Associated Estates Realty Corp. DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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o Preliminary
Proxy Statement |
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
þ Definitive Proxy
Statement |
o Definitive
Additional Materials |
o Soliciting
Material Pursuant to Section 240.14a-12 |
ASSOCIATED ESTATES REALTY CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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(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): |
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(4) |
Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing. |
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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
ASSOCIATED ESTATES REALTY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To our Shareholders:
The 2005 annual meeting of shareholders of Associated Estates
Realty Corporation will be held at The Forum, One Cleveland
Center, 1375 E. Ninth St., Cleveland, Ohio 44114, on
Wednesday, May 4, 2005, at 10:00 a.m., local time, for
the following purposes:
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To elect seven directors, each to hold office for a one-year
term and until his successor has been duly elected and qualified; |
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To vote on a proposal to approve the Associated Estates Realty
Corporation Amended and Restated 2001 Equity-Based Award
Plan; and |
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To transact all other business that properly comes before the
meeting. |
Only shareholders of record at the close of business on
March 18, 2005, will be entitled to notice of and to vote
at the meeting or any adjournment thereof. Shareholders are
urged to complete, date and sign the enclosed proxy card and
return it in the enclosed envelope. The principal address of
Associated Estates Realty Corporation is 5025 Swetland Court,
Richmond Heights, Ohio 44143.
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By order of the Board of Directors, |
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Martin A. Fishman |
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Secretary |
Dated: March 28, 2005
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR
PROXY CARD.
TABLE OF CONTENTS
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ASSOCIATED ESTATES REALTY CORPORATION
5025 Swetland Court
Richmond Heights, Ohio 44143
PROXY STATEMENT
Our Board of Directors is sending you this proxy statement to
ask for your vote as a shareholder of Associated Estates Realty
Corporation on certain matters to be voted on at the upcoming
annual meeting of shareholders which will be held at The Forum,
One Cleveland Center, 1375 E. Ninth St., Cleveland,
Ohio 44114, on Wednesday, May 4, 2005, at 10:00 a.m.,
local time. We are mailing this proxy statement and the
accompanying notice and proxy, along with our Annual Report to
Shareholders, on or about March 28, 2005.
ABOUT THE MEETING
What Is the Purpose of the Annual Meeting?
At the Companys annual meeting, shareholders will act upon
matters outlined in the accompanying notice of meeting,
including the election of seven directors and to vote on a
proposal to approve the Companys Amended and Restated 2001
Equity-Based Award Plan. We are not aware of any other matter
that will be presented for your vote at the meeting.
Who Is Entitled to Vote?
Only shareholders of record at the close of business on the
record date, March 18, 2005, are entitled to receive notice
of and to vote the common shares that they held on the record
date at the meeting, or any postponement or adjournment of the
meeting. Each outstanding common share entitles its holder to
cast one vote on each matter to be voted on. As of the record
date, the Company had outstanding 19,713,598 common shares.
Who Can Attend the Meeting?
Only shareholders as of the record date, or their duly appointed
proxies, may attend the meeting. Please note that if you hold
your shares in street name (that is, through a
broker or other nominee), your name does not appear in the
Companys records, and you will need to bring a copy of
your brokerage statement reflecting your ownership of common
shares as of the record date.
When and Where Is the Meeting?
The meeting will be held at The Forum, One Cleveland Center,
1375 E. Ninth St., Cleveland, Ohio 44114, on
Wednesday, May 4, 2005, at 10:00 a.m., local time.
Parking is available at One Cleveland Center. You can enter the
parking garage from both St. Clair Ave. and Rockwell Ave. There
will be a fee of approximately $9.00 charged for parking in that
garage. If that garage is full, there are other parking
facilities within walking distance of One Cleveland Center.
What Constitutes a Quorum?
The presence at the annual meeting, either in person or by
proxy, of the holders of a majority of the common shares
outstanding on the record date will represent a quorum,
permitting the conduct of business at the meeting.
1
Proxies received by the Company but marked as abstentions or
broker non-votes will be included in the calculation of the
number of shares considered to be present at the meeting for
purposes of establishing a quorum.
What Vote Is Required for the Election of Directors?
Assuming a quorum is represented, the seven director nominees
who receive the greatest number of affirmative votes will be
elected directors. Abstentions and broker non-votes will not
count for or against any nominee for director.
What Vote Is Required for the Associated Estates Realty
Corporation Amended and Restated 2001 Equity-Based Award
Plan?
Assuming a quorum is represented, the affirmative vote of a
majority of the votes cast is required for the approval of the
Associated Estates Realty Corporation Amended and Restated 2001
Equity-Based Award Plan. If you abstain from voting on this
proposal it will have the same effect as a vote
against this proposal. Broker non-votes will not be
treated as voting on the proposal and, therefore, will not count
for or against this proposal.
How Do I Vote?
If you sign, date and return the enclosed proxy card, the common
shares represented by your proxy will be voted as you specify in
the proxy. If you return a signed and dated proxy, but do not
make any such specification, the common shares represented by
your proxy will be voted to elect the directors set forth under
the caption ELECTION OF DIRECTORS and in favor of
Proposal Two.
You may revoke or change your vote at any time before your proxy
has been exercised by filing a written notice of revocation or a
duly executed proxy bearing a later date with the Company at the
Companys principal address indicated on the attached
Notice of Annual Meeting, or by giving notice of revocation to
the Company in open meeting. However, your presence at the
annual meeting alone will not be sufficient to revoke your
previously granted proxy.
How Will the Proxy Solicitation Be Conducted?
This solicitation of proxies is made by and on behalf of the
Board of Directors. The cost of the solicitation of your proxy
will be borne by the Company. In addition to solicitation of
proxies by mail and electronically, officers and regular
employees of the Company may solicit proxies in person, by
telephone or facsimile. These officers and employees will not
receive any additional compensation for their participation in
the solicitation. The Company has also retained Georgeson
Shareholder Communications Inc. at an estimated cost of $6,500,
plus reimbursement of expenses, to assist in the solicitation of
proxies.
PROPOSAL ONE: ELECTION OF DIRECTORS
At the annual meeting, unless you specify otherwise, the common
shares represented by your proxy will be voted to re-elect
Messrs. Adams, Delaney, Friedman, Milstein, Mosier and
Schwarz and to elect for the first time Mr. Gibbons. Each
director elected will serve until the next annual meeting and
until his successor is elected and qualified.
If for any reason any of the nominees is not a candidate at the
time of the election (which is not expected), the common
shares represented by your proxy will be voted for the election
of a substitute nominee designated by the Board of Directors as
recommended by the Nominating and Corporate Governance Committee.
2
The following table contains information with respect to each
nominee:
Nominees for Election at the Annual Meeting
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Director | |
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Principal Occupation |
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Since | |
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Albert T. Adams
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54 |
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Partner, Baker & Hostetler LLP |
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1996 |
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James M. Delaney
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70 |
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Consultant |
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1999 |
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Jeffrey I. Friedman
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53 |
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Chairman of the Board, President and |
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1993 |
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Chief Executive Officer of the Company |
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Michael E. Gibbons
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52 |
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Senior Managing Director, |
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2004 |
(1) |
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Brown Gibbons Lang & Company L.P. |
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Mark L. Milstein
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42 |
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Project Manager for J. Holden Construction |
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1993 |
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Frank E. Mosier
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74 |
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Retired |
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1993 |
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Richard T. Schwarz
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53 |
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Partner, Sycamore Partners LLC |
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1994 |
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(1) |
Mr. Gibbons has served as a member of the Board of
Directors pursuant to appointment by the Board to fill the
vacancy created upon the retirement of Gerald C. McDonough in
October of 2004. |
BUSINESS EXPERIENCE OF DIRECTORS
Albert T. Adams has been a partner of the law firm of
Baker & Hostetler LLP in Cleveland, Ohio, since 1984,
and has been associated with the firm since 1977. Mr. Adams
is a director of Boykin Lodging Company, a real estate
investment trust.
James M. Delaney has served as a consultant to AON Risk
Services, a risk management firm, since 1997. Mr. Delaney
served as office managing partner of Deloitte & Touche,
Cleveland, Ohio, from 1989 until his retirement in June 1997,
having joined its predecessor firm in 1958.
Jeffrey I. Friedman has been Chairman of the Board and Chief
Executive Officer of the Company since its organization in July
1993, and served as the Companys President from the
Companys organization to February 2000 and again since
December 2002. Mr. Friedman joined the Companys
predecessor, Associated Estates Corporation, an owner and
manager of multifamily residential apartment facilities, in
1974. Mr. Friedman is the brother-in-law of Mark L.
Milstein.
Mr. Gibbons has been the Senior Managing Director and
Principal of Brown Gibbons Lang & Company L.P., a
Cleveland-based investment banking firm, since its inception in
1989. Mr. Gibbons is a member of the Board of Directors of
Lesco, Inc. and is Chairman of Lescos Finance and Audit
Committees.
Mark L. Milstein has been a project manager for J. Holden
Construction, a construction company, since 1999.
Mr. Milstein was President of Adam Construction Company, a
general contractor, from 1993 to 1999 and a Senior Project
Manager for Adam Construction Company from 1988 to 1993.
Mr. Milstein is the brother-in-law of Jeffrey I. Friedman.
Frank E. Mosier served as Vice Chairman of the Advisory Board of
BP America Inc., a producer and refiner of petroleum products,
from 1991 to 1993. Mr. Mosier was Vice Chairman of BP
America Inc. from 1988 until his retirement in 1991 and
President and Chief Operating Officer of BP America Inc. from
1986 to 1988.
Richard T. Schwarz has been a partner in Sycamore Partners LLC,
a private investment firm focused on investments in specialty
chemical companies, since 1997. Mr. Schwarz was President
and Chairman of Carbinol Industries, an investment company, from
September 1997 to January 1998 and was President of Laurel
Industries, Inc., a privately held chemical manufacturer and a
subsidiary of Occidental Petroleum Corporation, from September
1996 to September 1997.
3
How Often Did the Board Meet During 2004?
The Board of Directors held six meetings in 2004. In 2004, each
member of the Board of Directors attended at least
75 percent of the meetings of the Board of Directors and
the committees of which he was a member. The Company has
established a formal policy requiring director attendance at all
Board meetings, absent unusual circumstances. The Company
expects its directors to attend the annual meeting of
shareholders (which is usually held the same day as a meeting of
the Board of Directors), and all of the Companys directors
serving at the time attended the 2004 annual meeting of
shareholders.
How Are Directors Compensated?
Employees of the Company who are also directors are not paid any
director fees. In 2004, compensation for non-employee directors
included the following:
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An annual retainer fee of $30,000, paid on a quarterly basis; |
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An additional annual retainer fee of $5,000, paid on a quarterly
basis, to the respective Chairs of the Audit, Executive
Compensation, Finance and Planning and the Nominating and
Corporate Governance Committees; and |
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Reimbursement of expenses related to attending Board and
committee meetings. |
Non-employee directors are also eligible for restricted share
grants and option grants, which may be awarded from time to time
by the Board of Directors. Messrs. Adams, Delaney,
Milstein, Mosier and Schwarz received restricted share grants of
3,000 shares on May 5, 2004, and Mr. Gibbons
received a restricted share grant of 1,395 shares on
December 8, 2004.
Non-employee directors may defer all or a portion of their fees
(and restricted share grants) under the Companys
Directors Deferred Compensation Plan. The plan is
unfunded, and participants contributions are converted to
units, which fluctuate in value according to the market value of
the Companys common shares. As of December 31, 2004,
Mr. Adams held 42,080.7 units, Mr. Delaney held
20,929.9, Mr. Gibbons held 1,395.0 units and
Mr. Schwarz held 24,590.1 units under the plan valued
at approximately $430,065, $213,904, $14,257 and $251,311,
respectively.
In 2002, the Company adopted share ownership guidelines for
members of the Board. The guidelines provide that each director
own Company common shares or common share equivalents having a
value at least equal to approximately one times such
directors annual retainer (including committee retainers)
and that once achieved such guidelines shall be deemed to have
been satisfied without regard to any fluctuation in value in the
Companys common shares. All directors of the Board have
met this ownership guideline, other than Mr. Gibbons who
joined the Board in October of 2004.
PROPOSAL TWO: TO APPROVE THE ASSOCIATED ESTATES
REALTY CORPORATION AMENDED AND RESTATED 2001 EQUITY-BASED
AWARD PLAN
General
The Associated Estates Realty Corporation Amended and Restated
2001 Equity-Based Award Plan (the Amended and Restated
Equity-Based Award Plan) was adopted by the Companys
Board of Directors on February 23, 2005, subject to
approval by the Companys shareholders. The description
herein is a summary of the Amended and Restated Equity-Based
Award Plan and is subject to and qualified by the complete text
of the Amended and Restated Equity-Based Award Plan, which is
included as Appendix 1. The Company adopted the 2001 Equity
Incentive Plan in December of 2000. Shareholder approval of the
plan was not required under New York Stock Exchange
(NYSE) listing standards in effect at that time or
for any other reason. Because of amendments to the NYSE listing
standards and to allow greater flexibility in granting awards
under the plan, the Company has amended and restated the plan
and is seeking shareholder approval.
Shareholder approval is being sought in order that (i) the
shares reserved for issuance under the Amended and Restated
Equity-Based Award Plan may be listed on the NYSE pursuant to
the rules of the
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exchange, (ii) the Company may grant options that qualify
as incentive stock options under the Internal Revenue Code of
1986, as amended (the Code), and
(iii) compensation attributable to equity-based awards will
qualify as performance-based compensation, which would exempt
such grants from the limits on the deductibility contained in
the Omnibus Budget Reconciliation Act of 1993 (the
Act) for federal income tax purposes of certain
corporate payments to executive officers. If the Amended and
Restated Equity-Based Award Plan is not approved by the
shareholders, the 2001 Equity Incentive Plan will remain in
place until its original expiration date of December 8,
2010.
The Amended and Restated Equity-Based Award Plan is being
submitted to the Companys shareholders, in part, pursuant
to the requirements of the Act. The Act amended the Code to
limit to $1 million per year the deduction allowed for
federal income tax purposes for compensation paid to the Chief
Executive Officer and the four other most highly compensated
executive officers of a public company (the Deduction
Limit). The Deduction Limit, which was effective beginning
in 1994, applies to compensation that does not qualify for any
of the limited number of exceptions provided for in the Act (the
Non-Qualified Compensation). Under the Act, the
Deduction Limit does not apply to compensation paid under a plan
that meets certain requirements for performance-based
compensation. Compensation attributable to a stock option
is deemed to satisfy the requirement that compensation be paid
on account of the attainment of one or more performance goals,
if (i) the grant is made by a committee of directors, which
meets certain criteria, (ii) the plan under which the
option is granted states a maximum number of options that may be
granted to any individual during a specified period of time, and
(iii) the amount of compensation the individual could
receive is based solely on the increase in the value of the
common shares after the date of grant. It is the Companys
intent to structure the Amended and Restated Equity-Based Award
Plan to satisfy the requirements for the performance-based
compensation exception to the Deduction Limit and, thus, to
preserve the full deductibility of all compensation paid
thereunder to the extent practicable. As a consequence, the
Board of Directors has directed that the Amended and Restated
Equity-Based Award Plan, as it applies to participants, be
submitted to the Companys shareholders for approval in
accordance with the requirements for the performance-based
compensation exception to the Deduction Limit.
The Amended and Restated Equity-Based Award Plan provides for
the grant to officers, other employees and directors of the
Company, its subsidiaries and affiliates, of options to purchase
common shares of the Company (the Stock Options),
rights to receive the appreciation in value of common shares
(the Share Appreciation Rights), awards of common
shares subject to vesting and restrictions on transfer (the
Restricted Shares), awards of common shares issuable
in the future upon satisfaction of certain conditions (the
Deferred Shares) and other awards based on common
shares (the Other Share-Based Awards). Stock
Options, Share Appreciation Rights, Restricted Shares, Deferred
Shares and Other Share-Based Awards are collectively referred to
herein as Awards.
Under the terms of the original 2001 Equity Incentive Plan,
1,500,000 common shares were available for Awards. As of
March 18, 2005, Awards covering 982,643 common shares have
been made leaving 517,357 common shares available for future
awards. The Company is seeking approval to increase the number
of common shares available for Awards by 750,000 common shares.
Therefore, the maximum number of common shares available for
future Awards under the Amended and Restated Equity-Based Award
Plan, if approved, is 1,267,357, which is approximately 6% of
the 19,713,598 common shares outstanding as of March 18,
2005. The aggregate number of common shares subject to past and
future awards under the plan, if approved, will be 2,250,000. If
the Amended and Restated Equity-Based Award Plan is not approved
by the shareholders, then 517,357 common shares will remain
reserved for issuance under the 2001 Equity Incentive Plan. No
participant may receive Stock Options or Share Appreciation
Rights with respect to more than 125,000 common shares during
any calendar year (the Individual Limit), subject to
adjustment as described below. In addition, in connection with
the commencement of employment, a participant may be granted
Stock Options or Share Appreciation Rights with respect to no
more than 100,000 common shares, which will not count against
the Individual Limit.
5
The following table sets forth certain information regarding the
Companys equity compensation plans as of December 31,
2004:
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Number of Securities | |
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Remaining Available for | |
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Future Issuance Under | |
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Number of Securities | |
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Weighted Average | |
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Equity Compensation | |
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to be Issued Upon | |
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Exercise Price of | |
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Plans [Excluding | |
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Exercise of | |
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Outstanding | |
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Securities Reflected in the | |
Plan Category |
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Outstanding Options | |
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Options | |
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First Column] | |
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Equity compensation plans approved by security holders
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1,092,249 |
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$ |
14.46 |
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209,674 |
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Equity compensation plans not approved by security holders
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893,750 |
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$ |
9.36 |
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557,909 |
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Total
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1,985,999 |
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767,583 |
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As of March 18, 2005, the Company had an aggregate of
1,899,149 options outstanding under the Companys
equity-based award plans with a weighted average exercise price
of $12.19 per option and a weighted average term to expiration
of 5.43 years. The closing price of the common shares on
the NYSE on March 18, 2005 was $9.95. At that time, the
aggregate market value of the 1,267,357 common shares that would
be available for grant under the Amended and Restated
Equity-Based Award Plan, if approved, was $12,610,202.
The purpose of the Amended and Restated Equity-Based Award Plan
is to enable the Company to attract, retain and reward employees
and directors of the Company and strengthen the mutuality of
interests of employees, directors and the Companys
shareholders by offering such employees and directors
equity-based incentives. In addition, equity-based awards are
part of the total compensation package provided to employees at
all levels of management within the Company. The Companys
philosophy is to provide opportunities for ownership deep into
the management levels of the Company and to have a portion of
each managers incentive potential payable in equity-based
awards. The opportunity to earn equity-based awards is
performance driven. In 2004, seven directors and approximately
150 managers received equity-based awards from the Company.
The Amended and Restated Equity-Based Award Plan is administered
by the Executive Compensation Committee of the Companys
Board of Directors (the Committee). The Committee
consists of three Board Members, all of whom are outside
directors (within the meaning set forth in
Section 162(m) of the Code) and independent under the
NYSEs listing standards and the Companys Corporate
Governance Guidelines.
The Committee has full power to interpret and administer the
Amended and Restated Equity-Based Award Plan and full authority
to select participants to whom Awards will be granted and to
determine the type and amount of Awards to be granted to each
participant, the terms and conditions of Awards granted and the
terms and conditions of the agreements evidencing Awards to be
entered into with participants. As to the selection and grant of
Awards to participants who are not subject to Section 16(b)
of the Securities and Exchange Act of 1934, the Committee may
delegate its responsibilities to members of the Companys
management consistent with applicable law. The Amended and
Restated Equity-Based Award Plan does not provide for
reload options or option repricing.
Subject to any shareholder approval requirement of the NYSE or
applicable law, the Committee has the authority to adopt, alter
and repeal such rules, guidelines and practices governing the
Amended and Restated Equity-Based Award Plan as it shall, from
time to time, deem advisable; to interpret the terms and
provisions of the Amended and Restated Equity-Based Award Plan
and any Award issued under the Amended and Restated Equity-Based
Award Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Amended and
Restated Equity-Based Award Plan. The Board, the Committee, and
anyone to whom the Committee delegates authority to administer
the plan, will be indemnified to the extent permitted by law for
any action taken or failure to act in connection with the plan.
6
Terms of Stock Options
The Committee may grant Stock Options that either
(i) qualify as incentive stock options (the Incentive
Stock Options) under Section 422A of the Code,
(ii) do not qualify (the Non-Qualified Stock
Options) or (iii) both. To qualify as an Incentive
Stock Option, an option must meet certain requirements set forth
in the Code. Options will be evidenced by the execution of a
Stock Option Agreement in the form approved by the Committee.
The option price per common share under a Stock Option will be
determined by the Committee at the time of grant and will be not
less than 100% of the fair market value of the common shares at
the date of grant, or with respect to Incentive Stock Options,
110% of the fair market value of the common shares at the date
of grant in the case of a participant who, at the date of grant,
owns shares possessing more than 10% of the total combined
voting power of all classes of stock of the Company. Once
granted, the option price may not be amended, or
repriced.
The term of each Stock Option will be determined by the
Committee and may not exceed ten years from the date the option
is granted or, with respect to Incentive Stock Options, five
years in the case of a participant who, at the date of grant,
owns shares possessing more than 10% of the total combined
voting power of all classes of stock of the Company.
The Committee will determine the time or times at which and the
conditions under which each Stock Option may be exercised.
Generally, options will not be exercisable prior to six months
following the date of grant. No Stock Options are transferable
by the participant other than (i) by will or by the laws of
descent and distribution; or (ii) pursuant to a qualified
domestic order. If permitted by the applicable Stock Option
agreement, a participant may transfer Stock Options, other than
Incentive Stock Options, during the participants lifetime
(i) to one or more members of the participants
family, to one or more trusts for the benefit of one or more
members of the participants family or to a partnership or
partnerships of members of the participants family, or
(ii) to charitable organizations.
If a participants employment by the Company terminates by
reason of disability or death, a Stock Option becomes
immediately and automatically vested and exercisable and may be
exercised for a period of two years from the time of death or
termination due to disability (one year in the case of Incentive
Stock Options).
Unless otherwise determined by the Committee at or after the
time of grant, if a participants employment by the Company
terminates for cause, any unvested Stock Options will be
forfeited and terminated immediately and any vested Stock
Options may be exercised for a period of 30 days from the
time of termination of employment for cause.
Unless otherwise determined by the Committee at or after the
time of grant, if a participants employment with the
Company terminates for any reason other than death, disability
or for cause, all Stock Options shall terminate three months
after the date employment terminates.
Terms of Share Appreciation Rights
The Committee shall determine the participants to whom and the
time or times at which grants of Share Appreciation Rights (or
SARs) will be made and the other terms and conditions thereof.
Any SAR granted under the Amended and Restated Equity-Based
Award Plan shall be in such form as the Committee may from time
to time approve. In the case of a Non-Qualified Stock Option, a
SAR may be granted either at or after the time of the grant of
the related Non-Qualified Stock Option. In the case of an
Incentive Stock Option, a SAR may be granted in connection with
the Incentive Stock Option at the time the Incentive Stock
Option is granted and exercised at such times and under such
conditions as may be specified by the Committee in the
participants Stock Option Agreement.
SARs generally entitle the holder to receive an amount in cash
or common shares (as determined by the Committee) equal in value
to the excess of the fair market value of a common share on the
date of exercise of the SAR over the per share exercise price of
the related Stock Option. The Committee may limit the amount
that the participant will be entitled to receive upon exercise
of any SAR.
7
Upon exercise of a SAR and surrender of the related portion of
the underlying Stock Option, the related Stock Option is deemed
to have been exercised. SARs will be exercisable only to the
extent that the Stock Options to which they relate are
exercisable; provided that a SAR granted to a participant who is
subject to Section 16(b) will not be exercisable at any
time prior to six months and one day from the date of grant.
SARs shall be transferable and exercisable to the same extent
and under the same conditions as the underlying Stock Option.
Terms of Awards of Restricted Shares
The Committee may grant Restricted Share Awards and determine
when and to whom such grants will be made, the number of shares
to be awarded, the date or dates upon which Restricted Share
Awards will vest, the time or times within which such Awards may
be subject to forfeiture, and all other terms and conditions of
such Awards. The Committee may condition Restricted Share Awards
on the attainment of performance goals or such other factors as
the Committee may determine.
Subject to the provisions of Amended and Restated Equity-Based
Award Plan and the applicable Restricted Share Award agreement,
during a period set by the Committee commencing with the date of
the Award (the Restriction Period), the participant
will not be permitted to sell, transfer, pledge, assign or
otherwise encumber such Restricted Shares, except (i) by
will or by the laws of descent and distribution, or
(ii) pursuant to a qualified domestic order. If permitted
by the applicable Restricted Shares agreement, a participant may
transfer Restricted Shares during the participants
lifetime (i) to one or more members of the
participants family, to one or more trusts for the benefit
of one or more members of the participants family or to a
partnership or partnerships of members of the participants
family, or (ii) to charitable organizations. The Committee
may permit such restrictions to lapse in installments within the
Restricted Period or may accelerate or waive such restrictions
in whole or in part, based on service, performance or such other
factors and criteria as the Committee may determine. Prior to
the lapse of the restrictions on the Restricted Shares, the
participant will have all rights of a shareholder with respect
to the shares, including voting and dividend rights (except that
the Committee may permit or require the payment of cash
dividends to be deferred and reinvested in additional Restricted
Shares or otherwise reinvested), subject to the conditions and
restrictions on transferability of such Restricted Shares or
such other restrictions as are enumerated specifically in the
participants Restricted Share Award agreement. The
Committee or Board will determine at the time of grant whether
share dividends issued with respect to Restricted Shares will be
paid in cash, deferred or reinvested as additional Restricted
Shares that are subject to the same restrictions and other terms
and conditions that apply to the Restricted Shares with respect
to which such dividends are issued.
Unless otherwise determined by the Committee at or after the
time of grant, if a participants employment by the Company
terminates by reason of death or disability, any Restricted
Shares held by such participant shall become immediately and
automatically vested in full and any restrictions shall lapse.
Unless otherwise determined by the Committee at or after the
time of grant, in the event that employment of a participant who
holds Restricted Shares is terminated for any reason other than
death or disability, the participant will forfeit such shares
that are unvested or subject to restrictions in accordance with
the applicable provisions of the Award agreement and in
accordance with the terms and conditions established by the
Committee.
Terms of Awards of Deferred Shares
The Committee may grant Awards of Deferred Shares under the
Amended and Restated Equity-Based Award Plan, which will be
evidenced by an agreement between the Company and the
participant. The Committee determines when and to whom Deferred
Shares will be awarded, the number of shares to be awarded, and
the duration of the period during which, and the conditions
under which, receipt of shares will be deferred. The Committee
may condition an Award of Deferred Shares on the attainment of
specified performance goals or such other factors as the
Committee may determine.
Deferred Shares Awards generally may not be sold, assigned or
transferred, except (i) by will or by the laws of descent
and distribution, or (ii) pursuant to a qualified domestic
order. If permitted by the applicable
8
Deferred Shares agreement, a participant may transfer Deferred
Shares during the participants lifetime (i) to one or
more members of the participants family, to one or more
trusts for the benefit of one or more members of the
participants family or to a partnership or partnerships of
members of the participants family, or (ii) to
charitable organizations. At the expiration of the deferral
period, share certificates shall be delivered to the participant
in a number equal to the shares covered by the Deferred Shares
Award. Amounts equal to any dividends declared during the
deferral period with respect to the number of shares covered by
a Deferred Shares Award will be paid to the participant
currently, or deferred and deemed to be reinvested in additional
Deferred Shares, or otherwise reinvested, all as determined by
the Committee.
Unless otherwise determined by the Committee at or after the
time of grant, if a participants employment by the Company
terminates by reason of death or disability, any Deferred Shares
held by such participant will become immediately and
automatically vested and any restriction shall lapse permitting
the participant or the participants representative to
exercise the award any time until the expiration of the Amended
and Restated Equity-Based Award Plan.
Unless otherwise determined by the Committee at or after the
time of grant, if a participants employment by the Company
is terminated for any reason other than death or disability, the
Deferred Shares which are unvested or subject to restriction
will thereupon be forfeited. Any restrictions under a Deferred
Shares Award may be accelerated or waived by the Committee at
any time.
Terms of Other Share-Based Awards
The Committee may grant other Awards of common shares and other
Awards, including dividend equivalent rights, that are valued in
whole or in part by reference to, or are otherwise based on,
common shares (including, without limitation, performance
shares, convertible preferred shares, convertible debentures,
exchangeable securities and common share Awards or options
valued by reference to book value or subsidiary performance).
Other Share-Based Awards may be granted either alone, in
addition to or in tandem with other Awards granted under Amended
and Restated Equity-Based Award Plan or cash awards made outside
the Amended and Restated Equity-Based Award Plan.
Generally, common shares awarded pursuant to Other Share-Based
Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are
issued, or, if later, the date on which any applicable
restriction, performance or deferral period or requirement is
satisfied or lapses. In addition, the recipient of such an Award
will usually be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend equivalents
with respect to the number of shares covered by the Award, as
determined at the time of the Award by the Committee, and the
Committee may provide that such amounts (if any) shall be deemed
to have been reinvested in additional common shares or otherwise
reinvested. Common shares covered by any such Award shall vest
or be forfeited to the extent so provided in the Award
agreement, as determined by the Committee. In the event of the
participants disability, death or termination without
cause, Other Share-Based Awards will become immediately and
automatically vested and any restriction shall lapse, permitting
the participant or the participants representative to
exercise the award at any time until the expiration of the
Amended and Restated Equity-Based Award Plan.
Each Other Share-Based Award shall be confirmed by, and subject
to the terms of, an agreement or other instrument between the
Company and the participant. Common shares (including securities
convertible into common shares) issued on a bonus basis as Other
Share-Based Awards shall be issued for no cash consideration.
Common shares (including securities convertible into common
shares) purchased pursuant to Other Share-Based Awards shall
bear a price at least equal to the fair market value of the
common shares on the date of grant.
Change in Control
Certain acceleration and valuation provisions take effect with
respect to Awards upon the occurrence of a Change in Control or
a Potential Change in Control (both as defined in the Amended
and Restated Equity-Based Award Plan) of the Company.
9
In the event of a Change in Control or a Potential Change in
Control, any Stock Options, Restricted Shares, Deferred Shares
and Other Share-Based Awards awarded under the Amended and
Restated Equity-Based Award Plan shall become fully vested and
SARs shall become immediately exercisable, on the date of the
Change in Control or Potential Change in Control. All
outstanding Stock Options, SARs, Restricted Shares, Deferred
Shares and Other Share-Based Awards, in each case to the extent
vested, will, unless otherwise determined by the Committee at or
after grant, but prior to any Change in Control or Potential
Change in Control, be cashed out for the Change in Control Price
(as defined in the Amended and Restated Equity-Based Award Plan).
Adjustments for Stock Dividends, Mergers, Etc.
In the event of any merger, reorganization, consolidation,
recapitalization, stock split, stock dividend or other change in
corporate structure affecting the common shares, the Committee
shall make such substitution or adjustment in the aggregate
number of shares reserved for issuance under the Amended and
Restated Equity-Based Award Plan, in the Individual Limit, in
the number and option price of shares subject to outstanding
Stock Options, and in the number of shares subject to other
outstanding Awards under the Amended and Restated Equity-Based
Award Plan as it determines to be appropriate, provided that the
number of common shares subject to any Award shall always be a
whole number. Any fractional shares will be eliminated.
Termination and Amendment of the Amended and Restated
Equity-Based Award Plan
Awards may be granted under the Amended and Restated
Equity-Based Award Plan at any time until and including
February 23, 2015, on which date the Amended and Restated
Equity-Based Award Plan will expire except as to Awards then
outstanding. Awards outstanding at that time will remain in
effect until they have been exercised, have expired or have been
forfeited.
Federal Tax Consequences
With respect to Incentive Stock Options, in general, for federal
income tax purposes under the present law:
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(i) |
Neither the grant nor the exercise of an Incentive Stock Option,
by itself, results in income to the participant; however, the
excess of the fair market value of the common shares at the time
of exercise over the option price is includable in alternative
minimum taxable income (unless there is a disposition of the
common shares acquired upon exercise of the Stock Option in the
taxable year of exercise) which may, under certain
circumstances, result in an alternative minimum tax liability to
the participant. |
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(ii) |
If the common shares acquired upon exercise of an Incentive
Stock Option are disposed of in a taxable transaction after the
later of two years from the date on which the Incentive Stock
Option is granted or one year from the date on which such common
shares are transferred to the participant, long-term capital
gain or loss will be realized by the participant in an amount
equal to the difference between the amount realized by the
participant and the participants basis which, except as
provided in (v) below, is the exercise price. |
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(iii) |
Except as provided in (v) below, if the common shares
acquired upon the exercise of an Incentive Stock Option are
disposed of within the two-year period from the date of grant or
the one-year period after the transfer of the common shares to
the participant (a disqualifying disposition): |
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(a) |
Ordinary income will be realized by the participant at the time
of such disposition in the amount of the excess, if any, of the
fair market value of the common shares at the time of such
exercise over the option price, but not in an amount exceeding
the excess, if any, of the amount realized by the participant
over the option price. |
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(b) |
Short-term or long-term capital gain will be realized by the
participant at the time of any such taxable disposition in an
amount equal to the excess, if any, of the amount realized over
the fair market value of the common shares at the time of such
exercise. |
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(c) |
Short-term or long-term capital loss will be realized by the
participant at the time of any such taxable disposition in an
amount equal to the excess, if any, of the option price over the
amount realized. |
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(iv) |
No deduction will be allowed to the Company with respect to
Incentive Stock Options granted or common shares transferred
upon exercise thereof, except that if a disposition is made by
the participant within the two-year period or the one-year
period referred to above, the Company will be entitled to a
deduction in the taxable year in which the disposition occurred
in an amount equal to the amount of ordinary income realized by
the participant making the disposition. |
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(v) |
With respect to the exercise of an Incentive Stock Option and
the payment of the option price by the delivery of common
shares, to the extent that the number of common shares received
does not exceed the number of common shares surrendered, no
taxable income will be realized by the participant at that time,
the tax basis of the common shares received will be the same as
the tax basis of the common shares surrendered, and the holding
period (except for purposes of the one-year period referred to
in (iii) above) of the participant in common shares
received will include his holding period in the common shares
surrendered. To the extent that the number of common shares
received exceeds the number of common shares surrendered, no
taxable income will be realized by the participant at that time;
such excess common shares will be considered Incentive Stock
Option stock with a zero basis; and the holding period of the
participant in such common shares will begin on the date such
common shares are transferred to the participant. If the common
shares surrendered were acquired as the result of the exercise
of an Incentive Stock Option and the surrender takes place
within two years from the date the Incentive Stock Option
relating to the surrendered common shares was granted or within
one year from the date of such exercise, the surrender will
result in a disqualifying disposition and the participant will
realize ordinary income at that time in the amount of the
excess, if any, of the fair market value at the time of exercise
of the common shares surrendered over the basis of such common
shares. If any of the common shares received are disposed of in
a disqualifying disposition, the participant will be treated as
first disposing of the common shares with a zero balance. |
With respect to Nonqualified Stock Options, in general, for
federal income tax purposes under present law:
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(i) |
The grant of a Nonqualified Stock Option by itself, does not
result in income to the participant. |
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(ii) |
Except as provided in (v) below, the exercise of a
Nonqualified Stock Option (in whole or in part, according to its
terms) results in ordinary income to the participant at that
time in an amount equal to the excess (if any) of the fair
market value of the common shares on the date of exercise over
the option price. |
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(iii) |
Except as provided in (v) below, the tax basis of the
common shares acquired upon exercise of a Nonqualified Stock
Option, which is used to determine the amount of any capital
gain or loss on a future taxable disposition of such shares, is
the fair market value of the common shares on the date of
exercise. |
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(iv) |
No deduction is allowable to the Company upon the grant of a
Nonqualified Stock Option but, upon the exercise of a
Nonqualified Stock Option, a deduction is allowable to the
Company at that time in an amount equal to the amount of
ordinary income realized by the participant exercising such
Option if the Company deducts and withholds appropriate federal
withholding tax. |
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(v) |
With respect to the exercise of a Nonqualified Stock Option and
the payment of the option price by the delivery of common
shares, to the extent that the number of common shares received
does not exceed the number of common shares surrendered, no
taxable income will be realized by the participant at that time,
the tax basis of the common shares received will be the same as
the tax basis of the common shares surrendered, and the holding
period of the |
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participant in the common shares received will include his
holding period in the common shares surrendered. To the extent
that the number of common shares received exceeds the number of
common shares surrendered, ordinary income will be realized by
the participant at that time in the amount of the fair market
value of such excess common shares; the tax basis of such excess
common shares will be equal to the fair market value of such
common shares at the time of exercise; and the holding period of
the participant in such common shares will begin on the date
such common shares are transferred to the participant. |
The Company is not entitled to deduct annual remuneration in
excess of $1 million (the Deduction Limitation)
paid to certain of its employees unless such remuneration
satisfies an exception to the Deduction Limitation, including an
exception for performance-based compensation. Thus, unless Stock
Options granted under the Amended and Restated Equity-Based
Award Plan satisfy an exception to the Deduction Limitation, the
Companys deduction with respect to Nonqualified Stock
Options and Incentive Stock Options with respect to which the
holding periods set forth above are not satisfied will be
subject to the Deduction Limitation.
Under Treasury Regulations, compensation attributable to a stock
option is deemed to be performance-based compensation or to
satisfy the performance-based compensation test if:
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the grant is made by the compensation committee; the plan
under which the option ... is granted states the maximum number
of shares with respect to which options may be granted during a
specified period to any employee; and, under the terms of the
option ... the amount of compensation the employee could receive
is based solely on an increase in the value of the stock after
the date of grant ... |
If Proposal Two is approved by the shareholders and the
Executive Compensation Committee makes the grants, the
Companys deduction with respect to options granted under
the Amended and Restated Equity-Based Award Plan would not be
subject to the Deduction Limitation.
The federal income tax information presented herein is only a
general summary of the applicable provisions of the Code and
regulations promulgated thereunder as in effect on the date of
this proxy statement. The actual federal, state, local and
foreign tax consequences to the participant may vary depending
upon his particular circumstance.
Vote Required for Approval
Under NYSE regulations and the Code, the affirmative vote of a
majority of the votes cast is required to adopt this proposal.
Broker non-votes will not be treated as voting on the proposal
and, therefore, will not count for or against this proposal.
The Board of Directors Recommends That the Shareholders
Vote FOR the Proposal to Approve the Associated Estates
Realty Corporation Amended and Restated 2001 Equity-Based Award
Plan.
CORPORATE GOVERNANCE
The Board of Directors adopted Corporate Governance Guidelines
to assist the Board of Directors in the exercise of its
responsibilities and to serve the best interests of the Company
and its shareholders. A copy of the Companys Corporate
Governance Guidelines is posted on the Companys website,
www.aecrealty.com, under Investor Relations.
Code of Ethics for Senior Financial Officers. The Company
has a Code of Ethics for Senior Financial Officers that applies
to the principal executive officer, principal financial officer
and principal accounting officer or controller (collectively,
Senior Financial Officers) of the Company. The code
requires Senior Financial Officers to act with honesty and
integrity; to endeavor to provide information that is full,
fair, accurate, timely and understandable in all reports and
documents that the Company files with, or submits to, the
Securities and Exchange Commission (SEC) and other
public filings or communications made by the Company; to
endeavor to comply faithfully with all laws, rules and
regulations of federal, state and local
12
governments and all applicable private or public regulatory
agencies; to proactively promote ethical behavior among peers
and subordinates in the workplace; and to promptly report to the
Audit Committee any violation or suspected violation of the
code. The code is posted on the Companys website,
www.aecrealty.com, under Investor Relations. Any
waiver of any provision of the code granted to a Senior
Financial Officer may only be made by the Audit Committee or the
Board of Directors, and will be promptly disclosed in a filing
on Form 8-K with the SEC or, subject to satisfaction of any
condition established by the SEC, posted on the Companys
website.
Code of Ethics. The Company has a Code of Ethics that
applies to all employees, officers and directors of the Company.
The Code of Ethics includes provisions covering compliance with
laws and regulations, insider trading practices, conflicts of
interest, confidentiality, protection and proper use of Company
assets, accounting and recordkeeping, corporate opportunities,
fair competition and fair dealing, business gifts and
entertainment, payments to government personnel, and the
reporting of illegal or unethical behavior. The Code of Ethics
is posted on the Companys website at www.aecrealty.com
under Investor Relations. Any waiver of any
provision of the code granted to an executive officer or
director may only be made by the Board of Directors or a
Committee of the Board authorized to do so and will be promptly
disclosed as required by applicable laws or NYSE listing
standards.
The Board has determined that all of the directors, except for
Messrs. Friedman and Milstein, are independent
directors within the meaning of the NYSE listing
standards. Albert T. Adams is a partner in the law firm of
Baker & Hostetler LLP, which has provided (and is
expected to continue providing) legal services to the Company;
however, the Board affirmatively determined that Mr. Adams
is an independent director within the meaning of the
NYSE listing standards and that his relationship with the
Company does not interfere with his exercise of independent
judgment as a director. James M. Delaney is a consultant to Aon
Risk Management Services, which is a vendor of the Company;
however, the Board affirmatively determined that
Mr. Delaney is an independent director within
the meaning of the NYSE listing standards and that his
relationship with Aon Risk Management Services does not
interfere with his exercise of independent judgment as a
director.
Beginning with the December 12, 2002 Board meeting, the
non-management directors of the Board have met in executive
session without management. In 2004, the non-management
directors appointed Richard T. Schwarz as the director to
preside over these executive sessions in the future. Prior to
2004, these meetings were chaired by certain non-management
members of the Board (Messrs. Adams, Delaney, Mosier,
McDonough and Schwarz) on a rotating basis.
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What Committees Has the Board Established? |
The Board of Directors has a Nominating and Corporate Governance
Committee, an Audit Committee, an Executive Committee, a Finance
and Planning Committee and an Executive Compensation Committee.
All of the members of the Boards Audit, Executive
Compensation, Finance and Planning, and Nominating and Corporate
Governance Committees are independent directors under the NYSE
listing standards.
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Nominating and Corporate Governance Committee |
Composition of the Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance
Committee, comprised of Messrs. Adams (Chairman), Delaney,
Mosier and Schwarz, held two meetings during 2004.
Mr. McDonough had been a member and Chairman of the
Nominating and Corporate Governance Committee until his
retirement in October of 2004, at which time Mr. Adams
became Chairman of the committee. This committee was formed to
assist the Board of Directors in identifying individuals
qualified to become Board members; to recommend Board committee
structure, membership and operations; to develop and recommend
to the Board a set of effective corporate governance policies
and procedures; and to lead the Board in its annual review of
the Boards performance.
13
The Nominating and Corporate Governance Committee will consider
suggestions forwarded by shareholders to the Secretary of the
Company concerning qualified candidates for election as
directors. To recommend a prospective nominee for the Nominating
and Corporate Governance Committees consideration, a
shareholder may submit the candidates name and
qualifications to the Companys Secretary, Martin A.
Fishman, at the following address: 5025 Swetland Court, Richmond
Heights, Ohio 44143. The Nominating and Corporate Governance
Committee has not established specific minimum qualifications a
candidate must have in order to be recommended to the Board of
Directors. However, in determining qualifications for new
directors, it will consider a potential members
qualification as independent under the NYSEs listing
standards, as well as age, skill and experience in the context
of the needs of the Board of Directors. The Nominating and
Corporate Governance Committee will recommend a slate of
nominees to the Board of Directors at the annual meeting of the
Companys shareholders. Although the Nominating and
Corporate Governance Committee may retain a Board search
consultant to supplement the pool of Board candidates, it has
not engaged a consultant at this time.
A current copy of the committees charter is available to
shareholders on the Companys website, www.aecrealty.com,
under Investor Relations.
Audit Committee
Composition of the Audit Committee. The Audit Committee
is comprised of Messrs. Delaney (Chairman), Gibbons and
Schwarz, all of whom are independent as required by
Section 10A of the Securities Exchange Act of 1934 and
applicable rules of the NYSE. Mr. McDonough had been a
member of the Audit Committee until his retirement in October of
2004. Mr. Delaney, a retired partner of Deloitte &
Touche LLP, chairs the Committee. The Board has determined that
Messrs. Delaney and Gibbons are financial
experts within the meaning of Item 401 of
Regulation S-K under the federal securities laws. The Audit
Committee held ten meetings during 2004.
The Audit Committee is responsible for assisting the Board in
overseeing the following primary areas: (i) the integrity
of the financial statements of the Company, (ii) the
Companys compliance with legal and regulatory
requirements, (iii) the Companys independent
auditors qualifications and independence, and
(iv) the performance of the Companys internal audit
function and independent auditors.
A current copy of the committees charter is available to
shareholders on the Companys website, www.aecrealty.com,
under Investor Relations.
Report of the Audit
Committee
The Audit Committee reviews the Companys financial
reporting practices on behalf of the Board of Directors.
Management is responsible for the financial statements and the
reporting process, including the system of internal controls.
The independent accountants are responsible for expressing an
opinion on the conformity of those audited financial statements
with generally accepted accounting principles.
The Audit Committee has:
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Reviewed and discussed with the Companys management and
the Companys independent accountants the audited financial
statements of the Company contained in the Annual Report on
Form 10-K for the year ended December 31, 2004; |
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Discussed with the Companys independent accountants the
matters required to be discussed pursuant to Statement of
Accounting Standards No. 61 (Codification of Statements on
Auditing Standards, AU Section 380), which includes, among
other items, matters related to the conduct of the audit of the
Companys financial statements; and |
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Received and reviewed the written disclosures and the letter
from the Companys independent accountants required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and discussed with the
independent accountants the independent accountants
independence. |
14
Based on the reviews and discussions described in the preceding
bulleted paragraphs, the Audit Committee recommended to the
Board of Directors that the audited financial statements for the
year ended December 31, 2004, be included in the
Companys Annual Report on Form 10-K, filed with the
U.S. Securities and Exchange Commission.
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Audit Committee |
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James M. Delaney, Chairman |
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Michael E. Gibbons |
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Richard T. Schwarz |
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Finance and Planning Committee |
Composition of the Finance and Planning Committee. The
Finance and Planning Committee, which consists of
Messrs. Adams, Milstein, Mosier and Schwarz (Chairman),
assists the Board in matters relating to strategic planning and
overall debt and capital structure of the Company. The Finance
and Planning Committee held four meetings during 2004.
A current copy of the committees charter is available to
shareholders on the Companys website, www.aecrealty.com,
under Investor Relations.
Composition of the Executive Committee. The Executive
Committee, which consists of Messrs. Adams, Friedman
(Chairman) and Milstein, possesses the power of the Board in the
management of the business and affairs of the Company (other
than filling vacancies on the Board or any Board committees)
during intervals between meetings of the Board. The Executive
Committee held four meetings during 2004.
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Executive Compensation Committee |
Composition of the Executive Compensation Committee. The
members of the Executive Compensation Committee of the
Companys Board of Directors (the Committee)
are James M. Delaney, Frank E. Mosier (Chairman), and Richard T.
Schwarz. Mr. McDonough had been a member of the Executive
Compensation Committee until his retirement in October of 2004.
The Executive Compensation Committee held five meetings during
2004.
The Executive Compensation Committee is responsible for
assisting the Board in overseeing the following primary areas:
(i) reviewing and approving the goals and objectives
relevant to the compensation of the Chief Executive Officer and
the Companys other executive officers,
(ii) reviewing, at least annually, the Companys
executive and employee compensation plans in light of the
Companys goals and objectives with respect to such plans,
(iii) evaluating, on an annual basis, the performance of
the Chief Executive Officer in light of the goals and objectives
of the Companys executive compensation plans, and setting
his or her compensation level based upon this evaluation,
(iv) reviewing and approving salary, incentive payments and
long-term compensation to the executive officers of the Company,
(v) reviewing and approving grants and awards to the
executive officers and other participants under the
Companys equity-based compensation plans,
(vi) reviewing and approving compensation for members of
the Board and any of its committees, (vii) reviewing and
approving any employment agreements and severance agreements to
be made with any existing or prospective executive officer of
the Company, and (viii) reviewing other human resources
programs for broad-based employees as deemed appropriate by the
Chief Executive Officer or requested by the Board. In fulfilling
its responsibilities, the Executive Compensation Committee has
the authority to engage independent advisors and also works
closely with the Companys Vice President of Human
Resources.
A current copy of the committees charter is available to
shareholders on the Companys website, www.aecrealty.com,
under Investor Relations.
15
|
|
|
Report of the Executive Compensation Committee |
What Is the Companys Philosophy of Executive Officer
Compensation?
Executive compensation decisions are guided by the
Companys commitments to:
|
|
|
|
|
Create shareholder value and achieve performance objectives; |
|
|
|
Attract and retain top organizational contributors and link
their pay to their ability to influence financial and
organizational objectives; and |
|
|
|
Focus attention on the Companys current priorities and
long-term goals. |
What Are the Key Components of Executive Officer
Compensation?
The key components of the Companys executive compensation
program are base salary, annual incentives, longer-term,
share-based incentives and retirement and welfare benefits. Each
of these components operates within an integrated total
compensation program to ensure that executives are compensated
equitably. The total compensation mix attributable to the
weighting of each of these components will reflect the
competitive market and may be adjusted from time to time to best
support the Companys business objectives.
The integrated total compensation package is intended to
compensate the Companys executive officers between the
median and the 75th percentile of the competitive peer group
labor market and provide the opportunity for executives to earn
incentive-based compensation driven by the accomplishment of
performance expectations. The members of the competitive peer
group, The Custom Peer Group, are listed on page 21. The
Executive Compensation Committee believes the executive
compensation program, in total, reflects the competitive market
practices of the peer group.
|
|
|
|
|
Base Salary. Base salary serves as the cornerstone
for the executive compensation program and recognizes the
relative value that an individuals contribution brings to
the Company. Executives base salaries are reviewed
annually and adjusted, as appropriate, to reflect changes in the
competitive peer group labor market as well as individual
performance, range of responsibilities relative to the
Companys business plan, demonstrated competencies, value,
contribution to the organization, experience and professional
growth and development. Base salary adjustments are also
influenced by overall Company performance. Base salary increases
for each of the executive officers were approved in 2004. |
|
|
|
Annual Incentives. Annual incentives emphasize pay
for performance and serve as a key means of driving current
objectives and priorities. Executives are rewarded for increases
in the Companys short-term financial performance and
achievement of established corporate objectives. In 2004, annual
incentive opportunities for all officers (including executive
officers) were 100 percent linked to performance relative
to a company-wide property net operating income
(NOI) benchmark. NOI is determined by deducting property
operating and maintenance expenses from total property revenues.
Target annual incentive opportunities are set at the beginning
of each plan year for eligible participants and, for 2004,
ranged from 40 percent to 80 percent of base salary
for the executive officers. Award payouts are delivered in a
combination of cash and restricted shares that vest over a
three-year period. Bonuses were paid under the plan for 2004 and
such amounts are reflected in the Executive Compensation Table
on page 18. |
|
|
|
Long-Term Incentives. Long-term incentives
emphasize pay for performance and are linked to both the
longer-term, strategic objectives of the Company and the
interests of shareholders. In conjunction with the reformulation
of the Companys strategic plan, which is expected to be
finalized in 2005, the Executive Compensation Committee will be
formalizing a long-term incentive compensation component of the
executive officers total compensation package. In 2004,
the Executive Compensation Committee approved two equity-based
grants to the executive officers in the form of options and
restricted share grants. The Executive Compensation Committee
believes that equity-based awards serve as an important means of
attracting and retaining executives who are in a position to
most directly influence the long-term success of the Company.
The Executive Compensation Committee also believes that
equity-based awards align executives interests with those
of shareholders by |
16
|
|
|
|
|
reinforcing the risk of ownership and the importance of
providing competitive long-term, total returns to shareholders. |
Long-term incentive compensation is currently delivered through
the Equity-Based Incentive Compensation Plan, which expired
February 20, 2005 and pursuant to which no additional
grants will be made, and the 2001 Equity Incentive Plan. The
Board of Directors has approved and submitted for the approval
of the shareholders the Amended and Restated Equity-Based Award
Plan, which, if adopted, would amend and restate the 2001 Equity
Incentive Plan. However, if the Amended and Restated
Equity-Based Award Plan is not adopted by the Companys
shareholders, the 2001 Equity Incentive Plan will remain in
place. All executive officers are eligible to participate in all
of these plans.
The Companys equity-based plans provide executive officers
and other key employees of the Company the opportunity to earn
equity-based incentives including common shares. Awards made
under the plans may be in the form of share options, restricted
shares or other equity-based awards. Share options are granted
at no less than 100 percent of the current fair market
value of the Companys shares on the date of the grant and
will only be of value to the extent the Companys share
price increases over time. Generally, share options and
restricted share awards will vest in installments over no less
than a three-year period. In determining whether and in what
amounts to make grants under the plans, the Executive
Compensation Committee considers, among other factors,
competitive long-term incentive award levels and the scope of
responsibility, the anticipated performance and the contribution
to the Company of the proposed award recipient.
The Companys equity-based plans are administered by the
Executive Compensation Committee.
|
|
|
|
|
Supplemental Executive Retirement Plan. The
Companys Supplemental Executive Retirement Plan (the
SERP) was adopted by the Board of Directors on
January 1, 1997, and is administered by the Executive
Compensation Committee. This non-qualified, unfunded, defined
contribution plan extends to executive officers of the Company
and other officers as recommended by the Chief Executive Officer
and approved by the Executive Compensation Committee. The SERP
provides for the Company to make a contribution to the account
of each of the participating officers at the end of each plan
year. The contribution, which is a percentage of eligible
earnings (including base salary and payments under the annual
incentive plan), is set by the Executive Compensation Committee
prior to the beginning of each plan year. The contribution is
treated by the Company as an unfunded liability until the
benefits are paid. The account balances earn interest each year
at a rate that is set by the Executive Compensation Committee
prior to the beginning of each plan year. Contributions to the
Plan for the 2004 plan year were made at a contribution rate of
6 percent and an earnings rate of 9.4 percent. For
2005, the contribution rate remains at 6 percent and the
earnings rate was adjusted to 8.3 percent. Each
participants SERP account is scheduled to vest when the
participant turns 55. Within 30 days of a Change in Control
(as defined in the plan), the Company must make a cash
contribution to an irrevocable rabbi trust in an
amount necessary to fully fund the SERP accounts. |
How Is the Companys Chief Executive Officers
Compensation Determined?
The base compensation for Jeffrey I. Friedman was established
and is administered pursuant to an employment agreement entered
into between Mr. Friedman and the Company as of
January 1, 1996. The three-year term of the employment
agreement is automatically extended for an additional year at
the end of each year of the agreement, subject to the right of
either party to terminate by giving one years prior
written notice. Mr. Friedman did receive a base salary
adjustment for 2004, consistent with adjustments given to other
executive officers. In 2004, Mr. Friedman earned a base
salary of $400,000. Mr. Friedmans employment
agreement provides for an annual performance bonus based upon
the Company reaching certain financial objectives. For 2004,
100 percent of Mr. Friedmans performance bonus
was based upon annual performance benchmarks tied to NOI,
consistent with the annual incentive plan in which the other
executive officers participate. Mr. Friedman received a
bonus payment in 2004 consistent with this plan.
|
|
|
Executive Compensation Committee |
|
Frank E. Mosier, Chairman |
|
James M. Delaney |
|
Richard T. Schwarz |
17
Summary Compensation Table
The following table summarizes the compensation earned by or
paid to the Companys Chief Executive Officer and each of
the Companys other named executive officers who served
during fiscal year 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
|
|
|
|
Awards | |
|
|
|
|
Annual Compensation | |
|
| |
|
|
|
|
| |
|
Restricted | |
|
Stock | |
|
All Other | |
|
|
Fiscal | |
|
|
|
Stock Awards | |
|
Options | |
|
Compensation | |
Name and Principal Positions |
|
Year | |
|
Salary($) | |
|
Bonus($) | |
|
($)(1) | |
|
(#)(2) | |
|
($)(3) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Jeffrey I. Friedman
|
|
|
2004 |
|
|
|
400,000 |
|
|
|
247,000 |
|
|
|
207,761 |
|
|
|
75,000 |
|
|
|
102,777 |
|
Chairman, President and
|
|
|
2003 |
|
|
|
376,400 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
32,700 |
|
Chief Executive Officer
|
|
|
2002 |
|
|
|
376,400 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
114,721 |
|
Martin A. Fishman
|
|
|
2004 |
|
|
|
231,000 |
|
|
|
71,379 |
|
|
|
75,166 |
|
|
|
15,000 |
|
|
|
35,759 |
|
Vice President, Secretary
|
|
|
2003 |
|
|
|
210,000 |
|
|
|
0 |
|
|
|
8,398 |
|
|
|
0 |
|
|
|
0 |
|
and General Counsel
|
|
|
2002 |
|
|
|
210,000 |
|
|
|
25,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
36,179 |
|
Lou Fatica
|
|
|
2004 |
|
|
|
192,500 |
|
|
|
59,483 |
|
|
|
62,724 |
|
|
|
12,750 |
|
|
|
15,688 |
|
Treasurer, Vice President
|
|
|
2003 |
|
|
|
165,673 |
|
|
|
0 |
|
|
|
6,002 |
|
|
|
0 |
|
|
|
2,485 |
|
and Chief Financial Officer
|
|
|
2002 |
|
|
|
150,000 |
|
|
|
18,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
14,172 |
|
John T. Shannon
|
|
|
2004 |
|
|
|
127,885 |
|
|
|
81,113 |
|
|
|
117,791 |
|
|
|
118,750 |
|
|
|
20,770 |
|
Senior Vice President of
|
|
|
2003 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Operations (4)
|
|
|
2002 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1) |
On May 7, 2003, grants of 1,402 and 1,002 restricted common
shares were awarded respectively to Messrs. Fishman and
Fatica. The closing market price of the Companys common
shares on the date of the May grant was $5.99 and these shares
vest in one-third annual increments beginning May 7, 2004.
On February 26, 2004, grants of 11,919, 5,507 and 4,589
restricted common shares were awarded to Messrs. Friedman,
Fishman and Fatica, respectively. The closing market price of
the Companys common shares on the date of the February
grant was $8.42 and these shares vest in total on
February 26, 2007. Upon his hire on April 5, 2004, a
grant of 10,000 restricted common shares was awarded to
Mr. Shannon. The closing market price of the Companys
common shares on the date of the April grant was $8.45 and these
shares vest in total on April 5, 2007. On August 27,
2004 grants of 2,643, 529, 450 and 661 restricted common shares
were awarded to Messrs. Friedman, Fishman, Fatica and
Shannon, respectively. The closing market price of the
Companys common shares on the date of the August grant was
$9.46 and these shares vest in total on August 27, 2007. On
February 23, 2005, grants of 8,323, 2,403, 2,003 and 2,731
restricted common shares were awarded to Messrs. Friedman,
Fishman and Fatica, respectively. The closing market price of
the Companys common shares on the date of the February
grant was $9.90 and these shares vest in one-third increments
beginning February 23, 2006. Dividends are payable on all
of the restricted shares. |
|
|
The number of unvested restricted shares held by
Messrs. Friedman, Fishman, Fatica and Shannon as of
December 31, 2004, was 22,849, 10,388, 6,385 and 10,661,
respectively, and the aggregate value of these restricted shares
as of December 31, 2004, was $233,517, $105,654, $65, 255
and $108,955, respectively. |
|
(2) |
In conjunction with his employment on April 5, 2004,
Mr. Shannon received a non-qualified option grant at an
exercise price of $8.45. This grant vests in total on
April 5, 2007. On August 27, 2004, all executive
officers received a non-qualified option grant at an exercise
price of $9.46. These grants vest in one-third annual increments
beginning August 27, 2005. |
|
(3) |
For 2004, the entry for Mr. Friedman includes an accounting
allowance of $10,000; a car allowance of $10,814 and club
memberships of $14,612. The entry for Mr. Shannon includes
temporary housing in conjunction with his employment relocation
in the amount of $13,096. The entries for Messrs. Fatica
and Friedman include Company matching contributions under its
401(k) plan of $1,300 and $2,340, respectively. The entries of
Messrs. Friedman, Fishman, Fatica and Shannon include SERP
contributions and interest accruals on SERP account balances in
the amounts of $66,051, $35,758, $13,348 and $7,673,
respectively. |
|
(4) |
Mr. Shannon was hired April 5, 2004 and was
subsequently appointed Senior Vice President of Operations of
the Company. |
18
Option Grants in 2004
Option grants to executive officers named in the Summary
Compensation Table during 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
Percent of Total | |
|
Exercise or | |
|
|
|
Grant Date | |
|
|
Underlying Options | |
|
Options Granted to | |
|
Base Price | |
|
Expiration | |
|
Present Value ($) | |
|
|
Granted (#)(1) | |
|
Employees in 2004 | |
|
($/Sh) | |
|
Date | |
|
(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Jeffrey I. Friedman
|
|
|
75,000 |
|
|
|
31 |
% |
|
|
9.46 |
|
|
|
8/27/2014 |
|
|
|
84,750 |
|
Martin A. Fishman
|
|
|
15,000 |
|
|
|
6 |
% |
|
|
9.46 |
|
|
|
8/27/2014 |
|
|
|
16,950 |
|
Lou Fatica
|
|
|
12,750 |
|
|
|
5 |
% |
|
|
9.46 |
|
|
|
8/27/2014 |
|
|
|
14,408 |
|
John T. Shannon
|
|
|
100,000 |
|
|
|
42 |
% |
|
|
8.45 |
|
|
|
4/5/2014 |
|
|
|
113,000 |
|
John T. Shannon
|
|
|
18,750 |
|
|
|
8 |
% |
|
|
9.46 |
|
|
|
8/27/2014 |
|
|
|
21,188 |
|
|
|
(1) |
In conjunction with his employment with the Company,
Mr. Shannon was granted 100,000 non-qualified options at an
exercise price of $8.45. This grant vests in five equal
increments beginning on the first anniversary of the date of the
grant. On August 27, 2004, all executive officers received
a grant of non-qualified options with an exercise price of
$9.46. These grants vest in three equal increments beginning on
the first anniversary of the date of grant. |
|
(2) |
Based on a Black Scholes weighted-average pricing model
utilizing a volatility assumption of 29.18% based upon the
Companys historical weekly stock price history from
November 1993 through the date of grant, a risk-free rate of
return of 3.27%, a dividend yield of 7.55% based upon the
weighted average annual dividend yield for 2004 and a term of
5.63 years. |
Aggregated Option Exercises in 2004 and 2004 Year-End
Option Values
The following table summarizes the stock options exercised
during 2004 by the executive officers named in the Summary
Compensation Table and the number and value of options held on
December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of | |
|
|
|
|
|
|
Number of | |
|
Unexercised | |
|
|
|
|
|
|
Unexercised | |
|
In-the-Money | |
|
|
Shares | |
|
|
|
Options at 2004 | |
|
Options at | |
|
|
Acquired on | |
|
Value | |
|
Year-End (#) | |
|
2004 Year-End | |
|
|
Exercise | |
|
Realized | |
|
Exercisable/ | |
|
($) Exercisable/ | |
|
|
(#) | |
|
($) | |
|
Unexercisable | |
|
Unexercisable(1) | |
|
|
| |
|
| |
|
| |
|
| |
Jeffrey I. Friedman
|
|
|
0 |
|
|
|
N/A |
|
|
|
353,000/429,000 |
|
|
|
194,098/516,000 |
|
Martin A. Fishman
|
|
|
0 |
|
|
|
N/A |
|
|
|
124,500/243,000 |
|
|
|
102,678/317,400 |
|
Lou Fatica
|
|
|
0 |
|
|
|
N/A |
|
|
|
11,000/112,750 |
|
|
|
22,915/162,690 |
|
John T. Shannon
|
|
|
0 |
|
|
|
N/A |
|
|
|
0/118,750 |
|
|
|
0/191,250 |
|
|
|
(1) |
Based upon a December 31, 2004 closing price of
$10.22 per share. |
Employment and Severance Agreements
The Company has an employment agreement with Jeffrey I. Friedman
to serve as the Companys President and Chief Executive
Officer. This agreement, dated January 1, 1996, as amended,
had an initial term of three years and is automatically extended
for an additional year at the end of each year of the agreement,
subject to the right of either party to terminate by giving one
years prior written notice. Under the agreement,
Mr. Friedman must devote his entire business time to the
Company and may participate in real estate activities only
through the Company. In addition, Mr. Friedman is
prohibited from competing with the Company for a period of three
years following termination of employment. The agreement
provides for (i) an annual base salary, which was set at
$400,000 in 2004 by the Executive Compensation Committee,
(ii) the use of an automobile, (iii) memberships in a
golf club and a business club, and (iv) an allowance of up
to $10,000 annually for financial planning and tax return
preparation service. The agreement provides for an annual
performance bonus of up to 100 percent of
Mr. Friedmans annual base salary based on the Company
achieving certain benchmarks. If Mr. Friedmans
employment is terminated because of his death or disability, he
or his estate will be paid an amount equal to two times his
then-current annual base salary plus a prorata portion of the
bonus applicable to the calendar year in which the termination
occurs. If Mr. Friedmans
19
employment is terminated for cause (as defined in
the agreement), he is not entitled to any further compensation.
If Mr. Friedman is terminated without cause (as
defined in the agreement) or upon a Change in Control (defined
identically to the change in control provision in the
Supplemental Executive Retirement Plan), Mr. Friedman is
entitled to severance pay in a lump sum equal to the greater of
the amount of unpaid base salary for the then unexpired term of
his employment agreement or one years base salary at the
then effective annual rate of salary, plus, in either case, pro
rata bonus amounts and accrued benefits.
The Company has a policy of paying severance to each of the
executive officers named in the Summary Compensation Table if
the Company terminates such executive officer without cause
other than Mr. Friedman, who has such provisions in his
employment agreement. Under the severance policy, upon the
executive officers termination, he or she will receive as
severance compensation an amount equal to one years
salary, a prorated portion of the executive officers
bonus, payment of his health benefits for one year and
outplacement services. In consideration for this severance
compensation, the Company enters into a standard severance
agreement and release with the executive officer.
20
Performance Graph
A line graph comparing the cumulative total return of a
hypothetical investment in the Companys common shares with
the cumulative total return of a hypothetical investment in each
of (a) the Standard & Poors Composite 500
Index, (b) the NAREIT All Equity REIT Index, and (c) a
peer group, shown in the graph as Custom Peer Group,
of multifamily equity REITs identified by the Company to include
those multifamily equity REITs that have equity market
capitalization within the range of approximately
$400 million to $1.4 billion. The comparison of
cumulative total return is based on the respective market prices
of each investment on the dates shown below, assuming an initial
investment of $100 on December 31, 1999, and the
reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending | |
| |
Index |
|
12/31/99 | |
|
12/31/00 | |
|
12/31/01 | |
|
12/31/02 | |
|
12/31/03 | |
|
12/31/04 | |
|
Associated Estates Realty Corporation
|
|
|
100.00 |
|
|
|
120.06 |
|
|
|
152.72 |
|
|
|
126.12 |
|
|
|
151.88 |
|
|
|
230.32 |
|
|
S&P 500*
|
|
|
100.00 |
|
|
|
91.20 |
|
|
|
80.42 |
|
|
|
62.64 |
|
|
|
80.62 |
|
|
|
89.47 |
|
|
Russell 3000
|
|
|
100.00 |
|
|
|
92.54 |
|
|
|
81.94 |
|
|
|
64.29 |
|
|
|
84.25 |
|
|
|
94.32 |
|
|
NAREIT All Equity REIT Index
|
|
|
100.00 |
|
|
|
126.37 |
|
|
|
143.97 |
|
|
|
149.47 |
|
|
|
204.98 |
|
|
|
269.70 |
|
|
Custom Peer Group**
|
|
|
100.00 |
|
|
|
113.94 |
|
|
|
128.95 |
|
|
|
120.74 |
|
|
|
161.45 |
|
|
|
197.14 |
|
|
*Source: CRSP, Center for Research in Security Prices,
Graduate School of Business, The University of Chicago 2005.
Used with permission. All rights reserved. crsp.com.
**The Custom Peer Group consists of Associated Estates Realty
Corp., Amli Residential Properties, Gables Residential Trust,
Home Properties, Inc., Mid-America Apartment, Post Properties,
Inc., and Town and Country Trust.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table contains certain information regarding the
beneficial ownership of the Companys common shares as of
February 21, 2005, by: (a) the Companys Chief
Executive Officer and the other executive officers named in the
Summary Compensation Table; (b) the Companys
directors; (c) each other
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person (and such persons address) who is known by the
Company to be the beneficial owner of more than
five percent of the outstanding common shares (based on
information filed with the Securities and Exchange Commission);
and (d) the Companys executive officers and directors
as a group. The persons named in the table, except as otherwise
described in the notes below, have sole voting power and sole
investment power with respect to all common shares set forth
opposite their names.
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Number of | |
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Common Shares | |
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Subject to Options | |
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Number of | |
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Currently Exercisable | |
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Common Shares | |
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or Exercisable | |
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Total Number | |
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Percent of | |
Name and Address of Beneficial Owner (1) |
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Beneficially Owned | |
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Within 60 Days | |
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of Shares | |
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Class | |
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Albert T. Adams
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2,000 |
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30,000 |
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32,000 |
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* |
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James M. Delaney
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9,394 |
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20,000 |
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29,394 |
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* |
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Lou Fatica
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6,164 |
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11,000 |
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17,164 |
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* |
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Martin A. Fishman
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29,814 |
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124,500 |
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154,314 |
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* |
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Jeffrey I. Friedman (2)
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985,832 |
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353,000 |
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1,338,832 |
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6.79 |
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Mark L. Milstein (3)
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1,034,953 |
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15,000 |
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1,049,953 |
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5.33 |
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Robert Milstein (4)
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1,368,324 |
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0 |
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1,368,324 |
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6.94 |
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Frank E. Mosier
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10,094 |
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26,250 |
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36,344 |
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* |
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Richard T. Schwarz
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60,751 |
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26,250 |
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87,001 |
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* |
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John T. Shannon
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13,392 |
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20,000 |
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33,392 |
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* |
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All Executive Officers and Directors as a Group (9 persons)
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3,520,718 |
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626,000 |
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4,146,718 |
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21.03 |
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(1) |
Addresses have been provided only for those individuals having a
5% or greater beneficial ownership interest. |
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(2) |
Includes 374,865 common shares owned of record by Susan M.
Friedman, Mr. Friedmans wife, 5,309 common shares
owned beneficially or of record by Mr. Friedmans
child that lives at home with Mr. and Mrs. Friedman,
and 18,485 common shares owned beneficially by a trust of which
Mr. Friedman is a trustee. The beneficiaries of the trust
are certain charities and members of Mr. Friedmans
family. Mr. Friedmans address is 5025 Swetland Court,
Richmond Heights, Ohio 44143. |
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(3) |
Consists of common shares held in a revocable trust of which
Mark L. Milstein is the sole trustee. Mr. Milsteins
address is 4350 Renaissance Parkway, Suite D, Warrensville
Heights, Ohio 44128. |
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(4) |
Mr. Milsteins address is 7777 Forest Lane Rd.,
Suite C618, Dallas, Texas 75230. Mr. Milstein is the
brother of Mark L. Milstein and the brother-in-law of Jeffrey I.
Friedman. |
CERTAIN TRANSACTIONS
Albert T. Adams, a director of the Company, is a partner of
Baker & Hostetler LLP. Baker & Hostetler LLP
has been retained by the Company to perform legal services on
its behalf, and the Company expects that Baker &
Hostetler LLP will continue to provide such services during 2005.
In May 1997, the independent directors of the Company approved a
loan in the aggregate amount of $3,342,000 (the full principal
amount of which is currently outstanding) from the Company to
Jeffrey I. Friedman, the Companys Chairman, President and
Chief Executive Officer. Mr. Friedman used the proceeds of
the loan to purchase 150,000 common shares of the Company
from Mark Milstein, a director of the Company. The loan is
evidenced by two promissory notes entered into on May 23,
1997. The notes bear interest, payable quarterly, at an interest
rate equal to the London Inter-Bank Offered Rate
(LIBOR) plus 1.75 percent with the principal due
May 1, 2002. On February 21, 2002, the Board of
Directors extended the maturity date of these notes to
May 1, 2005. For the year ended December 31, 2004, the
average interest rate under the notes was 3.3 percent per
annum. The loan is secured, in part, by 150,000 common shares of
the Company.
22
The Company acquired a Noteholder Interest in connection with
its Initial Public Offering in 1993. The Noteholder Interest was
secured by a limited partnership interest in Winchester Hills I
Apartments located in Willoughby Hills, Ohio. The Company
declared the notes to be in default because of nonpayment of
interest and principal. On July 16, 2004, the Company
accepted a 98.999% limited partnership interest in the limited
partnership that owns Winchester Hills I Apartments in full
satisfaction of all obligations under the notes. In addition, a
Company subsidiary acquired the remaining 1.001% general
partnership interest in the limited partnership held by the
President and CEO Jeffrey I. Friedman and a company controlled
by him. The Company subsidiary acquired such partnership
interest in return for a promise to pay Mr. Friedman and
his controlled company 1.001% of the net sale proceeds derived
from any future sale of Winchester Hills I Apartments if and
when such sale occurs. The independent members of the Board of
Directors approved the terms of the buyout. Following such
transactions, the limited partnership that owns Winchester Hills
I Apartments was liquidated and as a consequence title to
Winchester Hills I Apartments is now wholly vested in the
Company.
University Tower, an apartment community managed by the Company
and owned by a limited partnership, in which a corporation owned
by Messrs. Friedman and Milstein and other family members
have a 1% general partnership interest, paid management and
computer fees in the amount of $77,290 to the Company in 2004.
Hillwood II, an apartment community managed by the Company
and owned by a limited partnership in which
Messrs. Friedman and Milstein and other family members own
substantially all of the partnership interests, paid management
and computer fees to a subsidiary of the Company in the amount
of $139,391 in 2004. Garfield Mall, an apartment community
managed by a subsidiary of the Company and owned by a general
partnership in which Jeffrey I. Friedman, Trustee has a 75%
general partnership interest (and in which
Messrs. Friedman, Milstein and other family members are the
beneficial owners), paid management fees and leasing commissions
in the amount of $266,429 to the subsidiary in 2004.
Merit Painting Services, Inc. (Merit), a subsidiary
of the Company, was retained by JAS Construction, Inc.
(JAS) under subcontracts for the performance of
certain rehabilitation work at seven properties owned by an
unrelated party. JAS is owned by the son of the Companys
Chief Executive Officer. During the year ended December 31,
2004, $5.5 million of revenue from JAS was reported in
painting revenues in the Companys Consolidated Statements
of Operations. As of December 31, 2004, $415,455 was still
owed Merit and is included in Accounts and notes
receivable affiliates and joint ventures in the
Companys Consolidated Balance Sheets.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Companys directors, executive officers and
beneficial owners of more than ten percent of a registered
class of the Companys equity securities to file with the
Securities and Exchange Commission and NYSE initial reports of
ownership and reports of changes in ownership of common shares
and other equity securities of the Company, and such persons are
required by the Securities and Exchange Commission regulations
to furnish the Company with copies of all forms they file
pursuant to Section 16(a). To the Companys knowledge,
based solely on review of the copies of such reports furnished
to the Company, during the fiscal year ended December 31,
2004 or with respect to such fiscal year, all Section 16(a)
filing requirements applicable to its executive officers,
directors and ten percent beneficial owners were met.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP served as the independent public
accountants to the Company for 2004, and the Audit Committee and
the Company expect that PricewaterhouseCoopers LLP will continue
to serve as the independent public accountants for 2005. A
representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting and will have an opportunity to
make a statement, if the representative so desires, and will be
available to respond to appropriate questions.
Audit Fees. The aggregate fees billed for professional
services rendered by PricewaterhouseCoopers LLP for the audits
of the Companys annual financial statements for the years
ended December 31, 2004 and
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2003 and the related reviews of the financial statements
included in the Companys Form 10-Qs filed with the
Securities and Exchange Commission during 2004 and 2003 were
$524,335 and $327,420, respectively. The 2004 fees include the
audit of the Companys internal control over financial
reporting as required by the Public Company Accounting Oversight
Board Auditing Standard No. 2, An Audit of Internal
Control Over Financial Reporting Performed in Conjunction with
An Audit of Financial Statements.
Audit-Related Fees. The aggregate fees billed for
assurance and related services rendered by
PricewaterhouseCoopers LLP that are reasonably related to the
performance of the audits or reviews of the Companys
financial statements and are not reported under Audit
Fees above for the years ended December 31, 2004 and
2003 were $104,358 and $29,340, respectively. Audit-related fees
consist of fees billed for the following: the review of a
separate entitys financial statements and Sarbanes-Oxley
section 404 planning in 2003; mortgage servicing compliance
procedures and security count procedures related to the
Companys advisory business in 2004 and 2003; audit
procedures performed in conjunction with the Companys
8.70% Class B Series II Cumulative Preferred Shares
offering in 2004; and procedures performed regarding the
Companys Amended and Restated Dividend Reinvestment and
Stock Purchase Plan filed with the Securities and Exchange
Commission in 2004.
Tax Fees. The aggregate fees billed for professional
services rendered by PricewaterhouseCoopers LLP for tax
compliance and tax consulting services for the years ended
December 31, 2004 and 2003 were $61,452 and $74,258,
respectively, which consisted of $61,452 and $61,258 in tax
compliance services, respectively.
All Other Fees. The aggregate fees billed for other
products and services provided by PricewaterhouseCoopers LLP for
the years ended December 31, 2004 and 2003 were $0 and
$1,512 respectively, relating primarily to software licensing
for accounting and professional standards.
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Auditors. The
Audit Committee pre-approves, on an individual basis, all audit
and permissible non-audit services provided by the independent
auditors. These services may include audit services,
audit-related services, tax services and other services.
Auditor Independence. The Audit Committee believes that
the non-audit services provided by PricewaterhouseCoopers LLP
are compatible with maintaining the accountants
independence. None of the time devoted by PricewaterhouseCoopers
LLP on its engagement to audit the Companys financial
statements for the year ended December 31, 2004 was
attributable to work performed by persons other than
PricewaterhouseCoopers LLP employees.
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
If a shareholder desires to have a proposal included in the
Companys proxy statement and form of proxy for the 2006
annual meeting of shareholders, the proposal must conform to the
applicable proxy rules of the Securities and Exchange Commission
concerning the submission and content of proposals and must be
received by the Company prior to the close of business on
November 28, 2005. In addition, if a shareholder intends to
present a proposal at the Companys 2006 annual meeting
without the inclusion of the proposal in the Companys
proxy materials and written notice of the proposal is not
received by the Company on or before February 11, 2006,
proxies solicited by the Board of Directors for the 2006 annual
meeting will confer discretionary authority to vote on the
proposal if presented at the meeting. Shareholders should submit
proposals to the executive offices of the Company, 5025 Swetland
Court, Richmond Heights, Ohio 44143, Attention: Secretary. The
Company reserves the right to reject, rule out of order or take
other appropriate action with respect to any proposal that does
not comply with these and other applicable requirements.
HOUSEHOLDING
The Securities and Exchange Commission permits a single set of
annual reports and proxy statements to be sent to any household
at which two or more shareholders reside if they appear to be
members of the same family. Each shareholder continues to
receive a separate proxy card. This procedure, referred to as
householding, reduces the volume of duplicate information
shareholders receive and reduces mailing and
24
printing costs. A number of brokerage firms have instituted
householding. In accordance with a notice sent during 2002 to
certain beneficial shareholders who share a single address, only
one copy of this proxy statement and the attached annual report
will be sent to that address, unless any shareholder residing at
that address gave contrary instructions.
If any beneficial shareholder residing at such an address
desires at this time to receive a separate copy of this proxy
statement and the attached annual report, a copy can be obtained
by calling toll-free 1-800-440-2372, extension 8752, or by
writing to Associated Estates Realty Corporation, Investor
Relations at 5025 Swetland Court, Richmond Heights, OH 44143. In
addition, if any such shareholder wishes to receive a separate
proxy statement and annual report in the future, the shareholder
should provide such instructions by calling toll-free
1-800-440-2372, extension 8752 or by writing to Associated
Estates Realty Corporation, Investor Relations at 5025 Swetland
Court, Richmond Heights, OH 44143.
Also, shareholders that share an address and that receive
multiple copies of annual reports or proxy statements can
request that only one copy be sent to that address in the future
by providing instructions by calling toll-free 1-800-440-2372,
extension 8752 or by writing to Associated Estates Realty
Corporation, Investor Relations at 5025 Swetland Court, Richmond
Heights, OH 44143.
OTHER MATTERS
Shareholders may send written communications to the Board of
Directors, an individual director, to the presiding director of
non-management executive sessions, or to the non-management
directors as a group by mailing them to the Board of Directors,
individual director, presiding director, or group of
non-management directors (as applicable), c/o Secretary,
Associated Estates Realty Corporation, 5025 Swetland Court,
Richmond Heights, OH 44143. All communications will be forwarded
to the Board of Directors, individual director, presiding
director or group of non-management directors, as applicable,
although the Secretary will not forward the communication if it
is primarily commercial in nature or if it relates to an
improper or irrelevant topic.
Management does not know of any other matters that will be
presented for action at the meeting other than the items
referred to in this proxy statement. If any other matters
properly come before the meeting, the persons named in the proxy
will vote on those matters in accordance with their judgment.
For each other item that properly comes before the meeting, the
vote required will be determined by applicable law, NYSE
requirements and the Companys governing documents.
25
APPENDIX 1
ASSOCIATED ESTATES REALTY CORPORATION
AMENDED AND RESTATED EQUITY-BASED AWARD PLAN
The Associated Estates Realty Corporation 2001 Equity-Based
Award Plan (the Treasury Plan) was adopted by the
Companys Board in December 2000 to enable Associated
Estates Realty Corporation and its Subsidiaries to attract,
retain and reward employees and directors of the Company and its
Subsidiaries and strengthen the mutuality of interests between
those employees and directors and the Companys
shareholders by offering the employees and directors equity or
equity-based incentives thereby increasing their ownership
interest in the Company and enhancing their personal interest in
the Companys success. At the time of its adoption,
shareholder approval of the Treasury Plan was not required. The
purpose of the Associated Estates Realty Corporation Amended and
Restated Equity-Based Award Plan (the Plan) is to
make available an additional 750,000 Shares reserved for
Awards under the Plan and to amend certain terms of the Plan.
The Plan as amended and restated will be submitted to the
Companys shareholders for approval.
For purposes of the Plan, the following terms are defined as
follows:
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(a) Affiliate means any entity (other
than the Company and any Subsidiary) that is designated by the
board as a participating employer under the Plan. |
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(b) Award means any award of Stock
Options, Share Appreciation Rights, Restricted Shares, Deferred
Shares or Other Share-Based Awards under the Plan. |
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(c) Board means the Board of Directors
of the Company. |
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(d) Cause means, unless otherwise
provided by the Committee, (i) Cause as defined
in any Individual Agreement to which the participant is a party,
or (ii) if there is no such Individual Agreement or if it
does not define Cause: (A) conviction of the participant
for committing a felony under federal law or in the law of the
state in which such action occurred, (B) dishonesty in the
course of fulfilling the participants employment duties,
(C) willful and deliberate failure on the part of the
participant to perform the participants employment duties
in any material respect, or (D) prior to a Change in
Control, such other events as shall be determined by the
Committee. The Committee shall, unless otherwise provided in an
Individual Agreement with the participant, have the sole
discretion to determine whether Cause exists, and
its determination shall be final. |
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(e) Change in Control has the meaning
set forth in Section 11(b). |
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(f) Change in Control Price has the
meaning set forth in Section 11(d). |
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(g) Code means the Internal Revenue Code
of 1986, as amended from time to time, and any successor thereto. |
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(h) Committee means the Executive
Compensation Committee of the Board of the Company or any other
committee authorized by the Board to administer the Plan of
which all the members are both Outside Directors and
Non-Employee Directors. |
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(i) Company means Associated Estates
Realty Corporation, an Ohio corporation, or any successor
corporation. |
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(j) Deferred Shares means an Award of
the right to receive Shares at the end of a specified deferral
period granted pursuant to Section 8. |
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(k) Disability means a permanent and
total disability as defined in Section 22(e)(3) of the Code. |
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(l) Dividend Equivalent means a right,
granted to a participant under Section 9 hereof, to receive
cash, Shares, other Awards or other property equal in value to
dividends paid with respect to a specified number of Shares, or
other periodic payments. |
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(m) Exchange Act means the Securities
Exchange Act of 1934, as amended. |
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(n) Fair Market Value means, as of a
given date (in order of applicability): (i) the closing
price of a Common Share on the principal exchange on which the
Common Shares are then trading, if any, on the day immediately
prior to such date, or if Common Shares were not traded on the
day previous to such date, then on the next preceding trading
day during which a sale occurred; or (ii) if Common Shares
are not traded on an exchange but are quoted on NASDAQ or a
successor quotation system, (A) the last sale price (if
Common Shares are then listed as a National Market Issue under
the NASD National Market System) or (B) if Common Shares
are not then so listed, the mean between the closing
representative bid and asked prices for Common Shares on the day
previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if Common Shares are not
publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and
asked prices for Common Shares, on the day previous to such
date, as determined in good faith by the Committee; or
(iv) if Common Shares are not publicly traded, the fair
market value established by the Committee acting in good faith. |
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(o) Incentive Stock Option means any
Stock Option intended to be and designated as, and that
otherwise qualifies as, an Incentive Stock Option
within the meaning of Section 422 of the Code or any
successor section thereto. |
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(p) Individual Agreement means an
employment or similar agreement between a participant and the
Company or one of its Subsidiaries or Affiliates. |
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(q) Non-Employee Director has the
meaning set forth under Section 16 of the Exchange Act. |
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(r) Non-Qualified Stock Option means any
Stock Option that is not an Incentive Stock Option. |
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(s) Other Share-Based Awards means an
Award granted pursuant to Section 9 that is valued, in
whole or in part, by reference to, or is otherwise based on,
Shares. |
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(t) Outside Director has the meaning set
forth in Section 162(m) of the Code and the regulations
promulgated thereunder. |
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(u) Plan means the Associated Estates
Realty Corporation Amended and Restated Equity-Based Award Plan,
as amended from time to time. |
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(v) Potential Change in Control has the
meaning set forth in Section 11(c). |
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(w) Restricted Shares means an Award of
Shares that is granted pursuant to Section 7 and is subject
to restrictions. |
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(x) Section 16 Participant means a
participant under the Plan who is subject to Section 16 of
the Exchange Act. |
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(y) Share Appreciation Right means an
Award of a right to receive an amount from the Company that is
granted pursuant to Section 6. |
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(z) Shares means the Common Shares,
without par value, of the Company. |
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(aa) Stock Option or
Option means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the
Committee so determines) that is granted pursuant to
Section 5. |
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(bb) Subsidiary means any corporation
(other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations (other
than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in that chain. |
The Plan shall be administered by the Committee. The Committee
shall consist of not less than three directors of the Company,
all of whom shall be Outside Directors and Non-Employee
Directors. Those directors shall be appointed by the Board and
shall serve as the Committee at the pleasure of the Board. The
A-2
functions of the Committee specified in the Plan shall be
exercised by the Board if and to the extent that no Committee
exists that has the authority to so administer the Plan.
The Committee shall have full power to interpret and administer
the Plan and full authority to select the individuals to whom
Awards will be granted and to determine the type and amount of
any Award to be granted to each participant, the consideration,
if any, to be paid for any Award, the timing of each Award, the
terms and conditions of any Award granted under the Plan, and
the terms and conditions of the related agreements that will be
entered into with participants. As to the selection of and grant
of Awards to participants who are not executive officers of the
Company or any Subsidiary or Affiliate, or Section 16
Participants, the Committee may delegate its responsibilities to
members of the Companys management in any manner
consistent with applicable law.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan
as it shall, from time to time, deem advisable; to interpret the
terms and provisions of the Plan and any Award issued under the
Plan (and any agreement relating thereto); to direct employees
of the Company or other advisors to prepare such materials or
perform such analyses as the Committee deems necessary or
appropriate; and otherwise to supervise the administration of
the Plan.
Any interpretation or administration of the Plan by the
Committee, and all actions and determinations of the Committee,
shall be final, binding and conclusive on the Company, its
shareholders, Subsidiaries, Affiliates, all participants in the
Plan, their respective legal representatives, successors and
assigns, and all persons claiming under or through any of them.
No member of the Board or of the Committee or any delegate shall
incur any liability for any action taken or omitted, or any
determination made, in good faith in connection with the Plan.
The Board, the Committee, and anyone to whom the Committee
delegates authority to administer the plan, will be indemnified
to the extent permitted by law for any action taken or failure
to act in connection with the plan.
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III. |
Shares Subject to the Plan. |
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A. Aggregate Shares Subject to the Plan. Subject to
adjustment as provided in Section 3(c), the total number of
Shares reserved and available for Awards under the Plan is
2,250,000 (an additional 750,000 Shares to the
1,500,000 Shares included in the plan as originally
adopted). Any Shares issued hereunder may consist, in whole or
in part, of authorized and unissued shares or treasury shares. |
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B. Forfeiture or Termination of Awards of Shares. If
any Shares subject to any Award granted hereunder are forfeited
or an Award otherwise terminates or expires without the issuance
of Shares, the Shares subject to that Award shall again be
available for distribution in connection with future Awards
under the Plan as set forth in Section 3(a), unless the
participant who had been awarded those forfeited Shares or the
expired or terminated Award has theretofore received dividends
or other benefits of ownership with respect to those Shares. For
purposes hereof, a participant shall not be deemed to have
received a benefit of ownership with respect to those Shares by
the exercise of voting rights, or by the accumulation of
dividends that are not realized because of the forfeiture of
those Shares or the expiration or termination of the related
Award without issuance of those Shares. |
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C. Adjustment. In the event of any merger,
reorganization, consolidation, recapitalization, share dividend,
share split, combination of shares or other change in corporate
structure of the Company affecting the Shares, such substitution
or adjustment shall be made in the aggregate number of Shares
reserved for issuance under the Plan, in the annual award limit,
in the number and option price of Shares subject to outstanding
options granted under the Plan in the number of Share
Appreciation Rights granted under the Plan, in the number of
underlying Shares any Dividend Equivalent Rights granted under
the Plan will be based on, and in the number of Shares subject
to Restricted Share Awards, Deferred Share Awards and any other
outstanding Awards granted under the Plan as may be approved by
the Committee, in its sole discretion, but the number of Shares
subject to any Award shall always be a whole number. Any
fractional Shares shall be eliminated. |
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D. Annual Award Limit. No participant may be granted
Stock Options or Share Appreciation Rights under the Plan with
respect to an aggregate of more than 125,000 Shares
(subject to adjustment |
A-3
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as provided in Section 3(c) hereof) during any calendar
year; provided, however, that in connection with the
commencement of employment, a participant may be granted stock
options and Share Appreciation Rights with respect to an
aggregate of 100,000 Shares, which will not count against such
annual limit. |
Grants may be made from time to time to those officers,
employees and directors of the Company who are designated by the
Committee in its sole and exclusive discretion. Eligible persons
may include, but shall not necessarily be limited to, officers
and directors of the Company and any Subsidiary or Affiliate;
however, Stock Options intended to qualify as Incentive Stock
Options shall be granted only to eligible persons while actually
employed by the Company, a Subsidiary or an Affiliate. The
Committee may grant more than one Award to the same eligible
person. No Award shall be granted to any eligible person during
any period of time when such eligible person is on a leave of
absence. Awards to be granted to directors, which may include
members of the Committee, must be approved and granted by the
Board.
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A. Grant. Stock Options may be granted alone, in
addition to or in tandem with other Awards granted under the
Plan or cash awards made outside the Plan. The Committee shall
determine the individuals to whom, and the time or times at
which, grants of Stock Options will be made, the number of
Shares purchasable under each Stock Option, and the other terms
and conditions of the Stock Options in addition to those set
forth in Sections 5(b) and 5(c). Any Stock Option granted
under the Plan shall be in such form as the Committee may from
time to time approve. |
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Stock Options granted under the Plan may be of two types which
shall be indicated on their face: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options. Subject to
Section 5(c), the Committee shall have the authority to
grant to any participant Incentive Stock Options, Non-Qualified
Stock Options or both types of Stock Options. |
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B. Terms and Conditions. Options granted under the
Plan shall be evidenced by an agreement (Option
Agreements), 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: |
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Option Price. The option price per share of Shares
purchasable under a Non-Qualified Stock Option or an Incentive
Stock Option shall be determined by the Committee at the time of
grant and shall be not less than 100% of the Fair Market Value
of the Shares at the date of grant (or, with respect to an
Incentive Stock Option, 110% of the Fair Market Value of the
Shares at the date of grant in the case of a participant who at
the date of grant owns Shares possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or its parent or Subsidiary corporations (as determined
under Sections 424(d), (e) and (f) of the Code)). |
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Option Term. The term of each Stock Option shall be
determined by the Committee and may not exceed ten years from
the date the Option is granted (or, with respect to an Incentive
Stock Option, five years in the case of a participant who at the
date of grant owns Shares possessing more than 10% of the total
combined voting power of all classes of stock of the Company or
its parent or Subsidiary corporations (as determined under
Sections 424(d), (e) and (f) of the Code)). |
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Exercise. Stock Options shall be exercisable at such time
or times and shall be subject to such terms and conditions as
shall be determined by the Committee at or after grant; but,
except as provided in Section 5(b)(6) and Section 12,
unless otherwise determined by the Committee at or after grant,
no Stock Option shall be exercisable prior to six months and one
day following the date of grant. If any Stock Option is
exercisable only in installments or only after specified
exercise dates, the Committee may waive, in whole or in part,
such installment exercise provisions, and may accelerate any
exercise date or dates, at any time at or after grant, based on
such factors as the Committee shall determine in its sole
discretion. |
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Method of Exercise. Subject to any installment exercise
provisions that apply with respect to any Stock Option, and the
six month and one day holding period set forth in
Section 5(b)(3), a Stock Option may be exercised in whole
or in part, at any time during the Option period, by the holder
thereof giving to the Company written notice of exercise
specifying the number of Shares to be purchased. |
That notice shall be accompanied by payment in full of the
Option price of the Shares for which the Option is exercised, in
cash or Shares or by check or such other instrument as the
Committee may accept. The value of each such Share surrendered
or withheld shall be 100% of the Fair Market Value of the Shares
on the date the option is exercised.
No Shares shall be issued on an exercise of an Option until full
payment has been made. Except in connection with the tandem
award of Dividend Equivalent Rights, a participant shall not
have rights to dividends or any other rights of a shareholder
with respect to any Shares subject to an Option unless and until
the participant has given written notice of exercise, has paid
in full for those Shares, has given, if requested, the
representation described in Section 14(a), and those Shares
have been issued to the participant.
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Non-Transferability of Options. No Stock Option shall be
transferable by any participant other than by will or by the
laws of descent and distribution or pursuant to a qualified
domestic relations order (as defined in the Code or the
Employment Retirement Income Security Act of 1974, as amended)
except that, if so provided in the Option Agreement, the
participant may transfer the Option, other than an Incentive
Stock Option, during the participants lifetime to one or
more members of the participants family, to one or more
trusts for the benefit of one or more of the participants
family, or to a partnership or partnerships of members of the
participants family, or to a charitable organization as
defined in Section 501(c)(3) of the Code, provided that the
transfer would not result in the loss of any exemption under
Rule 16b-3 of the Exchange Act with respect to any Option.
The transferee of an Option will be subject to all restrictions,
terms and conditions applicable to the Option prior to its
transfer, except that the Option will not be further
transferable by the transferee other than by will or by the laws
of descent and distribution. |
Termination of Employment
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a. |
Termination by Death. Subject to Sections 5(b)(3)
and 5(c), if any participants employment with the Company
or any Subsidiary or Affiliate terminates by reason of death,
any Stock Option held by that participant shall become
immediately and automatically vested and exercisable. If
termination of a participants employment is due to death,
then any Stock Option held by that participant may thereafter be
exercised for a period of two years (or with respect to an
Incentive Stock Option, for a period of one year) (or such other
period as the Committee may specify at or after grant) from the
date of death. Notwithstanding the foregoing, in no event will
any Stock Option be exercisable after the expiration of the
option period of such Option. The balance of the Stock Option
shall be forfeited if not exercised within two years (or one
year with respect to Incentive Stock Options). |
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b. |
Termination by Reason of Disability. Subject to
Sections 5(b)(3) and 5(c), if a participants
employment with the Company or any Subsidiary or Affiliate
terminates by reason of Disability, any Stock Option held by
that participant shall become immediately and automatically
vested and exercisable. If termination of a participants
employment is due to Disability, then any Stock Option held by
that participant may thereafter be exercised by the participant
or by the participants duly authorized legal
representative if the participant is unable to exercise the
Option as a result of the participants Disability, for a
period of two years (or with respect to an Incentive Stock
Option, for a period of one year) (or such other period as the
Committee may specify at or after grant) from the date of such
termination of employment; and if the participant dies within
that two year period (or such other period as the Committee may
specify at or after grant), any unexercised Stock Option held by
that participant shall thereafter be exercisable by the estate
of the participant (acting through its fiduciary) for the
duration of the two-year period from the date of that
termination of employment. Notwithstanding the foregoing, in no
event will any Stock Option be exercisa- |
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ble after the expiration of the option period of such Option.
The balance of the Stock Option shall be forfeited if not
exercised within two years (or one year with respect to
Incentive Stock Options). |
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c. |
Termination for Cause. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option, if
a participants employment with the Company or any
Subsidiary or Affiliate terminates for Cause, any unvested Stock
Options will be forfeited and terminated immediately upon
termination and any vested Stock Options held by that
participant shall terminate 30 days after the date
employment terminates. Notwithstanding the foregoing, in no
event will any Stock Option be exercisable after the expiration
of the option period of such Option. The balance of the Stock
Option shall be forfeited. |
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d. |
Other Termination. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option, if
a participants employment with the Company or any
Subsidiary or Affiliate terminates for any reason other than
death, Disability, or for Cause all Stock Options held by that
participant shall terminate three months after the date
employment terminates. Notwithstanding the foregoing, in no
event will any Stock Option be exercisable after the expiration
of the option period of such Option. The balance of the Stock
Option shall be forfeited. |
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e. |
Leave of Absence. In the event a participant is granted a
leave of absence by the Company or any Subsidiary or Affiliate
to enter military service or because of sickness, the
participants employment with the Company or such
Subsidiary or Affiliate will not be considered terminated, and
the participant shall be deemed an employee of the Company or
such Subsidiary or Affiliate during such leave of absence or any
extension thereof granted by the Company or such Subsidiary or
Affiliate. Notwithstanding the foregoing, in the case of an
Incentive Stock Option, a leave of absence of more than
90 days will be viewed as a termination of employment
unless continued employment is guaranteed by contract or statute. |
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C. Incentive Stock Options. Notwithstanding
Sections 5(b)(5) and (6), an Incentive Stock Option shall
be exercisable by (i) a participants authorized legal
representative (if the participant is unable to exercise the
Incentive Stock Option as a result of the participants
Disability) only if, and to the extent, permitted by
Section 422 of the Code and (ii) by the
participants estate, in the case of death, or authorized
legal representative, in the case of Disability, no later than
10 years from the date the Incentive Stock Option was
granted (in addition to any other restrictions or limitations
that may apply). Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to
Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the
participants affected, to disqualify any Incentive Stock Option
under that Section 422 or any successor Section thereto. |
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D. Buyout Provisions. The Committee may at any time
buy out for a payment in cash, Shares, Deferred Shares or
Restricted Shares an Option previously granted, based on such
terms and conditions as the Committee shall establish and agree
upon with the participant, but no such transaction involving a
Section 16 Participant shall be structured or effected in a
manner that would result in any liability on the part of the
participant under Section 16(b) of the Exchange Act or the
rules and regulations promulgated thereunder. |
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VI. |
Share Appreciation Rights. |
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A. Grant. Share Appreciation Rights may be granted
in connection with all or any part of an Option, either
concurrently with the grant of the Option or, if the Option is a
Non-Qualified Stock Option, by an amendment to the Option at any
time thereafter during the term of the Option. Share
Appreciation Rights may be exercised in whole or in part at such
times under such conditions as may be specified by the Committee
in the participants Option Agreement. |
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B. Terms and Conditions. The following terms and
conditions will apply to all Share Appreciation Rights that are
granted in connection with Options: |
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Rights. Share Appreciation Rights shall entitle the
participant, upon exercise of all or any part of the Share
Appreciation Rights, to surrender to the Company, unexercised,
that portion of the underlying Option relating to the same
number of Shares as is covered by the Share Appreciation Rights
(or the portion of the Share Appreciation Rights so exercised)
and to receive in exchange from the Company an amount equal to
the excess of (x) the Fair Market Value, on the date of
exercise, of the Shares covered by the surrendered portion of
the underlying Option over (y) the exercise price of the
Shares covered by the surrendered portion of the underlying
Option. The Committee may limit the amount that the participant
will be entitled to receive upon exercise of the Share
Appreciation Right. |
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Surrender of Option. Upon the exercise of the Share
Appreciation Right and surrender of the related portion of the
underlying Option, the Option, to the extent surrendered, will
not thereafter be exercisable. The underlying Option may provide
that such Share Appreciation Rights will be payable solely in
cash. The terms of the underlying Option shall provide a method
by which an alternative fair market value of the Shares on the
date of exercise shall be calculated based on one of the
following: (x) the closing price of the Shares on the
national exchange on which they are then traded on the business
day immediately preceding the day of exercise; (y) the
highest closing price of the Shares on the national exchange on
which they have been traded during the 90 days immediately
preceding the Change in Control; or (z) the greater of
(x) and (y). |
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Exercise. In addition to any further conditions upon
exercise that may be imposed by the Committee, the Share
Appreciation Rights shall be exercisable only to the extent that
the related Option is exercisable, except that in no event will
a Share Appreciation Right held by a Section 16 Participant
be exercisable within the first six months after it is awarded
even though the related Option is or becomes exercisable, and
each Share Appreciation Right will expire no later than the date
on which the related Option expires. A Share Appreciation Right
may be exercised only at a time when the Fair Market Value of
the Shares covered by the Share Appreciation Right exceeds the
exercise price of the Shares covered by the underlying Option. |
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Method of Exercise. Share Appreciation Rights may be
exercised by the participant giving written notice of the
exercise to the Company, stating the number of Share
Appreciation Rights the participant has elected to exercise and
surrendering the portion of the underlying Option relating to
the same number of Shares as the number of Share Appreciation
Rights elected to be exercised. |
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Payment. The manner in which the Companys
obligation arising upon the exercise of the Share Appreciation
Right will be paid will be determined by the Committee and shall
be set forth in the participants Option Agreement. The
Committee may provide for payment in Shares or cash, or a fixed
combination of Shares or cash, or the Committee may reserve the
right to determine the manner of payment at the time the Share
Appreciation Right is exercised. Shares issued upon the exercise
of a Share Appreciation Right will be valued at their Fair
Market Value on the date of exercise. |
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A. Grant. Restricted Shares may be issued alone, in
addition to or in tandem with other Awards under the Plan or
cash awards made outside the Plan. The Committee shall determine
the individuals to whom, and the time or times at which, grants
of Restricted Shares will be made, the number of Restricted
Shares to be awarded to each participant, the price (if any) to
be paid by the participant (subject to Section 7(b)), the
date or dates upon which Restricted Share Awards will vest, the
period or periods within which those Restricted Share Awards may
be subject to forfeiture, and the other terms and conditions of
those Awards in addition to those set forth in Section 7(b). |
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The Committee may condition the grant of Restricted Shares upon
the attainment of specified performance goals or such other
factors as the Committee may determine in its sole discretion. |
A-7
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B. Terms and Conditions. Restricted Shares awarded
under the Plan shall be subject to the following terms and
conditions and such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee
shall deem desirable. A participant who receives a Restricted
Share Award shall not have any rights with respect to that
Award, unless and until the participant has executed an
agreement evidencing the Award in the form approved from time to
time by the Committee, has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the
applicable terms and conditions of that Award. |
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The purchase price (if any) for Restricted Shares shall be
determined by the Committee at the time of grant. |
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Awards of Restricted Shares must be accepted by executing a
Restricted Share Award agreement and paying the price (if any)
that is required under Section 7(b)(1). |
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Each participant receiving a Restricted Share Award shall be
issued a stock certificate in respect of those Restricted
Shares. The certificate shall be registered in the name of the
participant and shall bear an appropriate legend referring to
the terms, conditions and restrictions applicable to the Award. |
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The Committee shall require that the stock certificates
evidencing the Restricted Shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Shares Award, the
participant shall have delivered to the Company a stock power,
endorsed in blank, relating to the Shares covered by that Award. |
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Subject to the provisions of this Plan and the Restricted Share
Award agreement, during a period set by the Committee commencing
with the date of any Award (the Restriction Period),
the participant shall not be permitted to sell, transfer,
pledge, assign or otherwise encumber the Restricted Shares
covered by that Award. The Restriction Period shall not be less
than six months and one day in duration (Minimum
Restriction Period) unless otherwise determined by the
Committee at the time of grant. Subject to these limitations and
the Minimum Restriction Period requirement, the Committee, in
its sole discretion, may provide for the lapse of restrictions
in installments and may accelerate or waive restrictions, in
whole or in part, based on service, performance or such other
factors and criteria as the Committee may determine in its sole
discretion. |
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Except as provided in this Section 7(b)(6) and
Section 7(b)(5) and Section 7(b)(7), the participant
shall have, with respect to the Restricted Shares awarded, all
of the rights of a shareholder of the Company, including the
right to vote the Shares and the right to receive any dividends.
The Committee, in its sole discretion, as determined at the time
of Award, may permit or require the payment of cash dividends to
be deferred and subject to forfeiture and, if the Committee so
determines, reinvested, subject to Section 14(f), in
additional Restricted Shares to the extent Shares are available
under Section 3, or otherwise reinvested. Unless the
Committee or Board determines otherwise, Share dividends issued
with respect to Restricted Shares shall be treated as additional
Restricted Shares that are subject to the same restrictions and
other terms and conditions that apply to the Shares with respect
to which such dividends are issued. |
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No Restricted Shares shall be transferable by a participant
other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order (as defined in
the Code or the Employment Retirement Income Security Act of
1974, as amended) except that, if so provided in the Restricted
Shares Agreement, the participant may transfer the Restricted
Shares, during the participants lifetime to one or more
members of the participants family, to one or more trusts
for the benefit of one or more of the participants family,
to a partnership or partnerships of members of the
participants family, or to a charitable organization as
defined in Section 501(c)(3) of the Code, provided that the
transfer would not result in the loss of any exemption under
Rule 16b-3 of the Exchange Act with respect to any
Restricted Shares. The transferee of Restricted Shares will be
subject to all restrictions, terms and conditions applicable to
the Restricted Shares prior to its transfer, except that the
Restricted Shares will not be further transferable by the
transferee other than by will or by the laws of descent and
distribution. |
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Unless otherwise determined by the Committee at or after the
time of granting any Restricted Shares, if a participants
employment with the Company or any Subsidiary or Affiliate
terminates by |
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reason of death, any Restricted Shares held by that participant
shall thereafter vest and any restriction shall lapse. |
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Unless otherwise determined by the Committee at or after the
time of granting any Restricted Shares, if a participants
employment with the Company or any Subsidiary or Affiliate
terminates by reason of Disability, any Restricted Shares held
by that participant shall thereafter vest and any restriction
shall lapse. |
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Unless otherwise determined by the Committee at or after the
time of granting any Restricted Shares, if a participants
employment with the Company or any Subsidiary or Affiliate
terminates for any reason other than death or Disability, the
Restricted Shares held by that participant that are unvested or
subject to restriction at the time of termination shall
thereupon be forfeited. |
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C. Minimum Value. In order to better ensure that
Award payments actually reflect the performance of the Company
and service of the participant, the Committee may provide, in
its sole discretion, for a tandem performance-based or other
award designed to guarantee a minimum value, payable in cash or
Shares, to the recipient of a Restricted Share Award, subject to
such performance, future service, deferral and other terms and
conditions as may be specified by the Committee. |
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A. Grant. Deferred Shares may be awarded alone, in
addition to or in tandem with other Awards granted under the
Plan or cash awards made outside the Plan. The Committee shall
determine the individuals to whom, and the time or times at
which, Deferred Shares shall be awarded, the number of Deferred
Shares to be awarded to any participant, the duration of the
period (the Deferral Period) during which, and the
conditions under which, receipt of the Shares will be deferred,
and the other terms and conditions of the Award in addition to
those set forth in Section 8(b). |
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The Committee may condition the grant of Deferred Shares upon
the attainment of specified performance goals or such other
factors as the Committee shall determine in its sole discretion. |
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B. Terms and Conditions. Deferred Share Awards 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: |
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The purchase price for Deferred Shares shall be determined at
the time of grant by the Committee. Subject to the provisions of
the Plan and the Award agreement referred to in
Section 8(b)(9), Deferred Share Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period
(or the Elective Deferral Period referred to in
Section 8(b)(8), where applicable), stock certificates
shall be delivered to the participant, or the participants
legal representative, for the Shares covered by the Deferred
Share Award. The Deferral Period applicable to any Deferred
Share Award shall not be less than six months and one day
(Minimum Deferral Period). |
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Unless otherwise determined by the Committee at grant, amounts
equal to any dividends declared during the Deferral Period with
respect to the number of Shares covered by a Deferred Share
Award will be paid to the participant currently, or deferred and
deemed to be reinvested in additional Deferred Shares, or
otherwise reinvested, all as determined by the Committee, in its
sole discretion, at or after the time of the Award. |
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No Deferred Shares shall be transferable by a participant other
than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order (as defined in
the Code or the Employment Retirement Income Security Act of
1974, as amended) except that, if so provided in the Deferred
Shares Agreement, the participant may transfer the Deferred
Shares during the participants lifetime to one or more
members of the participants family, to one or more trusts
for the benefit of one or more of the participants family,
to a partnership or partnerships of members of the
participants family, or to a charitable organization as
defined in Section 501(c)(3) of the Code, provided that the
transfer would not result in the loss of any exemption under
Rule 16b-3 of the Exchange Act with respect to any |
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Deferred Shares. The transferee of Deferred Shares will be
subject to all restrictions, terms and conditions applicable to
the Deferred Shares prior to its transfer, except that the
Deferred Shares will not be further transferable by the
transferee other than by will or by the laws of descent and
distribution. |
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Unless otherwise determined by the Committee at or after the
time of granting any Deferred Shares, if a participants
employment by the Company or any Subsidiary or Affiliate
terminates by reason of death, any Deferred Shares held by such
participant shall thereafter vest or any restriction shall lapse. |
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Unless otherwise determined by the Committee at or after the
time of granting any Deferred Shares, if a participants
employment by the Company or any Subsidiary or Affiliate
terminates by reason of Disability, any Deferred Shares held by
such participant shall thereafter vest or any restriction lapse. |
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Unless otherwise determined by the Committee at or after the
time of granting any Deferred Share Award, if a
participants employment by the Company or any Subsidiary
or Affiliate terminates for any reason other than death or
Disability, all Deferred Shares held by such participant which
are unvested or subject to restriction shall thereupon be
forfeited. |
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Based on service, performance or such other factors or criteria
as the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any Deferred
Share Award or waive a portion of the Deferral Period for all or
any part of such Award, subject in all cases to the Minimum
Deferral Period requirement. |
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A participant may elect to further defer receipt of a Deferred
Share Award (or an installment of an Award) for a specified
period or until a specified event (the Elective Deferral
Period), subject in each case to the Committees
approval and the terms of this Section 8 and such other
terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions approved by the Committee,
such election must be made at least 12 months prior to
completion of the Deferral Period for such Deferred Share Award
(or such installment). |
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Each such Award shall be confirmed by, and subject to the terms
of, a Deferred Share Award agreement evidencing the Award in the
form approved from time to time by the Committee. |
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C. Minimum Value Provisions. In order to better
ensure that Award payments actually reflect the performance of
the Company and service of the participant, the Committee may
provide, in its sole discretion, for a tandem performance-based
or other Award designed to guarantee a minimum value, payable in
cash or Shares to the recipient of a Deferred Share Award,
subject to such performance, future service, deferral and other
terms and conditions as may be specified by the Committee. |
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IX. |
Other Share-Based Awards. |
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A. Grant. Other Awards of Shares and other Awards
that are valued, in whole or in part, by reference to, or are
otherwise based on, Shares, including, without limitation,
performance shares, convertible preferred shares, convertible
debentures, exchangeable securities, dividend equivalent rights
and Share Awards or options valued by reference to Book Value or
Subsidiary performance, may be granted alone, in addition to or
in tandem with other Awards granted under the Plan or cash
awards made outside the Plan. |
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At the time the Shares or Other Share-Based Awards are granted,
the Committee shall determine the individuals to whom and the
time or times at which such Shares or Other Share-Based Awards
shall be awarded, the number of Shares to be used in computing
an Award or which are to be awarded pursuant to such Awards, the
consideration, if any, to be paid for such Shares or Other
Share-Based Awards, and all other terms and conditions of the
Awards in addition to those set forth in Section 9(b). The
Committee will also have the right, at its sole discretion, to
settle such Awards in Shares, Restricted Shares or cash in an
amount equal to then value of the Shares or Other Share-Based
Awards. |
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The provisions of Other Share-Based Awards need not be the same
with respect to each participant. |
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B. Terms and Conditions. Other Share-Based Awards
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: |
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Subject to the provisions of this Plan and the Award agreement
referred to in Section 9(b)(5) below, Shares awarded or
subject to Awards made under this Section 9 may not be
sold, assigned, transferred, pledged or otherwise encumbered
prior to the date on which the Shares are issued, or, if later,
the date on which any applicable restriction, performance,
holding or deferral period or requirement is satisfied or
lapses. All Shares or Other Share-Based Awards granted under
this Section 9 shall be subject to a minimum holding period
(including any applicable restriction, performance and/or
deferral periods) of six months and one day (Minimum
Holding Period). |
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Subject to the provisions of this Plan and the Award agreement
and unless otherwise determined by the Committee at the time of
grant, the recipient of an Other Share-Based Award shall be
entitled to receive, currently or on a deferred basis, interest
or dividends or interest or dividend equivalents with respect to
the number of Shares covered by the Award, as determined at the
time of the Award by the Committee, in its sole discretion, and
the Committee may provide that such amounts (if any) shall be
deemed to have been reinvested in additional Shares or otherwise
reinvested. |
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Subject to the Minimum Holding Period, any Other Share-Based
Award and any Shares covered by any such Award shall vest or be
forfeited to the extent, at the times and subject to the
conditions, if any, provided in the Award agreement, as
determined by the Committee in its sole discretion. |
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In the event of the participants Disability or death, or
in cases of special circumstances, the Committee may, in its
sole discretion, waive, in whole or in part, any or all of the
remaining limitations imposed hereunder or under any related
Award agreement (if any) with respect to any part or all of any
Award under this Section 9, provided that the Minimum
Holding Period requirement may not be waived, except in case of
a participants death. |
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Each Award shall be confirmed by, and subject to the terms of,
an agreement or other instrument evidencing the Award in the
form approved from time to time by the Committee, the Company
and the participant. |
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Shares (including securities convertible into Shares) issued on
a bonus basis under this Section 9 shall be issued for no
cash consideration. Shares (including securities convertible
into Shares) purchased pursuant to a purchase right awarded
under this Section 9 shall bear a price of at least 85% of
the Fair Market Value of the Shares on the date of grant. The
purchase price of such Shares, and of any Other Share-Based
Award granted hereunder, or the formula by which such price is
to be determined, shall be fixed by the Committee at the time of
grant. |
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In the event that any derivative security, as
defined in Rule 16a-1(c) (or any successor thereto)
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, is awarded pursuant to this
Section 9 to any Section 16 Participant, such
derivative security shall not be transferable other than by will
or by the laws of descent and distribution. |
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C. Dividend Equivalent Rights. A Dividend Equivalent
Right is an Award entitling the recipient to receive credits
based on cash distributions that would have been paid on the
Shares specified in the Dividend Equivalent Right (or other
award to which it relates) if such Shares had been issued to and
held by the recipient. A Dividend Equivalent Right may be
granted hereunder to any participant as a component of another
Award or as a freestanding award. |
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Terms And Conditions. In addition to the terms and
conditions set forth in Section 9(b), Dividend Equivalent
Rights shall be subject to the following additional terms and
conditions. Dividend Equivalents credited to the holder of a
Dividend Equivalent Right may be paid currently or may be deemed
to be reinvested in additional Shares, which may thereafter
accrue additional dividend equivalents. Any such reinvestment
shall be at Fair Market Value on the date of reinvestment.
Dividend Equivalent Rights may be settled in cash or Shares or a
combination thereof, in a single installment or installments,
all determined in the sole discretion of the Committee. A |
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Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be
settled upon exercise, settlement, or payment of, or lapse of
restrictions on, such other award, and that such Dividend
Equivalent Right shall expire or be forfeited or annulled under
the same conditions as such other award. A Dividend Equivalent
Right granted as a component of another Award may also contain
terms and conditions different from such other Award. |
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Interest Equivalents. Any Award under this Plan that is
settled in whole or in part in cash on a deferred basis may
provide in the Award Agreement for interest equivalents to be
credited with respect to such cash payment. Interest equivalents
may be compounded and shall be paid upon such terms and
conditions as may be specified by the grant. |
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Termination of Employment. Except as may otherwise be
provided by the Committee either in the Award Agreement or in
writing after the Award Agreement is issued, a
participants rights in all Dividend Equivalent Rights or
interest equivalents (other than any accrued but unpaid Dividend
Equivalent Rights or interest equivalents) shall automatically
terminate upon the date that a participants employment
with the Company or any Subsidiary or Affiliate terminates for
any reason other than death or Disability. Any accrued but
unpaid Dividend Equivalent Rights or interest equivalents shall
be paid by the Company within three months after the termination
of the participants employment with the Company or any
Subsidiary or Affiliate. |
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X. |
Form and Timing of Payment Under Awards; Deferrals. |
Subject to the terms of the Plan and any applicable Award
Agreement (as may be amended pursuant to Section 12
hereof), payments to be made by the Company, a Subsidiary or
Affiliate upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash,
Shares, other Awards or other property, and may be made in a
single payment or transfer, in installments, or on a deferred
basis; provided, however that settlement in other than Shares
must be authorized by the applicable Award Agreement. The
settlement of any Award may be accelerated and cash paid in lieu
of Shares in connection with such settlement; provided, however
that settlement in cash must be authorized by the applicable
Award Agreement. The acceleration of any Award that does not
result in a cash settlement must also be authorized by the
applicable Award Agreement. Installment or deferred payments may
be required by the Committee or permitted at the election of the
participant on terms and conditions approved by the Committee,
including without limitation the ability to defer awards
pursuant to any deferred compensation plan maintained by the
Company, a Subsidiary or Affiliate. Payments may include,
without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or
the grant or crediting of Dividend Equivalents or other amounts
in respect of installment or deferred payments denominated in
Shares.
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XI. |
Change In Control Provision. |
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A. (a) Impact of Event. Notwithstanding any other
provisions hereof or in any agreement to the contrary, in the
event of: (1) a Change in Control as defined in
Section 11(b) or (2) a Potential Change in
Control as defined in Section 11(c), the following
acceleration and valuation provisions shall apply: |
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Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested; |
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Any Share Appreciation Rights shall become immediately
exercisable; |
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The restrictions applicable to any Restricted Share Awards,
Deferred Shares and Other Share-Based Awards shall lapse and
such Shares and Awards shall be deemed fully vested; and |
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The value of all outstanding Awards, in each case to the extent
vested, shall, unless otherwise determined by the Committee in
its sole discretion at or after grant but prior to any Change in
Control or Potential Change in Control, be cashed out on the
basis of the Change in Control Price as defined in |
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Section 11(d) as of the date such Change in Control or such
Potential Change in Control is determined to have occurred. |
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B. Definition of Change in Control. For purposes of
Section 11(a), a Change in Control means the
occurrence of any of the following: (i) the Board or
shareholders of the Company approve a consolidation or merger in
which the Company is not the surviving corporation, the sale of
substantially all of the assets of the Company, or the
liquidation or dissolution of the Company; (ii) any person
or other entity (other than the Company or a Subsidiary or any
Company employee benefit plan (including any trustee of any such
plan acting in its capacity as trustee)) purchases any Shares
(or securities convertible into Shares) pursuant to a tender or
exchange offer without the prior consent of the Board of
Directors, or becomes the beneficial owner of securities of the
Company representing 20% or more of the voting power of the
Companys outstanding securities; or (iii) during any
two-year period, individuals who at the beginning of such period
constitute the entire Board of Directors cease to constitute a
majority of the Board of Directors, unless the election or the
nomination for election of each new director is approved by at
least two-thirds of the directors then still in office who were
directors at the beginning of that period. |
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C. Definition of Potential Change in Control. For
purposes of Section 11(a), a Potential Change in
Control means the happening of any one of the following: |
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The approval by the shareholders of the Company of an agreement
by the Company, the consummation of which would result in a
Change in Control of the Company as defined in
Section 11(b); or |
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The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan (including any
trustee of any such plan acting in its capacity as trustee)) of
securities of the Company representing 5% or more of the
combined voting power of the Companys outstanding
securities and the adoption by the Board of a resolution to the
effect that a Potential Change in Control of the Company has
occurred for purposes of this Plan. |
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D. Change in Control Price. For purposes of this
Section 11, Change in Control Price means the
highest price per share paid in any transaction reported on the
New York Stock Exchange Composite Index (or, if the Shares are
not then traded on the New York Stock Exchange, the highest
price paid as reported for any national exchange on which the
Shares are then traded) or paid or offered in any bona fide
transaction related to a Change in Control or Potential Change
in Control of the Company, at any time during the 60-day period
immediately preceding the occurrence of the Change in Control
(or, when applicable, the occurrence of the Potential Change in
Control event), in each case as determined by the Committee. |
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XII. |
Amendments and Termination. |
The Board may at any time, amend, alter or discontinue the Plan,
but no such amendment, alteration or discontinuation shall be
made that would (i) impair the rights of a participant
under an Award theretofore granted, without the
participants consent or (ii) require shareholder
approval under any applicable law or regulation (including any
applicable regulation of an exchange on which the Shares are
traded), unless such shareholder approval is received. The
Company shall submit to the shareholders of the Company, for
their approval, any amendments to the Plan required pursuant to
Section 162(m) of the Code or that would materially
increase the benefits accruing to participants under the Plan or
the number of Shares subject to the Plan so long as such
approval is required by law or regulation (including any
applicable regulation of an exchange on which the Shares are
traded).
The Committee may at any time, in its sole discretion, amend the
terms of any Award, but (i) no such amendment shall be made
that would impair the rights of a participant under an Award
theretofore granted, without the participants consent;
(ii) no such amendment shall be made that would make the
applicable exemptions provided by Rule 16b-3 under the
Exchange Act unavailable to any Section 16 Participant
holding
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the Award without the participants consent and
(iii) no such amendment shall be made if it would be deemed
to be a repricing as defined under
Item 402(i)(1) of Regulation S-K.
Notwithstanding the above provisions, the Board shall have all
necessary authority to amend the Plan, clarify any provision or
to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
XIII. Unfunded Status of
Plan.
The Plan is intended to constitute an unfunded plan
for incentive and deferred compensation. With respect to any
payment not yet made to a participant by the Company, nothing
contained herein shall give that participant any rights that are
greater than those of a general creditor of the Company.
XIV. General Provisions.
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A. The Committee may require each participant acquiring
Shares pursuant to an Award under the Plan to represent to and
agree with the Company in writing that the participant is
acquiring the Shares without a view to distribution thereof. The
certificates for any such Shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer. |
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All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Shares are then
listed, and any applicable federal or state securities laws, and
the Committee may cause a legend or legends to be put on any
certificate for any such Shares to make appropriate reference to
those restrictions. |
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B. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required,
and such arrangements may be either generally applicable or
applicable only in specific cases. |
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C. Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan,
or any part thereof, shall confer upon any participant under the
Plan any right to continue in the employ, or as a director, of
the Company or any Subsidiary or Affiliate, or shall in any way
affect the right and power of the Company or any Subsidiary or
Affiliate to terminate the employment, or service as a director,
of any participant under the Plan at any time with or without
assigning a reason therefor, to the same extent as the Company
or any Subsidiary or Affiliate might have done if the Plan had
not been adopted. |
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D. For purposes of this Plan, a transfer of a participant
between the Company and any Subsidiary or Affiliate shall not be
deemed a termination of employment. |
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E. No later than the date as of which an amount first
becomes includable in the gross income of the participant for
federal income tax purposes with respect to any Award under the
Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment
of, any federal, state or local taxes or other items of any kind
required by law to be withheld with respect to that amount.
Subject to the following sentence, unless otherwise determined
by the Committee, withholding obligations may be settled with
Shares, including unrestricted Shares previously owned by the
participant or Shares that are part of the Award that gives rise
to the withholding requirement. Notwithstanding the foregoing,
any right by a Section 16 Participant to elect to settle
any tax withholding obligation with Shares that are part of an
Award must be set forth in the agreement evidencing that Award
or be approved by the Committee in its sole discretion. The
obligations of the Company under the Plan shall be conditional
on those payments or arrangements and the Company and its
Subsidiaries and Affiliates shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of
any kind otherwise payable to the participant. |
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F. The actual or deemed reinvestment of dividends or
dividend equivalents in additional Restricted Shares (or in
Deferred Shares or other types of Awards) at the time of any
dividend payment shall be |
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permissible only if sufficient Shares are available under
Section 3 for reinvestment (taking into account then
outstanding Stock Options). |
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G. The Plan, all Awards made and actions taken thereunder
and any agreements relating thereto shall be governed by and
construed in accordance with the laws of the State of Ohio. |
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H. All agreements entered into with participants pursuant
to the Plan shall be subject to the Plan. |
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I. The provisions of Awards need not be the same with
respect to each participant. |
XV. Shareholder Approval;
Effective Date of Plan.
The plan was originally adopted by the Board in December 2000.
This amendment and restatement was adopted by the Board on
February 23, 2005 and is subject to approval by the holders
of the Companys outstanding Shares, in accordance with
applicable law. If the amended and restated plan is not so
approved within twelve (12) months after the date such
amendment and restatement was adopted by the Board of Directors,
the plan, as originally adopted, will remain in full force and
effect.
XVI. Term of Plan.
No Award shall be granted pursuant to the Plan on or after
February 23, 2015, but Awards granted prior to that date
may extend beyond that date.
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DETACH HERE
ASSOCIATED ESTATES REALTY CORPORATION
This Proxy is Solicited on Behalf of the Board of
Directors
The undersigned hereby appoints Jeffrey
I. Friedman and Martin A. Fishman, and each of them, the
attorneys and proxies of the undersigned with full power of
substitution to vote, as indicated herein, all the Common Shares
of Associated Estates Realty Corporation held of record by the
undersigned on March 18, 2005, at the Annual Meeting of
Shareholders to be held on May 4, 2005, or any adjournment
thereof, with all the powers the undersigned would possess if
then and there personally present.
1. o FOR
or
o WITHHOLD
AUTHORITY to vote (except as marked to the contrary below) for
the election of each of the nominees for director listed below:
Albert T. Adams, James M. Delaney, Jeffrey I. Friedman,
Michael E. Gibbons,
Mark L. Milstein, Frank E. Mosier and Richard T. Schwarz
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(INSTRUCTION: |
To withhold authority to vote for any individual nominee,
write that nominees name in the space provided below) |
2. To APPROVE the Associated Estates Realty Corporation
Amended and Restated 2001 Equity-Based Award Plan.
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o FOR o AGAINST o ABSTAIN |
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3. In their discretion, to vote upon such other business as
may properly come before the meeting.
(Continued on reverse side)
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Associated Estates Realty Corporation |
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c/o National City Bank |
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Corporate Trust Operations |
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Locator 5352 |
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P.O. Box 92301 |
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Cleveland, OH 44101-4301 |
DETACH HERE
(Continued from other side)
This
proxy when properly executed will be voted as specified by the
shareholder. If no specifications are made, the proxy will be
voted to elect the nominees described in item 1 above and
For item 2 above.
Receipt of Notice of Annual Meeting of Shareholders and the
related Proxy Statement dated March 28, 2005, is hereby
acknowledged.
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Dated ,
2005 |
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Signature |
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Signature (if held jointly) |
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Please sign as your name appears hereon. If shares are held
jointly, all holders must sign. When signing as attorney,
executor, administrator, trustee or guardian, please give your
full title. If a corporation, please sign in full corporate name
by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person. |