UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Taubman Centers, Inc.
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(Name of Registrant as Specified In Its Charter)
Taubman Centers, Inc.
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SEC 1913 (02-02)
[TAUBMAN LOGO]
TAUBMAN CENTERS, INC.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD MAY 18, 2004
To the Shareholders of
Taubman Centers, Inc.
The Annual Meeting of Shareholders of TAUBMAN CENTERS, INC. (the "Company")
will be held on Tuesday, May 18, 2004, at the Community House, 380 South Bates
Street, Birmingham, Michigan, at 11:00 a.m., local time, for the following
purposes:
1. To elect three directors to serve until the annual meeting of
shareholders in 2007;
2. To ratify the appointment of KPMG LLP as the Company's independent
auditors for the year ending December 31, 2004; and
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 31, 2004 as
the record date for determining the shareholders that are entitled to notice of,
and to vote at, the annual meeting or any adjournment or postponement of the
annual meeting.
By Order of the Board of Directors
ROBERT S. TAUBMAN,
Chairman of the Board, President and
Chief Executive Officer
Bloomfield Hills, Michigan
April 8, 2004
EVEN IF YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE TO
ENSURE THE PRESENCE OF A QUORUM. ANY PROXY MAY BE REVOKED IN THE MANNER
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT HAS BEEN
VOTED AT THE MEETING.
TABLE OF CONTENTS
ABOUT THE MEETING........................................... 1
What is the purpose of the annual meeting?................ 1
Who is entitled to vote?.................................. 1
What counts as Voting Stock?.............................. 1
What is the Series B Preferred Stock?..................... 1
What constitutes a quorum?................................ 2
How do I vote?............................................ 2
Can I change my vote after I return my proxy card?........ 2
What are the Board's recommendations?..................... 2
What vote is required to approve each item?............... 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS................ 3
Section 16(a) Beneficial Ownership Reporting Compliance... 7
Securities Authorized for Issuance Under Equity
Compensation Plans..................................... 7
ITEM 1 -- ELECTION OF DIRECTORS............................. 8
MANAGEMENT................................................ 8
Directors, Nominees and Executive Officers............. 8
The Board of Directors and Committees.................. 10
Compensation of Directors.............................. 12
Corporate Governance................................... 13
Communicating with the Board........................... 13
Certain Transactions................................... 13
REPORT OF THE AUDIT COMMITTEE............................... 14
EXECUTIVE COMPENSATION...................................... 17
Summary Compensation Table............................. 17
Long-Term Performance Compensation Plan................ 18
Long-Term Incentive Plan -- 2003 Awards................ 19
Senior Short Term Incentive Plan and Annual Bonus
Plan.................................................. 19
Incentive Option Plan.................................. 19
Aggregated Option Exercises During 2003 And Year-End
Option Values......................................... 20
Compensation Committee Report on Executive
Compensation.......................................... 20
Shareholder Return Performance Graph................... 22
Certain Employment Arrangements........................ 22
Change of Control Employment Agreements................ 23
Change of Control Severance Program.................... 24
ITEM 2 -- RATIFICATION OF SELECTION OF INDEPENDENT
AUDITORS.................................................. 25
OTHER MATTERS............................................... 26
COSTS OF PROXY SOLICITATION................................. 26
ADDITIONAL INFORMATION...................................... 26
Presentation of Shareholder Proposals at 2005 Annual
Meeting................................................ 26
Annual Report............................................. 27
TAUBMAN CENTERS, INC.
200 EAST LONG LAKE ROAD, SUITE 300
P.O. BOX 200
BLOOMFIELD HILLS, MICHIGAN 48303-0200
PROXY STATEMENT
This Proxy Statement contains information regarding the annual meeting of
shareholders of Taubman Centers, Inc. (the "Company") to be held at 11:00 a.m.,
local time, on Tuesday, May 18, 2004, at the Community House, 380 South Bates
Street, Birmingham, Michigan. The Company's Board of Directors is soliciting
proxies for use at the meeting and at any adjournment or postponement of that
meeting. The Company expects to mail this Proxy Statement on or about April 8,
2004.
ABOUT THE MEETING
What is the purpose of the annual meeting?
At the annual meeting, holders of the Company's Common Stock and Series B
Non-Participating Convertible Preferred Stock (the "Series B Preferred Stock"
and, together with the Common Stock, the "Voting Stock") will act upon the
matters outlined in the accompanying Notice of Meeting, including the election
of three directors to serve until the annual meeting of shareholders in 2007,
and the ratification of the Audit Committee's selection of the independent
auditors. In addition, management will report on the performance of the Company
and will respond to questions from shareholders.
Who is entitled to vote?
Only record holders of Voting Stock at the close of business on the record
date of March 31, 2004, are entitled to receive notice of the annual meeting and
to vote those shares of Voting Stock that they held on the record date. Each
outstanding share of Voting Stock is entitled to one vote on each matter to be
voted upon at the annual meeting.
What counts as Voting Stock?
The Company's Common Stock and Series B Preferred Stock constitute the
Voting Stock of the Company. The Common Stock and the Series B Preferred Stock
vote together as a single class. The Company's 8.30% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") does not entitle its
holders to vote. Although the Company has authorized the issuance of shares of
additional series of Preferred Stock pursuant to the exercise of conversion
rights granted to certain holders of preferred equity in The Taubman Realty
Group Limited Partnership ("TRG"), the Company's majority-owned subsidiary
partnership through which the Company conducts all of its operations, at this
time no other shares of capital stock other than the Voting Stock and the Series
A Preferred Stock are outstanding.
What is the Series B Preferred Stock?
The Series B Preferred Stock was first issued in late 1998 and is currently
held by partners in TRG other than the Company. The Series B Preferred Stock
entitles its holders to one vote per share on all matters submitted to the
Company's shareholders and votes together with the Common Stock on all matters
as a single class. In addition, the holders of Series B Preferred Stock (as a
separate class) are entitled to nominate up to four individuals for election as
directors. The number of individuals the holders of the Series B Preferred
Stock may nominate in any given year is reduced by the number of directors
nominated by such holders in prior years whose terms are not expiring. Three
current directors, whose terms are not expiring, Robert S. Taubman, William S.
Taubman and Lisa A. Payne, were nominated by the holders of the Series B
Preferred Stock, so the holders of Series B Preferred Stock are entitled to
nominate one more individual for election as a director of the Company, but they
have chosen not to do so with respect to this annual meeting. Therefore, the
holders of the Series B Preferred Stock retain the right to nominate one
additional nominee in the future.
What constitutes a quorum?
The presence at the annual meeting, in person or by proxy, of the holders
of a majority of the shares of Voting Stock outstanding on the record date will
constitute a quorum for all purposes. As of the record date, 80,241,977 shares
of Voting Stock were outstanding, consisting of 50,456,343 shares of Common
Stock and 29,785,634 shares of Series B Preferred Stock. Proxies received but
marked as abstentions and shares voted by brokers in the absence of beneficial
owners' instructions will be counted as present in determining whether or not
there is a quorum.
How do I vote?
If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you direct. If you attend the annual
meeting, you may deliver your completed proxy card in person or vote by ballot.
If you own your shares of Common Stock through a broker, trustee, bank or other
nominee but want to vote your shares in person, you should also bring with you a
proxy or letter from such broker, trustee, bank or other nominee confirming that
you beneficially own such shares.
Can I change my vote after I return my proxy card?
You may change your vote at any time before the proxy is exercised by
filing with the Secretary of the Company either a notice revoking the proxy or a
properly signed proxy that is dated later than the proxy card. If you attend the
annual meeting, the individuals named as proxy holders in the enclosed proxy
card will nevertheless have authority to vote your shares in accordance with
your instructions on the proxy card unless you indicate at the meeting that you
intend to vote your shares yourself.
What are the Board's recommendations?
Unless you give different instructions on the proxy card, the proxy holders
will vote in accordance with the recommendations of the Board of Directors. The
Board recommends a vote:
for election of the nominated slate of directors (see pages 8 through
25); and
for ratification of KPMG LLP ("KPMG") as the Company's independent
auditors for 2004 (see pages 25 through 26).
With respect to any other matter that properly comes before the annual meeting,
the proxy holders named in the proxy card will vote as the Board recommends or,
if the Board gives no recommendation, in their own discretion.
What vote is required to approve each item?
ELECTION OF DIRECTORS. Nominees who receive the most votes cast at the
annual meeting will be elected as directors. The slate of directors discussed in
this Proxy Statement consists of three individuals, one for each director whose
term is expiring. A properly signed proxy marked "WITHHOLD AUTHORITY" with
respect
2
to the election of one or more directors will not be voted for the director(s)
so indicated, but it will be counted to determine whether there is a quorum.
RATIFICATION OF AUDITORS. The affirmative vote of a majority of the votes
cast at the annual meeting will be necessary to ratify the Audit Committee's
appointment of KPMG as the Company's independent auditors for 2004.
OTHER MATTERS. If any other matter is properly submitted to the
shareholders at the annual meeting, its adoption will require the affirmative
vote of two-thirds of the shares of Voting Stock outstanding on the record date.
The Board of Directors does not propose to conduct any business at the annual
meeting other than the election of three directors and the ratification of
auditors.
EFFECT OF BROKER NON-VOTES AND ABSTENTIONS. The election of directors and
the ratification of the appointment of the Company's auditors will be determined
by votes cast. In the election of directors, abstentions and broker non-votes,
if any, will be disregarded and will have no effect on the outcome of the vote.
In the ratification of auditors, abstentions and broker non-votes, if any, will
also be disregarded and will have no effect on the outcome of the vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The Company is the managing partner of, and owns a 61.2% managing partner's
interest in TRG, through which the Company conducts all of its operations. TRG
is a partnership that owns, develops, acquires, and operates regional shopping
centers nationally. The following table sets forth certain information regarding
the beneficial ownership of the Company's Voting Stock and of partnership
interests in TRG ("Units of Partnership Interest" or "Units") as of April 1,
2004.
The share information in the table (both numbers of shares and percentages)
reflects ownership of Common Stock and Series B Preferred Stock, which for this
purpose are treated as a single class of voting stock; however, the footnotes to
the table provide ownership information for the Common Stock and Series B
Preferred Stock on a separate basis, including (for any shareholder owning at
least one percent of the Common Stock or Series B Preferred Stock, as
applicable) the percentage of the outstanding shares of the separate class that
the holder's shares represent. Unless otherwise indicated in the table, each
person's address is care of Taubman Centers, Inc., 200 East Long Lake Road,
Suite 300, P. O. Box 200, Bloomfield Hills, Michigan 48303-0200.
PERCENTAGE
UNITS OF OWNERSHIP OF
PARTNERSHIP UNITS OF
DIRECTORS, EXECUTIVE OFFICERS AND 5% NO. OF PERCENT OF INTEREST IN PARTNERSHIP
SHAREHOLDERS SHARES(1) SHARES(1) TRG INTEREST IN TRG
------------------------------------ ---------- ---------- ----------- ---------------
Robert S. Taubman.................. 1,149,413(2) 1.4%(2) 836,413(3) 1.0%
William S. Taubman................. 531,433(4) * 513,933(5) *
Lisa A. Payne...................... 533,328(6) * -- --
Courtney Lord...................... 325,673(7) * 323,639(8) *
John L. Simon...................... 6,473(9) * -- --
Graham T. Allison.................. 1,430 * -- --
Allan J. Bloostein................. 5,000 * -- --
Jerome A. Chazen................... 10,000(10) * -- --
S. Parker Gilbert.................. 130,000(11) * -- --
3
PERCENTAGE
UNITS OF OWNERSHIP OF
PARTNERSHIP UNITS OF
DIRECTORS, EXECUTIVE OFFICERS AND 5% NO. OF PERCENT OF INTEREST IN PARTNERSHIP
SHAREHOLDERS SHARES(1) SHARES(1) TRG INTEREST IN TRG
------------------------------------ ---------- ---------- ----------- ---------------
Peter Karmanos, Jr. ............... 40,000(12) * -- --
Myron E. Ullman, III............... 10,000 * -- --
Craig Hatkoff...................... 0 * -- --
A. Alfred Taubman.................. 24,725,480(13) 30.8%(13) 24,538,543(14) 30.6%
Security Capital Research &
Management Incorporated.......... 5,283,895(15) 6.6%(15) -- --
11 South LaSalle Street, 2nd Floor
Chicago, Illinois 60603
Cohen & Steers Capital Management,
Inc. ............................ 4,865,330(16) 6.1%(16) -- --
757 Third Avenue
New York, New York 10017
Morgan Stanley..................... 4,270,068(17) 5.3%(17) -- --
1585 Broadway
New York, New York 10036
LaSalle Investment Management,
Inc. ............................ 4,253,350(18) 5.3%(18) -- --
LaSalle Investment Management
(Securities) L.P.
200 East Randolph Drive
Chicago, Illinois 60601
Security Capital Preferred Growth
Incorporated..................... 3,669,500(19) 4.6%(19) -- --
11 South LaSalle Street, 2nd Floor
Chicago, Illinois 60603
Heitman Real Estate Securities LLC.. 2,757,014(20) 3.4%(20) -- --
191 North Wacker Drive, Suite 2500
Chicago, Illinois 60606
Barclays Global Investors, NA and
related entities................. 2,664,340(21) 3.3%(21) -- --
45 Fremont Street
San Francisco, CA 94105
Deutsche Bank AG................... 2,660,300(22) 3.3%(22) -- --
Taunusanlage 12, D-60325
Frankfurt am Main
Federal Republic of Germany
Directors and Executive Officers as
a Group.......................... 2,750,346(23) 3.4%(23) 1,673,985(23) 2.1%(23)
---------------
* less than 1%
(1) The Company has relied upon information supplied by certain beneficial
owners and upon information contained in filings with the Securities and
Exchange Commission (the "SEC"). Figures shown include
4
shares of Common Stock and Series B Preferred Stock, which vote together as
a single class on all matters generally submitted to shareholders. Each
share of Common Stock and Series B Preferred Stock is entitled to one vote.
Under certain circumstances, the Series B Preferred Stock is convertible
into Common Stock at the ratio of 14,000 shares of Series B Preferred Stock
for each share of Common Stock (any resulting fractional shares will be
redeemed for cash). Share figures shown assume that individuals who acquire
Units of Partnership Interest upon the exercise of options ("Incentive
Options") granted under TRG's 1992 Incentive Option Plan exchange the newly
issued Units for an equal number of shares of Common Stock under the
Company's exchange offer (the "Continuing Offer") to certain partners in
TRG and holders of Incentive Options. Share figures and Unit figures shown
assume that outstanding Units are not exchanged for Common Stock under the
Continuing Offer and that outstanding shares of Series B Preferred Stock
are not converted into Common Stock. As of April 1, 2004, there were
80,241,977 outstanding shares of Voting Stock, consisting of 50,456,343
shares of Common Stock and 29,785,634 shares of Series B Preferred Stock.
(2) Consists of 5,925 shares of Series B Preferred Stock that Mr. Robert S.
Taubman owns, 782,980 shares of Series B Preferred Stock held by R & W-TRG
LLC ("R&W"), a company that Mr. Taubman and his brother, William S.
Taubman, own (or, in the aggregate, 2.7% of the Series B Preferred Stock),
300,000 shares of Common Stock owned by R&W, 47,508 shares of Common Stock
that Mr. Taubman has the right to receive in exchange for Units of
Partnership Interest that are subject to vested Incentive Options and an
additional 13,000 shares of Common Stock owned by his wife and children for
which Mr. Taubman disclaims any beneficial interest (or, in the aggregate,
less than 1.0% of the Common Stock). Excludes all shares of Voting Stock
held by TRA Partners ("TRAP"), Taubman Realty Ventures ("TRV"), Taub-Co
Management, Inc. ("Taub-Co"), or TG Partners, Limited Partnership ("TG
Partners"), because Mr. Taubman has no voting or dispositive control over
such entities' assets, see notes 13 and 14 below. Mr. Taubman disclaims any
beneficial interest in the Voting Stock held by R&W or the other entities
described in the previous sentence beyond his pecuniary interest in R&W or
the other entities.
(3) Consists of 5,925 Units of Partnership Interest that Mr. Robert S. Taubman
owns, 782,980 Units of Partnership Interest held by R&W, and 47,508 Units
of Partnership Interest that Mr. Taubman has the right to receive upon the
exercise of vested Incentive Options. Excludes all Units of Partnership
Interest owned by TRAP, TRV, Taub-Co, or TG. Mr. Taubman disclaims any
beneficial ownership in the Units held by R&W or the other entities beyond
his pecuniary interest in R&W and the other entities.
(4) Consists of 5,925 shares of Series B Preferred Stock that Mr. William S.
Taubman owns, 508,008 shares of Common Stock that Mr. Taubman has the right
to receive upon the exchange of Units of Partnership Interest that are
subject to vested Incentive Options, and 17,500 shares of Common Stock
owned by his children and for which Mr. Taubman disclaims any beneficial
interest (or, in the aggregate, 1.0% of the Common Stock). Excludes 300,000
shares of Common Stock and 782,980 shares of Series B Preferred Stock that
R&W holds and that are included in Robert S. Taubman's holdings described
above. Excludes all shares of Voting Stock held by TRAP, TRV, Taub-Co, or
TG because Mr. Taubman has no voting or dispositive control over such
entities' assets, see notes 13 and 14 below. Mr. Taubman disclaims any
beneficial interest in the Voting Stock held by R&W and the other entities
described in the previous sentence beyond his pecuniary interest in R&W and
the other entities.
(5) Consists of 5,925 Units of Partnership Interest that Mr. William S. Taubman
owns and 508,008 Units of Partnership Interest subject to vested Incentive
Options held by Mr. Taubman. Excludes 782,980 Units that R&W holds and that
are included in Robert S. Taubman's holdings described above. Excludes all
Units of Partnership Interest owned by TRAP, TRV, Taub-Co, or TG. Mr.
Taubman disclaims any beneficial ownership in the Units held by R&W or the
other entities beyond his pecuniary interest in R&W and the other entities.
5
(6) Consists of 7,500 shares of Common Stock that Ms. Payne owns and 525,828
shares of Common Stock that Ms. Payne will have the right to receive in
exchange for Units of Partnership Interest that are subject to vested
Incentive Options (or, in the aggregate, 1.1% of the Common Stock).
(7) Consists of 1,504 shares of Common Stock owned by Mr. Lord, 530 shares of
Common Stock owned by Mr. Lord's wife for which he disclaims any beneficial
interest; and 323,639 shares of Series B Preferred Stock acquired by Mr.
Lord in partial consideration for the exchange of all of Mr. Lord's equity
interest in Lord Associates, Inc. in November 1999. Does not include 43,514
shares of Series B Preferred Stock acquired by Mr. Lord in connection with
the Lord Associates transaction for which Mr. Lord has granted to TG
Partners an irrevocable proxy and over which Mr. Lord has no voting or
dispositive power, see note 14 below.
(8) Consists of 323,639 Units of Partnership Interest acquired by Mr. Lord in
partial consideration for the exchange of all of Mr. Lord's equity interest
in Lord Associates, Inc. in November 1999. Does not include 43,514 Units of
Partnership Interest acquired by Mr. Lord in connection with the Lord
Associates transaction for which Mr. Lord has granted to TG Partners an
irrevocable proxy, which are not presently entitled to receive any
partnership distributions, except upon liquidation and over which Mr. Lord
has no voting or dispositive power. Such units will be released from the
irrevocable proxy and become entitled to receive partnership distributions
on January 1, 2005. See note 14 below. See also "Certain Employment
Arrangements."
(9) Consists of 2,000 shares of Common Stock that Mr. Simon owns and 4,473
shares of Common Stock which Mr. Simon may be deemed to own through his
investment in the Taubman Centers Stock Fund, one of the investment options
under the Company's 401(k) Plan.
(10) Excludes 15,000 shares of Series A Preferred Stock owned by Mr. Chazen,
6,000 shares of Series A Preferred Stock owned by his wife, and 30,000
shares (or, in the aggregate, less than 1%) of Series A Preferred Stock
owned by his children and for which Mr. Chazen disclaims any beneficial
ownership. The Series A Preferred Stock does not entitle its holders to
vote.
(11) Includes 80,000 shares of Common Stock held by The Gilbert 1996 Charitable
Remainder Trust, an irrevocable trust of which Mr. Gilbert is a co-trustee.
Mr. Gilbert disclaims any beneficial interest in such shares beyond any
deemed pecuniary interest as the result of his wife's current beneficial
interest in the trust.
(12) Consists solely of shares of Common Stock.
(13) Includes 100 shares of Common Stock owned by Mr. A. Alfred Taubman's
revocable trust and 186,837 shares of Common Stock held by TRAP. Mr.
Taubman's trust is the managing general partner of TRAP and has the sole
authority to vote and dispose of the Common Stock held by TRAP. The
remaining shares consist of 24,538,543 outstanding shares (or 82.4%) of
Series B Preferred Stock that may be deemed to be owned by Mr. Taubman in
the same manner as the Units of Partnership Interest described in note 14
below. Mr. Taubman disclaims any beneficial ownership of the Common Stock
or Series B Preferred Stock held by TRAP and the other entities identified
in note 14 below beyond his pecuniary interest in the entities that own the
securities.
(14) Consists of 9,875 Units of Partnership Interest held by Mr. A. Alfred
Taubman's trust, 17,699,879 Units of Partnership Interest owned by TRAP,
11,011 Units of Partnership Interest owned by TRV, of which Mr. Taubman's
trust is the managing general partner, and 1,975 Units of Partnership
Interest held by Taub-Co. Because the sole holder of voting shares of
Taub-Co is Taub-Co Holdings Limited Partnership, of which Mr. Taubman's
trust is the managing general partner, Mr. Taubman may be deemed to be the
beneficial owner of the Units of Partnership Interest held by Taub-Co. Mr.
Taubman disclaims beneficial ownership of any Units held by Taub-Co beyond
his pecuniary interest in Taub-Co. Also includes 6,327,098 Units of
Partnership Interest owned by TG Partners, 445,191 Units held by a
6
subsidiary of TG Partners (such subsidiary and TG Partners are collectively
referred to as "TG") and 43,514 Units of Partnership Interest which are
held by Mr. Lord but for which Mr. Lord has granted an irrevocable proxy to
TG Partners. The 43,514 Units held by Mr. Lord are not presently entitled
to any partnership distributions except in the event of a liquidation. Such
Units will be released from the irrevocable proxy and become entitled to
receive distributions on January 1, 2005. Because Mr. Taubman, through
control of TRV's and TG Partners' managing partner, has sole authority to
vote and (subject to certain limitations) dispose of the Units of
Partnership Interest held by TRV and TG, respectively, Mr. Taubman may be
deemed to be the beneficial owner of all of the Units of Partnership
Interest held by TRV and TG. Mr. Taubman disclaims beneficial ownership of
any Units of Partnership Interest held by TRG and TG beyond his pecuniary
interest in those entities.
(15) Consists solely of shares of Common Stock (10.5%).
(16) Consists solely of shares of Common Stock (9.6%).
(17) Consists solely of shares of Common Stock (8.5%) held on behalf of various
investment advisory clients, none of which holds more than 5% of the Common
Stock.
(18) Consists solely of shares of Common Stock (8.4%) and includes ownership of
Common Stock on behalf of Stichting Pensioenfonds Voor de Gezondheid
Geestelijke en Maatschappelijke Belangen.
(19) Consists solely of shares of Common Stock (7.3%).
(20) Consists solely of shares of Common Stock (5.5%).
(21) Consists solely of shares of Common Stock (5.3%).
(22) Consists solely of shares of Common Stock (5.3%).
(23) See Notes 2 through 12 above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities ("insiders") file reports of
ownership and changes in ownership with the SEC and furnish copies of these
reports to the Company. Based on the Company's review of the insiders' forms
furnished to the Company and representations made by the Company's officers and
directors, no insider failed to file on a timely basis a Section 16(a) form with
respect to any transaction in the Company's equity securities.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information regarding the Company's
equity compensation plans as of December 31, 2003:
WEIGHTED-AVERAGE NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCES
TO BE ISSUED UPON EXERCISE OUTSTANDING UNDER EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS PLANS (EXCLUDING SECURITIES
WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- ----------------- ------------------------------
Equity compensation plan 1,405,209 $12.15 2,229,987
approved by security
holders(1)...................
---------------
(1) The plan was approved by the Company's shareholders before the Company went
public in 1992, and was fully disclosed when the Company went public.
7
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors currently consists of nine members serving
three-year staggered terms. Three directors are to be elected at the annual
meeting to serve until the annual meeting of shareholders in 2007. Two nominees,
Allan J. Bloostein and Jerome A. Chazen, are presently serving on the Board of
Directors. The third nominee, Craig Hatkoff, was recommended to the Nominating
and Corporate Governance Committee by the Company's Chairman of the Board,
President and Chief Executive Officer.
Each of the nominees has consented to serve a three-year term. If any of
them should become unavailable, the Board may designate a substitute nominee. In
that case, the proxy holders named as proxies in the accompanying proxy card
will vote for the Board's substitute nominee. Additional information regarding
the nominees, the directors whose terms are not expiring, and management of the
Company is contained under the caption "Management" below.
MANAGEMENT
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The Board of Directors currently consists of nine members divided into
three classes serving staggered terms. Under the Company's Restated Articles of
Incorporation, a majority of the Company's directors must not be officers or
employees of the Company or its subsidiaries. Officers of the Company serve at
the pleasure of the Board.
The directors, executive officers, and nominees for director of the Company
are as follows:
TERM
NAME AGE TITLE ENDING
---- --- ----- ------
Allan J. Bloostein(1)... 74 Director 2004
Jerome A. Chazen(1)..... 77 Director 2004
S. Parker Gilbert(2).... 70 Director 2004
Craig Hatkoff(3)........ 50 Nominee
Robert S. Taubman....... 50 Chairman of the Board, President and Chief Executive Officer 2005
Lisa A. Payne........... 45 Executive Vice President, Chief Financial and Administrative 2005
Officer, and Director
Myron E. Ullman, III.... 57 Director 2005
Graham T. Allison....... 64 Director 2006
Peter Karmanos, Jr. .... 61 Director 2006
William S. Taubman...... 45 Executive Vice President and Director 2006
Esther R. Blum.......... 49 Senior Vice President, Controller, and Chief Accounting Officer
Courtney Lord........... 53 Senior Vice President of Leasing
John L. Simon........... 57 Senior Vice President of Development
---------------
(1) Standing for re-election to a three-year term.
(2) Mr. Gilbert, who has been a director of the Company since 1992, is retiring
from the Board effective May 18, 2004.
(3) Nominee for election to a three-year term.
8
Allan J. Bloostein is a former Vice Chairman of The May Department Stores
Company and the President of Allan J. Bloostein Associates, and serves as a
consultant in retail and consumer goods marketing. Mr. Bloostein was, until his
retirement during 2000, a director of CVS Corporation, which operates the CVS
Pharmacy chain, and is a director or trustee of certain mutual fund companies in
a Smith Barney Fund Family. Mr. Bloostein has been a director of the Company
since 1992.
Jerome A. Chazen is Chairman Emeritus of Liz Claiborne, Inc. Mr. Chazen is
also Chairman of Chazen Capital Partners, a private investment company. Mr.
Chazen has been a director of the Company since 1992.
Craig Hatkoff served as Vice Chairman of Capital Trust, Inc., a real estate
investment management company listed on the New York Stock Exchange and one of
the largest dedicated real estate mezzanine lenders, from 1997 to 2000. He has
also served on the Board of Directors of Capital Trust since July 1997. In 2002,
Mr. Hatkoff became a trustee of the New York City Construction Authority, an
entity responsible for the construction of all public schools in New York City.
Mr. Hatkoff is also Chairman of Turtle Pond Publications LLC, which is active in
children's publishing and entertainment and is a private investor in other
entrepreneurial ventures. Prior to joining Capital Trust, Inc., Mr. Hatkoff was
a founder and a managing general partner of Victor Capital Group, L.P., from
1989 until its acquisition in 1997 by Capital Trust, Inc.
Robert S. Taubman is the Chairman of the Board, President and Chief
Executive Officer of the Company and The Taubman Company LLC (the "Manager"),
which is a subsidiary of TRG (the Company's operating partnership that manages
the Company's regional shopping center interests). Mr. Taubman has been a
director of the Company since 1992. Mr. Taubman is also a director of Comerica
Bank and of Sotheby's Holdings, Inc., the international art auction house. He is
also a member of the United States Department of Commerce Travel and Tourism
Promotion Advisory Board, a director of the Real Estate Roundtable, a Trustee of
the Urban Land Institute, a former trustee of the International Council of
Shopping Centers, and a former member of the Board of Governors of the National
Association of Real Estate Investment Trusts. Mr. Taubman is the brother of
William S. Taubman.
Lisa A. Payne is an Executive Vice President and the Chief Financial and
Administrative Officer of the Company and the Manager, a position which she has
held since 1997. Ms. Payne has been a director of the Company since 1997. Prior
to joining the Company in 1997, Ms. Payne was a vice president in the real
estate department of Goldman, Sachs & Co., where she held various positions
between 1986 and 1996.
Myron E. (Mike) Ullman, III served as co-chairman of Global Crossing
Limited, a telecommunications service provider, from December 2002 to December
2003. From July 1999, until he retired in September 2001, Mr. Ullman served as a
Directeur General, Group Managing Director of Paris-based LVMH Moet Hennessy
Louis Vuitton, a global company producing luxury products. Prior to this, Mr.
Ullman held various senior executive positions with LVMH, including being the
President of LVMH Selective Retail Group from 1998 until June 1999, and Chairman
and Chief Executive Officer of DFS Group Limited from 1995 to 1998. From 1992
until 1995, Mr. Ullman was Chairman and Chief Executive Officer of R.H. Macy &
Co., Inc., one of the largest retailers in the United States. From 1988 until
1992, Mr. Ullman held various senior executive positions at R.H. Macy & Co.,
Inc., including Executive Vice President from 1988 to 1990 and Vice Chairman
from 1991 to 1992. From 1986 to 1988, Mr. Ullman served as Managing Director and
Chief Operating Officer of Wharf (Holdings) Ltd., one of the largest diversified
groups in Hong Kong. From 1985 to 1986, Mr. Ullman served as Executive Vice
President at the Sanger Harris (now Foley's) division of Federated Department
Stores, Inc. Mr. Ullman is a director of Starbucks Corporation, Polo Ralph
Lauren Corporation, and an advisor to Kendall-Jackson Wine Estates, Ltd. Mr.
Ullman also serves on the boards of several community and not-for-profit
organizations. Mr. Ullman has been a director of the Company since 2003.
9
Graham T. Allison is the Douglas Dillon Professor of Government at Harvard
University and a director of CDC Nvest Funds. Mr. Allison has been a director of
the Company since 1996 and previously served on the Board from 1992 until 1993,
when he became the United States Assistant Secretary of Defense.
Peter Karmanos, Jr. is the founder and has served as a director since the
inception of Compuware Corporation, a global provider of software solutions and
professional services headquartered in Detroit, Michigan. Mr. Karmanos has
served as Compuware's Chairman since November 1978, and as its Chief Executive
Officer since July 1987. Mr. Karmanos serves as a director of Worthington
Industries, Inc. He is also a member of the Board of Trustees of the Detroit
Medical Center. Mr. Karmanos has been a director of the Company since 2000.
William S. Taubman is an Executive Vice President of the Company and the
Manager, a position which he has held since 1994. Mr. Taubman has also been a
director of the Company since 2000. His responsibilities include the overall
management of the development, leasing, and center operations functions. He held
various other positions with the Manager prior to 1994. He is also a director of
the Detroit Institute of Arts. Mr. Taubman is the brother of Robert S. Taubman.
Esther R. Blum is a Senior Vice President, the Controller, and Chief
Accounting Officer of the Company, a position she has held since 1999. Ms. Blum
became a Vice President of the Company in January 1998, when she assumed her
current principal functions. Between 1992 and 1997, Ms. Blum served as the
Manager's Vice President of Financial Reporting and served the Manager in
various other capacities between 1986 and 1992.
Courtney Lord is the Manager's Senior Vice President of Leasing. Mr. Lord
became the Manager's Senior Vice President of Leasing in November 1999, having
been hired in connection with TRG's acquisition of all of the outstanding stock
of Lord Associates, Inc. Between 1989 and 1999, Mr. Lord served as president of
Lord Associates, Inc., a retail leasing firm based in Alexandria, Virginia.
John L. Simon is the Manager's Senior Vice President of Development and has
served in such position since 1988.
THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors currently consists of nine members divided
into three classes serving staggered three-year terms. The Company's Board has
determined, after considering all of the relevant facts and circumstances, that
Messrs. Allison, Bloostein, Chazen, Gilbert, Karmanos, Hatkoff, and Ullman are
"independent" from management, as defined by the rules adopted by the SEC, the
New York Stock Exchange listing requirements and the Company's Corporate
Governance Guidelines. To be considered independent, the Board must determine
that a director does not have any direct or indirect material relationships with
the Company and must meet the other criteria for independence set forth in the
Company's Corporate Governance Guidelines.
The Board of Directors held eleven meetings during 2003 and acted once by
unanimous written consent. The Board of Directors has four standing committees:
a six member Audit Committee, a three member Compensation Committee, a three
member Executive Committee, and a three member Nominating and Corporate
Governance Committee. The Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee are composed entirely of
independent directors. During 2003, all directors attended at least 75% of the
aggregate of the meetings of the Board of Directors and all committees of the
Board on which they served. Directors are expected to attend all meetings, and
it is the Company's policy to schedule a meeting of the Board of Directors on
the date of the annual meeting of shareholders. All nine board members attended
last year's annual meeting. In addition to attending Board and
10
committee meetings, directors fulfill their responsibilities by consulting with
the Chief Executive Officer and other members of management on matters that
affect the Company.
Non-management directors will hold regularly scheduled executive sessions
in which non-management directors meet without the presence of management. These
executive sessions are expected to occur around regularly scheduled meetings of
the Board of Directors. Each meeting the position of presiding director will be
rotated in alphabetical order among each non-management director. For
information on how you can communicate with the Company's non-management
directors, including the presiding director, please see "Communicating with the
Company's Directors." For more information regarding the Company's Board of
Directors and other corporate governance procedures, please see "Corporate
Governance."
During 2003, the Audit Committee consisted of Jerome A. Chazen, Chairman,
Graham T. Allison, Allan J. Bloostein, S. Parker Gilbert, Peter Karmanos, Jr.
and Myron E. Ullman, III. Each of these directors is financially literate, and
the Board of Directors believes that Mr. Ullman is an "audit committee financial
expert" under the SEC's definition. The Audit Committee is responsible for
providing independent, objective oversight and review of the Company's auditing,
accounting and financial reporting processes, including reviewing the audit
results and monitoring the effectiveness of the Company's internal audit
function. In addition, the Audit Committee engages the independent auditors. The
Audit Committee met four times during 2003, and on December 10, 2003, the Board
adopted a revised charter for the Audit Committee. A copy of the revised charter
is attached as Appendix A to the proxy statement.
During 2003, the Compensation Committee consisted of S. Parker Gilbert,
Chairman, Jerome A. Chazen and Peter Karmanos, Jr. The Compensation Committee's
primary responsibility is to review the compensation and employee benefit
policies applicable to employees of the Manager and, in particular, senior
management. The Compensation Committee met twice during 2003, and on December
10, 2003, the Board adopted a revised charter for the Compensation Committee.
The charter is posted on the Company's web site, www.taubman.com, in the
governance subsection of the Investor Relations page ("Corporate Governance
Section").
During 2003, the Executive Committee consisted of Robert S. Taubman,
Chairman, Graham T. Allison, and Allan J. Bloostein. The Executive Committee has
the authority to exercise many of the functions of the full Board of Directors
between meetings of the Board and met once and acted by written consent four
times during 2003.
In May 2003, the Board changed the Nominating Committee's name to the
Nominating and Corporate Governance Committee and adopted a new charter
consistent with its expanded mandate. The Board also appointed Myron E. Ullman,
III to the committee in place of Mr. R. Taubman to serve with the committee's
other members, S. Parker Gilbert and Allan J. Bloostein. The committee met once
in 2003. The Nominating and Corporate Governance Committee is responsible for
identifying individuals qualified to become Board members and recommending
director nominees for each Board committee, other than vacancies for which
holders of the Series B Preferred Stock are entitled to propose nominees. In
recommending candidates to the Board, and as part of the selection and
nomination process, the Nominating and Corporate Governance Committee reviews
the experience, mix of skills and other qualities of a nominee to assure
appropriate Board composition after taking into account the current Board
members and the specific needs of the Company and the Board. The Board looks for
individuals who have demonstrated excellence in their chosen field, high ethical
standards and integrity, and sound business judgment. The process also seeks to
ensure that the Board includes members with diverse backgrounds, skills and
experience, including appropriate financial and other expertise relevant to the
Company's business. The Company also requires that independent directors
comprise a majority of the Board, and the nominee must not serve on more than
five other public company boards.
11
The Nominating and Corporate Governance Committee does not solicit director
nominations, but will consider recommendations by shareholders with respect to
elections to be held at an annual meeting, so long as such recommendations are
sent on a timely basis to the Secretary of the Company and are in accordance
with the Company's by-laws. The committee will evaluate nominees recommended by
shareholders against the same criteria that it uses to evaluate other nominees.
Under the Company's by-laws, shareholders must follow an advance notice
procedure to nominate candidates for election as directors (or to bring other
business before an annual meeting). Under these procedures, a shareholder that
proposes to nominate a candidate for director or propose other business at the
annual meeting of shareholders, must give the Company written notice of such
nomination or proposal not less than 60 days and not more than 90 days prior to
the first anniversary of the preceding year's annual meeting; if, however, the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder must be delivered not
less than 60 days and not more than 90 days prior to such annual meeting or the
10th day following the day on which public announcement of the date of the
annual meeting is first made by the Company. The notice must include:
- the name and address of the person or persons being nominated and such
other information regarding each nominated person that would be required
in a proxy statement filed pursuant to the SEC's proxy rules in the event
of an election contest;
- the name and address of the shareholder making the nomination;
- the class and number of shares of Company stock that the nominating
shareholder owns; and
- the consent of each nominee to serve as a director if elected.
The Nominating and Corporate Governance Committee is also responsible for
recommending to the Board appropriate Corporate Governance Guidelines applicable
to the Company and overseeing governance issues.
The committee has not retained any third party to assist it in identifying
candidates and generally relies on multiple sources for identifying and
evaluating nominees, including referrals from the Company's current directors
and management. A copy of the charter for the Nominating and Corporate
Governance Committee is available on the Company's web site, www.taubman.com, in
the Corporate Governance Section.
COMPENSATION OF DIRECTORS
During 2003, the Company paid directors who are neither employees nor
officers of the Company or its subsidiaries an annual fee of $35,000, a meeting
fee of $1,000 for each Board or committee meeting attended, and reimbursed
outside directors for expenses incurred in attending meetings and as a result of
other work performed for the Company. For 2003, the Company incurred costs of
$287,500 relating to the services of Messrs. Allison, Bloostein, Chazen,
Gilbert, Karmanos and Ullman, as directors of the Company.
As part of its overall program of charitable giving, TRG maintains a
charitable gift program for the Company's outside directors. Under this
charitable gift program, TRG matches an outside director's donation to one or
more qualifying charitable organizations. TRG limits matching contributions to
an aggregate maximum amount of $10,000 per director per year. Individual
directors derive no financial benefit from this program since all charitable
deductions accrue solely to TRG. During 2003, TRG made seven matching
contributions in the total amount of $60,000.
12
CORPORATE GOVERNANCE
During 2003, the Board of Directors adopted Corporate Governance
Guidelines, a copy of which can be found at the Company's web site in the
Corporate Governance Section. These guidelines address, among other things, a
director's responsibilities, qualifications, including independence,
compensation and access to management and advisors.
The Nominating and Corporate Governance Committee is responsible for
overseeing and reviewing the Corporate Governance Guidelines and recommending to
the Board any changes to the guidelines.
In December 2003, the Board adopted a Code of Business Conduct and Ethics
(the "Code"), which sets out basic principles to guide the actions and decisions
of all of the Company's employees, officers and directors. The Code, which is
also available at www.taubman.com, in the Corporate Governance Section, covers
topics such as honesty, integrity, conflicts of interest, compliance with laws,
corporate opportunities, and confidentiality, as well as numerous other topics.
Waivers of the Code are discouraged, but any waiver that relates to the
Company's executive officers or directors may only be made by the Board or a
Board committee and will be publicly disclosed.
COMMUNICATING WITH THE BOARD
Any shareholder or interested party, who wishes to communicate with the
Board or any specific director, including non-management directors, the
presiding director, or committee members, may write to:
Taubman Centers, Inc.
Attn: Board of Directors
200 East Long Lake Road, Suite 300
P.O. Box 200
Bloomfield Hills, Michigan 48303-0200
Depending on the subject matter of the communication, management will:
- forward the communication to the director or directors to whom it is
addressed (matters addressed to the Chairman of the Audit Committee will
be forwarded unopened directly to the Chairman);
- attempt to handle the inquiry directly where the communication does not
appear to require direct attention by the Board, or an individual member,
e.g. the communication is a request for information about the Company or
is a stock-related matter; or
- not forward the communication if it is primarily commercial in nature or
if it relates to an improper or irrelevant topic.
To submit concerns regarding accounting matters, shareholders and other
interested persons may also call the Company's toll free, confidential hotline
number published in the Corporate Governance Section of the Company's web site.
Communications will be made available to directors at any time upon their
request.
CERTAIN TRANSACTIONS
The Manager is the manager of the SunValley Shopping Center in Contra Costa
County, California, and has been the manager since its development. TRG owns a
50% general partnership interest in SunValley Associates, a California general
partnership, which owns the center. The other 50% partner is an entity owned and
controlled by Mr. A. Alfred Taubman, the Company's largest shareholder, former
Chairman of the Board
13
of Directors and the father of Robert and William Taubman. SunValley's
partnership agreement names TRG as the managing general partner and provides
that so long as TRG has an ownership interest in the property, the Manager will
remain its manager and leasing agent.
In November 1999, TRG acquired Lord Associates, Inc., a retail leasing
firm, based in Alexandria, Virginia, from Courtney Lord, who became the
Manager's Senior Vice President of Leasing, for $2.5 million in cash and $5
million in Units, which were subject to certain contingencies. In October 2003,
in final settlement of all such contingencies, Mr. Lord returned $750,000 to the
Company.
A. Alfred Taubman and certain of his affiliates receive various property
management services from the Manager. For such services, Mr. A. Taubman and
affiliates paid the Manager approximately $1.9 million in 2003.
During 2003, the Manager paid approximately $2.8 million in rent and
operating expenses for office space in the building in which the Manager
maintains its principal offices and in which A. Alfred Taubman, Robert S.
Taubman, and William S. Taubman have financial interests.
The Taubman Asset Group, an entity which manages the personal assets of,
and provides administrative services to, the Taubman family, together with
certain members of the Taubman family, including A. Alfred Taubman
(collectively, the "Taubman Family"), utilize a portion of the Manager's
Bloomfield Hills, Michigan offices and a portion of the Manager's New York
offices. For the use of the office space, they paid the Manager $300,000 in
2003, representing their pro rata share of the total occupancy costs paid by the
Manager. In addition, employees of the Taubman Asset Group, A. Alfred Taubman
and certain employees of members of the Taubman Family and other affiliated
companies of the Taubman Family were enrolled in the benefit program of the
Manager. For participation in the Manager's benefit program, participants paid
the Manager $500,000 in 2003, representing a 100% reimbursement of the costs
associated with their employees' participation in the benefit program plus a 15%
administrative fee. On October 30, 2003, Mr. Taubman purchased a vehicle from
the Manager for $15,000, its fair market value. The Manager leases a corporate
jet for business use and was reimbursed $300,000 in 2003 by the Taubman Family
for incidental personal use of the corporate jet.
The Audit Committee reviews business transactions between the Company and
its subsidiaries and related parties to ensure that the Company's involvement in
such transactions, including those described above, is on arm's length terms.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent,
objective oversight and review of the Company's accounting functions and
internal controls. The Audit Committee acts under a written charter which was
restated in December 2003, and is attached as Appendix A to this Proxy
Statement. Each of the members of the Audit Committee is independent as defined
by the rules adopted by the SEC, the New York Stock Exchange and the Company's
Corporate Governance Guidelines. An Audit Committee member may not
simultaneously serve on more than two other audit committees of public
companies.
The responsibilities of the Audit Committee include engaging an accounting
firm to be the Company's independent accountants. Additionally, and as
appropriate, the Audit Committee reviews and evaluates, and discusses and
consults with management, internal audit personnel and the independent
accountants on matters which include the following:
- the plan for, and the independent accountants' report on, each audit of
the Company's financial statements;
14
- the Company's quarterly and annual financial statements contained in
reports filed with the SEC or sent to shareholders;
- changes in the Company's accounting practices, principles, controls or
methodologies, or in its financial statements;
- significant developments in accounting rules;
- the adequacy of the Company's internal accounting controls, and
accounting, financial and auditing personnel; and
- the continued independence of the Company's outside auditors and the
monitoring of any engagement of the outside auditors to provide non-audit
services.
The Audit Committee is responsible for recommending to the Board that the
Company's financial statements be included in the Company's annual report. The
Committee took a number of steps in making this recommendation for 2003. First,
the Audit Committee discussed with Deloitte & Touche LLP ("Deloitte"), the
Company's independent accountants for 2003, those matters required to be
communicated and discussed between an issuer's independent accountants and its
audit committee under applicable auditing standards, including information
regarding the scope and results of the audit. These communications and
discussions are intended to assist the Audit Committee in overseeing the
financial reporting and disclosure process. Second, the Audit Committee
discussed with Deloitte its independence and received a letter from Deloitte
concerning such independence as required under applicable independence standards
for auditors of public companies. This discussion and disclosure informed the
Audit Committee of Deloitte's independence, and assisted the Audit Committee in
evaluating such independence. Finally, the Audit Committee reviewed and
discussed, with management and Deloitte, the Company's audited consolidated
balance sheets at December 31, 2003 and 2002, and consolidated statements of
operations, cash flows and shareowners' equity for the three years ended
December 31, 2003. Based on the discussions with Deloitte concerning the audit,
the independence discussions, and the financial statement review and such other
matters deemed relevant and appropriate by the Audit Committee, the Audit
Committee recommended to the Board (and the Board agreed) that these financial
statements be included in the Company's 2003 Annual Report on Form 10-K.
AUDIT FEES. The Company paid Deloitte $912,550 during 2003 and $907,600
during 2002 for its independent audit of the Company's annual financial
statements, review of the financial statements included in the Company's
quarterly reports on Form 10-Q for fiscal year 2003 and 2002 and services that
are normally provided by the accountant in connection with these filings
(collectively, the "Audit Services"). This includes $618,400 in 2003 and
$652,500 in 2002 related to individual shopping center audit reports and
accounting consultations. All of the audit services provided to the Company by
Deloitte during 2003 were pre-approved by the Audit Committee.
AUDIT RELATED FEES. The Company paid Deloitte $20,100 during 2003 and
$19,700 during 2002 for the audit of an employee benefit plan. These audit
related services provided to the Company by Deloitte were pre-approved by the
Audit Committee.
TAX FEES. The Company paid Deloitte $1,175,276 during 2003 and $1,259,030
during 2002 for professional services related to federal and state tax
compliance, tax advice and tax planning. Tax compliance fees for 2003 and 2002
were $953,953 and $1,079,695, respectively; tax advice and planning fees were
$221,323 for 2003 and $179,335 for 2002. All of the tax related services
provided to the Company by Deloitte during 2003 were pre-approved by the Audit
Committee.
15
ALL OTHER FEES. In addition to the fees reported above, the Company paid
Deloitte $432,994 during 2002 for consulting services related to process
improvement projects in the development and leasing departments. The Company did
not incur any such fees for 2003.
The Audit Committee, based on its reviews and discussions with management
and Deloitte noted above, determined that the provision of these services was
compatible with maintaining Deloitte's independence.
PRE-APPROVAL POLICIES AND PROCEDURES FOR AUDIT AND NON-AUDIT SERVICES. The
Audit Committee has developed policies and procedures concerning its
pre-approval of the performance of audit and non-audit services. These policies
and procedures provide that the Audit Committee must pre-approve all audit and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Company. If a product or service arises that was not already
pre-approved, the Audit Committee has delegated to the Chairman of the Audit
Committee the authority to consider and pre-approve such services between
quarterly meetings of the Audit Committee. In pre-approving all audit services
and permitted non-audit services, the Audit Committee or a delegated member must
consider whether the provision of the permitted non-audit services is consistent
with maintaining the independence of the Company's auditor. Any interim
approvals granted by the Chairman of the Audit Committee are reported to the
entire Audit Committee at its next regularly scheduled meeting.
THE AUDIT COMMITTEE
Jerome A Chazen, Chairman
Graham T. Allison
Allan J. Bloostein
S. Parker Gilbert
Peter Karmanos, Jr.
Myron E. Ullman, III
16
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation of those persons who during 2003 were (i) the chief
executive officer and (ii) the other executive officers of the Company whose
compensation is required to be disclosed pursuant to the rules of the SEC (the
"Named Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------- LTIP ALL OTHER
SALARY BONUS(1) PAYOUTS(2) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
--------------------------- ---- -------- -------- ------------ ------------
Robert S. Taubman...................... 2003 $750,000 $572,500 $1,469,398 $26,693(3)
Chairman of the Board, President 2002 750,000 468,750 1,251,250 25,467
and Chief Executive Officer 2001 750,000 468,800 1,196,250 25,615
Lisa A. Payne.......................... 2003 $500,000 $370,625 $ 622,056 $27,874(4)
Executive Vice President and Chief 2002 500,000 325,000 508,750 23,042
Financial and Administrative Officer 2001 500,000 325,000 453,750 22,444
William S. Taubman..................... 2003 $487,500 $370,625 $ 611,587 $26,341(5)
Executive Vice President 2002 484,133 314,375 508,750 43,108
2001 474,994 312,500 453,750 25,135
Courtney Lord.......................... 2003 $287,423 $279,930 $ 158,854 $22,554(6)
Senior Vice President 2002 278,654 276,494 -- 21,187
2001 273,656 240,875 -- 15,316
John L. Simon.......................... 2003 $306,092 $390,880 $ 305,795 $25,899(8)
Senior Vice President 2002 298,125 268,413(7) 275,000 24,646
2001 290,616 255,063 275,000 24,506
---------------
(1) Bonus amount awarded under the Senior Short Term Incentive Plan. Awards made
pursuant to the Manager's Long-Term Performance Compensation Plan (the
"Long-Term Performance Plan") are not reportable on the date of grant and,
instead, are reported in the Long-Term Incentive Plan Awards table
immediately following.
(2) Reflects payouts of 1998, 1999 and 2000 Cash Awards made under the Manager's
Long-Term Performance Plan. Robert Taubman and William Taubman have elected
to defer receipt of the 1998 and 1999 payout amounts in accordance with the
terms of the Long-Term Performance Plan. Amounts deferred under the
Long-Term Performance Plan accrue interest until the deferred payment date.
The 2000 Cash Award was paid and includes a premium as explained in the
following section (Long-Term Performance Compensation Plan).
(3) Includes $16,260 contributed to the defined contribution plan (the
"Retirement Savings Plan") on behalf of Mr. Robert S. Taubman and $10,433
accrued under the supplemental retirement savings plan (the "Supplemental
Retirement Savings Plan").
(4) Includes $16,260 contributed to the Retirement Savings Plan on behalf of Ms.
Payne and $8,110 accrued under the Supplemental Retirement Savings Plan, and
$3,504 of travel reimbursements deemed compensation under Internal Revenue
Service rules.
17
(5) Includes $16,260 contributed to the Retirement Savings Plan on behalf of Mr.
William S. Taubman and $10,081 accrued under the Supplemental Retirement
Savings Plan.
(6) Includes $16,260 contributed to the Retirement Savings Plan on behalf of Mr.
Lord, and $6,294 accrued under the Supplemental Retirement Savings Plan.
(7) Excludes a $50,000 special bonus paid in June 2002 relating to 2001
compensation.
(8) Includes $16,260 contributed to the Retirement Savings Plan on behalf of Mr.
Simon and $9,639 accrued under the Supplemental Retirement Savings Plan.
LONG-TERM PERFORMANCE COMPENSATION PLAN
The Long-Term Performance Plan was adopted by the Manager and approved by
TRG's compensation committee in 1996 (the Compensation Committee of the Board
now performs such functions). The Company's Long-Term Performance Plan was
amended effective January 1, 1999 (the "First Amendment") and again effective
January 1, 2000 (the "Second Amendment"). The following discussion relates to
the 2003 grants under the Long-Term Performance Plan that are reflected in the
Long-Term Incentive Plan -- 2003 Awards table.
The amount of a participant's award is based on individual and Company
performance for the fiscal year prior to the date of the award and the
individual's position in the Company. Each eligible participant is granted a
Cash Award (a "Cash Award") and the final payout value of an award is tied to
the achievement of a target compounded growth rate of the Company's per share
funds from operations, as publicly reported by the Company, subject to
reasonable adjustments such as changes in accounting policies and extraordinary
or non-recurring items, over the three-year vesting period of the award. If the
target is achieved, the payout amount of each Cash Award is increased, subject
to a maximum premium of 30%; otherwise the payout amount remains the amount of
the original grant. Each Cash Award vests on the third January 1 after the date
of grant. Upon vesting, the value of the award under the Long-Term Performance
Plan will be paid to the participant in a lump sum, unless the participant
elects to defer payment in accordance with the terms of the Long-Term
Performance Plan. The payout amount is determined on the vesting date, and such
amount will accrue interest from the vesting date until the deferred payment
date.
18
LONG-TERM INCENTIVE PLAN -- 2003 AWARDS(1)
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
PERFORMANCE OR PRICE-BASED PLAN
CASH OTHER PERIOD ------------------------------------------
NAME AND PRINCIPAL AWARDS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
POSITION ($) OR PAYOUT ($) ($)(2) ($)
------------------ ---------- ---------------- ------------ ------------ ------------
Robert S. Taubman............ $1,285,000 1/1/03-1/1/06 $1,285,000 $1,477,750 $1,670,500
Chairman of the Board,
President and Chief Executive
Officer
Lisa A. Payne................ $ 705,000 1/1/03-1/1/06 $ 705,000 $ 810,750 $ 916,500
Executive Vice President and
Chief Financial and
Administrative Officer
William S. Taubman........... $ 630,000 1/1/03-1/1/06 $ 630,000 $ 724,500 $ 819,000
Executive Vice President
Courtney Lord................ $ 267,500 1/1/03-1/1/06 $ 267,500 $ 307,625 $ 347,750
Senior Vice President
John L. Simon................ $ 287,500 1/1/03-1/1/06 $ 287,500 $ 330,625 $ 373,750
Senior Vice President
---------------
(1) Awards were made under the Long-Term Performance Plan. Awards vest and,
unless deferred in accordance with the Long-Term Performance Plan, are
payable on the third January 1 after the date of grant.
(2) The target is the amount which would be payable if the target compounded
growth rate in per share funds from operations is achieved.
SENIOR SHORT TERM INCENTIVE PLAN AND ANNUAL BONUS PLAN
For 2003, the Manager's officers and senior management received part of
their annual compensation pursuant to the Manager's Senior Short Term Incentive
Plan (the "SSTIP"). Under the SSTIP, the actual amount awarded to a participant
depended upon a review and assessment of the employee's and the Company's
performance. Performance that met expectations resulted in a bonus of
approximately 100% of an employee's target amount. Performance beyond
expectations resulted in an employee receiving up to 150% of his target bonus.
Performance below expectations resulted in a payment of less than the bonus
target.
In 2004, the SSTIP bonus program was replaced with a new program called the
Annual Bonus Plan. Under the new program, bonuses will only be paid if the
Company's performance meets certain funds from operations and net operating
income growth hurdles which are approved annually by the Board of Directors.
Under the Annual Bonus Plan, a total bonus pool will be determined based on
Company performance. Payments to individuals will then be determined based upon
their annual performance review, and bonuses can range from 0% to 200% of their
target bonus amount.
INCENTIVE OPTION PLAN
TRG maintains the 1992 Incentive Option Plan for its employees with respect
to Units of Partnership Interest in TRG. Upon exercise, it is anticipated that
substantially all employees will exchange each underlying Unit for one share of
the Company's Common Stock under the Continuing Offer.
19
Mr. Robert Taubman, however, has elected to defer his receipt of certain Units
of Partnership Interest and right to exchange such Units under the Continuing
Offer, which deferral is described below.
The Company's chief executive officer makes periodic recommendations to the
Compensation Committee of the Board, which, after reviewing such
recommendations, determines grants. The exercise price of each Incentive Option
is equal to the fair market value of a Unit of Partnership Interest on the date
of grant. The 1992 Incentive Option Plan was amended in December 2001 to permit
a holder of an Incentive Option to pay the exercise price in cash or by
surrender of Units of Partnership Interest having an aggregate fair market value
equal to the exercise price. In the event that the exercise price for an
Incentive Option is paid by surrendering Units of Partnership Interest, only
those Units of Partnership Interest issued to the optionee in excess of the
number of Units of Partnership Interest surrendered are counted for purposes of
determining the remaining number of Units of Partnership Interest available for
future grants of Incentive Options under the 1992 Incentive Option Plan.
Generally, an Incentive Option vests in one-third increments on each of the
third, fourth, and fifth anniversaries of the date of grant, although the
Compensation Committee may allow an exercise at any time more than six months
after the date of grant. If the optionee's employment terminates within the
first three years for reasons other than death, disability, or retirement, the
right to exercise the Incentive Option is forfeited. If the termination of
employment is because of death, disability, or retirement, the Incentive Option
may be exercised in full. Outstanding Incentive Options also vest in full upon
the termination of the Manager's engagement by TRG, upon any "change in control"
of TRG, or upon TRG's permanent dissolution. No Incentive Option may be
exercised after ten years from the date of grant. The 1992 Incentive Option Plan
has been replaced by the Long-Term Performance Plan as the primary source of
long-term compensation. There were no Incentive Option grants to Named Officers
in 2003.
AGGREGATED OPTION EXERCISES DURING 2003 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT YEAR END OPTIONS AT 12/31/03(1)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Robert S. Taubman......... -- -- 245,016 -- $2,183,305 --
Lisa A. Payne............. -- -- 600,828 -- 4,926,874 --
William S. Taubman........ 17,776 63,300 527,759 -- 4,428,868 --
Courtney Lord............. -- -- -- -- -- --
John L. Simon............. -- -- -- -- -- --
---------------
(1) In accordance with the SEC's rules, based on the difference between fair
market value of Common Stock and the exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Revenue Reconciliation Act of 1993. The Omnibus Reconciliation Act of 1993
limits to $1 million the amount that may be deducted by a publicly held
corporation for compensation paid to each of its named executives in a taxable
year, unless the compensation in excess of $1 million is "qualified
performance-based compensation." Although TRG and the Manager are now part of
the Company's consolidated group for financial reporting purposes, this
deduction limit does not affect the Company and does not apply to TRG or the
Manager because TRG and the Manager are partnerships for federal tax purposes,
and the Company itself has no employees.
20
Compensation Philosophy. The Manager has had a long-standing philosophy of
targeting executive compensation at a level above the average of competitive
practice. As part of this philosophy, the mix of compensation elements has
emphasized variable, performance-based programs. As a result of this philosophy,
the Manager has been successful at recruiting, retaining, and motivating
executives who are highly talented, performance-focused, and entrepreneurial.
The Compensation Committee has continued to apply this philosophy to its
decisions on compensation matters. The independent compensation consultant
retained by the Compensation Committee has compared the Manager's compensation
practices with those of industry competitors and confirmed that the 2003
compensation of the Named Officers was consistent with the Manager's
compensation philosophy.
The Manager's compensation program for executive officers consists of the
following key elements: annual compensation in the form of base salary, bonus
compensation under the SSTIP (and commencing in 2004, the Annual Bonus Plan),
and long-term compensation under the Incentive Option Plan and the Long-Term
Performance Plan. The compensation of the Named Officers is determined based on
their individual performance and the performance of the Company, TRG, and the
Manager.
Since 1996, awards under the Long-Term Performance Plan have been selected
over Incentive Options as the primary source of incentive compensation to the
executive officers. Incentive Option grants have been and will continue to be
made in special situations.
Base Salaries. Base salaries for the Manager's executive officers are
generally targeted at a level above the average for executives of industry
competitors. The salaries of the Named Officers are reviewed and approved by the
Compensation Committee based on its subjective assessment of each executive's
experience and performance and a comparison to salaries of senior management of
industry competitors.
Long-Term Performance Plan. In 2003, the Compensation Committee made grants
of Cash Awards under the Long-Term Performance Plan to the Named Officers, as
shown in the Long-Term Incentive Plan -- 2003 Awards table.
Compensation of Chief Executive Officer. Robert S. Taubman's base salary
for 2003 was at an annual rate of $750,000. Mr. Taubman's performance evaluation
is based 25% on the Compensation Committee's evaluation of his individual
performance and 75% on the Compensation Committee's evaluation of the
performance of the Company, which includes the consideration of objective and
subjective criteria. Based on that evaluation and the report of the independent
consultant, the Compensation Committee confirmed that Mr. Taubman's base salary,
his bonus under the SSTIP for 2003 in the amount of $572,500 and his incentive
compensation under the Long-Term Performance Plan, as set forth in the Summary
Compensation Table and Long-Term Incentive Plans -- Awards table, were
consistent with the Manager's compensation philosophy.
THE COMPENSATION COMMITTEE
S. Parker Gilbert, Chairman
Jerome A. Chazen
Peter Karmanos, Jr.
21
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following line graph sets forth the cumulative total returns on a $100
investment in each of the Company's Common Stock, the S&P Composite -- 500 Stock
Index, and the NAREIT Equity Retail REIT Index for the period December 31, 1998
through December 31, 2003 (assuming, in all cases, the reinvestment of
dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG TAUBMAN CENTERS, INC.,
THE NAREIT EQUITY RETAIL REIT INDEX, AND THE S&P 500 INDEX
[LINE GRAPH]
----------------------------------------------------------------------------------------------------------
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
----------------------------------------------------------------------------------------------------------
Taubman Centers, Inc. $100.00 $ 84.72 $ 94.07 $137.75 $160.98 $215.70
NAREIT Equity Retail REIT Index $100.00 $ 88.23 $104.08 $135.75 $164.35 $241.22
S&P 500 Index $100.00 $121.04 $110.02 $ 96.94 $ 75.52 $ 97.18
----------------------------------------------------------------------------------------------------------
Please note: The stock price performance shown on the graph above is not
necessarily indicative of future price performance.
CERTAIN EMPLOYMENT ARRANGEMENTS
In January 1997, the Manager entered into a three-year agreement with Lisa
A. Payne regarding her employment as an Executive Vice President and the Chief
Financial Officer of the Manager and her service to the Company in the same
capacities. In January 1999 and January 2000, the agreement was extended for an
additional year and continues to have automatic, one-year extensions unless
either party gives notice to the
22
contrary. In March 2002, Ms. Payne became the Manager's and Company's Chief
Financial and Administrative Officer and continued her position as an Executive
Vice President of each entity. The employment agreement provides for an annual
base salary of not less than $500,000, to be reviewed annually. The agreement
also provides for Ms. Payne's participation in the Manager's annual bonus plan,
with a target award of $250,000 and a maximum annual award of $375,000.
In November 1999, in connection with TRG's acquisition of the outstanding
stock of Lord Associates, Inc., the Manager entered into an employment agreement
with Courtney Lord pursuant to which Mr. Lord became the Manager's Senior Vice
President of Leasing. The agreement had a termination date of January 1, 2005,
unless it was terminated sooner by either the Company or Mr. Lord. The
employment agreement provided for an annual base salary of not less than
$270,000, to be reviewed annually. The agreement also provided for Mr. Lord's
participation in the Manager's annual bonus plan. Mr. Lord agreed that in the
event his employment was terminated he would not thereafter compete with the
Company for a period (depending on the circumstances surrounding such
termination) of between one and two years. In addition, part of the
consideration received by Mr. Lord in exchange for his shares of Lord
Associates, Inc. included 435,153 Units of Partnership Interest and 435,153
shares of Series B Preferred Stock. Units of Partnership Interest granted to Mr.
Lord are subject to vesting as described below and, once fully vested, may be
exchanged for shares of the Company's Common Stock under the Continuing Offer.
At this time, after taking into account Mr. Lord's exercise of his rights under
the Continuing Offer with respect to 68,000 Units of Partnership Interest, Mr.
Lord has both voting and distribution rights with respect to 323,639 Units of
Partnership Interest and 323,639 shares of Series B Preferred Stock. Mr. Lord
has granted an irrevocable proxy to TG Partners with respect to the remaining
Partnership Units and shares of Series B Preferred Stock. The remaining
Partnership Units are not entitled to receive partnership distributions and
allocations except upon liquidation. Under the terms of the irrevocable proxy
executed by Mr. Lord in favor of TG Partners and a letter agreement between Mr.
Lord and TRG, the remaining Partnership Units and shares of Series B Preferred
Stock will be released from the proxy and such Partnership Units will become
entitled to partnership distributions and allocations on January 1, 2005.
On March 10, 2004, the Company entered into a new arrangement with Courtney
Lord. On June 30, 2004, Mr. Lord will cease being Senior Vice President,
Leasing, but will continue to be paid pursuant to his employment agreement.
Furthermore, on March 10, 2004, the Company entered into a Consulting Agreement
with Courtney Lord pursuant to which Mr. Lord has agreed to provide consulting
services to the Company effective January 1, 2005 and terminating on December
31, 2005. Pursuant to the Consulting Agreement, the Company is obligated to pay
Mr. Lord $10,000 per month for consulting services up to a specified number of
hours. Consulting services provided by Mr. Lord in excess of these hours will be
paid on an hourly basis. In addition, the Company agreed to reimburse Mr. Lord
for the 18 month period ending June 30, 2006 for the premiums then in effect for
COBRA continuation coverage and to reimburse him for the 6 month period
commencing July 1, 2006 and ending on December 31, 2006 up to the amount of
COBRA continuation coverage premiums. Lastly, the Company agreed to vest Mr.
Lord's Long-Term Performance Plan payments earned during his employment, which
will be paid in January of each year through 2007 and an amount to be determined
in January 2005 based upon Mr. Lord's 2004 job performance to be paid in January
2008. The Consulting Agreement prohibits Mr. Lord during the term of the
Consulting Agreement and for a period of 12 months thereafter from providing any
services (i) to certain named competitors of the Company and (ii) to any
shopping center in excess of 200,000 square feet located within a specified
radius of a shopping center owned by the Company.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
In May 2003, the Company entered into change of control employment
agreements (the "Change of Control Agreements") with each of Lisa A. Payne,
Courtney Lord, John L. Simon and the Company's other
23
Operating Committee members other than Robert Taubman and William Taubman. The
Change of Control Agreements have three-year terms that extend for an additional
year on each anniversary of the first day of their terms, unless a notice not to
extend is given by the Company or any of its affiliates. If a "change of control
of the Company," as defined in the Change of Control Agreements, occurs during
the term of the Change of Control Agreements, then the Change of Control
Agreements become operative for a fixed three-year period commencing on the date
of the change of control and supersede any other employment agreement between
the Company and any of its affiliates, on the one hand, and the executive, on
the other.
Each Change of Control Agreement provides generally that the executive's
terms and conditions of employment, including position, location, compensation
and benefits will not be adversely changed during the three-year period after a
change of control. If the executive's employment is terminated by the Company
other than for cause, death or disability or if the executive resigns for "good
reason," as defined in the Change of Control Agreements during this three-year
period or upon certain terminations in connection with or in anticipation of a
change of control, the executive will generally be entitled to receive:
- an annual bonus for the year in which the termination of employment
occurs, pro-rated through the date of termination;
- two and a half times the executive's annual base salary and annual bonus;
- continued welfare benefits and perquisites for thirty months;
- $1,000 from the repurchase by the Manager of the participant's T-I REIT,
Inc. share granted to the participant under a bonus award agreement; and
- outplacement services.
The annual bonus components of this severance amount will be based on the
higher of the highest bonus paid to the executive during the three years prior
to the change of control or the most recent bonus paid to the executive prior to
the date of termination of employment. In addition, in order to preserve an
existing benefit under an employment agreement that the Company entered into
with Ms. Payne in January 1997, Ms. Payne's Change of Control Agreement provides
that, in the event that she terminates her employment for any reason other than
"good reason" during the 90-day period following a change of control, she will
be entitled to a payment equal to two times her base salary and target bonus
under the annual bonus plan, rather than the payments and benefits specified
above.
Each Change of Control Agreement also provides that effective on the
occurrence of a change of control or a termination of employment of the
executive in anticipation of a change of control:
- all of the executive's equity-based compensation awards that are
outstanding on the date of the change of control will vest; and
- all of the executive's then-outstanding awards under the Long-Term
Performance Plan will vest and be immediately paid in full.
CHANGE OF CONTROL SEVERANCE PROGRAM
In May 2003, the Company adopted a Change of Control Severance Program (the
"Program") in which all of the individuals, other than Robert Taubman and
William Taubman, who are employed by the Company or any of its affiliates on the
date of a "change of control of the Company" as defined in the Program, and who
are not a party to the employment agreements described above, participate. The
Program superseded the Company's undocumented existing severance program and
provides benefits comparable to those the Company has provided in the past. The
Program provides generally that if a participant's employment with the
24
Company and any of its affiliates is terminated other than for cause, death or
disability or if the participant resigns for "good reason," as defined in the
Program, during the two-year period following a change of control, in the case
of participants who are Group Vice Presidents, or during the one-year period
following a change of control, in the case of all other participants, a
participant will be generally entitled to receive, subject to the participant's
execution and non-revocation of a release:
- a lump sum separation benefit equal to 1/12 of the participant's annual
base salary and annual bonus times the participant's years of service
with the Company and its affiliates;
- medical, dental and vision benefit continuation, and if eligible
immediately prior to the change of control or at any time thereafter,
executive disability benefit continuation, for a period equal to the
number of months of severance to which the participant is entitled;
- $1,000 from the repurchase by the Manager of the participant's T-I REIT,
Inc. share granted to the participant under a bonus award agreement; and
- outplacement services.
The separation benefit will be subject to a maximum of 24 months' base salary
and bonus and a minimum of 16 months' base salary and bonus in the case of
participants who are Group Vice Presidents, 12 months' base salary and bonus in
the case of participants who are exempt and Long-Term Performance Plan-eligible
associates (other than Group Vice Presidents), six months' base salary and
bonus, in the case of participants who are exempt and non-Long-Term Performance
Plan-eligible associates, and three months' base salary and bonus, in the case
of participants who are non-exempt associates. For participants who are
participants in the annual bonus plan, the annual bonus component of the
participant's separation benefit will be 130% of the higher of the participant's
target bonus for the year in which the change of control occurs and the highest
target bonus established for the participant in any subsequent year. For
participants who are participants in the Specialty Retail Bonus Plan or the
Leasing Bonus Plan, the annual bonus component of the participant's separation
benefit will be equal to the higher of (i) the average of the participant's
actual bonuses for the three years immediately preceding the change of control
(or, if the participant has not been employed by the Company and its affiliates
for three years prior to the change of control, such lesser number of years
during which the participant was employed by the Company and its affiliates) or
(ii) the highest actual bonus paid to the participant for any subsequent year
(if any).
The Program also provides that effective as of the occurrence of a change
of control:
- each participant's equity-based compensation awards will vest; and
- the participant's then outstanding awards under the Long-Term Performance
Plan will vest and be immediately paid in full.
ITEM 2 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
On March 9, 2004, the Audit Committee appointed KPMG as the independent
auditors to audit the financial statements of the Company for 2004 to replace
Deloitte, which was informed on March 10, 2004 that it would no longer serve as
the Company's independent accountants. The Board of Directors recommends that
the shareholders vote FOR the appointment of KPMG as the Company's independent
auditors for the year ending December 31, 2004. Although shareholder approval of
the appointment is not required by law and is not binding on the Company, the
Audit Committee will take the appointment of KPMG under advisement if such
appointment is not approved by the affirmative vote of a majority of the votes
cast at the annual meeting.
25
The reports of Deloitte on the Company's financial statements for the past
two fiscal years contained no adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle. For the two most recent fiscal years and the subsequent interim
period through March 9, 2004, there have been no disagreements with Deloitte on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Deloitte, would have caused them to make reference
thereto in their reports on the financial statements for such years. During the
two most recent fiscal years and the subsequent interim period through March 9,
2004, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K).
During the two most recent fiscal years and the subsequent interim period
through March 9, 2004, the Company did not consult with KPMG regarding either
(i) the application of accounting principles to a specified transaction, either
completed or proposed; (ii) the type of audit opinion that might be rendered on
the financial statements; or (iii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
The Company expects that representatives of KPMG and Deloitte will be
present at the annual meeting and will be afforded an opportunity to make a
statement if they desire to do so. The Company also expects that such
representatives will be available to respond to appropriate questions addressed
to the officer presiding at the meeting.
OTHER MATTERS
The Board of Directors does not know of any other matters to be determined
by the shareholders at the annual meeting; however, if any other matter is
properly brought before the meeting, the proxy holders named in the enclosed
proxy card intend to vote in accordance with the Board's recommendation or, if
there is no recommendation, in their own discretion.
COSTS OF PROXY SOLICITATION
The cost of preparing, assembling, and mailing the proxy material will be
paid by the Company. The Company will request nominees and others holding shares
for the benefit of others to send the proxy material to, and to obtain proxies
from, the beneficial owners and will reimburse such holders for their reasonable
expenses in doing so. Innisfree M&A Incorporated has also been hired to assist
the Company with the solicitation of proxies for a fee of $23,000 and
reimbursement for reasonable out of pocket expenses. In addition, the Company's
directors, officers and regular employees may solicit proxies by mail,
telephone, facsimile or in person, but they will not receive any additional
compensation for such work.
ADDITIONAL INFORMATION
PRESENTATION OF SHAREHOLDER PROPOSALS AT 2005 ANNUAL MEETING
Any shareholder proposal intended to be presented for consideration at the
annual meeting to be held in 2005 must be received by the Company at 200 East
Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills, Michigan 48303-0200
by the close of business on December 9, 2004 and must otherwise be in compliance
with the Company's by-laws.
26
ANNUAL REPORT
The Annual Report of the Company for the year ended December 31, 2003,
including financial statements audited by Deloitte & Touche LLP, independent
accountants, and other reports dated February 4, 2004, are being furnished with
the Proxy Statement.
IN ADDITION, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2003, AS FILED WITH THE SEC, WILL BE SENT TO ANY
SHAREHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST SENT TO THE COMPANY'S
EXECUTIVE OFFICES: TAUBMAN CENTERS INVESTOR SERVICES, 200 EAST LONG LAKE ROAD,
SUITE 300, P.O. BOX 200, BLOOMFIELD HILLS, MICHIGAN 48303-0200.
Please complete the enclosed proxy card and mail it in the enclosed
postage-paid envelope as soon as possible.
By Order of the Board of Directors,
Robert S. Taubman,
Chairman of the Board, President and
Chief Executive Officer
April 8, 2004
27
APPENDIX A
AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF
TAUBMAN CENTERS, INC.
I. SCOPE OF THE AUDIT COMMITTEE'S DUTIES AND RESPONSIBILITIES
Through the activities set forth in this Charter, the Audit Committee shall
assist the Board of Directors in fulfilling its responsibilities by providing
oversight review of the Company's auditing, accounting and financial reporting
processes. The Audit Committee shall assist the Board in monitoring the
integrity of the financial statements of the Company, the independent
accountant's qualifications and independence, the performance of the independent
accountants and the Company's internal audit department and compliance by the
Company with all legal and regulatory requirements. In so doing, the Committee
shall serve as an independent and objective body to provide an open avenue of
communication among the independent accountants, management and the internal
auditing department, and the Committee and Board of Directors.
Consistent with its responsibilities to provide an open avenue of
communication, the Committee shall establish procedures and review such
procedures at least annually, for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters. The Company's written policies, including its Code
of Business Conduct and Ethics, shall incorporate such procedures and provide a
means by which employees of the Company may make confidential and/or anonymous
submissions of concerns to the Committee regarding questionable accounting or
auditing matters.
The Committee shall periodically review its scope, policies, and
procedures, including, on an annual basis, a review and reassessment of the
adequacy of this Charter and recommend any proposed changes to the Board for
approval. The Committee shall also annually review its own performance.
II. MEMBERSHIP ON THE AUDIT COMMITTEE; CHAIRMAN
The Committee shall consist of at least three directors as selected by the
Board based upon the recommendation of the Company's Nominating and Corporate
Governance Committee. Each Committee member will be independent as defined by
the Company's Corporate Governance Guidelines. The Committee members shall serve
until their successors are duly elected and qualified and may be replaced by the
Board at any time, with or without cause.
Each director serving on the Audit Committee shall be "financially
literate," as such qualification is interpreted by the Board of Directors in its
business judgment or must become financially literate within a reasonable period
of time after his or her appointment to the Audit Committee. The Committee shall
also have at least one member who shall be a "financial expert" within the
meaning of the Applicable Rules and Standards (as hereinafter defined).
The Board of Directors may appoint one member to be the Chairman of the
Committee. If the Board fails to appoint a Chairman, the committee members may
elect a Chairman by majority vote of all members. In the absence of a Chairman,
the members present at a meeting may elect a Chairman for the meeting. The
Chairman will preside at meetings of the Committee and, subject to action by the
entire Committee, set the agenda for the meeting.
The Committee members shall not simultaneously serve on the audit committee
of more than two other public companies.
A-1
Members shall also have such additional qualification(s) and/or experience
as may from time to time be required by the Sarbanes-Oxley Act of 2002, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Applicable
Rules and Regulations of the Securities and Exchange Commission and the
applicable listing standards of the New York Stock Exchange (the "Applicable
Rules and Standards").
III. MEETINGS OF THE AUDIT COMMITTEE; QUORUM AND AUDIT COMMITTEE ACTION
The Committee shall meet at least quarterly, or more frequently as
circumstances require. Any member of the Committee may call a special meeting of
the Committee by giving notice to all members. Notice of meetings shall be given
at least 48 hours in advance, provided that, if the circumstances pertaining to
the matters to be addressed warrant, any lesser notice reasonable under the
circumstances shall be sufficient. No notice of a regularly scheduled meeting
shall be required, and notice may be waived by any member as permitted by law.
Consistent with its duty to provide an open avenue of communication, the
Committee may ask members of management, any employee or others (i.e., outside
counsel or independent accountants) to attend any meeting or to meet with any
members of, or consultants to, the Committee. The Committee shall meet with the
internal auditors and the independent accountants and management in separate
executive sessions to discuss any matters the Committee or these groups believe
should be discussed privately with the Committee.
The Committee shall obtain confirmation that the independent accountants
and the internal auditors will communicate directly and on a timely basis with
the Committee or the Chairman of the Committee if such communication is
warranted.
A majority of the members of the Committee present in person or by
telephone shall constitute a quorum, and action of the Committee shall be by a
majority of the members of the Committee; provided, however, the Committee may
establish and delegate authority to, subcommittees whenever it considers it
appropriate, including subcommittees with the authority to grant pre-approvals
of audit and permitted non-audit services, provided that the decisions of such
subcommittee to grant pre-approvals shall be presented to the full Committee at
its next scheduled meeting and all other actions taken by a subcommittee shall
be reported to the Committee on a regular basis. If the Committee so provides,
the Chairman of the Committee may act on behalf of or represent the Committee on
all matters or such matters specifically delegated to the Chairman, in which
event, the Chairman shall report to the Committee.
The Committee will maintain minutes or other records of its meetings and
actions.
IV. RESPONSIBILITIES, POWERS AND DUTIES OF THE AUDIT COMMITTEE
The following functions and activities are set forth as a guide for the
Committee in carrying out its overview responsibility.
A. General
1. The Committee shall report Committee actions to the Board and may
make appropriate recommendations to the Board concerning matters
within the Committee's scope of responsibilities.
2. The Committee shall have the power to conduct or authorize
investigations into matters within the Committee's scope of
responsibilities. The Committee is authorized to retain independent
counsel, accountants, and others to assist the Committee in respect
of any matter or matters, including an investigation, and to obtain
funding for the compensation of such independent counsel,
accountants, and others.
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3. The Committee may perform any activities consistent with this
Charter, the Company's articles of incorporation and by-laws, and
applicable law (including the Applicable Rules and Standards) as the
Committee or the Board deems advisable.
4. The Committee shall consult with the Board and management but shall
not delegate its responsibilities hereunder other than to a
subcommittee or to the Chairman of the Committee pursuant to Article
III hereof.
B. Engagement of Independent Accountants
1. The Committee shall have sole authority to appoint or replace the
independent accountants, subject to shareholder ratification at the
Company's annual shareholder meeting, and shall pre-approve all
auditing services and non-auditing services to be provided by the
independent accountants. Consistent with the foregoing, the Committee
shall instruct the Board as to the selection (or the replacement of)
the independent accountants for Company audits. The Committee shall
review and approve the fees and other compensation to be paid to the
independent accountants. The Committee shall evaluate the
qualifications, performance and independence of the independent
accountants. The Committee shall have the sole authority to resolve
all disagreements between management and the independent accountants.
2. The Committee shall obtain annually a formal written statement from
the independent public accountants delineating all relationships
between the accountants and the Company (including, without
limitation, any person currently employed by the Company who during
the prior year was employed by the independent accountants), actively
engage in a dialogue with the accountants with respect to any
disclosed relationships or services that may impact the objectivity
and independence of the independent public accountants and instruct
the Board of Directors to take appropriate action in response to the
report of the independent public accountants to satisfy itself of the
outside auditors' independence.
3. The Committee shall insure the rotation of the lead audit partner of
the independent accountants as required by the Applicable Rules and
Standards. The Committee shall, in order to assure the continuing
independence of the outside auditors, adopt a policy of rotating the
lead audit partner every five (5) years, and consider whether the
firm itself should be rotated. The Committee shall periodically
revisit this matter, as necessitated by the Applicable Rules and
Standards.
4. The Committee shall review, in consultation with management and the
independent accountants, the scope of each audit to be made by the
independent accountants. Prior to each audit, the Committee shall
discuss with the independent accountants the planning and staffing of
the audit. The provision of any auditing services shall be subject to
the prior approval of the Committee.
5. Any non-audit services (including tax-related services) to be
provided by the independent accountants shall be subject to the prior
approval of the Committee. The Committee may only approve the
provision of non-audit services upon a determination that the
provision of such services will not in any way compromise the
independence of the outside auditors and that the provision of such
services by the independent auditor is not prohibited by the
Applicable Rules and Standards. Pursuant to Article III hereof, the
Committee may delegate its authority to grant such prior approval of
non-audit services, provided that all decisions to grant prior
approval shall be presented to the full Committee at its next
scheduled meeting. The Committee shall maintain written documentation
of its approval of non-audit services and insure that such approvals
are disclosed in the Company's filings under the Exchange Act in the
manner required by the Applicable Rules and Standards.
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6. The Committee shall obtain confirmation that the independent
accountants will provide the Committee with all communications
required of the independent accountants, including a timely analysis
of significant financial reporting issues.
7. The Committee shall obtain confirmation that the independent
accountants will be available to the shareholders at the annual
meeting and, upon request, to the Committee and the Board.
8. The Committee shall, not less frequently than annually, obtain and
review a report by the independent accountants describing: the firm's
internal quality control procedures; and any material issues raised
by the most recent internal quality control review, peer review or
review by the PCAOB, within the preceding five (5) years, respecting
one or more independent audits carried out by the firm, and any steps
taken to deal with such issues.
9. The Committee shall set clear hiring policies for the Company
regarding employees or former employees of the independent
accountants consistent with the Applicable Rules and Standards.
10. The Committee shall review and evaluate the lead partner of the
independent accountants.
C. Responsibilities for Review
1. The Committee shall review any significant findings and
recommendations made by the independent accountants together with
management's responses to them.
2. The Committee shall meet separately, with management, with the
internal auditors, and with the independent accountants in order to
perform its oversight functions.
3. The Committee shall review with management and the independent
accountants and also with the internal auditors all such matters as
they deem appropriate, and as required by Applicable Rules and
Standards, including, but not limited to, the following:
a) The annual audited financial statements, including disclosure
made in management's discussion and analysis, and recommend to
the Board whether the audited financial statements should be
included in the Company's Form 10-K;
b) The Company's quarterly financial statements prior to the filing
of its Form 10-Q, including disclosure made in management's
discussion and analysis, and the results of the independent
auditor's reviews of the quarterly financial statements;
c) Any material issues raised by management, the independent
accountants or the Committee in its review of the Company's
(including the unconsolidated subsidiaries') interim and annual
financial statements, including without limitation, any
adjustments recommended by the independent accountants and
management's responses, including any decision as to whether or
not to make any such adjustment;
d) Significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles; any
significant issues as to the adequacy of the Company's internal
controls and any steps adopted in light of material control
deficiencies; any significant issues as to the development,
selection and disclosure of critical accounting policies and
estimates. In connection with changes in the selection and
application of accounting principles, the Committee shall review
all alternative treatments of financial information within
generally accepted accounting principles that have been discussed
by the independent accountants with management, the ramifications
A-4
of the use of such alternative disclosures and treatments and the
treatment preferred by the independent accountants;
e) The Company's earnings press releases, including the use of
"funds from operations," "pro forma" or "adjusted" non-GAAP
measures, as well as financial information and earnings guidance
provided to analysts and rating agencies. Such review may be done
generally (consisting of discussing the types of information to
be provided and the types of presentations to be made);
f) The effect of relevant draft, proposed and final regulatory and
accounting pronouncements;
g) The effect of off-balance sheet structures on the Company's
financial statements;
h) The Company's major financial risk exposures and the steps
management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management
policies; and
i) Any serious difficulties or significant disagreements with
management or the internal auditing department encountered
during the course of the audit, including any restrictions on
the scope of their work or access to required information.
4. The Committee shall meet (in person or by telephone) with the
independent accountants and financial and/or senior management to
review earnings prior to their release and review the 10-Q and 10-K
prior to filing. The Committee shall discuss any concerns senior
management may have with respect to each filing and earnings release.
The Committee shall review with the CEO, the CFO and the independent
accountants any concerns raised by the CEO and CFO during their
certification process for each 10-Q and 10-K about any significant
deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud involving management or
other employees who have a significant role in the Company's internal
controls.
5. The Committee shall review any legal matter that could have a
significant impact on the Company's financial statements or the
Company's compliance policies.
6. The Committee shall obtain from the independent accountants'
assurance that the requirements of the auditors under Section 10A
(the provisions of the Exchange Act that deal with audit
requirements, and in particular, acts or omissions by an issuer that
violate any law, or any rule or regulation having the force of law)
of the Exchange Act have been complied with.
7. The Committee shall review reports from management and the Company's
internal auditors and outside counsel with respect to the Company's
compliance with applicable laws and regulations and with the
Company's Code of Business Conduct and Ethics.
8. The Committee shall discuss with management and the independent
accountants any correspondence with regulators or governmental
agencies and any published reports, which raise material issues
regarding the Company's financial statements, accounting policies or
internal controls.
9. The Committee shall prepare the audit committee report required for
the Company's annual Proxy Statement.
10. The Committee shall review with the independent accountants any audit
problems or difficulties the independent accountants encountered
during the course of the audit work, including any restrictions on
the scope of the independent accountants' activities or on access to
requested information, and any significant disagreement with
management.
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D. Oversight of the Internal Audit Function.
1. The Committee shall review the appointment, continuation and
replacement of the internal auditors.
2. The Committee shall discuss with the independent accountants and
management the internal auditor's responsibilities and staffing and
any recommended changes planned in the scope of the internal audit
function.
V. LIMITATION OF COMMITTEE'S ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and Applicable Rules and Standards. These are the responsibilities of management
and the independent auditor.
VI. CONTINUING EFFECT OF INDEMNIFICATION AND EXCULPATION PROVISIONS OF THE
COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The members of the Audit Committee as Directors and, in fulfilling their
responsibilities hereunder shall continue to be fully covered by the exculpation
and indemnification provisions applicable to the Company's directors and
officers, as set forth in the Company's articles of incorporation and by-laws,
and such provisions are adopted by reference herein. Nothing contained herein,
in the Applicable Rules and Standards or in any other document shall abrogate or
supersede the protective exculpation and indemnification provisions set forth in
the Company's articles of incorporation and by-laws.
A-6
TAUBMAN CENTERS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS - MAY 18, 2004
The undersigned appoints each of Robert S. Taubman and Lisa A. Payne, with
full power of substitution, to represent the undersigned at the annual meeting
of shareholders of Taubman Centers, Inc. on Tuesday, May 18, 2004, and at any
adjournment, and to vote at such meeting the shares of Common Stock that the
undersigned would be entitled to vote if personally present in accordance with
following instructions and to vote in their judgment upon all other matters that
may properly come before the meeting and any adjournment. The undersigned
revokes any proxy previously given to vote at such meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN FAVOR OF ITEMS (1)
AND (2) IF NO INSTRUCTION IS PROVIDED.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE PAID ENVELOPE.
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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FOLD AND DETACH HERE
YOU CAN NOW ACCESS YOUR TAUBMAN CENTERS, INC. ACCOUNT ONLINE.
Access your Taubman Centers, Inc. shareholder account online via Investor
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makes it easy and convenient to get current information on your shareholder
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