performance-related incentive
compensation, such as bonuses, stock options and restricted stock.
Performance Incentive Bonus. Under the Company's Incentive Bonus Plan, the
Compensation Committee, which is composed of three non-employee directors whose
names appear below this report, may award annual cash bonuses to executive
officers and certain other members of management for the achievement of
specified performance goals for the Company and the individual. The Incentive
Bonus Plan rewards executives for their performance during the past fiscal year
based on increases in Funds from Operations ("FFO") per share, as well as
officer-specific performance objectives, such as involvement in property
acquisitions and developments and assisting in efforts to raise debt or equity
financing for the Company.
Stock Incentive Plan Awards. Stock options and restricted stock granted
under the Company's Stock Incentive Plan are designed to provide long-term
performance incentives and rewards tied to the price of the Company's Common
Stock and, generally, will vest over a period of four years. Stock options are
granted primarily based on the performance criteria established for granting
performance incentive bonuses under the Incentive Bonus Plan. The Compensation
Committee views stock options and restricted stock as a means of aligning
management and stockholder interests and expanding management's long-term
perspective.
Compensation Committee Procedures. The Company's executive compensation
program is administered under the direction of the Company's Compensation
Committee. Final compensation determinations for each fiscal year are generally
made after the end of the fiscal year after financial statements for such year
9
<PAGE> 12
become available. At that time, bonuses, if any, are determined for the past
year's performance, base salaries for the following fiscal year are set and
grants of stock options and restricted stock, if any, are generally made. At a
meeting on January 24, 1997, the Compensation Committee determined annual cash
bonuses under the Incentive Bonus Plan and awards of stock options and
restricted stock under the Stock Incentive Plan for its officers and certain key
employees, as described in the Summary Compensation Table included in this Proxy
Statement.
Compensation of the Chief Executive Officer. The Compensation Committee
considers the Company's financial performance to be the principal determinant in
the overall compensation package of the Chief Executive Officer. The
Compensation Committee considers the Company's growth in FFO per share to be the
best indicator of the Company's financial performance when establishing
compensation for Mr. Meyer. In addition to the overall increase in FFO during
1996 of approximately 75%, the Compensation Committee particularly noted that
the Company was able to increase FFO per share (calculated in accordance with
the revised National Association of Real Estate Investment Trusts, Inc.
("NAREIT") definition) by approximately 20% to maintain an annualized increase
in FFO per share of approximately 13.3% since the Company's initial public
offering in March 1994, even with an increase of 56.8% in the number of
outstanding shares of Common Stock and Series A and Series B Preferred Stock.
The Compensation Committee also considers the market performance of the
Company's Common Stock to be a factor in determining executive compensation,
although it does not consider the Company's stock price alone to be as important
as the Company's underlying earnings performance. In 1996, the Company's price
per share of Common Stock increased by approximately 48% from $24.25 on December
29, 1995 to $36 on December 31, 1996.
In determining Mr. Meyer's compensation, the Compensation Committee also
noted that in 1996 the Company successfully completed the acquisition of nine
apartment home communities, substantially completed the construction of
Rosewalk, a 300 apartment home community located in San Jose, California,
completed reconstruction programs at six communities and had ongoing or planned
reconstruction programs at ten communities at the end of 1996. In addition, the
Compensation Committee viewed favorably Mr. Meyer's leadership of the Company's
initial expansion into the Southern California apartment home market. As of
December 31, 1996, the Company's portfolio of apartment home communities had
increased to a total of 34 communities, and the portfolio has subsequently been
complemented by the acquisition of two additional communities in 1997, including
the Company's first acquisition in Los Angeles County.
Along with the Company's implementation of its acquisition and development
strategy, the Compensation Committee considered, among other things,
- the two increases in quarterly dividends payable with respect to the
Company's Common Stock;
- the increase in "same store" EBITDA by 13.6% over 1995;
- the reduction in the payout ratio from 83% at the end of 1995 to 72.7%
at the end of 1996;
- the execution of an expanded, three-year $200 million unsecured
acquisition and construction line of credit;
- the successful completion of an offering of Series B Preferred Stock,
a direct placement of Common Stock and two underwritten public
offerings of Common Stock, which raised an aggregate of approximately
$193 million in gross proceeds for the Company;
- the reduction of the Company's debt-to-total market capitalization
from 40.4% at the end of 1995 to 25.9% at the end of 1996;
- the increase in the Company's debt service coverage, including
capitalized interest on construction debt, from 2.77X at the end of
1995 to 3.43X at the end of 1996;
- the completion of the Company's first "downREIT" transaction; and
- the strengthening of the management team and the enhancement of
employee development programs.
Based upon its evaluation of factors such as the foregoing, the Compensation
Committee makes subjective determinations of base salary and bonus compensation
levels.
10
<PAGE> 13
Mr. Meyer's annual base salary for 1996 was $250,000, and the Compensation
Committee believes that this rate, when considered together with Mr. Meyer's
incentive compensation, is consistent with the Company's performance and his
contribution to such performance. Under the Incentive Bonus Plan, the
Compensation Committee approved an incentive bonus for Mr. Meyer for fiscal year
1996 in the amount of $183,173, which the Compensation Committee believes is
less than would typically be paid to the chief executive officer of a comparable
REIT with similar growth and financial performance. In lieu of providing a
larger cash bonus, and taking into consideration the fact that Mr. Meyer has not
received restricted stock in prior years, the Compensation Committee determined
to weight Mr. Meyer's compensation more toward long-term performance based
compensation, the value of which is primarily dependent upon the Company's stock
price. Accordingly, the Compensation Committee awarded Mr. Meyer options to
purchase 100,000 shares of Common Stock and 20,000 shares of restricted stock
based upon his 1996 performance. The options will vest in equal installments
over a four-year period and will be exercisable at $36.625 per share, the last
reported sale price of the Common Stock on the NYSE on the date of grant,
January 24, 1997. The shares of restricted stock vest in five equal annual
installments beginning on February 3, 1998 provided that, among other factors,
Mr. Meyer continues his employment with the Company. This grant of options and
restricted stock is intended to enhance Mr. Meyer's long-term incentive to
continue to contribute to the Company's success, and was made with regard to the
Company's growth and financial performance in 1996.
Compensation of Other Executive Officers. The Company's executive
compensation program for other executive officers is based on the same
performance goals and other factors described above for the Chief Executive
Officer, although the corporate, business unit and individual performance goals
and the relative weighing of the quantitative performance factors described
above varies, depending on the responsibilities of particular officers. The
Compensation Committee seriously considers the Chief Executive Officer's
evaluations and recommendations with respect to the other executive officers of
the Company. In recognition of the Company's achievements as described above,
the Compensation Committee approved the Named Executive Officers' incentive
bonuses described in the Summary Compensation Table for the Company's fiscal
year 1996 pursuant to the Incentive Bonus Plan.
For all of the Named Executive Officers, the Compensation Committee also
considers stock options to be an important component of total compensation.
Based on the factors described above, the Compensation Committee authorized the
grant to (i) each of Messrs. Gardner, Baker and Van Horn of options to purchase
20,000 shares of Common Stock, (ii) Mr. Newman and Mr. Murphy of options to
purchase 10,000 shares of Common Stock and (iii) Ms. Shotwell of options to
purchase 5,000 shares of Common Stock. All of these options will vest in four
equal annual installments and will be exercisable at $36.625 per share, the last
reported sale price of the Common Stock on the NYSE on the date of grant,
January 24, 1997. In addition, the Compensation Committee approved the grant to
each of Messrs. Gardner, Baker, Van Horn, Newman and Murphy of 1,000 shares of
restricted stock, and the grant to Ms. Shotwell of 500 shares of restricted
stock. All of these shares of restricted stock vest in five equal annual
installments beginning on February 3, 1998. These Named Executive Officers and
the Company's stockholders will therefore benefit from an appreciation in the
Company's stock price.
The Securities and Exchange Commission (the "SEC") requires that this
report comment upon the Company's policy with respect to Section 162(m) of the
Code, which limits the deductibility on the Company's tax return of compensation
over $1 million to any of the Named Executive Officers of the Company unless, in
general, the compensation is paid pursuant to a plan which is
performance-related, non-discretionary and has been approved by the Company's
stockholders. The Compensation Committee's policy with respect to Section 162(m)
is to make every reasonable effort to ensure that compensation is deductible to
the extent permitted, while simultaneously providing Company executives with
appropriate rewards for their performance. The Company did not pay any
compensation with respect to 1996 that would be subject to Section 162(m).
Submitted by the Compensation
Committee:
Bruce A. Choate
Brenda J. Mixson
Thomas H. Nielsen
11
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph provides a comparison, from the Company's initial
public offering in March 1994 through December 1996, of the cumulative total
shareholder return (assuming reinvestment of any dividends) among the Company,
the Standard & Poor's ("S&P") 500 Index and the NAREIT Equity REIT Total Return
Index (the "NAREIT Equity Index"), an industry index of 166 real estate
investment trusts, including the Company. The NAREIT Equity Index includes REITs
with 75% or more of their gross invested book value of assets invested directly
or indirectly in the equity ownership of real estate. Upon written request, the
Company will provide any stockholder with a list of the REITs included in the
Index. The historical information set forth below is not necessarily indicative
of future performance. Data for the NAREIT Equity Index and the S&P 500 Index
were provided to the Company by NAREIT.
<TABLE>
<CAPTION>
3/94 6/94 9/94 12/94 3/95 6/95 9/95 12/95 3/96 6/96 9/96 12/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bay Apartment 100.00 99.39 105.24 101.61 94.55 102.46 114.51 132.37 133.84 145.83 163.16 208.85
Equity REITs 100.00 101.84 99.76 99.77 99.61 105.46 110.43 115.01 117.62 122.85 130.89 155.57
S&P 500 100.00 100.41 105.35 105.33 115.58 126.55 136.61 144.75 152.52 159.36 164.27 178.03
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Bruce A. Choate, Ms. Brenda J.
Mixson and Mr. Thomas H. Nielsen. None of them has served as an officer of the
Company or has any other business relationship or affiliation with the Company,
except his or her service as a director.
12
<PAGE> 15
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as to (i) each person or entity who is known by the Company to have
beneficially owned more than five percent of the Company's Common Stock as of
December 31, 1996, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and Named Executive Officers as a
group, based on representations of officers and directors of the Company as of
February 3, 1997 (unless otherwise indicated) and filings as of February 14,
1997 received by the Company on Schedules 13G under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All such information was provided by
the stockholders listed (unless otherwise indicated) and reflects their
beneficial ownership known by the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND BUSINESS OF COMMON STOCK PERCENT
ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- - ----------------------------------------------------------------- --------------------- --------
<S> <C> <C>
Gilbert M. Meyer................................................. 1,013,113(2) 4.93%
Geoffrey L. Baker................................................ 65,784(3) *
Max L. Gardner................................................... 31,000(4) *
Bruce A. Choate.................................................. 11,000(5) *
John J. Healy, Jr................................................ 8,000(6) *
Brenda J. Mixson................................................. 12,000(5) *
Thomas H. Nielsen................................................ 21,000(5) *
Jeffrey B. Van Horn.............................................. 2,000 *
Morton L. Newman................................................. 30,392(7) *
Daniel E. Murphy................................................. 2,500(8) *
Debra Lynn Shotwell.............................................. 500 *
All directors and Named Executive Officers as a group (11
persons)....................................................... 1,197,289 5.78
FMR Corp.(9)..................................................... 2,841,020 13.90
82 Devonshire Street, Boston, MA 02109
LaSalle Advisors Limited Partnership(10)......................... 1,281,200 6.27
11 South LaSalle Street, Chicago, IL 60603
</TABLE>
- - ---------------
* Less than one percent
(1) Except as otherwise noted, each individual in the table above has the sole
voting and investment power over the shares listed.
(2) Includes 115,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997.
(3) Includes 50,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997.
(4) Includes 25,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997.
(5) Includes 11,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997. Mr. Nielsen is a co-trustee of a
trust that holds 2,000 shares of Common Stock. He shares voting and
investment power over the shares held by the trust with his wife and with
the U.S. Trust Company of California pursuant to an investment management
agreement.
(6) Includes 5,000 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
(7) Includes 25,000 shares issuable upon the exercise of stock options that
have vested or will vest by May 30, 1997.
(8) Includes 2,500 shares issuable upon the exercise of stock options that have
vested or will vest by May 30, 1997.
13
<PAGE> 16
(9) Information reported is based upon a Schedule 13G filed with the SEC on
February 10, 1997 reporting beneficial ownership as of December 31, 1996.
This Schedule 13G indicates that the reporting entity is an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940. The Schedule 13G also indicates that the reporting entity has sole
dispositive power with respect to all of the shares reported and sole
voting power with respect to 552,700 of the shares reported.
(10) The information reported in the table above includes 714,250 shares
beneficially owned by ABKB/LaSalle Securities Limited Partnership
("ABKB/LaSalle"), a wholly-owned subsidiary of LaSalle Advisors Limited
Partnership ("LaSalle"). Information reported is based upon a Schedule 13G
filed with the SEC on February 14, 1997 reporting beneficial ownership as
of December 31, 1996. The Schedule 13G indicates that the reporting
entities are investment advisers registered under Section 203 of the
Investment Advisers Act of 1940. The Schedule 13G also indicates that
LaSalle has shared dispositive power with respect to 432,950 shares and
shared voting power with respect to 162,600 shares, while ABKB/LaSalle has
shared dispositive power with respect to 566,050 of the shares and shared
voting power with respect to 456,380 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities (collectively, "Insiders"), to file reports of
ownership and changes in ownership with the SEC and one national securities
exchange on which such securities are registered. In accordance with Rule
16a-3(c) under the Exchange Act, the Company has designated the NYSE as the one
national securities exchange with which reports pursuant to Section 16(a) of the
Exchange Act need be filed. Insiders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on a review of copies of such reports and written
representations that no other reports were required during the fiscal year ended
December 31, 1996, all transactions in the Company's securities that were
engaged in by Insiders, and therefore required to be disclosed pursuant to
Section 16(a) of the Exchange Act, were timely reported.
PROPOSAL 2
RATIFICATION OF THE 1994 STOCK INCENTIVE PLAN,
AS AMENDED AND RESTATED
On August 28, 1996, the Board of Directors voted to amend and restate the
Company's 1994 Stock Incentive Plan, which originally provided for the issuance
of up to 663,000 shares of Common Stock of the Company pursuant to various stock
incentive awards, including stock options. The August 1996 amendments to the
Stock Incentive Plan authorize the Company to issue up to an additional 857,000
shares of Common Stock pursuant to such awards. A summary of the principal
features of the Stock Incentive Plan is set forth below. This summary is
qualified in its entirety by the full text of the Stock Incentive Plan, which
has been filed with the SEC.
SUMMARY OF THE STOCK INCENTIVE PLAN
The following description of certain features of the Stock Incentive Plan
is intended to be a summary only.
Number of Shares Subject to Stock Incentive Plan. The total number of
shares of Common Stock that may be issued under the Stock Incentive Plan is
1,520,000 shares. The proceeds received by the Company from option exercises
under the Stock Incentive Plan will be used for the general corporate purposes
of the Company. On March 14, 1997, the closing price of the Company's Common
Stock, as reported on the NYSE, was $36.75 per share.
Plan Administration. The Stock Incentive Plan provides for administration
by the non-employee members of the Compensation Committee of the Board of
Directors, or a committee of not less than two
14
<PAGE> 17
non-employee directors performing similar functions as appointed by the Board of
Directors from time to time.
Eligibility. The Compensation Committee has full power to select the
individuals to whom awards will be granted and to determine the terms of each
grant under the Stock Incentive Plan. All officers, employees and directors of
the Company are eligible to participate in the Stock Incentive Plan, subject to
the discretion of the Compensation Committee. In no event may one participant
receive more than 300,000 options to purchase Common Stock during any one
calendar year.
Nature of Options. Options granted under the Stock Incentive Plan may be
either Incentive Stock Options ("Incentive Options") (within the definition of
Section 422 of the Code) or Non-Qualified Stock Options ("Non-Qualified
Options"). Options granted under the Stock Incentive Plan will be Non-Qualified
Options if they (i) fail to meet such definition of Incentive Options, (ii) are
granted to a person not eligible to receive Incentive Options under the Code, or
(iii) otherwise so provide. Incentive Options may be granted only to officers or
other employees of the Company (including employees and directors of any
subsidiary who are also employees of the Company). Non-Qualified Options may be
granted to persons eligible to receive Incentive Options and to non-employee
directors.
Other Option Terms. The Compensation Committee has authority to determine
the terms of options granted under the Stock Incentive Plan; provided, however,
that no Incentive Option or Non-Qualified Option may be granted with an exercise
price that is less than the fair market value of the shares of Common Stock on
the date of the option grant. The Stock Incentive Plan provides that such fair
market value will be deemed to be the last reported sale price of the shares of
Common Stock on the NYSE. Options may be exercised subject to such vesting
schedule as the Compensation Committee determines, except that no Incentive
Option shall be exercisable after the tenth anniversary of the date of grant. In
general, no option granted under the Stock Incentive Plan is transferable by the
optionee other than by will or by the laws of descent and distribution, and
options may be exercised during the optionee's lifetime only by the optionee.
Options granted under the Stock Incentive Plan may be exercised for cash
or, if permitted by the Compensation Committee, by transfer to the Company of
shares of Common Stock not then subject to restrictions under any Company plan,
that have been held by the optionee for at least six months, and that have a
fair market value equivalent to the option exercise price of the shares being
purchased, or by compliance with certain provisions pursuant to which a
securities broker delivers the purchase price for the shares to the Company. To
qualify as Incentive Options, options must meet additional federal tax
requirements, including a $100,000 limit on the value of shares of Common Stock
subject to Incentive Options which first become exercisable in any one year.
Stock Options Granted to Non-Employee Directors. The Stock Incentive Plan
provides for the automatic grant of Non-Qualified Options to non-employee
directors. Each non-employee director who is serving as a director of the
Company on the fifth business day after each annual meeting of stockholders
shall automatically be granted on such day a Non-Qualified Option to acquire
5,000 shares of Common Stock. The exercise price of each such Non-Qualified
Option is the fair market value of the Common Stock as determined by the last
reported sale price of the Common Stock on the NYSE on the date of grant. Such
Non-Qualified Option may not be exercised before the first anniversary of the
date of grant, except in the case of death or disability, nor after the
expiration of ten years from the date of grant. In addition, the Compensation
Committee, in its discretion, may grant additional Non-Qualified Options, which
shall be subject to the same conditions and vesting provisions as those
Non-Qualified Options automatically granted to the non-employee directors each
year.
Tax Withholdings. Optionees under the Stock Incentive Plan are responsible
for the payment of any federal, state or local taxes, which the Company is
required by law to withhold upon any option exercise. Optionees may elect to
have such tax withholding obligations satisfied either by authorizing the
Company to withhold shares of Common Stock to be issued pursuant to an option
exercise or by transferring to the Company shares of Common Stock having a value
equal to the amount of such taxes. Such an election is subject to certain
limitations for participants who are subject to the requirements of Section
16(b) of the Exchange Act.
15
<PAGE> 18
Restricted Stock. The Compensation Committee may grant shares (at no cost
or for a purchase price determined by the Compensation Committee) of Common
Stock to any participant subject to such conditions and restrictions as the
Compensation Committee may determine ("Restricted Stock"). These conditions and
restrictions may include the achievement of pre-established performance goals
and/or continued employment with the Company through a specified restricted
period. The purchase price of shares of Restricted Stock will be determined by
the Compensation Committee. If the performance goals and other restrictions are
not attained, the participant will forfeit his or her awards of Restricted
Stock. In addition, Restricted Stock may be granted to an employee by the
Compensation Committee in lieu of a cash bonus due to such employee pursuant to
any other plan of the Company.
Unrestricted Stock. The Compensation Committee may also grant shares (at
no cost or for a purchase price determined by the Compensation Committee) of
Common Stock which are free from any restrictions under the Stock Incentive Plan
("Unrestricted Stock"). Unrestricted Stock may be granted to any participant in
recognition of past services or other valid consideration, and may be issued in
lieu of cash compensation due to such participant.
Subject to the consent of the Compensation Committee, a participant may
make an irrevocable election to receive a portion of his compensation otherwise
due in Unrestricted Stock (valued at fair market value on the date the cash
compensation would otherwise be paid) either currently or on a deferred basis.
Performance Share Awards. The Compensation Committee may grant performance
share awards to any participants entitling the recipient to receive shares of
Common Stock upon the achievement of individual or Company performance goals and
such other conditions as the Compensation Committee shall determine.
Change of Control Provisions. The Stock Incentive Plan provides that in
the event of a "Change of Control" (as defined in the Stock Incentive Plan) of
the Company, all stock options shall automatically become fully exercisable. In
addition, at any time prior to or after a Change of Control, the Compensation
Committee may accelerate awards and waive conditions and restrictions on any
awards to the extent it may determine appropriate.
EFFECTIVE DATE OF STOCK INCENTIVE PLAN
The Stock Incentive Plan, as amended and restated, became effective when
approved by the Board of Directors on August 28, 1996. In order for the Company
to be able to issue Incentive Options, and to ensure that the cost of certain
awards issued under the Stock Incentive Plan will be deductible by the Company
for federal income tax purposes, the Company is seeking ratification of the
Stock Incentive Plan by the affirmative vote of a majority of the votes cast on
the proposal at the Annual Meeting, provided that the total number of votes cast
on such proposal must represent greater than 50% of all shares entitled to vote
on such proposal. For purposes of the vote on the Stock Incentive Plan,
abstentions and broker non-votes will not be counted as votes cast and,
accordingly, will have no effect on the majority vote required. Awards of
Incentive Options may be granted under the Stock Incentive Plan until August 28,
2006.
NEW PLAN BENEFITS
Approximately 300 employees and non-employee directors are currently
eligible to participate in the Stock Incentive Plan. The table below shows the
aggregate number of stock options and shares of restricted stock that have been
allocated to each of the following under the Stock Incentive Plan with respect
to fiscal year 1996:
16
<PAGE> 19
NEW PLAN BENEFITS
1994 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
<TABLE>
<CAPTION>
STOCK OPTIONS RESTRICTED STOCK
--------------------------------------------- -----------------------
NUMBER OF
SHARES
UNDERLYING EXERCISE
STOCK GRANT PRICE MARKET NUMBER OF MARKET
NAME AND POSITION OPTIONS DATE(1) ($/SH) VALUE(2) SHARES(3) VALUE(4)
- - ----------------------------------------- ---------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gilbert M. Meyer(5)...................... 100,000 1/24/97 $36.625 $12,500 20,000 $735,000
Chairman of the Board, President and
Chief Executive Officer
Max L. Gardner(5)........................ 20,000 1/24/97 36.625 2,500 1,000 36,750
Executive Vice President, Chief Operating
Officer and Director
Geoffrey L. Baker(5)..................... 20,000 1/24/97 36.625 2,500 6,000(6) 220,500
Vice President, Chief Development and
Acquisitions Officer and Director
Jeffrey B. Van Horn...................... 20,000 1/24/97 36.625 2,500 2,000(7) 73,500
Vice President and 25,000 6/19/96 25.375 284,375
Chief Financial Officer ------- ---------
45,000 286,875
======= =========
Morton L. Newman......................... 10,000 1/24/97 36.625 1,250 1,000 36,750
Vice President--Construction
Daniel E. Murphy......................... 10,000 1/24/97 36.625 1,250 1,000 36,750
Vice President--Development 20,000 8/28/96 27.750 180,000
------- ---------
30,000 181,250
======= =========
Debra Lynn Shotwell...................... 5,000 1/24/97 36.625 625 500 18,375
Vice President--Human Resources
Bruce A. Choate(5)....................... 5,000 5/1/96 25.375 56,875 0 0
Director
John J. Healy, Jr.(5).................... 5,000 5/1/96 25.375 56,875 0 0
Director
Brenda J. Mixson(5)...................... 5,000 5/1/96 25.375 56,875 0 0
Director
Thomas H. Nielsen(5)..................... 5,000 5/1/96 25.375 56,875 0 0
Director
All Named Executive Officers............. 185,000 1/24/97 36.625 23,125 31,500 1,157,625
as a group (7 persons, including 3 20,000 8/28/96 27.750 180,000
who are Directors) 25,000 6/19/96 25.375 284,375
------- ---------
230,000 487,500
======= =========
All Non-Employee Directors............... 20,000 5/1/96 25.375 227,500 0 0
as a group (4 persons)
All Nominees for election as............. 140,000 1/24/97 36.625 17,500 27,000 992,250
Directors as a group (7 persons) 20,000 5/1/96 25.375 227,500
------- ---------
160,000 245,000
======= =========
All Employees, excluding 7 Named......... 84,500 1/24/97 36.625 10,563 0 0
Executive Officers, as a group 116,200 8/28/96 27.750 1,045,800
------- ---------
200,700 1,056,363
======= =========
</TABLE>
- - ---------------
(1) All options expire ten years from the date of grant.
(2) The market value shown in this column is the product of the number of shares
and the difference between the last reported sale price of the Company's
Common Stock on the NYSE on March 21, 1997 ($36.75 per share) and the
exercise price.
(3) Unless otherwise noted, all of these shares of Restricted Stock were granted
as of February 3, 1997 and vest in five equal annual installments beginning
on February 3, 1998.
17
<PAGE> 20
(4) The market value shown in this column is based upon the last reported sale
price of the Company's Common Stock on the NYSE on March 21, 1997 of $36.75
per share.
(5) Nominees for election as Directors.
(6) Consists of (i) 5,000 shares of Restricted Stock awarded on August 6, 1996,
which vest in five equal annual installments beginning on January 26, 1997,
and (ii) 1,000 shares of Restricted Stock awarded as of February 3, 1997,
which vest in five equal annual installments beginning on February 3, 1998.
(7) Consists of (i) 1,000 shares of Restricted Stock awarded on August 6, 1996,
which vest in five equal annual installments beginning on June 19, 1997, and
(ii) 1,000 shares of Restricted Stock awarded as of February 3, 1997, which
vest in five equal annual installments beginning on February 3, 1998.
Adjustments for Stock Dividends, Mergers, etc. The Stock Incentive Plan
authorizes the Compensation Committee to make appropriate adjustments to the
number of shares of Common Stock that are subject to the Stock Incentive Plan
and of any outstanding options to reflect stock dividends, stock splits and
similar events. In the event of a merger, consolidation, dissolution or
liquidation of the Company, the Compensation Committee in its discretion may
provide for appropriate substitutions or adjustments.
Amendments and Termination. The Board of Directors may at any time amend
or discontinue the Stock Incentive Plan and the Compensation Committee may at
any time amend or cancel any outstanding award for the purpose of satisfying
changes in law or for any other lawful purpose, but no such action shall
adversely affect the rights under any outstanding awards without the holder's
consent. To the extent required by the Code to ensure that options granted under
the Stock Incentive Plan qualify as Incentive Options, plan amendments shall be
subject to approval by the Company's stockholders.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of transactions under the Stock Incentive Plan. It does not describe all federal
tax consequences under the Stock Incentive Plan, nor does it describe state or
local tax consequences.
Incentive Options. No taxable income is generally realized by the optionee
upon the grant or exercise of an Incentive Option. If shares of Common Stock
issued to an optionee pursuant to the exercise of an Incentive Option are sold
or transferred after two years from the date of grant and after one year from
the date of exercise, then (i) upon sale of such shares, any amount realized in
excess of the option price (the amount paid for the shares) will be taxed to the
optionee as a long-term capital gain, and any loss sustained will be a long-term
capital loss, and (ii) there will be no deduction for the Company for federal
income tax purposes. The exercise of an Incentive Option will give rise to an
item of tax preference that may result in alternative minimum tax liability for
the optionee.
If shares of Common Stock acquired upon the exercise of an Incentive Option
are disposed of prior to the expiration of the two-year and one-year holding
periods described above (a "disqualifying disposition"), generally (i) the
optionee will realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares of Common
Stock at exercise (or, if less, the amount realized on a sale of such shares of
Common Stock) over the option price thereof, and (ii) the Company will be
entitled to deduct such amount. Special rules will apply where the optionee is
subject to Section 16(b) of the Exchange Act or where all or a portion of the
exercise price of the Incentive Option is paid by tendering shares of Common
Stock.
If an Incentive Option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a Non-Qualified
Option. Generally, an Incentive Option will not be eligible for the tax
treatment described above if it is exercised more than three months following
termination of employment (or six months or one year in the case of termination
of employment by reason of death or disability, respectively).
18
<PAGE> 21
Non-Qualified Options. With respect to Non-Qualified Options under the
Stock Incentive Plan, no income is realized by the optionee at the time the
option is granted. Generally (i) at exercise, ordinary income is realized by the
optionee in an amount equal to the difference between the option price and the
fair market value of the shares of Common Stock on the date of exercise, and the
Company receives a tax deduction for the same amount, and (ii) at disposition,
appreciation or depreciation after the date of exercise is treated as either
short-term or long-term capital gain or loss depending on how long the shares of
Common Stock have been held. Special rules will apply where the optionee is
subject to Section 16(b) of the Exchange Act or where all or a portion of the
exercise price of the Non-Qualified Option is paid by tendering shares of Common
Stock.
Parachute Payments. The exercise of any portion of any option that is
accelerated due to the occurrence of a Change of Control may cause a portion of
the payments with respect to such accelerated options to be treated as
"parachute payments" as defined in the Code. Any such parachute payment may be
non-deductible to the Company, in whole or in part, and may subject the
recipient to a non-deductible 20% federal excise tax on all or a portion of such
payment (in addition to other taxes ordinarily payable).
Limitation on Company's Deductions. As a result of Section 162(m) of the
Code, the Company's deduction for certain awards under the Stock Incentive Plan
may be limited to the extent that a Named Executive Officer receives
compensation in excess of $1,000,000 in such taxable year.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE 1994 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors has selected Coopers &
Lybrand L.L.P., independent accountants, to serve as independent accountants for
the Company for the fiscal year ending December 31, 1997 and recommends that the
stockholders vote for ratification of such appointment. Coopers & Lybrand L.L.P.
has audited the financial statements of the Company since fiscal year 1991.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
meeting and will have the opportunity to make a statement if they desire to do
so. They are also expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT ACCOUNTANTS FOR
THE COMPANY.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Business Relationships.
Greenbriar Homes Company and its affiliates (collectively "GHC") are
corporations wholly-owned by Mr. Meyer and his wife, Carol M. Meyer, that
develop and sell single-family residential properties. Mr. Meyer does not
provide any significant management services to GHC and he devotes substantially
all of his business time and attention to the affairs of the Company. Since the
Company's initial public offering in March 1994, the Company has shared certain
office and warehouse space and computer training facilities with GHC, and each
of the Company and GHC is obligated for the rent payments with respect to its
pro rata portion of the shared space. Such shared office space amounts to less
than five percent of the total office space leased by each entity. In addition,
pursuant to an administrative services agreement, the Company and GHC share
certain administrative and office facility services. During fiscal year 1996,
GHC paid in the aggregate approximately $154,000 to the Company to cover the
cost of such services. This amount is calculated on a basis intended to
approximate the cost of the use of these services and not to generate a profit.
The non-employee directors of the Company periodically review and approve the
terms of this agreement including amounts payable thereunder. The Company
believes that the administrative services agreement is upon terms that are fair
to
19
<PAGE> 22
the Company and as favorable as the terms that the Company could have obtained
from unaffiliated third parties.
Indebtedness of Management.
In connection with the hiring of Mr. Van Horn as Vice President and Chief
Financial Officer of the Company in June 1996, Mr. Van Horn entered into an
employment agreement (the "CFO Agreement") with the Company pursuant to which
Mr. Van Horn received a loan from the Company in the amount of $140,000 (the
"Loan"), which, during the term of employment, shall not bear interest. Under
the terms of the promissory note executed by Mr. Van Horn in connection with the
Loan, the Loan shall be repaid in installments equal to 90% of any bonus
compensation (after the deduction of taxes) received by Mr. Van Horn
concurrently with the receipt of any such bonus.
In the event Mr. Van Horn's employment with the Company is terminated by
the Company without Good Reason (as defined in the CFO Agreement) or within one
year following a Change-in-Control (as defined in the CFO Agreement), any
outstanding balance under the Loan shall be forgiven by the Company. In the
event Mr. Van Horn's employment is terminated for any other reason, the Loan
shall be converted to a fifteen-year amortization schedule with a five-year
balloon payment and shall bear interest at the lower of: (i) the average of the
rates (assuming no points) quoted on the employment termination date for a
fifteen-year fully amortized conventional fixed-rate residential mortgage by the
main headquarters of each of Citibank, N.A., Bank of Boston and Chase Bank (or
their successors), and (ii) ten percent per annum. As of March 31, 1997, the
outstanding principal amount of the Loan was $122,000.
OTHER MATTERS
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the form enclosed herewith will be
paid by the Company. In addition to the solicitation of proxies by mail, the
directors, officers and employees of the Company may also solicit proxies
personally or by telephone without additional compensation for such activities.
The Company will also request persons, firms and corporations holding shares in
their names or in the names of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. The Company will reimburse such holders for their reasonable expenses.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETINGS
Stockholder proposals (including director nominations) submitted pursuant
to Exchange Act Rule 14a-8 for inclusion in the Company's proxy statement and
form of proxy for the 1998 Annual Meeting of Stockholders must be received by
the Company by December 1, 1997. Such a proposal must also comply with the
requirements as to form and substance established by the SEC for such a proposal
to be included in the proxy statement and form of proxy.
For a proposal of a stockholder (including director nominations) to be
presented at the Company's 1998 Annual Meeting of Stockholders, other than a
stockholder proposal submitted pursuant to Rule 14a-8 of the Exchange Act, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company, together with all supporting
documentation required by the Company's Bylaws, (A) not less than seventy-five
(75) days nor more than one hundred eighty (180) days prior to the anniversary
date of the Annual Meeting (the "Anniversary Date") or (B) in the event that the
1998 Annual Meeting of Stockholders is called for a date more than seven (7)
calendar days prior to the Anniversary Date, not later than the close of
business on (1) the twentieth (20th) calendar day (or if that day is not a
business day for the Company, on the next succeeding business day) following the
earlier of (x) the date on which notice of the date of such meeting was mailed
to stockholders, or (y) the date on which the date of such meeting was publicly
disclosed, or (2) if such date of notice or public disclosure occurs more than
seventy-five (75) calendar days prior to the scheduled date of such meeting,
then the later of (x) the twentieth (20th) calendar day (or if that day is not a
business day for the Company, on the next succeeding business day) following the
20
<PAGE> 23
date of the first to occur of such notice or public disclosure or (y) the
seventy-fifth (75th) calendar day prior to such scheduled date of such meeting
(or if that day is not a business day for the Company, on the next succeeding
business day).
Any such proposals should be mailed to: Bay Apartment Communities, Inc.,
4340 Stevens Creek Boulevard, Suite 275, San Jose, California 95129, Attention:
Secretary.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD
TODAY.
21
<PAGE> 24
Appendix A
BAY APARTMENT COMMUNITIES, INC.
1994 STOCK INCENTIVE PLAN
As Amended and Restated August 28, 1996
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Bay Apartment Communities, Inc.-1994 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Directors and other key persons of Bay Apartment
Communities, Inc. (the "Company") and its Subsidiaries upon whose judgment,
initiative and efforts the Company largely depends for the successful conduct of
its business to acquire a proprietary interest in the Company. It is anticipated
that providing such persons with a direct stake in the Company's welfare will
assure a closer identification of their interests with those of the Company,
thereby stimulating their efforts on the Company's behalf and strengthening
their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards and Performance
Share Awards.
"Board" means the Board of Directors of the Company.
"Cause" means and shall be limited to a vote of the Board of Directors
resolving that the participant should be dismissed as a result of (i) any
material breach by the participant of any agreement to which the participant and
the Company are parties, (ii) any act (other than retirement) or omission to act
by the participant which may have a material and adverse effect on the business
of the Company or any Subsidiary or on the participant's ability to perform
services for the Company or any Subsidiary, including, without limitation, the
commission of any crime (other than ordinary traffic violations), or (iii) any
material misconduct or neglect of duties by the participant in connection with
the business or affairs of the Company or any Subsidiary.
"Change of Control" is defined in Section 13.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Board or any Committee of the Board referred to
in Section 2.
<PAGE> 25
"Disability" means disability as set forth in Section 22(e)(3) of the
Code.
"Effective Date" means the date on which the Plan is approved by
shareholders as set forth in Section 15.
"Fair Market Value" on any given date means the last reported sale
price at which Stock is traded on such date or, if no Stock is traded on such
date, the most recent date on which Stock was traded, as reflected on the New
York Stock Exchange.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Non-Employee Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 8.
"Restricted Stock Award" mean Awards granted pursuant to Section 6.
"Stock" means the Common Stock, $.01 par value per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the total combined voting power of all classes of
stock or other interests in one of the other corporations or entities in the
chain.
"Unrestricted Stock Award" means Awards granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by all of the
Non-Employee Director members of the Compensation Committee of the Board, or a
committee of not less than two Non-Employee Directors performing similar
functions, as appointed by the
2
<PAGE> 26
Board from time to time. Each member of the Committee shall be an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder and a "non-employee director" within the meaning of Rule
16b-3(b)(3)(i) promulgated under the Act, or any successor definition under said
rule.
(b) Powers of Committee. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers and other employees of the Company
and its Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards, Unrestricted Stock Awards and Performance
Shares, or any combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares to be covered by any
Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any
Award, which terms and conditions may differ among individual Awards
and participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate the exercisability or vesting of all or any
portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend
the period in which Stock Options may be exercised;
(vii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or
credit amounts constituting interest (at rates determined by the
Committee) or dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
3
<PAGE> 27
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Committee, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee's authority and duties with respect to Awards, including
the granting thereof, to individuals who are not subject to the reporting and
other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. The Committee may revoke or amend the
terms of a delegation at any time but such action shall not invalidate any prior
actions of the Committee's delegate or delegates that were consistent with the
terms of the Plan.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Shares Issuable. The maximum number of shares of Stock reserved
and available for issuance under the Plan shall be 1,520,000. For purposes of
this limitation, the shares of Stock underlying any Awards which are forfeited,
cancelled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. Subject to such overall
limitation, shares may be issued up to such maximum number pursuant to any type
or types of Award, including Incentive Stock Options; provided, however, that
Stock Options with respect to no more than 300,000 shares of Stock may be
granted to any one individual participant during any one calendar year period.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company.
(b) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options that can be granted to any one individual participant, (iii)
the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iv) the price for each share subject to
any then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
Stock Options) as to which such Stock Options remain
4
<PAGE> 28
exercisable. The adjustment by the Committee shall be final, binding and
conclusive. No fractional shares of Stock shall be issued under the Plan
resulting from any such adjustment, but the Committee in its discretion may make
a cash payment in lieu of fractional shares.
(c) Mergers. Upon consummation of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Stock are exchanged for securities, cash or other property of an
unrelated corporation or business entity or in the event of a liquidation of the
Company (in each case, a "Transaction"), the Board, or the board of directors of
any corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding Stock Options:
(i) provide that such Stock Options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) upon written notice to the optionees, provide that all
unexercised Stock Options will terminate immediately prior to the consummation
of the Transaction unless exercised by the optionee within a specified period
following the date of such notice, and/or (iii) in the event of a business
combination under the terms of which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the business combination, make or provide for a cash payment to the optionees
equal to the difference between (A) the value (as determined by the Committee)
of the consideration payable per share of Stock pursuant to the business
combination (the "Merger Price") times the number of shares of Stock subject to
such outstanding Stock Options (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
outstanding Stock Options in exchange for the termination of such Stock Options.
In the event Stock Options will terminate upon the consummation of the
Transaction, each optionee shall be permitted, within a specified period
determined by the Committee, to exercise all non-vested Stock Options, subject
to the consummation of the Transaction.
(d) Substitute Awards. The Committee may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers, other
employees, Non-Employee Directors and key persons of the Company and its
Subsidiaries who are
5
<PAGE> 29
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries and who are selected from time to time by the
Committee, in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after August
28, 2006.
(a) Stock Options Granted to Employees and Key Persons. The Committee
in its discretion may grant Stock Options to employees and key persons of the
Company or any Subsidiary. Stock Options granted to employees and key persons
pursuant to this Section 5(a) shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Committee at the time of grant but shall be not
less than 100% of Fair Market Value on the date of grant. If an
employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation and an Incentive Stock Option is
granted to such employee, the option price shall be not less than 110%
of Fair Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the option is granted. If an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation
and an Incentive Stock Option is granted to such employee, the term of
such option shall be no more than five years from the date of grant.
6
<PAGE> 30
(iii) Exercisability; Rights of a Shareholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability
of all or any portion of any Stock Option. An optionee shall have the
rights of a shareholder only as to shares acquired upon the exercise of
a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole
or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods:
(A) In cash, by certified bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject
to restrictions under any Company plan and that have been held by
the optionee for at least six months, if permitted by the
Committee in its discretion. Such surrendered shares shall be
valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the purchase price;
provided that in the event the optionee chooses to pay the
purchase price as so provided, the optionee and the broker shall
comply with such procedures and enter into such agreements of
indemnity and other agreements as the Committee shall prescribe as
a condition of such payment procedure. Payment instruments will be
received subject to collection.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws.
(v) Termination by Reason of Death. If any optionee's employment
(or other business relationship) by the Company and its Subsidiaries
terminates by reason of death, the Stock Option may thereafter be
exercised, to the extent exercisable at the date of death, by the legal
representative or legatee of the optionee, for a period of six months
(or such longer period as the Committee
7
<PAGE> 31
shall specify at any time) from the date of death, or until the
expiration of the stated term of the Option, if earlier.
(vi) Termination by Reason of Disability.
(A) Any Stock Option held by an optionee whose employment
(or other business relationship) by the Company and its
Subsidiaries has terminated by reason of Disability may thereafter
be exercised, to the extent it was exercisable at the time of such
termination, for a period of twelve months (or such longer period
as the Committee shall specify at any time) from the date of such
termination of employment (or other business relationship), or
until the expiration of the stated term of the Option, if earlier.
(B) The Committee shall have sole authority and discretion
to determine whether a participant's employment (or other business
relationship) has been terminated by reason of Disability.
(C) Except as otherwise provided by the Committee at the
time of grant, the death of an optionee during a period provided
in this Section 5(a)(vi) for the exercise of a Non-Qualified Stock
Option shall extend such period for six months from the date of
death, subject to termination on the expiration of the stated term
of the Option, if earlier.
(vii) Termination for Cause. If any optionee's employment (or
other business relationship) by the Company and its Subsidiaries has
been terminated for Cause, any Stock Option held by such optionee shall
immediately terminate and be of no further force and effect; provided,
however, that the Committee may, in its sole discretion, provide that
such stock option can be exercised for a period of up to 30 days from
the date of termination of employment (or other business relationship)
or until the expiration of the stated term of the Option, if earlier.
(viii) Other Termination. Unless otherwise determined by the
Committee, if an optionee's employment (or other business relationship)
by the Company and its Subsidiaries terminates for any reason other
than death, Disability, or for Cause, any Stock Option held by such
optionee may thereafter be exercised, to the extent it was exercisable
on the date of termination of employment (or other business
relationship), for three months (or such longer period as the Committee
shall specify at any time) from the date of termination of employment
(or other business relationship) or until the expiration of the stated
term of the Option, if earlier.
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<PAGE> 32
(ix) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the Stock with respect to which Incentive Stock Options
granted under this Plan and any other plan of the Company or its
Subsidiaries become exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
(x) Form of Settlement. Shares of Stock issued upon exercise of
a Stock Option shall be free of all restrictions under the Plan, except
as otherwise provided in this Plan.
(b) Reload Options. At the discretion of the Committee, Options
granted under the Plan may include a so-called "reload" feature pursuant to
which an optionee exercising an option by the delivery of a number of shares of
Stock in accordance with Section 5(a)(iv)(B) hereof would automatically be
granted an additional Option (with an exercise price equal to the Fair Market
Value of the Stock on the date the additional Option is granted and with the
same expiration date as the original Option being exercised, and with such other
terms as the Committee may provide) to purchase that number of shares of Stock
equal to the number delivered to exercise the original Option.
(c) Stock Options Granted to Non-Employee Directors.
(i) Automatic Grant of Options.
(A) Each Non-Employee Director who is serving as a Director
of the Company on the fifth business day after each annual meeting
of stockholders, beginning with the 1996 annual meeting of
stockholders, shall automatically be granted on such day a
Non-Qualified Stock Option to acquire 5,000 shares of Stock.
(B) The exercise price per share for the Stock covered by a
Stock Option granted under this Section 5(c) shall be equal to the
Fair Market Value of the Stock on the date the Stock Option is
granted.
(C) The Committee, in its discretion, may grant additional
Non-Qualified Stock Options to Non-Employee Directors.
(ii) Exercise; Termination; Non-transferability.
(A) Except as provided in Section 13, no Option granted
under Section 5(c) may be exercised before the first anniversary
of the date upon which it was granted; provided, however, that any
Option so granted
9
<PAGE> 33
shall become exercisable upon the termination of service of the
Non-Employee Director because of Disability or death. No Option
issued under this Section 5(c) shall be exercisable after the
expiration of ten years from the date upon which such Option is
granted.
(B) The rights of a Non-Employee Director in an Option
granted under Section 5(c) shall terminate six months after such
Director ceases to be a Director of the Company or the specified
expiration date, if earlier; provided, however, that if the
Non-Employee Director ceases to be a Director for Cause, the
rights shall terminate immediately on the date on which he ceases
to be a Director.
(C) Any Option granted to a Non-Employee Director and
outstanding on the date of his death may be exercised by the legal
representative or legatee of the optionee for a period of six
months from the date of death or until the expiration of the
stated term of the Option, if earlier.
(D) Options granted under this Section 5(c) may be exercised
only by written notice to the Company specifying the number of
shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 5(a)(iv). An optionee shall have the rights
of a shareholder only as to shares acquired upon the exercise of a
Stock Option and not as to unexercised Stock Options.
(iii) Limited to Non-Employee Directors. The provisions of this
Section 5(c) shall apply only to Options granted or to be granted to
Non-Employee Directors, and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any Option
issued under this Plan to a participant who is not a Non-Employee
Director of the Company. To the extent inconsistent with the provisions
of any other Section of this Plan, the provisions of this Section 5(c)
shall govern the rights and obligations of the Company and Non-Employee
Directors respecting Options granted or to be granted to Non-Employee
Directors.
(d) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Committee may permit the optionee to transfer, without consideration for the
transfer, his Non-Qualified Stock Options to members of his immediate family, to
trusts for the benefit of such family members, to partnerships in which such
family members are the only partners, or to charitable organizations,
10
<PAGE> 34
provided that the transferee agrees in writing with the Company to be bound by
all of the terms and conditions of this Plan and the applicable option
agreement.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Award. The Committee may grant
Restricted Stock Awards to any participant. A Restricted Stock Award is an Award
entitling the recipient to acquire, at no cost or for a purchase price
determined by the Committee, shares of Stock subject to such restrictions and
conditions as the Committee may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives. In addition, a Restricted Stock Award may be granted to an employee
by the Committee in lieu of a cash bonus due to such employee pursuant to any
other plan of the Company.
(b) Acceptance of Award. A participant who is granted a Restricted
Stock Award shall have no rights with respect to such Award unless the
participant shall have accepted the Award within 60 days (or such shorter time
period as the Committee may specify) following the award date by making payment
to the Company, if required, in cash, by certified bank check or other
instrument or form of payment acceptable to the Committee in an amount equal to
the specified purchase price, if any, of the shares covered by the Award and by
executing and delivering to the Company a written instrument that sets forth the
terms and conditions of the Restricted Stock in such form as the Committee shall
determine.
(c) Rights as a Shareholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Stock Award. Unless the
Committee shall otherwise determine, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
are vested as provided in Section 6(e) below.
(d) Restrictions. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment (or
other business relationship) by the Company and its Subsidiaries for any reason
(including death, retirement, Disability, and for Cause), the Company shall have
the right, at the discretion of the Committee, to repurchase shares of
Restricted Stock with respect to which conditions have not lapsed at their
purchase price, or to require forfeiture of such shares to the Company if
acquired at no cost, from the participant or the participant's legal
representative. The Company must exercise such right of repurchase or forfeiture
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<PAGE> 35
not later than the 90th day following such termination of employment (or other
business relationship), unless otherwise specified in the written instrument
evidencing the Restricted Stock Award.
(e) Vesting of Restricted Stock. The Committee at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested."
(f) Waiver, Deferral and Reinvestment of Dividends. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock. The Committee may, in its
sole discretion, grant (or sell at a purchase price determined by the Committee)
an Unrestricted Stock Award to any participant which will entitle such
participant to receive shares of Stock free of any restrictions under the Plan
("Unrestricted Stock"). Unrestricted Stock Awards may be granted or sold as
described in the preceding sentence in respect of past services or other valid
consideration, or in lieu of any cash compensation due to such participant.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation.
Upon the request of a participant and with the consent of the Committee, each
such participant may, pursuant to an advance written election delivered to the
Company no later than the date or dates specified by the Committee, receive a
portion of the cash compensation otherwise due to such participant in
Unrestricted Stock either currently or on a deferred basis.
(c) Restrictions on Transfers. The right to receive Unrestricted Stock
on a deferred basis may not be sold, assigned, transferred, pledged or otherwise
encumbered, other than by will or the laws of descent and distribution.
SECTION 8. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Shares. A Performance Share Award is an
award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan.
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<PAGE> 36
Performance Share Awards may be granted under the Plan to any participants,
including those who qualify for awards under other performance plans of the
Company. The Committee in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Committee may rely on the performance goals
and other standards applicable to other performance unit plans of the Company in
setting the standards for Performance Share Awards under the Plan.
(b) Restrictions on Transfer. Performance Share Awards and all rights
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Shareholder. A participant receiving a Performance
Share Award shall have the rights of a shareholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A participant
shall be entitled to receive a stock certificate evidencing the acquisition of
shares of Stock under a Performance Share Award only upon satisfaction of all
conditions specified in the written instrument evidencing the Performance Share
Award (or in a performance plan adopted by the Committee).
(d) Termination. Except as may otherwise be provided by the Committee
at any time prior to termination of employment (or other business relationship),
a participant's rights in all Performance Share Awards shall automatically
terminate upon the participant's termination of employment (or other business
relationship) by the Company and its Subsidiaries for any reason (including
death, Disability and for Cause).
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Committee may in its sole discretion accelerate, waive or,
subject to Section 11, amend any or all of the goals, restrictions or conditions
imposed under any Performance Share Award.
SECTION 9. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to
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<PAGE> 37
be withheld with respect to such income. The Company and its Subsidiaries shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(b) Payment in Shares. Subject to approval by the Committee, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC
For purposes of the Plan, the following events shall not be deemed a
termination of employment (or other business relationship):
(a) a transfer to the employment (or other business relationship) of
the Company from a Subsidiary or from the Company to a Subsidiary, or from one
Subsidiary to another Subsidiary; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment (or other business relationship) is guaranteed either by a statute
or by contract or under the policy pursuant to which the leave of absence was
granted or if the Committee otherwise so provides in writing.
SECTION 11. AMENDMENTS AND TERMINATION
The Board may at any time amend or discontinue the Plan and the
Committee may at any time amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price, but such price, if any, must satisfy the
requirements which would apply to the substitute or amended Award if it were
then initially granted under this Plan) for the purpose of satisfying changes in
law or for any other lawful purpose, but no such action shall adversely affect
rights under any outstanding Award without the holder's consent. To the extent
required by the Code to ensure that Options granted hereunder qualify as
Incentive Stock Options, Plan amendments shall be subject to approval by the
Company's stockholders.
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<PAGE> 38
SECTION 12. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 13. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
13:
(a) Each Stock Option shall automatically become fully exercisable
notwithstanding any provision to the contrary herein.
(b) Restrictions and conditions on Restricted Stock Awards and
Performance Share Awards shall automatically be deemed waived, and the
recipients of such Awards shall become entitled to receipt of the Stock subject
to such Awards unless the Committee shall otherwise expressly provide at the
time of grant.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, any
trustee, fiduciary or other person or entity holding securities under
any employee benefit plan of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing
40% or more of either (A) the combined voting power of the Company's
then outstanding securities having the right to vote in an election of
the Company's Board of Directors ("Voting Securities") or (B) the then
outstanding shares of Stock of the Company (in either such case other
than as a result of the acquisition of securities directly from the
Company); or
(ii) persons who, as of the date of the closing of the Company's
initial public offering, constitute the Company's Board of Directors
(the "Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or
similar transaction, to constitute at least a
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<PAGE> 39
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Closing of the Company's initial public
offering whose election or nomination for election was approved by a
vote of at least a majority of the Incumbent Directors shall, for
purposes of this Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting stock of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company;
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Stock or other Voting Securities outstanding, increases (x)
the proportionate number of shares of Stock beneficially owned by any person to
40% or more of the shares of Stock then outstanding or (y) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 40% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(x) or (y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
SECTION 14. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee
may require each person acquiring shares pursuant to an Award to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
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<PAGE> 40
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
This Plan has been amended and restated as of August 28, 1996 (except
the provisions contained in Section 5(c), which were amended on January 26,
1996) to reflect, in addition to other changes, an increase of 857,000 shares
reserved and available for issuance under the Plan.
SECTION 16. GOVERNING LAW
This Plan shall be governed by Maryland law except to the extent such
law is preempted by federal law.
DATE OF APPROVAL OF INITIAL PLAN BY
SHAREHOLDERS: February 15, 1994
DATE OF APPROVAL OF AMENDED AND RESTATED
PLAN BY BOARD OF DIRECTORS: August 28, 1996
DATE OF APPROVAL OF AMENDED AND RESTATED
PLAN BY SHAREHOLDERS: ____________________
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Appendix B
8888
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
BAY APARTMENT COMMUNITIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
The undersigned stockholder(s) of Bay Apartment Communities, Inc. (the
"Company") hereby appoints Messrs. Gilbert M. Meyer and Geoffrey L. Baker, and
each of them singly, as proxies, each with full power of substitution, for and
in the name of the undersigned at the Annual Meeting of Stockholders of the
Company to be held on April 25, 1997, and at any and all adjournments thereof,
to vote all shares of common stock of said Company held of record by the
undersigned on March 14, 1997, as if the undersigned were present and voting the
shares.
(TO BE SIGNED ON REVERSE SIDE)
<TABLE>
<CAPTION>
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR all nominess WITHHOLD AUTHORITY
(except as indicated to vote for the
to the contrary). nominees listed at right.
<S> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. ELECTION [ ] [ ] NOMINEES: Gilbert M. Meyer 2. Ratification of the 1994 [ ] [ ] [ ]
OF Geoffrey L. Baker Stock Incentive Plan, as
DIRECTORS. Max L. Gardner amended and restated.
(INSTRUCTIONS: To withhold authority to vote Bruce A. Choate
for any nominee, write the nominee's name on John J. Healy, Jr. 3. Ratification of the [ ] [ ] [ ]
the space provided below.) Brenda J. Mixson appointment of the
Thomas H. Nielsen accounting firm of
- - ---------------------------------------------- Coopers & Lybrand L.L.P.
to serve as independent
accountants for the Company
for the fiscal year ending
December 31, 1997.
4. The proxies are authorized to vote in their
discretion upon such other business as may
properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
IN THE MANNER DIRECTED. IN THE ABSENCE OF ANY
DIRECTION, THE SHARES WILL BE VOTED FOR EACH
NOMINEE NAMED IN PROPOSAL 1, FOR PROPOSAL 2 AND
FOR PROPOSAL 3, AND IN ACCORDANCE WITH THE
PROXIES' DISCRETION ON SUCH OTHER BUSINESS THAT
MAY PROPERLY COME BEFORE THE MEETING.
I PLAN TO ATTEND THE MEETING [ ]
SIGNATURE_________________________________________ SIGNATURE__________________________________________DATE_____________________1997
SIGNATURE IF HELD JOINTLY
NOTE: (Please date this Proxy and sign exactly as your name appears hereon. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. If there is more than one trustee, all should sign. All joint owners should sign.)
</TABLE>
