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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by the Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
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(Name of Registrant as Specified in its Charter)
THE BOARD OF DIRECTORS OF CHARLES E. SMITH RESIDENTIAL REALTY, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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[GRAPHIC OMITTED]
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 Crystal Drive
Arlington, Virginia 22202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 18, 1999
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Charles E. Smith Residential Realty, Inc. (the "Company") to be
held on Tuesday, May 18, 1999, at 2:00 p.m., Eastern Daylight Savings Time, in
the Arlington Ballroom of the Crystal Gateway Marriott Hotel, 1700 Jefferson
Davis Highway, Crystal City, Arlington, Virginia 22202. Parking is available for
you in the hotel garage. The purposes of the Annual Meeting are:
1. To elect three directors to serve for an ensuing
three-year term;
2. To ratify the appointment of Arthur Andersen LLP as
independent auditors of the Company for the 1999
fiscal year; and
3. To transact such other business as may properly come
before such meeting or any adjournments thereof.
Only shareholders of record at the close of business on April 6, 1999,
will be entitled to vote at the meeting or any adjournments thereof.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN
AND DATE THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS,
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ernest A. Gerardi, Jr.
Ernest A. Gerardi, Jr.
President and Chief Operating Officer
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CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 Crystal Drive
Arlington, Virginia 22202
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 18, 1999
This Proxy Statement is furnished to shareholders of Charles E.
Smith Residential Realty, Inc. (the "Company"), a Maryland corporation, in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders (the "Meeting") of the Company to be held on May 18, 1999, at
2:00 p.m., Eastern Daylight Savings Time, at the place and for the purposes
set forth in the Notice of Meeting. This solicitation of proxies is made on
behalf of the Board of Directors (the "Board of Directors") of the Company.
Holders of record of common stock (the "Common Stock") of the Company
as of the close of business on the record date, April 6, 1999, are entitled to
receive notice of and to vote at the Meeting, and each share of Common Stock
entitles the holder thereof to one vote. At the close of business on March 31,
1999, there were 18,878,991 shares of Common Stock issued and outstanding.
Common Stock represented by proxies in the form enclosed, if such
proxies are properly executed and returned and not revoked, will be voted as
specified. Where no specification is made on a properly executed and returned
form of proxy, the shares will be voted FOR the election of all nominees for
Director and FOR the proposal to ratify the appointment of Arthur Andersen LLP
as the independent auditor. The Company knows of no business other than that set
forth above to be transacted at the meeting. If other matters requiring a vote
do arise, it is the intention of the persons named in the proxy to vote in
accordance with their judgment on such matters.
To be voted, proxies must be filed with the Secretary of the Company
prior to the time of voting. Proxies may be revoked at any time before exercise
thereof by filing a notice of such revocation or a later dated proxy with the
Secretary of the Company or by voting in person at the Meeting.
The Company's 1998 Annual Report to Shareholders for the fiscal year
ended December 31, 1998, has been mailed with this Proxy Statement. This Proxy
Statement, the form of proxy, and the 1998 Annual Report to Shareholders were
mailed to shareholders on or about April 12, 1999. The executive offices of the
Company are located at 2345 Crystal Drive, Arlington, Virginia 22202.
ELECTION OF DIRECTORS
(Item 1)
BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
with approximately one-third of the directors elected by the shareholders
annually. The incumbent directors whose terms will expire at the Meeting are
Fred J. Brinkman and Robert P. Kogod. Mr. Brinkman has expressed his desire
not to stand for re-election to the Board of Directors of the Company at the
1999 Annual Meeting, and, in addition, the Board of Directors of the Company
has voted to increase the size of the Board to eight, creating a new director
seat to be filled at the 1999 Annual Meeting. Mr. Kogod, an incumbent
director, and Messrs. R. Michael McCullough and L. Ronald Scheman have been
nominated for election as directors at the Meeting to hold office until the
Annual Meeting of Shareholders to be held in the year 2002 and until their
successors are elected and qualified. Three nominees for director will be
elected upon a favorable vote of a plurality of the voting Common Stock
present and entitled to vote, in person or by proxy, at the Meeting.
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The Board of Directors of the Company recommends a vote FOR Messrs.
Kogod, McCullough, and Scheman as directors to hold office until the Annual
Meeting of Shareholders to be held in the year 2002 and until their successors
are elected and qualified. Should one or all of these nominees become unable to
serve for any reason, the Board of Directors may designate substitute nominees,
in which event the persons named in the enclosed proxy will vote for the
election of such substitute nominee or nominees, or may reduce the number of
directors on the Board of Directors.
NOMINEES FOR ELECTION - TERM EXPIRING 2002
ROBERT P. KOGOD. Mr. Kogod is Co-Chief Executive Officer and
Co-Chairman of the Board of the Company, and Co-Chairman of the Board of
Directors of each of Smith Realty Company, Consolidated Engineering Services,
Inc., Smith Management Construction, Inc., and Charles E. Smith Insurance
Agency, Inc., the affiliated entities that conduct the Company's multifamily and
retail management and leasing, engineering and technical, interior construction
and renovation, financing, insurance brokerage, and other property-related
services (collectively the "Property Service Businesses"). From 1964 - 1997, Mr.
Kogod was the President, Chief Executive Officer, and a director of Charles E.
Smith Management, Inc., where he oversaw and directed all phases of the leasing
and management of the Smith Companies' commercial real estate portfolio. Since
1997, he has been the Co-Chairman of the Board and a director of Charles E.
Smith Commercial Realty, Inc., a successor to Charles E. Smith Management, Inc.,
which together with its subsidiaries and affiliates is the owner, operator, and
manager of commercial office buildings. He is also Secretary/Treasurer and a
director of Charles E. Smith Construction, Inc., a company that specializes in
the development and construction of office, retail, and residential projects.
Mr. Kogod, the brother-in-law of Mr. Robert H. Smith, joined the Smith Companies
in 1959. Mr. Kogod, 67 years old, an incumbent director, serves on the
Executive, Nominating, and Executive Compensation Committees of the Company.
R. MICHAEL MCCULLOUGH. Mr. McCullough is a retired Chairman and Chief
Executive Officer of Booz, Allen & Hamilton Inc., the international management
and technology consulting firm. Mr. McCullough joined Booz, Allen, & Hamilton
Inc. in 1965 as a consultant, and he became a partner in 1971 and a managing
partner of the firm's Technology Center in 1978. Prior to joining Booz, Allen &
Hamilton Inc., Mr. McCullough was with the General Electric Company. Mr.
McCullough has been a member of the Board of Directors of Caterair International
and the Board of Directors of Interstate Hotels, Inc. He currently serves as a
member on the Board of Directors of O'Sullivan Corporation, Host Marriott
Services Corporation, Watson Wyatt Worldwide, Inc., and Capital Auto Real Estate
Investment Trust, Inc. Mr. McCullough is 60 years old.
L. RONALD SCHEMAN. Mr. Scheman is Chairman of the International
Practice Group and a shareholder in the law firm of Greenberg Traurig in
Washington, D.C. His practice focuses on finance, corporate and business
organization, and capital markets. In 1993, Mr. Scheman served as United States
Executive Director to the Inter-American Development Bank, and he also served as
the United States Director on the Board of the Inter-American Investment
Corporation. Previously, Mr. Scheman has served as senior partner at the law
firm of Heller, Rosenblatt & Scheman in Washington, D.C. and as President and a
director of Porter International Co. From 1975 to 1983, Mr. Scheman served as
Assistant Secretary for Management in the Organization of American States; from
1968 to 1970 he served as planning officer; and from 1961 to 1964 he served as a
member of its Department of Legal Affairs. Mr. Scheman is 67 years old.
INCUMBENT DIRECTORS - TERM EXPIRING 2000
MANDELL J. OURISMAN. Since 1988, Mr. Ourisman has been Chairman of the
Board of Ourisman Automotive Enterprises. Mr. Ourisman serves on the Board of
Directors of the Acacia Mutual Life Insurance Company, where he is a member of
the Executive and Finance Committees. He is also a former Director of the Riggs
National Corporation. Mr. Ourisman, 72 years old, serves on the Executive
Compensation Committee of the Company.
ROBERT H. SMITH. Mr. Smith is Co-Chief Executive Officer and
Co-Chairman of the Board of the Company, and Co-Chairman of the Board of
Directors of each of the Property Service Businesses. Since 1962, Mr. Smith has
been the President, Chief Executive Officer, and a director of Charles E. Smith
Construction, Inc. and its predecessor companies, where he oversees and directs
all phases of development and construction of the Smith Companies' office,
retail, and residential real estate projects. He is also the Co-Chairman of the
Board and a director of Charles E. Smith
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Commercial Realty, Inc., which together with its subsidiaries and affiliates is
engaged in the ownership, operation, and management of commercial office
buildings. Mr. Smith, the brother-in-law of Mr. Robert P. Kogod, joined the
Smith Companies in 1950. Mr. Smith, 70 years old, serves on the Executive and
Nominating Committees of the Company.
MALLORY WALKER. Since 1976, Mr. Walker has been President, Chief
Executive Officer, and a Director of Walker & Dunlop, Inc., a mortgage banking
real estate company. Mr. Walker previously served on the Boards of Directors of
Atlantic Trust Company, N.A. and Federal National Mortgage Association ("Fannie
Mae"); at Fannie Mae, he was a member of the Executive and Audit Committees, and
was Chairman of the Nominating Committee. Mr. Walker is a former Governor of the
Mortgage Bankers Association of America, and a former Director of the Apartment
& Office Building Association, the Greater Washington Board of Trade, the
Mortgage Bankers Association of Metropolitan Washington, and the Washington
Board of Realtors. Mr. Walker is a member of the American Society of Real Estate
Counselors and the Urban Land Institute. Mr. Walker, 59 years old, serves on the
Executive, Nominating, and Audit Committees of the Company.
INCUMBENT DIRECTORS - TERM EXPIRING 2001
ERNEST A. GERARDI, JR. Mr. Gerardi is President, Chief Operating
Officer, and a Director of the Company, and President, Chief Executive Officer,
and a director of each of the Property Service Businesses. From 1985 until 1994,
Mr. Gerardi was Executive Vice President, Senior Executive Vice President, and a
member of the Executive Committee of Charles E. Smith Management, Inc., where he
had overall responsibility for all day-to-day business operations and long-range
planning. Prior to joining the Smith Companies in 1985, Mr. Gerardi was with
Arthur Andersen and Co., where he served as senior partner in charge of the
firm's accounting and financial practice for over 250 professionals in
Washington, D.C. During his 27 years with Arthur Andersen, he specialized in
management consultation and strategic planning. He is also a member of the
American Institute of Certified Public Accountants and the D.C. Institute of
Certified Public Accountants. Mr. Gerardi, 63 years old, serves on the Executive
Committee of the Company.
CHARLES B. GILL. From 1979 until March 1, 1995, Mr. Gill was Governor
and Chief Executive Officer of the National Rural Utilities Cooperative Finance
Corporation, a financial intermediary providing capital to rural electric
systems. Mr. Gill also served on the Board and was Chief Executive Officer of
the Rural Telephone Finance Cooperative, a financial intermediary providing
capital to rural telephone systems. Mr. Gill also served on the Board of
Directors and was President of the Guaranty Funding Corporation, a firm that
issues government guaranteed debt for electric generation and transmission
cooperatives. He also served on the Board and was Vice President of the National
Cooperative Service Corporation, a firm that provides senior capital for various
types of lease transactions for electric cooperatives. In addition, Mr. Gill
served on the Boards of Directors of the National Rural Electric Cooperative
Association International Foundation and the National Rural Telecommunications
Cooperative. Mr. Gill retired from full-time employment on March 1, 1995, and
now acts in a consulting capacity to the various organizations mentioned above.
Mr. Gill, 61 years old, serves on the Audit and Executive Compensation
Committees of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
In accordance with the Amended and Restated Bylaws of the Company, the
Board of Directors has established an Executive Committee, an Audit Committee,
an Executive Compensation Committee, and a Nominating Committee. The membership
of these Committees is set forth in the preceding section of this Proxy
Statement.
The Executive Committee has the authority, subject to the Company's
conflict of interest policies, to acquire and dispose of real property and the
power to authorize, on behalf of the full Board of Directors, the execution of
certain contacts and agreements, including those related to the borrowing of
money by the Company (and, consistent with the First Amended and Restated
Agreement of Limited Partnership of Charles E. Smith Residential Realty L.P.
(the "Operating Partnership"), as amended, to cause the Operating Partnership to
take such actions), provided however, that it may not approve acquisitions of
property in excess of either $75 million per property or $150 million per
calendar quarter, or take any action which would cause the debt-to-market
capitalization ratio of the Company to exceed 50%.
The Executive Committee met three times in 1998.
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The Audit Committee, which consists of three independent directors, was
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, review professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees, and review
the adequacy of the Company's internal accounting controls. The Audit Committee
met three times in 1998.
The Executive Compensation Committee was established to determine
compensation for the Company's executive officers and to implement the Company's
stock and unit option, award, and annual incentive plans. The Executive
Compensation Committee met twice in 1998.
The Nominating Committee was established to seek out, evaluate, and
recommend to the Board candidates for election to the Board of Directors. It was
formed subsequent to the Annual Meeting of 1996. It will consider nominees
recommended by shareholders, but has adopted no special procedures for such
nominations. The Nominating Committee met once in 1998.
The Board of Directors held four regular and seven special meetings
during 1998, in addition to conducting occasional business by unanimous written
consent. Mr. Ourisman attended fewer than 75% of the meetings of the Board of
Directors and Mr. Kogod attended fewer than 75% of the meetings of the
committees of which he was a member.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company fees
for their services as directors. Such directors receive annual compensation of
$15,000, paid quarterly, plus a fee of $1,000 (plus out-of-pocket expenses) for
attendance (in person or by telephone) at each meeting of the Board of
Directors, including committee meetings. Effective as of June 30, 1994, and
pursuant to the Company's Directors Stock Option Plan, each current director who
is not an employee of the Company received an option to purchase 5,000 shares of
Common Stock at $24.00 per share (equal to the public offering price in the
Company's initial public offering). The Plan also provides for automatic grants
of options, exercisable for 5,000 shares of Common Stock at the market price on
the date of grant, to each newly appointed or elected non-employee director, of
which there have been none to date. Officers of the Company who are directors
are not paid any director fees, nor are they eligible to participate in the
Directors Stock Option Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item 2)
The Board of Directors of the Company, upon the recommendation of the
Audit Committee, has appointed the accounting firm of Arthur Andersen LLP to
serve as the independent auditor of the Company for the fiscal year ending
December 31, 1999. Arthur Andersen LLP has served as the independent auditor of
the Company since the Company's commencement of operations and is considered by
management of the Company to be well qualified. The Company has been advised by
Arthur Andersen LLP that neither the firm nor any member thereof has any
financial interest, direct or indirect, in the Company or any of its
subsidiaries in any capacity. Representatives of Arthur Andersen LLP will be
present at the Meeting, will have the opportunity to make a statement if they so
desire, and will be available to respond to appropriate questions.
The ratification of the appointment of Arthur Andersen LLP requires the
approval of a majority of shares of Common Stock present and entitled to vote at
the meeting. The Board of Directors of the Company recommends a vote FOR the
proposal to ratify the appointment of Arthur Andersen LLP as the independent
auditor of the Company for the 1999 fiscal year.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
annual and long-term compensation for services in all capacities to the Company
and the Property Service Businesses of the Co-Chief Executive Officers and those
persons who were, as of December 31, 1998, the four other most highly
compensated executive officers of the Company and the Property Service
Businesses (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
RESTRICTED STOCK/UNITS ALL OTHER
NAME AND PRINCIPAL OTHER STOCK/UNIT UNDERLYING COMPENSATION
POSITION YEAR SALARY (1) BONUS (1) (2) AWARDS (3) OPTIONS (3) (4)
<S> <C> <C> <C> <C> <C> <C> <C>
ROBERT H. SMITH (5) 1996 $150,000 $0 $0 NA NA $0
Co-Chairman of the Board 1997 $150,000 $0 $0 NA NA $0
and Co-Chief Executive 1998 $175,000 $0 $0 NA NA $0
Officer
ROBERT P. KOGOD (5) 1996 $150,000 $0 $0 NA NA $0
Co-Chairman of the Board 1997 $150,000 $0 $0 NA NA $0
and Co-Chief Executive 1998 $175,000 $0 $0 NA NA $0
Officer
ERNEST A. GERARDI, JR. 1996 $378,200 $200,000 $0 $0 0 $34,677
President and Chief 1997 $378,200 $250,000 $0 $0 50,000 $34,909
Operating Officer 1998 $378,200 $283,500 $0 $532,500 0 $34,964
WESLEY D. MINAMI (6) 1997 $220,659 $70,000 $0 $342,000 85,000 $5,159
Senior Vice President and 1998 $250,000 $112,500 $0 $106,500 0 $5,214
Chief Financial Officer
JOHN W. GUINEE (7) 1997 $151,442 $70,000 $0 $319,500 85,000 $2,533
Senior Vice President and 1998 $225,000 $91,560 $0 $106,500 0 $31,962
Chief Investment Officer
MATTHEW B. MCCORMICK 1996 $180,000 $75,000 (8) $0 $0 0 $55,710
Senior Vice President- 1997 $180,000 $75,000 (8) $0 $0 25,000 $62,376
Residential Marketing 1998 $190,000 $117,500 $0 $0 0 $28,450
</TABLE>
(1) A portion of the amounts set forth as "Salary" and "Bonus" represent
amounts actually paid to Messrs. Gerardi, Minami, Guinee, and McCormick
by the Property Service Businesses, which are unconsolidated subsidiaries
of the Company. "Salary" includes amounts actually paid in 1996, 1997,
and 1998, and "Bonus" includes amounts paid in January 1997, January
1998, and February 1999 with respect to the immediately preceding fiscal
year.
(2) The dollar value of perquisites and other personal benefits did not
exceed $50,000 or 10% of the total annual salary and bonus for any of the
persons named in the table for 1996, 1997, or 1998.
(3) The value of Mr. Minami's restricted Unit award, made on February 3,
1997, is calculated based upon a price of $28.50, the closing price of
the Company's Common Stock on the date of grant. The value of Mr.
Guinee's restricted Unit award, made on April 9, 1997, is calculated
based upon a price of $26.625, the closing price of the Company's Common
Stock on the date of grant. The value of Messrs. Gerardi's, Minami's,
and Guinee's restricted stock awards, made on January 1, 1998, is
calculated based upon a price of $35.50, the closing price of the
Company's Common Stock on December 31, 1997. As a result of grants
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made under the Plans (as defined below), on December 31, 1998,
Mr. Gerardi held 15,000 restricted shares worth $481,950, Mr. Minami
held 8,250 restricted Units and 3,000 restricted shares worth $265,073
and $96,390, respectively, and Mr. Guinee held 12,000 restricted Units
and 3,000 restricted shares worth $385,560 and $96,390, respectively,
all based on the closing price of the Company's Common Stock on
December 31, 1998, of $32.13; distributions are paid on restricted
Units and dividends are paid on restricted stock. Restricted stock
and Unit awards vest (become unrestricted) at the rate of 25% of the
initial grant on each of the four successive anniversary dates of the
grant, except for Mr. Guinee, whose grants vest upon the attainment of
investment and acquisition goals at the rate of 1,000 shares/Units
per $100,000,000 of investments acquired. Neither Mr. Smith nor
Mr. Kogod was eligible to participate in the 1994 Restricted Stock
and Restricted Unit Plan or the 1994 Employee Stock and Unit Option
Plan (the "Plans") in 1996, 1997 or 1998. No stock, Units, or options
were granted to Named Executive Officers under these Plans in 1996.
(4) Unless otherwise stated, these amounts represent employer contributions
to the Charles E. Smith Employees Retirement Plan maintained by the
Property Service Businesses, made with respect to the listed year even if
such payment was partially made in the following year. In the case of Mr.
Gerardi, a portion of these amounts represents the payment of premiums on
a life insurance policy: $29,750 in 1998, $29,750 in 1997, $29,750 in
1996. In the case of Mr. Guinee, $26,748 of the 1998 amount represents
a grant of unrestricted Units pursuant to the terms of his employment,
calculated based upon a price of $32.50, the closing price of the
Company's Common Stock on the date of grant. In the case of
Mr. McCormick, a portion of these amounts, $23,236 in 1998, $57,217
in 1997, $50,783 in 1996 represents leasing commissions paid in
connection with extraordinary third-party brokerage business and
earned during the period in which Mr. McCormick was the head of retail
leasing for the Company.
(5) Messrs. Smith and Kogod also received compensation from entities other
than the Company and the Property Service Businesses, for services
rendered as employees of those entities.
(6) Mr. Minami joined the Company and became the Chief Financial Officer of
the Company on February 3, 1997. The salary amount shown for 1997 is the
amount actually paid with respect to that partial year.
(7) Mr. Guinee joined the Company and became the Chief Investment Officer of
the Company on April 21, 1997. The salary amount shown for 1997 is the
amount actually paid with respect to that partial year.
(8) This bonus was granted partially in consideration of the standard level
of commission business generated on behalf of the Company while Mr.
McCormick was the head of retail leasing for the Company. Mr. McCormick
transferred on February 2, 1998, from retail leasing to residential
marketing.
OPTIONS AND AWARDS
The Company has established the 1994 Employee Stock and Unit Option
Plan (the "Option Plan"), as amended, and the 1994 Employee Restricted Stock
and Restricted Unit Plan, as amended, for the purpose of attracting and
retaining executive officers and other key employees. Options granted under
the Option Plan are exercisable for Units in the Operating Partnership or
shares of Common Stock; in certain circumstances, Unitholders may redeem
their Units for cash, or, at the option of the Company, for shares of Common
Stock on a one-for-one basis. The Option Plan was amended in 1998 to increase
the number of shares available thereunder by 1,400,000. As of March 22, 1999,
the Company and the Property Service Businesses had granted and outstanding
under these plans 48,750 Units or shares of Common Stock with unexpired
restrictions and options for 2,293,309 Units or shares of Common Stock.
Messrs. Gerardi, Minami, and Guinee received restricted stock grants in
January 1998. No options were granted to the Named Executive Officers in
1998. Neither Robert H. Smith nor Robert P. Kogod, Co-Chief Executive
Officers, was eligible to participate in the Option Plan in 1998.
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The following table sets forth information for four of the Named
Executive Officers with respect to: (i) the Unit options exercised during 1998,
(ii) the net value realized upon such exercises, (iii) the number of Units
covered by unexercised Unit options held at December 31, 1998, and (iv) the
value of such unexercised options at December 31, 1998. Neither Robert H. Smith
nor Robert P. Kogod, Co-Chief Executive Officers, was eligible to participate in
the Option Plan during 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
# OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
UNITS/SHARES VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
NAME EXERCISE ($) EXERCISABLE /UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- ---- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Ernest A. Gerardi, Jr. 0 0 130,000/70,000 $975,600/$243,900
Wesley D. Minami 0 0 17,000/68,000 $36,300/$145,200
John W. Guinee 0 0 32,130/52,870 $176,876/$98,374
Matthew B. McCormick 0 0 37,000/28,000 $260,160/$65,040
</TABLE>
(1) Calculated based upon a price of $32.13, the closing price of the
Company's Common Stock on December 31, 1998, less exercise prices
varying from $24.00 to $35.00.
EMPLOYMENT AGREEMENTS
Other than as described below, neither the Company nor any of its
affiliated entities has an employment agreement with any Named Executive
Officers, however Mr. Guinee has executed and acknowledged a non-exclusive
summary of some of the terms of his employment.
Certain senior executive officers of the Company, including the Named
Executive Officers (other than Messrs. Smith and Kogod), have entered into
severance agreements with the Company that provide for certain benefits in the
event that such executive officers are terminated from employment other than for
"cause" or "voluntarily without good reason." These agreements each have a term
of three years unless there is a "change of control" (as defined therein), in
which case the term would be reset to run for a period of two years from the
date of such event. In addition to the agreement of the Company to pay an
agreed-upon amount in the event of a covered termination, each covered executive
agrees to adhere to certain covenants not to compete (including participation as
a director, stockholder or partner owning more than 5% of any entity which
competes in any business in which the Company is engaged) for the lesser of one
year or the period for which severance is paid following termination. The
agreements also contain confidentiality provisions and "anti-raid" covenants.
Each covered executive also receives reasonable outplacement services and an
immediate vesting of all stock and Unit options and the removal of restrictions
on any restricted stock or Units held.
The amount of severance pay and other benefits to which each covered
executive would be entitled will be calculated in part based upon their current
base annual salary and previous annual bonus amount, at different multiples
depending upon the position they held at the Company prior to their termination.
As President, Mr. Gerardi would be entitled to a payment equal to one year's
annual salary and bonus, continued coverage for a period of one year under any
medical and other welfare plans of the Company in which he participated prior to
termination, and a payment in the amount of the Company's expected contribution
to any retirement plan in which he participated as if employment had continued
for one year following termination; if such termination occurred during the
two-year period following a "change in control," he would receive a payment
equal to two years' annual salary and bonus, rather than one year. The other
Named Executive Officers (other than Messrs. Smith and Kogod) would be entitled
to a payment equal to six months' annual salary and bonus, continued coverage
for a period of six months under any medical and other welfare plans of the
Company in which he participated prior to termination, and a payment in the
amount of the Company's
7
<PAGE>
expected contribution to any retirement plan in which he participated as if
employment had continued for six months following termination; if such
termination occurred during the two-year period following a "change in control",
he would receive a payment equal to eighteen months' annual salary and bonus,
rather than six months. If any payments contingent upon a "change of control"
would constitute excess parachute payments under Section 280G of the Internal
Revenue Code, the covered executive would also receive gross-up payments in an
amount sufficient to offset the 20% excise tax applicable to such amounts
(however the Company does not believe that any covered executive would presently
be subject to this tax).
In determining eligibility for these benefits, a termination will be
considered "voluntary for good reason" if it is the direct result of (i) a
reduction in base salary, fringe benefits or bonus eligibility, except when
generally applicable to peer employees, (ii) a substantial reduction of
responsibilities or areas of supervision or an instruction to report to a lower
level supervisor after a "change in control", (iii) a substantial increase in
responsibilities or areas of supervision without an appropriate increase in
compensation, (iv) after a "change in control", a required change of office
location outside of the metropolitan area in which the executive was previously
located, or (v) following a "change in control" the executive is assigned to
report to a new supervisor and experiences irreconcilable working problems or
difficulties. For the purposes of these agreements, a "change in control" is
defined as (i) the acquisition by any individual or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended)
of beneficial ownership of more than 50% of the Common Stock or voting
securities of the Company, other than acquisitions by the Company or pursuant to
certain plans of reorganization, (ii) the failure of the current members of the
Board of Directors, and their successors as duly nominated and approved by the
majority of the Board of Directors, to constitute a continuing majority of the
Board of Directors, (iii) the consummation of any reorganization, merger,
consolidation, or sale of substantially all of the assets of the Company, unless
the beneficial owners prior to such transaction remain the holders of over 50%
of the beneficial ownership and voting power following the transaction, no
individual or group holds more than 35% of the securities or voting power of the
resulting entity, and a majority of the board of the resulting entity were
members of the Board of Directors of the Company prior to the transaction, or
(iv) the approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
In December 1998, the Executive Compensation Committee approved a
deferred compensation program for senior executive officers of the Company,
beginning in 1999. Under this plan, officers may elect to defer up to 40% of
their current compensation (salary and bonus) on a pre-tax basis to a special
account of the Company. This account will be invested in mutual funds selected
by the officer and distributed to the officer over a defined period at
retirement or under other, restricted circumstances. During the accumulation
phase, the funds are under the control of the Company and the electing officer
is a general creditor of the Company. The amounts deferred will not be taxable
to the officer or deductible to the Company at the time of deferral, but will be
taxed and deductible at the time of distribution. There is no matching
contribution or other increase in compensation under this program.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING PERFORMANCE GRAPH AND REPORT
ON EXECUTIVE COMPENSATION SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
8
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN OF CHARLES E. SMITH
RESIDENTIAL REALTY, INC., THE NAREIT EQUITY REIT TOTAL RETURN INDEX,
AND THE S&P 500 COMPOSITE INDEX (1)
[Performance Graph appears here]
<TABLE>
<CAPTION>
PERIOD ENDING
INDEX 6/24/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Smith 100.0 104.48 105.58 142.07 184.66 178.40
Residential Realty, Inc.
S&P 500 100.0 105.28 144.84 177.95 237.33 305.15
NAREIT All Equity 100.0 97.86 112.75 154.81 187.55 156.38
REIT Index
</TABLE>
Source: SNL Securities LC
(1) Assumes $100 invested on June 24, 1994, in the Company's Common Stock, the
NAREIT Equity REIT Total Return Index ("NAREIT Index"), and the S&P 500
Composite Index ("S&P Index"). Returns for the Company are actual returns
measured from the date of the initial public offering on June 24, 1994. The
values of the assumed investment in both the NAREIT Index and the S&P Index are
the estimated values of these indices on June 24, 1994, based on a proration of
the values of those indices on May 31 and June 30, 1994 (these indices are
published only as of the last day of each month). Total return assumes the
reinvestment of dividends and an actual increase in the market value of the
Common Stock relative to an initial investment of $100.
9
<PAGE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The following report has been provided by the Executive Compensation
Committee (the "Committee") of the Company's Board of Directors. The Committee
met on January 27, 1998, to approve base compensation levels for certain
executive officers in 1998, to approve annual cash bonuses for those officers
regarding the fiscal year 1997, and to review the Company's compensation
practices. The Committee met again on August 27, 1998, to amend the severance
arrangement. The Committee then met on February 22, 1999, to approve base
compensation levels for certain executive officers in 1999, to approve annual
cash bonuses for those officers regarding the fiscal year 1998, to grant stock
options, and to review the Company's compensation practices.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's compensation philosophy is guided by two overriding
principles. First, the Company intends to provide fully competitive levels of
compensation, at expected performance levels, in order to attract, motivate and
retain talented executives. Second, the Company's compensation program is
intended to align the interests of the Company's executives and shareholders, by
linking a portion of each executive's compensation directly to the Company's
performance, which should increase shareholder value over time.
In support of this compensation philosophy, the Company's executive
compensation program is designed to reward performance that contributes to the
Company's short-term and long-term success. Accordingly, the Company attempts to
provide both short-term and long-term incentive compensation that varies based
on the Company's performance and the individual's performance. To accomplish
these goals, the Company's executive compensation program is structured with
three primary components: base salary, annual bonus and long-term incentives
(i.e., stock and Unit options and restricted stock and Unit awards). Each of
these three components is discussed separately below.
The deductibility limitation outlined by Section 162(m) of the Internal
Revenue Code is not currently a consideration for the Company because none of
its executives earned sufficient income in 1998 nor are any Company executives
anticipated to have sufficient income in the near future to be subject to the
provision's $1 million compensation deduction limitation. Certain
"performance-based compensation" is excluded from the $1 million limitation.
Restricted Units are subject to the deductibility limitation, but are not
treated as compensation paid to an executive officer for this purpose until the
Units have vested.
BASE SALARY
The base salary program is designed to provide salary opportunities
which are competitive with a community of competitor companies, as well as to
reward individual contributions through performance-driven salary growth. Base
salary levels are determined according to each individual employee's position in
the Company and the employee's performance in that position. Consequently,
employees with higher levels of sustained performance over time and/or employees
assuming greater responsibilities will be paid correspondingly higher salaries.
Salaries for executive officers are reviewed annually in accordance with a
variety of factors, including individual performance, market increases in salary
levels, and the Company's overall financial results.
In its December 1997 meeting, the Committee reviewed a study of and
recommendations regarding the compensation of Company executives prepared by
Ferguson Associates, which compared the proposed cash compensation and option
grants of executive officers of the Company to similar organizations (while
acknowledging that comparisons are difficult because of inconsistent job
responsibilities and titles, the common practice of granting senior executives
significant stock at the time of a REIT's formation in lieu of salary, and the
large ownership positions held by many of these officers in predecessor entities
that make wage compensation a secondary concern.) In addition, the Company has
income from Property Service Businesses which is significantly greater than that
of other REITs included in the comparison. At its meeting in January 1998, the
Committee approved base compensation levels for 1998 consistent with this study.
At its meeting in February 1999, the Committee noted that the Company had
achieved or exceeded its operating objectives in 1998, by meeting the goals for
growth in "Funds From Operations", property acquisition and development targets,
and by improving the debt-to-market capitalization ratios of the Company. The
10
<PAGE>
Committee reviewed and approved management's recommended salary levels for
1998. The 1999 salary levels of the Co-Chief Executive Officers were raised
to $219,000 each, and the salary level of the Chief Operating Officer and
President was raised to $397,000.
BONUS
The Company's policy of awarding annual cash bonuses is designed to
relate executive pay to Company and individual performance. Cash bonuses provide
financial rewards for the achievement of Company and personal goals. At its
February 1999 meeting, the Committee approved bonuses for executive officers
with regard to 1998 consistent with this approach. The Company's achievement of
its objectives regarding growth in Funds From Operations and other strategic
business objectives in 1998, and the Company's stock performance, were major
factors in determining bonus awards. The bonus of the Chief Investment Officer
of the Company is based, in part, on the achievement of certain investment
goals. Consistent with previous practice, no bonuses were awarded to the
Co-Chief Executive Officers.
EMPLOYEE STOCK AND UNIT OPTION PLAN
The Company has adopted the 1994 Employee Stock and Unit Option
Plan, which is designed to attract, retain and motivate executive officers
and other key employees. As the Company's performance results in increased
shareholder value, key employees will participate by increases in the value
of their stock or Unit options. Under the terms of the plan, the Committee
selects the officers and employees of the Company and the Operating
Partnership (but not the affiliated Property Service Businesses) to whom
options will be granted. The number of options granted is determined based on
competitive market practice, the Company's financial success, and each
individual's position and level of responsibility within the Company. Initial
grants were made to certain employees of the Company, including all of its
then-executive officers other than Messrs. Smith and Kogod, at the time of
the Company's initial public offering in June 1994; these options vest in 20%
increments on the first through fifth anniversaries of the date of grant and
will expire if not exercised by June 23, 2004, or under certain other
conditions set forth in the Option Plan. The Committee granted additional
stock options to certain senior executives in December 1997 and in February
1999, and in November 1998 to a newly-hired senior executive; these options
generally vest in 20% or 25% increments on the first through fifth or the
first through fourth anniversaries of the date of grant and expire if not
exercised by the tenth anniversary of the grant, or under certain other
conditions set forth in the Option Plan (excepting only the options granted
to the Company's Chief Investment Officer, which vest only upon the
achievement of certain investment objectives.) In March 1999, the Committee,
based on a survey of other similar companies, voted to amend the Option Plan
to remove the prohibition on granting options to Messrs. Smith and Kogod and
to award them stock options.
RESTRICTED STOCK AND RESTRICTED UNIT PLAN
The Company has adopted the 1994 Restricted Stock and Restricted Unit
Plan as an additional means of attracting, retaining, and motivating key
employees. Messrs. Smith and Kogod are not eligible to participate under the
plan. Under the terms of the plan, the Committee selects the officers and
employees of the Company and the Operating Partnership (but not the Property
Service Businesses) to whom restricted shares and/or Units will be granted. The
Committee is also authorized to determine the bases upon which the restrictions
on restricted shares and restricted Units will lapse. Initial grants to certain
employees of the Company, including some of its then-executive officers, were
approved by the Committee at its meeting in July 1994. The number of Units
granted was determined according to each individual's position and level of
responsibility within the Company. The restrictions on these initial grants
lapsed in four equal annual installments of 25% each on July 1, 1995, July 1,
1996, July 1, 1997, and July 1, 1998. The Committee made three restricted stock
grants to the Named Executive Officers effective as of January 1, 1998, one with
restrictions that lapse in four equal annual installments of 25% on subsequent
anniversaries of the date of grant, one with restriction that lapses in full in
February 2001, and one with restrictions which lapse only upon the achievement
of certain property acquisition objectives. In addition, the Committee also
granted a restricted stock award to a newly-hired executive officer in November
1998 with restrictions that lapse in four equal annual installments of 25% on
subsequent anniversaries of the date of grant.
11
<PAGE>
SEVERANCE POLICY AND AGREEMENTS
At its December 1997 meeting, the Committee adopted a formal policy
with regard to severance payments and other compensation to be received by
certain senior executive officers (not including Messrs. Smith and Kogod) in the
event of a termination of their employment without cause, voluntarily with good
cause, or in the event of a change in control of the Company. This policy was
deemed necessary by the Committee in order to clarify the obligations of the
Company in those situations, and, in the case of a potential change in control
of the Company, to correctly align the interests of the executive officers with
those of shareholders. The policy adopted by the Committee conforms to the
recommendations made to the Committee by Ferguson Associates, after its study of
the practices of similarly-situated companies. This policy was slightly modified
in August 1998 to increase its uniformity. Written agreements reflecting the
policy have been entered into by the Company and each of the covered executives.
DEFERRED COMPENSATION PLAN
In December 1998, the Committee, after reviewing an independent study
showing that a substantial minority of similarly-situated companies have such
plans, approved a deferred compensation program for senior executive officers of
the Company, beginning in January 1999. Under this plan, officers may elect to
defer up to 40% of their current compensation (salary and bonus) on a pre-tax
basis to a special account of the Company. This account will be invested in
mutual funds selected by the officer and distributed to the officer over a
defined period at retirement or under other, restricted circumstances. During
the accumulation phase, the funds are under the control of the Company and the
electing officer is a general creditor of the Company. The amounts deferred will
not be taxable to the officer or deductible to the Company at the time of
deferral, but will be taxed and deductible at the time of distribution. There is
no matching contribution or other increase in compensation under this program,
and only a minor impact on the taxable portion of the dividends of the
Company.
RETIREMENT SAVINGS PLAN
Each of the Property Service Businesses have adopted the Charles E.
Smith Companies Employees Retirement Plan effective June 30, 1994, pursuant to
Section 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. The
plan covers full-time employees of such entities and the Company who have
completed six months of service, as defined by the plan. Executives of the
Company who are also employed by the Property Service Businesses are eligible to
participate on the same terms as nonexecutive employees, subject to any legal
limitations on amounts which may be contributed or the benefits which may be
payable under the plan.
Participants may elect to contribute to the plan on a pre-tax basis,
within certain percentage limitations, up to a maximum of $9,500 for each 1996
and 1997, $10,000 for 1998 and $10,000 for 1999. The participating employer
matches 50% of the first $1,500 of an employee's contribution, up to a maximum
of $750. In addition, the participating employer may make a discretionary
contribution, calculated as a percentage of each participant's compensation as
defined by the plan.
Receipt of benefits attributable to the employer's matching
contribution and discretionary contribution is subject to the vesting and
forfeiture provisions of the plan. An employee's own contribution is fully
vested at all times. The Company did not contribute to the plan on behalf of
Messrs. Smith and Kogod in 1998.
CO-CHIEF EXECUTIVE OFFICER COMPENSATION
Robert H. Smith and Robert P. Kogod, Co-Chief Executive Officers, each
received a salary of $175,000 for the period January 1, 1998 to December 31,
1998. The salary and long-term compensation awards of Messrs. Smith and Kogod
are determined substantially in conformity with the policies described above for
all other executive officers of the Company. Messrs. Smith and Kogod receive a
base salary which is substantially less than that of chief executive officers of
many competitive companies, but the amounts paid to them are deemed appropriate
in view of their substantial equity interest in the Company and their
performance of services for entities other than the Company and the Property
Service Businesses, which entities pay them separately for such services.
Consistent with past practice, Messrs. Smith and Kogod did not receive a cash
bonus for 1998.
12
<PAGE>
PROPERTY SERVICE BUSINESSES
Certain executive officers of the Company also are employed by the
Property Service Businesses, of which the Company owns 99% of the economic
interest but does not own or control any voting stock. A substantial portion of
such executive officers' total cash compensation is paid by the Property Service
Businesses for services rendered to such entities. All base salary and annual
bonus compensation decisions made by the Committee with respect to the executive
officers who also are employed by the Property Service Businesses are made after
consultation with the boards of directors of the Property Service Businesses. In
making their base salary and annual compensation decisions with respect to these
executive officers, the boards of directors of the Property Service Businesses
consider all of the factors described above along with the extent of services
provided to the Property Service Businesses.
THE EXECUTIVE COMPENSATION COMMITTEE
CHARLES B. GILL, CHAIRMAN
ROBERT P. KOGOD
MANDELL J. OURISMAN
13
<PAGE>
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
One of the members of the Executive Compensation Committee, Robert P.
Kogod, is an executive officer of the Company. As described below, Mr. Kogod,
together with his brother-in-law, Robert H. Smith, and their families, own
interests in certain entities that were parties to transactions involving the
Company, the Operating Partnership, and the Property Service Businesses during
1998. These transactions include the following:
- - In connection with the evaluation of prospective land acquisition
properties, the Operating Partnership from time-to-time employs the
services of personnel employed by Charles E. Smith Construction, Inc.
("Smith Construction"), which is owned by Messrs. Smith and Kogod. For
such services, Smith Construction received reimbursements of payroll
expenses in the amount of approximately $2,333,000 during 1998. In
connection with the development of the Springfield Station Apartments,
the Operating Partnership entered into an agreement with Smith
Construction to manage the construction of the project for a fee equal
to 4% of hard construction costs. During 1998, the construction
management fees paid to Smith Construction totaled approximately
$655,000.
- - The Property Service Businesses lease office and associated parking
spaces from partnerships affiliated with Messrs. Smith and Kogod, and
the total rent paid by these entities to these partnerships during 1998
was approximately $2,570,000.
- - Partnerships or corporations in which Messrs. Smith or Kogod and their
spouses have an interest made certain payments to the Company or the
Property Service Businesses during 1998. These transactions include the
following:
- approximately $2,092,000 paid to Smith Realty Company in
residential and retail management and leasing fees and hotel asset
management fees;
- approximately $2,476,000 paid to Smith Realty Company as
financing fees, for mortgage placement and related services or as
reimbursement for financial services rendered;
- approximately $9,647,000 paid to Smith Realty Company as
reimbursement for the cost of corporate overhead and office
services, including human resources, information systems, marketing,
accounting, and similar services, provided to such entities;
- approximately $21,076,000 paid to Consolidated Engineering
Services, Inc. for engineering and technical consulting services
provided to and the repair, replacement, and operation of HVAC
systems of facilities owned by, such entities, and fees and payroll
reimbursements paid by a joint venture of which Messrs. Smith and
Kogod are the trustees (of which approximately $20,749,000 was
payment for material, labor, and associated overhead costs incurred
in performing such work);
- approximately $39,541,000 paid to Smith Management
Construction, Inc., for renovations, tenant and building
improvements, and other construction management services provided
to such entities (of which approximately $33,042,000 was payment for
material, labor, and associated overhead costs incurred in
performing such work); and
- approximately $111,000 in commissions paid to Charles E. Smith
Insurance Agency, Inc., directly or indirectly, for insurance
coverage obtained for such entities.
14
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth beneficial ownership of shares of
Common Stock as of March 31, 1999 (or otherwise as noted) for (i) persons
known to the Company to be the beneficial owners (as determined under the
rules of the Securities and Exchange Commission) of more than 5% of Common
Stock, (ii) each of the directors and Named Executive Officers of the
Company, and (iii) the directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE
SHARES SHARES AND UNITS OF ALL
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE BENEFICIALLY SHARES AND
BENEFICIAL OWNER (1) OWNED OF SHARES (2) OWNED UNITS (3)
- -------------------- ----------- ------------- --------------- ---------
(i)
<S> <C> <C> <C> <C>
The Prudential Insurance
Company of America 1,848,745 (4) 9.8% 1,848,745 5.8%
European Investors, Inc. 1,136,634 (5) 6.0% 1,136,634 3.5%
Cohen & Steers
Capital Management, Inc. 1,097,800 (6) 5.8% 1,097,800 3.4%
LaSalle Advisors Capital
Management, Inc. & 954,400 (7) 5.1% 954,400 3.0%
ABKB LaSalle Securities L.P.
(ii)
Robert H. Smith 18,350 (8) * 2,382,817 (9) 7.4% (9)
Robert P. Kogod 137,020 (10) * 2,457,908 (11) 7.7% (11)
Ernest A. Gerardi, Jr. 40,000 (12) * 66,000 *
Wesley D. Minami 10,675 * 15,175 *
John W. Guinee 3,559 * 16,382 *
Matthew B. McCormick 0 * 1,996 *
Fred J. Brinkman 5,700 * 5,700 *
Charles B. Gill 5,400 * 5,400 *
Mandell J. Ourisman 5,000 * 115,519 *
Mallory Walker 9,132 * 9,132 *
(iii)
All directors and executive
officers as a group (13 persons) 255,336 1.4% 2,881,991 9.0%
</TABLE>
- -----------------------------------
* less than 1%
15
<PAGE>
(1) The address of each beneficial owner is 2345 Crystal Drive, Crystal
City, Arlington, Virginia 22202, except as otherwise noted.
(2) Based on 18,878,991 shares of Common Stock issued and outstanding on
March 31, 1999.
(3) Based on 18,878,991 shares of Common Stock issued and outstanding and
32,127,130 Common Units outstanding on March 31, 1999, (13,248,139
of which are held by limited partners other than the Company). With the
limited exception of certain recently-issued Units which may be subject
to temporary "lock-out" provisions, holders of Units may redeem their
Units for either cash or, at the option of the Company, for shares of
Common Stock on a one-for-one basis.
(4) The number of shares reported in the table is based on information
supplied by the owner to the Company as of March 31, 1999 and it
includes two affiliates. The business address of this owner is
8 Campus Drive, Parsippany, New Jersey 07054.
(5) Based upon an independent report dated as of February 28, 1999.
(6) Based on a Schedule 13G dated February 8, 1999. According to the
Schedule 13G, this owner has the sole power to vote or direct the vote
of 909,300 of these shares. The business address of this owner is 757
Third Avenue, New York, New York 10017.
(7) Based on a Schedule 13G dated February 12, 1999, and filed by LaSalle
Advisors Capital Management, Inc. and ABKB/LaSalle Securities Limited
Partnership. According to the Schedule 13G, LaSalle Advisors Capital
Management, Inc., has the sole power to vote or direct the vote of
46,700 shares and ABKB/LaSalle Securities Limited Partnership has the
sole power to vote or direct to vote of 61,400 shares. The business
address of both these owners is 200 East Randolph Drive, Chicago,
Illinois 60601.
(8) Includes 18,150 shares held by Robert Smith's spouse, Clarice Smith.
(9) The total number of Units includes 95,771 Units held by Robert Smith,
45,006 Units held by Clarice Smith and 2,223,690 Units held by
corporations wholly owned by Messrs. Smith and Kogod and/or their
spouses. The Units owned by these corporations are reported twice in
this part of the table, once as beneficially owned by Robert Smith and
again as beneficially owned by Robert Kogod, but only once in part
(iii) of the table.
(10) Includes 52,185 shares held by Robert Kogod's spouse, Arlene Kogod.
(11) The total number of Units includes 62,392 Units held by Robert Kogod,
34,806 Units held by Arlene Kogod and 2,223,690 Units held by
corporations wholly owned by Messrs. Smith and Kogod and/or their
spouses. The Units owned by these corporations are reported twice in
this part of the table, once as beneficially owned by Robert Kogod and
again as beneficially owned by Robert Smith, but only once in part
(iii) of the table.
(12) Includes 25,000 shares held by Ernest Gerardi's spouse, Marilyn
Gerardi.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Certain transactions and relationships between directors and
officers and the Company and its Property Service Businesses are described in
the section entitled "Executive Compensation Committee Interlocks and Insider
Participation" above. In addition, a company affiliated with and controlled
by director Mallory Walker received approximately $652,000 in loan commitment
and origination fees and $64,000 in annual servicing and guaranty fees from
the Company and its affiliates in 1998 with respect to three mortgage loans.
There are no additional matters requiring disclosure.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the NYSE. To the best of the Company's knowledge, all
reports required in 1998 were timely filed except those reported in the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission on March 18, 1999.
16
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be presented for consideration
at the Meeting. However, if any other matters properly come before the Meeting,
it is the intention of the persons named in proxies returned to the Company to
vote such proxies in accordance with their judgment on such matters.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders to be presented at the 2000 Annual Meeting
must be received by the Secretary of the Company prior to December 11, 1999, to
be considered for inclusion in the Company's proxy material for the 2000 Annual
Meeting of Shareholders. In addition, any shareholder who wishes to propose a
nominee to the Board of Directors or submit any other matter to a vote at a
meeting of shareholders (other than a shareholder proposal included in the
Company's proxy material pursuant to SEC Rule 14a-8) must comply with the
advance notice provisions and other requirements of Article I, Section 1.11 of
the Company's By-laws, which are on file with the Securities and Exchange
Commission and may be obtained from the Secretary of the Company upon request.
VOTING PROCEDURES AND COSTS OF PROXY SOLICITATION
Under the Company's Amended and Restated By-laws and Maryland statutory
law governing corporations organized under Maryland law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Directors will be elected by a favorable
vote of a plurality of the voting shares of Common Stock present and entitled to
vote, in person or by proxy, at the Meeting. Accordingly, abstentions or broker
non-votes as to the election of directors will not affect the election of the
candidates receiving the most votes. All other proposals to come before the
Meeting require the approval of a majority of the shares of Common Stock present
and entitled to vote. Abstentions as to a particular proposal will have the same
effect as votes against such proposal. Broker non-votes, however, will not be
treated as entitled to vote on a proposal, will not be counted as votes for or
against such proposal, and therefore will have no effect on the outcome of the
vote on such proposal.
The cost of preparing, assembling, and mailing the proxy material will
be borne by the Company. The Company will also request persons, firms and
corporations holding shares in their names or in the names of their nominees,
which shares are beneficially owned by others, to send the proxy material to,
and to obtain proxies from, such beneficial owners and will reimburse such
holders for their reasonable expenses in doing so.
Your vote is important. Please complete the enclosed proxy card and
mail it in the enclosed postage-paid envelope as soon as possible.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ernest A. Gerardi, Jr.
Ernest A. Gerardi, Jr.
President and Chief Operating Officer
April 12, 1999
17
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
REVOCABLE PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1999
The undersigned shareholder of Charles E. Smith Residential Realty,
Inc. (the "Company") hereby appoints Ernest A. Gerardi, Jr. and Robert D. Zimet,
or either of them, proxies, with full power of substitution, to act for and to
vote the shares of the Common Stock of the Company which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Shareholders
of said Company to be held on May 18, 1999, and at any and all adjournments
thereof.
Receipt of the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement is acknowledged.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREON, OR IF NO
DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES FOR DIRECTORS, FOR PROPOSAL 2, AND IN ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS.
The Board of Directors recommends a vote FOR:
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR ALL [ ] WITHHOLD AUTHORITY
NOMINEES TO VOTE FOR ALL NOMINEES
</TABLE>
Nominees: Robert P. Kogod R. Michael McCullough L. Ronald Scheman
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print each such nominee's name(s) in the space provided below.)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
2. APPOINTMENT OF [ ] FOR [ ] AGAINST [ ] ABSTAIN
ARTHUR ANDERSEN LLP
as Independent Auditor
</TABLE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT__________
(Please date and sign exactly as name appears on this proxy. Joint
owners should each sign. When signing as attorney, executor,
administrator, trustee, guardian, etc., give full title as well.)
Signature:________________________________________ Date:_______________
Signature:________________________________________ Date:_______________
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 CRYSTAL DRIVE, ARLINGTON, VIRGINIA 22202
April 12, 1999
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Charles E. Smith Residential Realty, Inc., to be held on Tuesday, May 18,
1999, at 2:00 p.m., Eastern Daylight Savings Time, in the Crystal Gateway
Marriott Hotel, 1700 Jefferson Davis Highway, Crystal City, Arlington, Virginia
22202. Parking will be available for you in the hotel garage.
The matters to be acted on at the meeting - the election of directors
and the ratification of the selection of the Company's independent accountants -
are described in the accompanying Notice and Proxy Statement.
We realize that each of you cannot attend the meeting and vote your
shares in person. However, whether or not you plan to attend the meeting, we
need your vote. A proxy card on which to indicate your vote and an envelope,
postage prepaid, in which to return your proxy are enclosed. WE STRONGLY
ENCOURAGE YOU TO COMPLETE, SIGN, AND RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES WILL BE REPRESENTED. If you later decide to attend the meeting, you may
revoke your proxy at that time and vote your shares in person.
This is your opportunity to voice your opinion on matters affecting the
Company. Your participation is extremely important.
Sincerely,
/s/ Robert H. Smith /s/ Robert P. Kogod
- -------------------------------- ----------------------------
Robert H. Smith Robert P. Kogod
Co-Chairman of the Board and Co-Chairman of the Board and
Co-Chief Executive Officer Co-Chief Executive Officer
