<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CAPITAL FACTORS HOLDING, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE> 2
CAPITAL FACTORS HOLDING, INC.
1799 WEST OAKLAND PARK BOULEVARD
FORT LAUDERDALE, FLORIDA 33311
--------------
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, MAY 23, 1997
--------------
To the Shareholders of Capital Factors Holding, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders
(the "Annual Meeting") of Capital Factors Holding, Inc. (the "Company") will be
held at the Boca Raton Resort & Club, 501 East Camino Real, Boca Raton,
Florida, 33431, on Friday, May 23, 1997, at 10:00 a.m., for the following
purposes:
(1) To elect ten persons to the Company's Board of Directors to
hold office until their terms shall expire or until their
successors are duly elected and qualified;
(2) To consider and vote upon a proposal to approve the Capital
Factors Holding, Inc. Stock Option Plan, as set forth in
Appendix A hereto;
(3) To consider and vote upon a proposal to approve the material
terms of the performance goals relating to the incentive
compensation and deferred compensation provisions set forth in
the Employment Agreement between the Company and John W.
Kiefer, Chief Executive Officer and President of the Company,
as set forth in Appendix B hereto; and
(4) To transact such other business as may properly come before
the Annual Meeting and any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on April 7,
1997 as the record date for the determination of the shareholders entitled to
notice of and to vote at the Annual Meeting and any adjournments or
postponements thereof.
Whether or not you expect to be present at the Annual Meeting, please
sign, date and return the enclosed proxy card as promptly as possible in the
enclosed pre-addressed stamped envelope.
By Order of the Board of Directors
TIMOTHY E. KISH
Secretary
Miami, Florida
May 2, 1997
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO
ATTEND THE ANNUAL MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO
ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS
ATTEND THE ANNUAL MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
<PAGE> 3
CAPITAL FACTORS HOLDING, INC.
---------------
PROXY STATEMENT
FOR THE MAY 23, 1997 ANNUAL MEETING OF SHAREHOLDERS
---------------
This Proxy Statement is furnished to shareholders of Capital Factors
Holding, Inc., a Florida corporation (the "Company"), in connection with the
solicitation by the Company's Board of Directors of proxies for the Annual
Meeting of Shareholders to be held on Friday, May 23, 1997, and any
adjournments or postponements thereof (the "Annual Meeting"), pursuant to the
enclosed Notice of Annual Meeting. The approximate date of mailing this Proxy
Statement and the accompanying proxy to the Company's shareholders is May 2,
1997. The complete mailing address, including zip code, of the Company is 1799
West Oakland Park Boulevard, Fort Lauderdale, Florida 33311. The Company's
telephone number is (954)730-2900. The Company will be relocating its
principal executive offices during the second or third quarter of 1997 to 120
East Palmetto Park Road, 5th Floor, Boca Raton, Florida 33432; telephone
number: (561)368-5011. The current offices will be retained for administrative
and back office functions.
USE OF PROXIES AT THE ANNUAL MEETING
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. Proxies in the accompanying form, if properly executed, received by
the Company prior to the Annual Meeting and not revoked prior to the use
thereof, will be voted at the Annual Meeting as instructed thereon. Executed
proxies with no instructions indicated thereon that have not been revoked will
be voted:
(i) for the election of ten directors, as set forth below under
"Election of Directors;"
(ii) for the approval of the Capital Factors Holding, Inc. Stock
Option Plan, as set forth below under "Proposal to Approve
Stock Option Plan;"
(iii) for the approval of the material terms of the performance
goals relating to the incentive compensation and deferred
compensation provisions set forth in the Employment Agreement
between the Company and John W. Kiefer, Chief Executive
Officer and President of the Company, as set forth below under
"Proposal to Approve the Material Terms of the Performance
Goals Relating to the Incentive Compensation and Deferred
Compensation Provisions Set Forth in the Employment
Agreement;" and
(iv) to transact such other business as may properly come before
the Annual Meeting, including any adjournments or
postponements thereof.
The Board of Directors knows of no matters that are to be presented
for consideration at the Annual Meeting other than those described in this
Proxy Statement, but if other matters are properly presented, it is the
intention of the persons designated as proxies in the enclosed form of proxy to
vote as proxies with respect to such matters in accordance with their judgment.
1
<PAGE> 4
REVOCATION OF PROXIES
The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation of duly executed
proxy bearing a later date. No revocation will be effective, however, until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING
Holders of the Company's Common Stock of record on the books of the
Company as of the close of business on April 7, 1997 (the "Record Date") will
be entitled to notice of and to vote at the Annual Meeting and any adjournments
or postponements thereof. At the Record Date, there were 12,300,000 shares of
Common Stock outstanding. Holders of Common Stock will vote together as a
single class on all matters submitted to the shareholders for a vote at the
Annual Meeting, with each share of Common Stock entitled to one vote on each
matter presented.
QUORUM; ADJOURNMENT; VOTE REQUIRED FOR APPROVAL
As set forth in the Bylaws of the Company, the attendance, in person
or by proxy, of the holders of a majority of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting is necessary to constitute a
quorum for the transaction of business at the Annual Meeting. If less than a
majority of the outstanding shares of Common Stock are represented at the
Annual Meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice until a quorum is obtained.
In order to be elected, nominees for director must receive a plurality
of the votes cast by holders of shares of Common Stock voting in person or by
proxy at the Annual Meeting. The proposals to approve the Capital Factors
Holding, Inc. Stock Option Plan and the material terms of the performance goals
relating to the incentive compensation and deferred compensation provisions set
forth in the Employment Agreement with John W. Kiefer, Chief Executive Officer
and President of the Company, must be approved by the affirmative vote of the
holders of a majority of the shares of Common Stock of the Company voting in
person or by proxy at the Annual Meeting on such matters. Capital Bank, the
holder of approximately 81% of all issued and outstanding shares of the
Company's Common Stock, has advised the Company that it intends to vote such
shares in favor of all nominees for director and all of the foregoing
proposals. Accordingly, all nominees for director will be elected and all such
proposals will be approved, notwithstanding the vote of any other shareholders.
Abstentions are considered as shares present and entitled to vote for
purposes of determining the presence of a quorum and will be counted as votes
cast for purposes of determining the outcome of any matter submitted to the
shareholders for a vote, but are not counted as votes cast "for" or "against"
any matter. The inspector of elections will treat shares referred to as
"broker or nominee non-votes" (shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote and the broker or nominee does not have discretionary voting
power on a particular matter) as shares that are present and entitled to vote
for purposes of determining the presence of a quorum. For purposes of
determining the outcome of any matter as to which the proxies reflect broker or
nominee non-votes, shares represented by such proxies will be treated as not
present and not entitled to vote on that subject matter and, therefore, will
not be considered by the inspectors as shares entitled to vote on the subject
matter and will not be considered by the inspectors when counting votes cast on
the matter (even though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other matters). Accordingly, broker or
nominee non-votes will
2
<PAGE> 5
not have the same effect as a vote against the election of any director or
against any of the proposals presented at the Annual Meeting. Abstentions will
not have the same effect as a vote against the election of any director but
will have the same effect as a vote against the proposals to approve the
Capital Factors Holding, Inc. Stock Option Plan and the material terms of the
performance goals relating to the incentive compensation and deferred
compensation provisions set forth in the Employment Agreement with John W.
Kiefer, Chief Executive Officer and President of the Company.
SOLICITATION
The Company will bear the cost of preparing, assembling and mailing
this Proxy Statement, the Notice of Annual Meeting of Shareholders and the
enclosed proxy. In addition to the use of the U.S. mail, directors, officers
and regular employees of the Company or its subsidiaries may solicit proxies
personally or by telephone, facsimile or telegram. They will receive no
compensation therefor in addition to their regular salaries. The Company will
reimburse banks, custodians, brokerage houses, nominees and other fiduciaries
for their reasonable expenses in sending the proxy materials to their
principals.
Copies of the Company's Annual Report, including consolidated
financial statements for the year ended December 31, 1996 are being mailed to
shareholders with this Proxy Statement.
3
<PAGE> 6
ELECTION OF DIRECTORS
It is intended that the shares shown on the enclosed proxy, if
returned properly executed, will be voted for the election of the ten nominees
for director named below, unless the proxy is marked to indicate that such
authorization is expressly withheld. Each nominee elected will serve until the
next annual meeting of shareholders and until his or her successor has been
duly elected and qualified. Each of the nominees for director has consented to
being named as a nominee in this Proxy Statement and to serve if elected. If,
however, any nominee becomes unavailable for any reason or if a vacancy occurs
before the election, which event is not now anticipated, at the discretion of
the proxies, the shares as to which a proxy has been granted will be voted for
such substitute nominee or nominees as may be selected by the Board of
Directors of the Company.
NOMINEES
The following table contains information with respect to each nominee
for director. Each nominee is currently a director of the Company and Capital
Factors, Inc., the Company's wholly owned subsidiary ("Capital Factors"). The
table describes the periods each nominee has served as director of the Company
or, if before 1994 (the year in which the Company became the parent company for
Capital Factors), of Capital Factors; his or her positions and offices, if any,
with the Company and Capital Factors; and his or her principal occupation or
employment for the past five years.
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Director
Directorship and Business Experience (1) Since
----------------------------------------------------------------------------------------- ---------
<S> <C>
JOHN W. KIEFER: AGE 50 1987
Chief Executive Officer and President (April 1994 to present) of the Company;
Director, Chief Executive Officer and President (April 1987 to present) of
Capital Factors; Senior Vice President of Capital Bancorp (January 1987 to
present); Director of Capital Bank (October 1992 to present).
JAVIER J. HOLTZ: AGE 36 1987
Chairman of the Board (October 1994 to present) and Executive Vice President
(November 1994 to present) of the Company; Chairman of the Board (October 1994
to present) and Executive Vice President (November 1994 to present) of Capital
Factors; Senior Vice President (January 1990 to present) of Capital Bancorp;
Director (July 1988 to present) and Executive Vice President (September 1994 to
present) of Capital Bank; Chairman of the Board (October 1994 to present) of
Capital Bank, N.A., a national banking association located in Rockville,
Maryland.
DANIEL M. HOLTZ: AGE 37 1985-
Director (1985 to 1987, June 1993 to present) of Capital Factors; Chairman of 1987,
the Board (October 1994 to present), Chief Executive Officer (October 1994 to 1993
present) and President (February 1994 to present) of Capital Bancorp; Chairman to
of the Board (October 1994 to present), Chief Executive Officer (October 1994 present
to present) and President (October 1991 to present) of Capital Bank; Director
(July 1985 to June 1993) and President (September 1987 to June 1993) of Capital
Bank of California, which was declared insolvent and closed by the California
Superintendent of Banks in June 1993.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Director
Directorship and Business Experience (1) Since
----------------------------------------------------------------------------------------- ---------
<S> <C>
STEPHEN N. ASHMAN: AGE 48 1985
Director (May 1985 to present) of Capital Factors; Chief Executive Officer and
President (November 1991 to present) of Capital Bank, N.A., a national banking
association located in Rockville, Maryland; Chief Financial Officer and
Treasurer (February 1985 to November 1991) of Capital Bancorp; Executive Vice
President and Chief Financial Officer (February 1985 to November 1991) of
Capital Bank.
RONALD S. CHASE: AGE 53 1992
Director (September 1992 to present) of Capital Factors; Director (July 1993 to
present) of Capital Bank; President and Owner of Chase Holdings & Advisory
Services, Inc. (June 1991 to present), a company which provides financial
advisory services to corporations and litigation attorneys; President and Owner
of RSC Development, Inc. (November 1993 to present), a residential developer;
President and Owner of CFAT H20, Inc. (November 1993 to present), a water
treatment facility; Partner (July 1965 to May 1991) of Deloitte & Touche, LLP;
Founding Director (1985 to present) of Greater Miami Neighborhood, Inc., a not-
for-profit affordable housing developer.
CYNTHIA R. COHEN: AGE 44 1996
Director (July 1996 to present) of Capital Factors; President (June 1990 to
present) of Marketplace 2000, a marketing and strategy consulting firm; Partner
(August 1987 to May 1990) of Deloitte & Touche, LLP; Director (1994 to present)
of Office Depot, Inc., a retail office equipment company; Director (1993 to
present) of Loehmann's Holdings, Inc., a retail clothing company; Director
(1993 to present) of One Price Clothing, Inc., a retail clothing company;
Director (1991 to present) of Spec's Music Stores, Inc., a retail record
company.
NORMAN G. EINSPRUCH: AGE 64 1996
Director (July 1996 to present) of Capital Factors; Professor (August 1977 to
present) and Chairman (June 1994 to present) of the Department of Industrial
Engineering at the University of Miami; Director (May 1981 to present) of
Ogden Corporation, an energy, aviation and entertainment company.
JACK D. LISTANOWSKY: AGE 49 1993
Director (November 1993 to present) of Capital Factors; Vice President-Chief
Sourcing and Production Officer (April 1995 to present) of The Limited, Inc., a
clothing retailer; Executive Vice President of Manufacturing and Operations
(December 1981 to April 1995) of Liz Claiborne, Inc., a clothing manufacturer.
HAROLD L. OSHRY: AGE 74 1992
Director of Capital Factors (September 1992 to present);Chairman of the Board
(1953 to present) of Universal Ford, Inc., an automobile retailer; President
(1986 to present) of 5-0 Associates, a real estate development company;
Chairman, President and Chief Executive Officer (1955 to 1985) of Sandgate
Corp, a motor vehicle leasing company.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Director
Directorship and Business Experience (1) Since
----------------------------------------------------------------------------------------- ---------
<S> <C>
BRUCE S. RAIFFE: AGE 39 1993
Director (September 1993 to present) of Capital Factors; President (March 1993
to present) and Executive Vice President (October 1986 to March 1993 ) of Gund,
Inc., a toy manufacturer; Director (June 1977 to present) of the United
Cerebral Palsy Association.
- -------------------------------
</TABLE>
(1) Capital Factors is a wholly owned subsidiary of the Company. Capital
Bank is the principal shareholder of the Company and owns
approximately 81% of the outstanding Common Stock. Capital Bank is
the wholly owned subsidiary of Capital Bancorp. Daniel Holtz and
Javier Holtz are brothers. See "Executive Compensation --
Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation -- Certain Relationships and Related
Transactions" for more information regarding the relationship between
the Company and each of Capital Bancorp and Capital Bank.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Ronald S. Chase, Cynthia R. Cohen, Norman G. Einspruch and Bruce S.
Raiffe currently serve as members of the Company's Audit Committee. The Audit
Committee's functions include recommending to the Board of Directors the
engagement of the Company's independent certified public accountants, reviewing
with such accountants the plan and results of their audit of the financial
statements and reviewing the Company's significant accounting policies and
internal controls. The Audit Committee, which was formed in March 1996, meets
approximately once every quarter and held two meetings in 1996.
In addition, Mr. Chase, Ms. Cohen, Jack D. Listanowsky and Harold L.
Oshry serve on the Company's Compensation Committee, which has final approval
authority with respect to compensation paid to the Company's and Capital
Factors' executive officers, including the Chief Executive Officer. The
Compensation Committee is also responsible for the grant of options under the
Capital Factors Holding, Inc. Stock Option Plan. Dr. Einspruch, Mr.
Listanowsky, Mr. Oshry and Mr. Raiffe also serve on the Company's Conflict of
Interest Committee, which, among other things, reviews and makes
recommendations with respect to transactions between the Company and any of its
affiliates, including those with Capital Bank, which as of the Record Date
owned approximately 81% of the outstanding Common Stock of the Company, and
Capital Bank's parent company, Capital Bancorp. The Compensation Committee
meets on an as needed basis and held five meetings in 1996. The Conflict of
Interest Committee also meets on an as needed basis but held no meetings in
1996.
Every member of the Company's Board of Directors serves as a member of
the Credit Committee, which meets at least quarterly and reviews new factoring
clients and monitors current accounts. The Credit Committee held six meetings
in 1996. The Company does not have a standing nominating committee; instead,
the Board as a whole selects its nominees for election as directors.
The Company's Board of Directors held nine meetings and Capital
Factors' Board of Directors held 11 meetings during 1996. During 1996, each
director attended at least 75% of the aggregate of all meetings of both the
Company's and Capital Factors' boards of directors and all meetings of the
committees on which he or she served, except Jack Listanowsky and Bruce Raiffe.
6
<PAGE> 9
COMPENSATION OF DIRECTORS
Capital Factors pays all directors a monthly retainer of $1,000 and
$250 for each meeting attended by the director. The Company does not pay any
directors' fees. Capital Factors also reimburses all directors for any travel-
related expenses incurred in connection with their activities as directors.
Non-employee directors who are members of a Board committee receive an
additional fee per meeting of the applicable committee of $400 for service on
those committees. Employee members of the committees do not receive additional
compensation for their service on the committees.
In addition, pursuant to the Capital Factors Holding, Inc. Stock
Option Plan, in 1996, each non-employee director received options to acquire
10,000 shares of Common Stock of the Company upon the later of his or her
appointment as a director or the effectiveness of the initial public offering
of the Company's Common Stock, which was consummated in the third quarter of
1996. Pursuant to such plan, each non-employee director will also receive
options to purchase 2,000 shares of Common Stock on the date of each annual
meeting of shareholders of the Company, if such person continues to serve as a
director of the Company on such date.
In addition, certain directors of the Company have in the past
received options to acquire shares of the Common Stock of Capital Bancorp for
their service on the Company's and Capital Factors' Board of Directors and in
other capacities. Capital Bancorp is the parent company of Capital Bank,
which owns approximately 81% of the outstanding Common Stock of the Company.
No such options, however, were granted to directors of the Company or Capital
Factors for services rendered during the 1996 fiscal year, although certain
directors, who are also officers and/or directors of Capital Bancorp and/or
Capital Bank, received options to purchase shares of Capital Bancorp Common
Stock. John W. Kiefer, Javier J. Holtz and Daniel M. Holtz received options
to purchase a total of 5,000, 6,000 and 18,000 shares of Capital Bancorp Common
Stock, respectively, in 1997 for services rendered in 1996. The grants of such
options, however, reflect compensation for such person's service with Capital
Bancorp and Capital Bank, not the Company or Capital Factors.
7
<PAGE> 10
EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
The following table sets forth the aggregate compensation earned for
services rendered in all capacities to the Company and Capital Factors during
the years ended December 31, 1994, 1995 and 1996 by the Chief Executive Officer
and the four most highly compensated executive officers of the Company and
Capital Factors, other than the Chief Executive Officer, whose aggregate
remuneration exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
------------------------------------------------ --------------
Number of
Securities
Other Annual Underlying
Name and Compensation Options/ All Other
Principal Position Year Salary ($) Bonus ($) ($)(1) SARs (2) # Compensation ($)
------------------------ ---- --------------- ------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
JOHN W. KIEFER 1996 300,000 372,835(3) 14,750 (4) 120,000 300,168 (5)
Chief Executive Officer 1995 275,000 300,000 14,850 -- 350,168
and President 1994 231,000 200,000 15,000 -- 50,168
STEPHEN J. DONOHUE 1996 232,000 283,073 -- 60,000 354,784 (6)
Executive Vice 1995 210,000 262,171 -- -- 54,784
President - NY 1994 185,000 200,074 -- -- 54,826
Regional Manager
JAMES L. MORRISON 1996 189,000 212,796 -- 60,000 273,588 (7)
Executive Vice 1995 171,000 162,490 -- -- 53,588
President- CA 1994 151,000 95,504 -- -- 53,588
Regional Manager
MICHAEL J. SULLIVAN 1996 165,000 85,000 -- 20,000 --
Senior Vice 1995 125,577 (8) 70,000 -- -- --
President - NC 1994 -- -- -- -- --
Regional Manager
DENNIS A. MCDERMOTT 1996 112,000 75,000 -- 40,000 1,120
Senior Vice President 1995 100,000 60,000 -- -- 1,000
and Chief Financial 1994 90,000 35,000 -- -- 990
Officer
</TABLE>
- --------------------
(1) The Company and its subsidiaries provide automobiles and certain other
benefits for each Named Executive Officer. After reasonable inquiry,
management has determined that the aggregate amount of perquisites and
other personal benefits provided to each Named Executive Officer does not
total the lesser of $50,000 or 10% of his total annual salary and bonus.
(Footnotes continued on following page.)
8
<PAGE> 11
(2) The Company has not granted any freestanding SARs. For more information
regarding the 1996 option grants and the SARs attached to certain of such
grants, see "Proposal to Approve Stock Option Plan --Prior Grants of
Options" and "-- Eighty Percent Period Limitations and Conversion to SARs"
below. This table does not include options to acquire 24,000, 12,000,
12,000, 4,000 and 10,000 shares of Common Stock which were granted to
Messrs. Kiefer, Donohue, Morrison, Sullivan and McDermott, respectively,
on April 25, 1997 at an exercise price of $13.50 per share (the closing
price of the Common Stock on April 24, 1997 as quoted on the Nasdaq
National Market). Such options were granted for a term of 10 years, vest
in 20% increments over a five-year period and are subject to exercise
limitations as described under "Proposal to Approve Stock Option Plan --
Eighty Percent Period Limitations and Conversion to SARs" below.
(3) Includes a cash bonus of $26,635 equal to the amount of principal and
interest which was due as of December 31, 1996 on the loan made to Mr.
Kiefer by the Company pursuant to the terms of his employment agreement.
(4) Represents directors' fees paid to Mr. Kiefer for his service as a
director of the Company and Capital Factors.
(5) Represents (i) a one-time bonus of $250,000 which was paid to Mr. Kiefer
upon the execution of his new employment agreement pursuant to the terms
thereof, and not with respect to any particular year, and (ii) $50,168 in
premiums paid for supplemental life insurance benefits on behalf of Mr.
Kiefer. The Company will be reimbursed for its life insurance premium
payments when the benefits are paid under the policies or the policies are
terminated and the cash proceeds distributed.
(6) Represents (i) a one-time cash bonus of $200,000 which was paid to Mr.
Donohue upon the termination of his previous employment agreement, and not
with respect to any particular year, (ii) a one-time cash bonus of
$100,000 which was paid to Mr. Donohue upon the execution of his new
employment agreement pursuant to the terms thereof, and not with respect
to any particular year, (iii) $53,284 in premiums paid in 1996 for
supplemental life insurance benefits on behalf of Mr. Donohue, and (iv)
$1,500 in matching contributions made to Capital Bancorp's 401(k) Plan on
behalf of Mr. Donohue. The Company will be reimbursed for its life
insurance premium payments when the benefits are paid under the policies
or the policies are terminated and the cash proceeds distributed.
(7) Represents (i) a one-time cash bonus of $120,000 which was paid to Mr.
Morrison upon the termination of his previous employment agreement, and
not with respect to any particular year, (ii) a one-time cash bonus of
$100,000 which was paid to Mr. Morrison upon the execution of his new
employment agreement pursuant to the terms thereof, and not with respect
to any particular year, and (iii) $53,588 in premiums paid in 1996 for
supplemental life insurance benefits on behalf of Mr. Morrison. The
Company will be reimbursed for its life insurance premium payments when
the benefits are paid under the policies or the policies are terminated
and the cash proceeds distributed.
(8) Mr. Sullivan was not employed by the Company for the full fiscal year;
therefore, the amounts presented represent compensation for the period
commencing on February 28, 1995 and continuing through December 31, 1995.
* * * * *
COMPENSATION PURSUANT TO PLANS
1996 STOCK OPTION GRANTS. The following table sets forth certain
information with respect to options to purchase shares of Common Stock of the
Company granted under the Capital Factors Holding, Inc. Stock Option Plan to the
Named Executive Officers during the 1996 fiscal year and represents all options
granted by the Company to such executive officers during such period. In
accordance with rules promulgated by the Securities and Exchange Commission, the
table also describes the hypothetical gains that would exist for the respective
options based on assumed rates of annual compound stock appreciation of 5% and
10% from the date of grant to the end of the option term. These hypothetical
gains are based on assumed rates of appreciation and, therefore, the actual
gains, if any, on stock option exercises are dependent on the future performance
of the Common Stock, overall stock market conditions, and the executive
officer's continued employment with the Company and Capital Factors. As a
result, the amounts reflected in this table may not necessarily be achieved.
9
<PAGE> 12
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Potential
Realizable Value
At Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term(2)
- --------------------------------------------------------------------------------------------- --------------------
% of Total
Number of Options/SARs
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#)(3) Year ($/Sh) Date 5% ($) 10% ($)
- ---------------------- ----------------- -------------- ------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Kiefer 120,000 24.4% $8.50 7/16/2006 642,000 1,626,000
Stephen J. Donohue 60,000 12.2% $8.50 7/16/2006 321,000 813,000
James L. Morrison 60,000 12.2% $8.50 7/16/2006 321,000 813,000
Michael J. Sullivan 20,000 4.1% $8.50 7/16/2006 107,000 271,000
Dennis A. McDermott 40,000 8.1% $8.50 7/16/2006 214,000 542,000
- -----------------
</TABLE>
(1) The Company has not granted any freestanding SARs. For information
regarding the SARs attached to certain of the above listed options,
see "Proposal to Approve Stock Option Plan -- Eighty Percent Period
Limitations and Conversion to SARs" below.
(2) Potential realizable value assumes that any shares acquired by the
exercise of options are held until the end of the 10-year term.
(3) These options were granted pursuant to the Capital Factors Holding,
Inc. Stock Option Plan for a term of 10 years and vest in 20%
increments over a five-year period. See "Proposal to Approve Stock
Option Plan" below for additional information on the terms of the
options, a description of attached SARs, and the exercise limitations
applicable to certain of the outstanding options of the Company during
the period that Capital Bank owns at least 80% of the outstanding
Common Stock of the Company. This table does not include options to
acquire 24,000, 12,000, 12,000, 4,000 and 10,000 shares of Common
Stock which were granted to Messrs. Kiefer, Donohue, Morrison,
Sullivan and McDermott, respectively, on April 25, 1997 at an exercise
price of $13.50 per share (the closing price of the Common Stock on
April 24, 1997 as quoted on the Nasdaq National Market). Such options
were granted for a term of 10 years, vest in 20% increments over a
five-year period and are subject to exercise limitations as described
under "Proposal to Approve Stock Option Plan -- Eighty Percent Period
Limitations and Conversion to SARs" below.
* * * * *
OPTION EXERCISES. The following table shows stock option exercises
during 1996 by the Named Executive Officers, including the value realized upon
exercise. In addition, this table describes the number of unexercised options
and the value of unexercised in-the-money options at the end of the 1996 fiscal
year.
10
<PAGE> 13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,
AND DECEMBER 31, 1996 OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
December 31, December 31,
1996 (#) 1996 ($)
----------------------- -------------------
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------ ---------------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
John W. Kiefer 0 0 0/120,000 $0/$480,000
Stephen J. Donohue 0 0 0/60,000 $0/$240,000
James L. Morrison 0 0 0/60,000 $0/$240,000
Michael J. Sullivan 0 0 0/20,000 $0/$80,000
Dennis A. McDermott 0 0 0/40,000 $0/$160,000
- ------------------
</TABLE>
(1) The Company has not granted any freestanding SARs. See "Proposal to
Approve Stock Option Plan" below for additional information on the terms
of the options, a description of attached SARs, and the exercise
limitations applicable to certain of the outstanding options of the
Company during the period that Capital Bank owns at least 80% of the
outstanding Common Stock of the Company. This table does not include
options to acquire 24,000, 12,000, 12,000, 4,000 and 10,000 shares of
Common Stock which were granted to Messrs. Kiefer, Donohue, Morrison,
Sullivan and McDermott, respectively, on April 25, 1997 at an exercise
price of $13.50 per share (the closing price of the Common Stock on April
24, 1997 as quoted on the Nasdaq National Market). Such options were
granted for a term of 10 years, vest in 20% increments over a five-year
period and are subject to exercise limitations as described under
"Proposal to Approve Stock Option Plan -- Eighty Percent Period
Limitations and Conversion to SARs" below.
* * * * *
CAPITAL BANCORP PENSION PLAN. Currently, all eligible officers of the
Company and Capital Factors participate in the Capital Bancorp Employees
Pension Plan which was established in 1983 (the "Capital Bancorp Pension
Plan"). Capital Bancorp is the parent company of Capital Bank, which currently
holds 81% of the outstanding Common Stock of the Company. The Company funds
the Capital Bancorp Pension Plan for its proportionate share of the costs of
such plan, based on the number of its employee participants. During 1996, the
Company paid $283,000 for its share of the Capital Bancorp Pension Plan's
costs.
The normal retirement age under the Capital Bancorp Pension Plan is
the later of age 65 or the age of the participant on the fifth anniversary of
plan participation. The monthly pension benefit for normal retirement is 1.2%
of average monthly compensation for the five consecutive years during the last
10 years of service that produce the highest average salary, plus an additional
0.6% of the portion of the average monthly compensation during these same five
years in excess of the monthly social security integration level. The entire
monthly pension benefit for normal retirement will be multiplied by each year
of service at normal retirement age, not to exceed 25 years. The terms of the
Capital Bancorp Pension Plan provide that the amount of monthly compensation
taken
11
<PAGE> 14
into consideration for determination of benefits may not exceed the Internal
Revenue Service limit, which in 1996 was $12,500 ($150,000 annually).
Consequently, salary and other compensation for the Named Executive Officers,
as shown on the Summary Compensation Table above, which is in excess of the
Internal Revenue Service limit is not considered in the determination of
pension benefits.
The Capital Bancorp Pension Plan provides for early retirement at age
55 with 10 years continuous employment, as well as full vesting of benefits
upon termination of employment before retirement age and after completion of
seven years continuous employment. In the event of the death of an active
participant, the total value of the decedent's accrued pension benefit will be
paid to the designated beneficiary by the method selected by the beneficiary
and approved by the Capital Bancorp Pension Plan administrator. The benefit
will be based upon the years of service and number of years before normal
retirement age. The Capital Bancorp Pension Plan does not provide for
disability benefits. The Tax Equity and Fiscal Responsibility Act of 1982
limits the maximum annual retirement benefits payable to an individual under a
pension plan. For 1996, the maximum annual benefits payable was $120,000.
Such limitation may be increased from time to time.
Annual amounts of normal retirement pension payable under the Capital
Bancorp Pension Plan are illustrated in the following table. The illustration
assumes retirement as of December 31, 1996 at the normal retirement age of 65.
<TABLE>
<CAPTION>
Years of Service
Five Year Average -------------------------------------------------------------------------------
Compensation 15 20 25 30 35
- ----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $31,320 $41,760 $52,200 $52,200 $52,500
150,000 38,070 50,760 63,450 63,450 63,450
175,000 38,070 50,760 63,450 63,450 63,450
200,000 38,070 50,760 63,450 63,450 63,450
225,000 38,070 50,760 63,450 63,450 63,450
250,000 38,070 50,760 63,450 63,450 63,450
300,000 38,070 50,760 63,450 63,450 63,450
400,000 38,070 50,760 63,450 63,450 63,450
450,000 38,070 50,760 63,450 63,450 63,450
500,000 38,070 50,760 63,450 63,450 63,450
</TABLE>
As of December 31, 1996, John W. Kiefer, Stephen J. Donohue, James
L.Morrison, Michael J. Sullivan and Dennis A. McDermott had credited service
(to the nearest whole year) under the Capital Bancorp Pension Plan of ten,
seven, seven, two and five years, respectively. In the event that Capital
Bank's percentage ownership of the Common Stock of the Company drops below 80%,
it is anticipated that the Company would adopt its own pension plan. At such
time, the officers of the Company with years of credited service in the Capital
Bancorp Pension Plan would transfer such credit to the Company's pension plan.
EXECUTIVE EMPLOYMENT AGREEMENTS
For information regarding the Employment Agreement between the
Company, Capital Factors and John W. Kiefer, Chief Executive Officer and
President of the Company and Capital Factors, see "Proposal to Approve the
Material Terms of the Performance Goals Relating to the Incentive Compensation
and Deferred Compensation Provisions Set Forth in the Employment Agreement"
below.
13
<PAGE> 15
Capital Factors was a party to an employment agreement with Stephen J.
Donohue, Capital Factors' Executive Vice President and Regional Manager of the
New York office, which was entered into on January 1, 1993 and terminated on
December 31, 1996. Capital Factors has entered into a new agreement with Mr.
Donohue that commenced on January 1, 1997 and expires on December 31, 2001.
The prior agreement provided for an annual base salary of $170,000, subject to
a 6% increase from the base salary paid in the previous year as well as an
annual bonus based upon the Company's earnings before income taxes ("EBT")
attributable to the Company's New York office. The new agreement provides for
a base salary of $255,000 in 1997, with annual increases thereafter of not less
than 8%. Under the new agreement, Mr. Donohue receives a bonus on December 31
of each year during the term of the agreement if he is still employed
thereunder in an amount equal to the amount of principal and interest then due
under his loan from Capital Factors described below. The new agreement also
provides for an annual bonus equal to 3% of Capital Factors' EBT attributable
to the New York office, but not to exceed twice his base salary. Pursuant to
the discretion of the Board of Directors, during the previous two years, Mr.
Donohue received a bonus of 3% of EBT attributable to the New York office. Mr.
Donohue was to receive an additional cash bonus of $250,000 if he was employed
by Capital Factors through the expiration date of his prior employment
agreement, which pursuant to its terms was December 31, 1997. Pursuant to the
new agreement, Mr. Donohue received $200,000 for his four years of service
under his prior employment agreement. He also received a signing bonus of
$100,000 and a $100,000 loan payable in five equal installments of principal
plus all accrued interest at the date of payment during the term, but due in
full upon earlier termination of the employment agreement.
Under the new agreement, Mr. Donohue also receives deferred
compensation equal to 50% of his salary for each year that (i) net revenues for
the New York region increase by 13.5% over net revenues for the prior year and
(ii) income before income taxes for the New York region increases by 22.5% over
income before income taxes for the prior year. The deferred compensation vests
50% after three years and 25% after each of the fourth and fifth year, provided
that Mr. Donohue is still employed by Capital Factors, although the employment
condition for vesting will lapse after the five-year term of the employment
agreement if Mr. Donohue is employed at that time. If at the end of the
five-year term, Mr. Donohue agrees to be employed by Capital Factors for
another five years, then all deferred compensation that has not yet vested
shall immediately vest. In addition, pursuant to his then-existing agreement,
upon consummation of the initial public offering of the Company's Common Stock
in July 1996, Mr. Donohue received options to purchase 0.5% of the Company's
Common Stock outstanding after giving effect to such offering (but not
including the exercise of the overallotment option granted to the underwriters
of such offering) at the initial public offering price. For additional
information regarding such option grant, see "Compensation Pursuant to Plans --
1996 Stock Option Grants."
Under his prior agreement, Mr. Donohue was entitled to receive, upon
the termination of his employment without cause, (i) his base salary through
the date of such termination, (ii) all previous unpaid bonuses and a pro-rata
portion of the bonus payable, if any, for the year in which the termination
occurred and (iii) subject to the obligation to seek subsequent employment, his
base salary for one year following termination, but in no event beyond the
expiration date of the prior agreement. Under the new agreement, upon Capital
Factors' termination of Mr. Donohue's employment agreement without cause, Mr.
Donohue is entitled to receive the compensation in (i) and (ii) above, but his
base salary would be paid through the expiration date of the new agreement,
subject to mitigation if he obtains subsequent employment. In the event of a
change in control, Mr. Donohue is entitled to terminate his employment
agreement in the event of certain changes in his employment situation. Under
the prior agreement, upon his termination as a result of a change in control,
Mr. Donohue was entitled to receive (i) his base salary through the date of
such termination, (ii) all previous unpaid bonuses and a pro-rata portion of
the bonus payable, if any, for the year in which termination occurred, (iii)
his base salary for one year following termination, but in no event beyond the
expiration date of the agreement and (iv) a portion of his additional cash
bonus. Under the new agreement, Mr. Donohue is entitled to the same
compensation as in (i) and (ii) above, an
13
<PAGE> 16
acceleration of the vesting of all deferred compensation, and a lump sum
payment equal to two times his base salary and prior year bonus if he
terminates his employment because of changes in his employment situation, and
an additional amount equal to two times his prior year's deferred compensation,
if any, if he is terminated by Capital Factors without cause within one year of
a change of control. Upon termination for "cause" or upon voluntary
resignation, Mr. Donohue shall be entitled to receive his base salary through
the date of such termination.
Payment of the bonus and deferred compensation in certain years during
the term of the new agreement that would not otherwise be deductible by reason
of Section 162(m) of the Internal Revenue Code of 1986, as amended, is subject
to certain approvals, including shareholder approval. However. the Company's
Compensation Committee may, at its option, defer payment of amounts that would
not otherwise be deductible under Section 162(m) until a time when it would be
deductible. The new agreement also contains certain non-competition covenants
and covenants against solicitation of clients and employees for a competitive
business.
In addition, Capital Factors was a party to an employment agreement
with James L. Morrison, Capital Factors' Executive Vice President and Regional
Manager of the California office, which was entered into on January 1, 1993 and
terminated on December 31, 1996. Capital Factors has entered into a new
employment agreement that commenced on January 1, 1997 and expires on December
31, 2001. The prior agreement provided for an annual base salary of $140,000,
subject to a 6% increase from the base salary paid in the previous year as well
as an annual bonus based upon the Company's EBT attributable to the California
office. The new agreement provides for a base salary of $210,000 in 1997, with
annual increases of not less than 8% thereafter. Mr. Morrison receives a bonus
on December 31 of each year during the term of the new agreement if he is then
still employed thereunder in an amount equal to the amount of principal and
interest then due under his loan from Capital Factors described below. The
new agreement also provides for an annual bonus equal to 3% of EBT attributable
to the California office, but not to exceed twice his base salary. Pursuant to
the discretion of the Board of Directors, during the previous two years, Mr.
Morrison received a bonus of 3% of EBT attributable to the California office.
Mr. Morrison was to receive an additional cash bonus of $150,000 if he was
employed by Capital Factors through the expiration date of his prior employment
agreement, which pursuant to its terms was December 31, 1997. Pursuant to the
new agreement, Mr. Morrison received $120,000 for his four years of service
under the prior employment agreement. He also received a signing bonus of
$100,000 and a $100,000 loan payable in five equal installments of principal
plus all accrued interest through the date of payment during the term, but due
in full upon earlier termination of the employment agreement.
Under the new agreement, Mr. Morrison receives deferred compensation
equal to 50% of his salary for each year that (i) net revenues for the
California region increase by 13.5% over net revenues for the prior year and
(ii) income before income taxes for the California region increases by 22.5%
over income before income taxes for the prior year. The deferred compensation
vests 50% after three years and 25% after each of the fourth and fifth years,
provided that Mr. Morrison is still employed by Capital Factors, although the
employment condition for vesting will lapse after the five-year term of the
employment agreement if Mr. Morrison is employed at that time. If at the end
of the five-year term, Mr. Morrison agrees to be employed by Capital Factors
for another five years, than all deferred compensation that has not yet vested
shall immediately vest. In addition, pursuant to his then-existing agreement,
upon consummation of the initial public offering of the Company's Common Stock
in July 1996, Mr. Morrison received options to purchase 0.5% of the Common
Stock outstanding after giving effect to such offering (but not including the
exercise of the overallotment option granted to the underwriters of such
offering) at the initial public offering price. For additional information
regarding such option grant, see "Compensation Pursuant to Plans -- 1996 Stock
Option Grants."
14
<PAGE> 17
Under his prior agreement, Mr. Morrison was entitled to receive, upon
the termination of his employment without cause, (i) his base salary through
the date of such termination, (ii) all previous unpaid bonuses and a pro-rata
portion of the bonus payable, if any, for the year in which the termination
occurred and (iii) subject to the obligation to seek subsequent employment, his
base salary for one year following termination, but in no event beyond the
expiration date of the previous agreement. Under the new agreement, upon
Capital Factors' termination of Mr. Morrison's employment agreement without
cause, Mr. Morrison is entitled to receive the compensation in (i) and (ii)
above, but his base salary would be paid through the expiration date of the new
agreement, subject to mitigation if he obtains subsequent employment. In the
event of a change in control, Mr. Morrison is entitled to terminate his
employment agreement in the event of certain changes in his employment
situation. Under the prior agreement, upon his termination as a result of a
change in control, Mr. Morrison was entitled to receive (i) his base salary
through the date of such termination, (ii) all previous unpaid bonuses and a
pro-rata portion of the bonus payable, if any, for the year in which
termination occurred, (iii) his base salary for one year following termination,
but in no event beyond the expiration date of the agreement and (iv) a portion
of his additional cash bonus. Under the new agreement, Mr. Morrison is
entitled to the same compensation as in (i) and (ii) above, an acceleration of
the vesting of all deferred compensation, and a lump sum payment equal to two
times his base salary and prior year bonus if he terminates his employment
because of changes in his employment situation, and an additional amount equal
to two times his prior year's deferred compensation, if any, if he is
terminated by Capital Factors without cause, within one year of a change of
control. Upon termination for "cause" or upon voluntary resignation, Mr.
Morrison shall be entitled to receive his base salary through the date of such
termination.
Payment of the bonus and deferred compensation in certain years during
the term of the new agreement that would not otherwise be deductible by reason
of Section 162(m) of the Internal Revenue Code of 1986, as amended, is subject
to certain approvals, including shareholder approval. However, the Company's
Compensation Committee may, at its option, defer payment of amounts that would
not otherwise be deductible under Section 162(m) until a time when it would be
deductible. The new agreement also contains certain non-competition covenants
and covenants against solicitation of clients and employees for a competitive
business.
REPORT ON EXECUTIVE COMPENSATION
Pursuant to the rules of the Securities and Exchange Commission, the
Compensation Committee of the Board of Directors of the Company (the
"Committee") is required to provide a report explaining the rationale and
considerations that led to fundamental compensation decisions affecting the
Company's and Capital Factors' executive officers, including the Named
Executive Officers, during the past fiscal year. Set forth below is the report
of the Committee and other members of the Board of Directors who were involved
in compensation decisions during the 1996 fiscal year regarding such
compensation policies. This report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
Prior to the Company's initial public offering, executive officer
compensation decisions were determined by the Board of Directors of the
Company. Compensation decisions relating to the Chief Executive Officer's
employment agreement, which was entered into prior to the initial public
offering, were determined and approved by the Committee and the full Board of
Directors of the Company, the Compensation and Benefits Committee and Board of
Directors of Capital Bank and the Compensation Committee of Capital Bancorp.
Members of the Board of Directors of the Company prior to the offering were
Daniel M. Holtz, Javier J. Holtz, John W. Kiefer, Stephen N. Ashman, Ronald S.
Chase, Jack D. Listanowsky, Harold L. Oshry and Bruce S. Raiffe. Mr. Kiefer
15
<PAGE> 18
did not vote on matters related to his compensation. Upon completion of the
offering, the Committee, which at that time consisted of Ronald Chase, Jack
Listanowsky, Harold Oshry and Bruce Raiffe, became responsible for determining
the compensation of the Company's executive officers.
GENERAL EXECUTIVE COMPENSATION POLICIES. The primary elements of the
Company's compensation program are base salary, signing and performance-based
bonuses, deferred compensation, and a stock option plan designed to provide
long- term incentives. The Committee's and the Board of Director's general
philosophy with respect to the compensation of the Company's and Capital
Factors' executive officers (including the Named Executive Officers) is to
offer competitive compensation programs designed to attract and retain key
executives who are critical to the long-term success of the Company and to
recognize an individual's contribution and personal performance, as well as the
Company's performance. More specifically, factors considered in determining
compensation during the 1996 fiscal year, to the extent applicable, included
the Chief Executive Officer's recommendations, a formal study performed by an
independent compensation consultant, specific accomplishments of the executive
officers, the Company's and each individual's historical and projected
performance and success in reaching performance goals and projections, and the
Company's sales, earnings and financial condition. Salary determinations are
generally based on the prior year's performance and bonuses are generally based
on the current year. The factors considered, the weight allocated to such
factors and the ultimate determination of compensation were subjective.
In addition, in determining executive officer compensation, the
Committee and the Board of Directors took into account that the Company was
contemplating a public offering and that the Company had been extremely
successful under present management. In connection therewith, the Committee
and the Board determined that it was in the Company's best interest, both to
maximize future performance and to ensure a long-term commitment from top
management, for the Company's Chief Executive Officer and Executive Vice
Presidents in charge of the two largest regional offices (the "Regional
Executive Vice Presidents") to have long-term employment agreements with
competitive compensation, including a strong base salary and substantial
incentives. The Chief Executive Officer's agreement was entered into prior to
the completion of the offering. The Regional Executive Vice Presidents'
agreements were entered into after the offering. However, during 1996, both
Regional Executive Vice Presidents were still subject to previous employment
agreements that were entered into on January 1, 1993 and that were terminated
effective December 31, 1996.
Base Salary: In the case of the executive officers, salary was
determined by the Board of Directors at the beginning of the year,
prior to the public offering. Although the Regional Executive Vice
Presidents were parties to employment agreements, the increases in
their salaries were, to some extent, discretionary. Minimum increases
were mandatory under the agreements, but, as a result of performance,
actual increases were slightly higher. In determining salaries for
all executive officers other than the Chief Executive Officer,
significant weight was given to the recommendation of the Chief
Executive Officer. The most important factors (in each case, where
applicable) were historical performance in meeting individual goals,
the success of the individual's region, his relationships with Company
clients, the development of new business, past compensation, the
independent compensation consultant's report (which focused on job
descriptions and compensation paid to similar executive officers of
comparable factoring and finance companies, two of which are included
in the peer group index in the Stock Price Performance Graph below),
the Chief Executive Officer's and Board of Directors' estimate of
future Company performance and, where an employment agreement was
involved, the Company's needs and the consideration required in order
to obtain a long-term employment commitment. The factors considered,
the weight allocated to such factors and the ultimate determination of
base salary were subjective.
16
<PAGE> 19
Annual Incentives: All executive officers received bonuses, in
part because of the increase in the Company's sales and net profits,
and, in part, because of individual performance. Each of the
Regional Executive Vice President's then-existing employment
agreements provided for bonuses based on a percentage of the earnings
of his region. The percentage was increased slightly because of the
success of the regions and to be consistent with past actions of the
Board of Directors. Bonuses paid to executive officers without
employment agreements were not due to specific performance criteria,
but were subjectively determined based upon an analysis of many
factors, including both individual and Company performance. In
connection with the foregoing, the Committee reviewed each region's
earnings and revenues compared to the prior year. In addition, the
Committee considered such additional factors, where applicable, as (i)
the executive's role in helping the Company to complete its public
offering; (ii) whether sales, profitability and margin goals were met
or exceeded; and (iii) the handling of clients, marketing and business
development innovations, with primary emphasis on increased
profitability and revenues as well as exceeding performance goals.
The Committee and the Board believe that the amount of the potential
bonuses provide a strong incentive to management and represent
acceptable payments if the results are achieved. The factors
considered, the weight allocated to such factors and the ultimate
determination of bonuses were subjective.
Long-Term Incentives: The Company also attempts to provide incentives
to its executive officers to remain with the Company and to improve
performance through the grant of stock options. Options allow
executive officers to share, to some extent, in shareholders' return
on equity. All Company options vest in staggered amounts over five
years because the Committee believed that this would provide an
incentive to remain with the Company. The determination of how many
options to grant to an executive officer depended on his or her job
level and performance, and Company performance. Given the foregoing
factors, with the emphasis on Company performance, current executive
officers (other than the Chief Executive Officer) received options to
purchase between 20,000 and 60,000 shares in 1996. Such options were
granted simultaneously with the Company's initial public offering, and
for the Regional Executive Vice Presidents, had been negotiated as a
part of their then-existing employment agreements. The number of
options granted was subjective but generally correlated to
compensation of the executive officer, as well as tenure with the
Company, with more senior and higher paid executive officers generally
receiving more options. The Committee has granted, and presently
intends to continue to grant on an annual basis, executive officers
stock options based upon their performance, as an incentive or for
other reasons. Most of the options granted are subject to
restrictions on exercise and are accompanied by stock appreciation
rights which mature in 2001 under certain conditions, as described in
"Proposal to Approve Stock Option Plan -- Eighty Percent Period
Limitations and Conversion to SARs" below. As a result of the risks
inherent in these options, the number of options granted to executive
officers was greater than it might have otherwise been.
The Committee and the Board of Directors also decided to pay
the premiums for life insurance or split dollar life insurance for
certain executive officers (including the Chief Executive Officer).
The Committee and the Board determined that this is a benefit
customarily given to executives of similarly situated companies and
that it was warranted by the Company's profitability and sales growth
and the executive officers' performance. This determination was
subjective.
CHIEF EXECUTIVE OFFICER'S 1996 COMPENSATION. The Chief Executive
Officer's salary for 1996 was subjectively determined. Factors considered
included the Chief Executive Officer's past performance and relationships, plus
the consideration required to obtain a long-term commitment to the Company.
Significant weight was given to the proposal of the Company's independent
compensation consultant, which considered among other things, compensation paid
to chief executive officers of comparable factoring and finance companies
17
<PAGE> 20
(two of which are included in the peer group index in the Stock Price
Performance Graph below), the Company's emphasis on growth over the next five
years and the importance of the position. The Board of Directors and the
Committee also considered the Company's success under existing management, and,
in particular, the central role played by the Chief Executive Officer during
his tenure with the Company in framing the management and investment policies
that have enabled the Company's and Capital Factors' successful performance, as
evidenced by such items as consistent and strong revenues and earnings growth,
the Company's reputation and the performance of the Company relative to other
factoring and commercial finance companies. The Board and the Committee
determined that it was important to reward such performance with increased
salary.
The Chief Executive Officer's bonus was established by his employment
agreement as described in "Proposal to Approve the Material Terms of the
Performance Goals Relating to the Incentive Compensation and Deferred
Compensation Provisions Set Forth in the Employment Agreement" below. The
Chief Executive Officer is entitled to (i) a bonus, the amount of which depends
upon reaching certain net revenue and income before income tax targets, and
(ii) deferred compensation, which is dependent upon exceeding both net revenue
and income before income tax targets determined by the Committee or the Board.
These standards require continued earnings and revenue growth for significant
bonuses (other than signing bonuses) or any deferred compensation to be paid,
subject to the discretion of the Committee or the Board of Directors. The
Chief Executive Officer also received options to purchase 120,000 shares of
Common Stock, primarily because his performance entitled him to a significant
number of shares and because it was believed that this would provide a
substantial incentive for continued positive performance. Such options were
granted in 1996 simultaneously with the Company's initial public offering and
had been negotiated as part of Mr. Kiefer's initial employment agreement.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally disallows a public company's deduction for compensation to
any one employee in excess of $1.0 million per year unless the compensation is
pursuant to a plan approved by the public company's shareholders. None of the
Named Executive Officers received annual cash compensation in excess of the
$1.0 million cap provided in Section 162(m) during 1996. The Committee and the
Board presently intend to use their best efforts to take the necessary steps to
ensure compliance with Section 162(m) of the Code, in part, by seeking
shareholder approval at the Annual Meeting of the Capital Factors Holding, Inc.
Stock Option Plan and the material terms of the performance goals relating to
the incentive compensation and deferred compensation provisions set forth in
the employment agreement with John W. Kiefer, Chief Executive Officer and
President of the Company and Capital Factors.
STEPHEN N. ASHMAN, RONALD S. CHASE, DANIEL M. HOLTZ, JAVIER J. HOLTZ, JOHN W.
KIEFER, JACK D. LISTANOWSKY, HAROLD L. OSHRY, BRUCE S. RAIFFE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is currently composed of the
following members of the Board of Directors: Ronald S. Chase, Cynthia R. Cohen,
Jack D. Listanowsky and Harold L. Oshry. Bruce S. Raiffe was also a member of
this Committee during 1996. The Compensation Committee has final approval
authority with respect to the compensation of officers and key employees,
including grants of options under the Capital Factors Holding, Inc. Stock
Option Plan. No member of the Compensation Committee is serving or has served
as an officer or employee of the Company or Capital Factors. Ronald Chase, who
is also a director of Capital Bank (the Company's principal shareholder which
owns approximately 81% of the outstanding Common Stock), participates in the
determination of compensation for executive officers of that company through
his service on its Compensation and Benefits Committee.
18
<PAGE> 21
Prior to the Company's initial public offering in the third quarter of
1996, compensation decisions relating to the Chief Executive Officer and others
were determined by the full Board of Directors. The following are members of
the Company's Board of Directors who did not serve on the Compensation
Committee during 1996: John W. Kiefer, Javier J. Holtz, Daniel M. Holtz,
Stephen N. Ashman and Norman G. Einspruch. Javier Holtz is Chairman of the
Board and an Executive Vice President of the Company and Capital Factors, and
also serves as a director and Executive Vice President of Capital Bank, and a
Senior Vice President of Capital Bancorp, the parent company of Capital Bank.
John Kiefer is President and Chief Executive Officer of the Company and Capital
Factors, and also serves as a director of Capital Bank and a Senior Vice
President of Capital Bancorp. Daniel Holtz is Chairman of the Board, Chief
Executive Officer and President of Capital Bank and Capital Bancorp. John
Kiefer, Javier Holtz and Daniel Holtz participate in the determination of
compensation for executive officers of Capital Bank pursuant to their service
as members of its Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS FROM AFFILIATES. The Company has a $150 million revolving line
of credit facility (the "Credit Facility") with Capital Bank, the Company's
principal shareholder (which owns approximately 81% of the outstanding Common
Stock of the Company), pursuant to which the Company had outstanding borrowings
of approximately $70.1 million as of December 31, 1996. The Credit Facility
bears interest at the prime rate as published in the Wall Street Journal (8.25%
at December 31, 1996), is subject to annual review by Capital Bank and is due
on demand. The maximum amount outstanding at any month-end during 1996 was
$84.5 million. The interest expense for 1996 was $5.3 million and the average
interest rate was 8.4%. The amount of funds which can be drawn from the Credit
Facility is subject to regulations limiting Capital Bank's investment in its
subsidiaries. Pursuant to applicable regulations, at December 31, 1996, only
approximately $91 million could be outstanding under the Credit Facility.
PENSION PLAN. Eligible employees of the Company participate in the
Capital Bancorp Pension Plan. Capital Bancorp is the parent company of
Capital Bank. The Company's share of the required contributions to the Capital
Bancorp Pension Plan are based on a fixed percentage of the Company's payroll
and is remitted monthly to Capital Bank. Capital Bank is responsible for the
actual contributions to the Capital Bancorp Pension Plan. The Company remitted
$283,000 for the year ended December 31, 1996 for its share of the Capital
Bancorp Pension Plan's costs. For additional information on the Capital
Bancorp Pension Plan, see "--Compensation Pursuant to Plans -- Capital Bancorp
Pension Plan" above.
GROUP MEDICAL AND LIFE PLANS. Capital Bancorp obtains group medical,
dental and life insurance coverage on behalf of the Company. Premiums are
charged to the Company at the same amount as they are assessed by the insurance
companies to Capital Bancorp with respect to the Company. During the year
ended December 31, 1996, the Company paid insurance premiums of $605,277 for
its actual portion of such insurance premiums.
ALLOCATED EXPENSES WITH AFFILIATES. Capital Bank charges the Company
for services rendered by Capital Bank's legal department. Charges are based
upon internal time estimates prepared by Capital Bank for personnel costs and
related overhead costs associated with such services. Legal costs paid by the
Company to Capital Bank for 1996 was $2,000. The Company also reimburses
Capital Bank for its portion of general insurance expenses. Payments to
Capital Bank for expenses relating to property insurance and directors and
officers liability insurance during the year ended December 31, 1996 aggregated
approximately $196,000.
19
<PAGE> 22
LETTERS OF CREDIT. During 1996, Capital Bank provided approximately
$135.5 million of letters of credit for clients of the Company. For a fee, the
Company guarantees the payment by its clients under these letters of credit.
Fees charged for issuance of the letters of credit are paid directly to Capital
Bank and amounted to $373,688 for the year ended December 31, 1996.
INCOME TAX PAYMENTS TO AFFILIATES. The results of operations of the
Company are included in the consolidated federal income tax returns filed by
Capital Bancorp. Capital Bank allocates income taxes to the Company calculated
on a separate return basis, except that tax benefits are allocated to the
Company to the extent such benefits are useable by the consolidated group. The
Company pays to (or receives from) Capital Bank the amount of its estimated
annual current tax provisions (benefits). The Company paid approximately $7.3
million in 1996 for income taxes related to its fiscal year ended December 31,
1996.
TAX SHARING AND INDEMNITY AGREEMENT. The results of operations of the
Company are included in the tax returns filed by Capital Bancorp's affiliated,
combined or unitary groups for federal and certain state income and franchise
tax purposes. The members of those groups, including the Company, currently
are parties to a tax allocation and indemnity agreement that allocates the
liability for those taxes among them. Under the agreement, the tax
liabilities of the group are allocated between, on the one hand, the Parent
Group (the "Parent Group"), consisting of Capital Bancorp and its direct and
indirect wholly-owned subsidiaries other than the Company and its direct and
indirect wholly-owned subsidiaries (the "Factors Group") and, on the other
hand, the Factors Group, pursuant to a method specified in regulations of the
Treasury Department that would impose on the Parent Group and the Factors Group
liability for an amount that corresponds (with various modifications) to the
liability that the Parent Group and the Factors Group each would incur if the
Parent Group and the Factors Group filed tax returns as separate affiliated,
combined or unitary groups. In addition, the agreement provides that the
Factors Group will indemnify the Parent Group for any increase in the tax
liability of the group that is attributable to the Factors Group, and the
Factors Group will be entitled to receive any tax refund that is attributable
to the Factors Group. The agreement similarly provides that the Parent Group
will indemnify the Factors Group for an increase in the tax liability of the
group that is attributable to the Parent Group.
TRANSACTIONS WITH OPPENHEIMER & CO., INC. Craig L. Platt, a director
of Capital Bancorp since May 1993 and of Capital Bank since April 1993, is a
Senior Vice President with Oppenheimer & Co., Inc., the managing underwriter of
the initial public offering of the Company's Common Stock, which was completed
in the third quarter of 1996. Oppenheimer received a fee of approximately
$1.4 million in 1996 in connection with the Company's initial public offering.
LOANS TO OFFICERS OF THE COMPANY. From time to time, Capital Bank
makes loans and extends credit to certain of the Company's officers and
directors, including John W. Kiefer, the President, Chief Executive Officer and
a director of the Company. In the opinion of Capital Bank, all of such loans
and extensions of credit were made in ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other third parties,
and do not involve more than normal risks of collectability or present any
other unfavorable features.
AGREEMENT BETWEEN THE COMPANY, CAPITAL FACTORS AND CAPITAL BANK.
Pursuant to an agreement between the Company, Capital Factors and Capital Bank,
the Company has agreed not to issue any shares of Common Stock that would
reduce Capital Bank's interest below 80% or any shares of any other class of
capital stock without Capital Bank's written approval, during the period that
Capital Bank owns at least 80% of the issued and outstanding Common Stock of
the Company (the "Eighty Percent Period"). The Company may also
20
<PAGE> 23
not acquire certain assets, amend its bylaws, change the size of its Board or
Directors or fill vacancies in the Board without such approval during the
Eighty Percent Period. Similar restrictions apply to Capital Factors pursuant
to this Agreement, except that Capital Factors is restricted from issuing any
shares of capital stock without approval by Capital Bank. For additional
information regarding such agreement, see "Proposal to Approve Stock Option
Plan -- Eighty Percent Period Limitations and Conversion to SARs" below.
TRANSACTIONS WITH AFFILIATES OF DIRECTORS. Some of the clients of
Capital Factors from time to time sell goods or render services to entities
which are affiliated with certain directors. Therefore, Capital Factors may
purchase receivables due from such affiliates or provide loans collateralized
by such receivables. Such transactions, however, are in the ordinary course of
business, are on substantially the same terms as those prevailing at the time
for comparable transactions with other third parties and do not involve more
than normal risks of collectability or present any other unfavorable features.
APPROVAL OF RELATED PARTY TRANSACTIONS. The Company has adopted a
policy whereby all transactions between the Company and one or more of its
affiliates must be approved in advance by a majority of the Company's Conflict
of Interest Committee.
21
<PAGE> 24
STOCK PRICE PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
shareholder return on the Company's Common Stock with the Nasdaq Stock Market
Index and the SNL Commercial Finance Companies Index. This graph assumes that
$100 was invested on July 10, 1996 (the date the Company became a reporting
entity pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended) in the Company's Common Stock and in the other indices. Returns are
based on the change in month-end to month-end price and assume that all
dividends were reinvested. The stock price performance shown below is not
necessarily indicative of future price performance.
[GRAPH]
<TABLE>
<CAPTION>
7/10/96 8/31/96 9/30/96 10/31/96 11/30/96 12/31/96
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Factors Holding, Inc. 100 115 121 143 135 147
NASDAQ - Total US 100 100 108 106 113 113
SNL Commerical Finance Companies Index 100 103 107 108 113 112
</TABLE>
This graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such acts.
22
<PAGE> 25
PROPOSAL TO APPROVE STOCK OPTION PLAN
In June 1996, the Company's Board of Directors and sole shareholder
adopted and approved the Capital Factors Holding, Inc. Stock Option Plan (the
"Plan"), pursuant to which 800,000 shares of Common Stock were reserved for
issuance upon the exercise of stock options. The Plan was subsequently amended
by the Compensation Committee in April 1997 to increase the number of shares of
Common Stock available under the Plan by an additional 500,000 shares, for a
total of 1,300,000 shares. Options to purchase 572,500 shares of Common Stock
were issued and outstanding as of the Record Date. In addition, options to
purchase an additional 117,350 shares were granted to officers and employees of
the Company and Capital Factors in April 1997. The material features of the
Plan are discussed below, but the description is subject to, and is qualified
in its entirety by, the full text of the Plan, which is attached hereto as
Appendix A.
In December 1995, the Internal Revenue Service issued final
regulations concerning compliance with Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), which generally prohibits a public
company from deducting compensation paid to the chief executive officer and the
four other highest paid executive officers in excess of $1.0 million per year.
Qualified performance-based compensation, as such term is defined under Section
162(m) of the Code, is not subject to this limit. In order for compensation
resulting from the exercise of options granted under the Plan to qualify as
performance-based compensation, the Plan must be approved by the Company's
shareholders. Options granted by the Company prior to its 1998 Annual Meeting
of Shareholders are not subject to this shareholder approval requirement. The
Plan is being presented to the shareholders in order to comply with the
requirements of Section 162(m).
In addition, the Plan requires that shareholder approval be obtained
in order to materially increase the number of shares of Common Stock which may
be issued under the Plan or to materially increase the benefits accruing to
participants under the Plan. The Company believes that the purposes of the
Plan and the best interest of the Company and Capital Factors will be furthered
by increasing the aggregate number of shares for which options may be granted.
The Committee wishes to ensure the continued availability of shares for which
options may be granted to all current and future officers, director and
employees. Furthermore, the additional proceeds generated from the optionee's
exercise of additional options that could be granted would constitute general
funds of the Company to be used for general corporate purposes. The Committee
has approved the amendment to the Plan, subject to the approval of the
shareholders, to increase the number of shares of Common Stock available for
issuance under the Plan by an additional 500,000 shares, for a total of
1,300,000 shares.
PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company and
Capital Factors by providing an additional incentive to attract and retain
qualified and competent individuals as employees and directors, upon whose
efforts and judgment the success of the Company is largely dependent, through
the encouragement of stock ownership in the Company by such persons. In
furtherance of this purpose, the Plan authorizes the granting of incentive or
non- qualified stock options to purchase Common Stock (with, under certain
limited conditions, attached stock appreciation rights) to persons satisfying
the description above (except that no incentive options may be granted to a
director who is not an employee of the Company or a subsidiary), to be selected
from the class of all regular employees of the Company and its subsidiaries
(approximately 275 persons) and non-employee directors.
23
<PAGE> 26
ADMINISTRATION OF THE PLAN
The Plan is administered and interpreted by the Compensation Committee
of the Board of Directors (the "Committee"). The following directors are
currently serving as members of the Compensation Committee: Ronald S. Chase,
Cynthia R. Cohen, Harold L. Oshry and Jack D. Listanowsky. The Committee, in
its sole discretion, determines the persons to be awarded options, the number
of shares subject thereto, the exercise price and other terms thereof. In
addition, the Committee has full power and authority to construe and interpret
the Plan, and the acts of the Committee are final, conclusive and binding upon
all interested parties, including the Company, its shareholders, its officers
and employees, recipients of grants under the Plan and all persons or entities
claiming by or through such persons.
The Company intends to grant options annually to directors and certain
officers and employees of the Company and Capital Factors. Pursuant to the
Plan, each non-employee director received, or will receive, options to acquire
10,000 shares of Common Stock of the Company upon the later of his or her
appointment as a director or the effectiveness of the initial public offering
of the Company's stock, which was undertaken in the third quarter of 1996. In
addition, each non-employee director will also receive options to purchase
2,000 shares of Common Stock on the date of each annual meeting of shareholders
of the Company, if such person continues to serve as director of the Company on
such date. The number of options granted to officers and employees will be
determined by the Committee and will be based on the performance of the Company
and the performance of the officer or employee. Because persons to whom grants
of options are to be made are to be determined from time to time by the
Committee, in its discretion, it is impossible at this time to indicate the
precise number, name or positions of persons who will receive options or the
number of shares for which options will be granted to any such employee, except
to the extent already granted.
The shares of Common Stock acquired upon the exercise of options
granted under the Plan will be authorized and issued shares of Common Stock.
The Company's shareholders will not have any preemptive rights to purchase or
subscribe for the shares reserved for issuance under the Plan. If any option
granted under the Plan should expire or terminate for any reason other than
having been exercised in full, the unpurchased shares subject to that option
will again be available for purposes of the Plan.
TERMS AND CONDITIONS OF THE PLAN
All options granted under the Plan are evidenced by written agreements
between the Company and the optionee. Such agreements shall contain such terms
and conditions, consistent with the Plan, relating to the grant, the time or
times of exercise and other terms of the options as the Committee prescribes.
The aggregate number of options granted to any one director, officer or
employee may not exceed 35% of the total options available under the Plan
(currently, a total of 455,000 options). Unless terminated sooner, the Plan
will continue in effect until all options granted thereunder have expired or
been exercised, provided that no options may be granted ten years after
commencement of the Plan.
Under the Plan, the option price per share is an amount determined in
the discretion of the Committee, provided that the option price per share for
incentive stock options may not be less than the fair market value of the
underlying shares on the date of grant. Incentive options granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all classes of stock of the Company or its subsidiary must have
an exercise price of at least 110% of the fair market value of the Common Stock
on the date of grant. As long as the Common Stock is approved for quotation on
the Nasdaq National Market, then for purposes of the Plan, the term "fair
market value" is defined as the last reported sale price for the Common Stock
quoted on the Nasdaq National Market. On the Record Date, the last reported
sales price per share of Common Stock as
24
<PAGE> 27
reported on the Nasdaq National Market was $13.25. The exercise price of an
option may be paid in cash, or at the sole discretion of the Committee, by
delivery of already owned shares of Common Stock having a fair market value
equal to the exercise price, or by a combination of the foregoing. The Plan
also authorizes the Company to make or guarantee loans to optionees to enable
them to exercise their options. Such loans must at a minimum (i) provide for
full recourse to the optionee, (ii) bear interest at a rate no less than the
prime rate of interest, and (iii) be secured by the shares of Common Stock
purchased. Cash payments will be used by the Company for general corporate
purposes. Payments made in Common Stock must be made by delivery of stock
certificates in negotiable form.
No option granted under the Plan is assignable or transferable, other
than by will or by the laws of descent and distribution. During the lifetime
of an optionee, an option is exercisable only by such optionee. The expiration
date of an option will be determined by the Committee at the time of grant, but
in no event will an option be exercisable after the expiration of 10 years from
the date of grant. However, incentive options must have a term of no more than
five years. An option may be exercisable at any time or from time to time or
only after a period of time or in installments, as the Committee determines.
Unless otherwise provided in any option, the option becomes immediately fully
exercisable (i) upon the occurrence of any transaction resulting in
shareholders of the Company immediately before such transaction ceasing to own
at least 51% of the voting stock of the Company or of any entity that results
from the participation of the Company in a reorganization, consolidation,
merger, liquidation or other corporate transaction; (ii) if the shareholders of
the Company approve a plan of merger, consolidation, reorganization,
liquidation or dissolution in which the Company does not survive (unless
subsequently abandoned); or (iii) if the shareholders of the Company approve a
plan for sale, lease, exchange or other disposition of all or substantially all
of the assets of the Company (unless subsequently abandoned); provided,
however, that the exercisability of any option shall not be accelerated if all
or part of the shares in the Company are distributed to Capital Bank, Capital
Bancorp, shareholders of Capital Bancorp, or to any of their affiliates,
regardless of the manner in which such shares are distributed.
Pursuant to the Plan, the unexercised portion of any option, other
than an option granted to a non-employee director pursuant to the terms of the
Plan, shall automatically be terminated (a) three months after the date on
which an optionee's employment is terminated for any reason other than (i)
cause (as defined in the Plan), (ii) mental or physical disability, or (iii)
death; (b) immediately upon the termination of the optionee's employment for
cause; (c) one year after the date on which the optionee's employment is
terminated by reason of a mental or physical disability; or (d) one year after
the date on which the optionee's employment is terminated by reason of death of
the employee.
To prevent dilution of the rights of a holder of an option, the Plan
provides for adjustment of the number of shares for which options may be
granted, the number of shares subject to outstanding options and the exercise
price of outstanding options in the event of any subdivision or consolidation
of shares, any stock dividend, recapitalization or other capital adjustments of
the Company. Provisions governing the effect upon options of a merger,
consolidation or other reorganization of the Company are included in the Plan.
TERMINATION AND AMENDMENTS
The Plan will expire on July 10, 2006 and any option outstanding on
such date will remain outstanding until it has either expired or has been
exercised. Either the Board of Directors or the Committee may amend or suspend
the Plan at any time, provided that such amendment may not adversely affect the
rights of an optionee under an outstanding option without the affected
optionee's written consent. In addition, the Board or the Committee may not
amend the Plan without first obtaining shareholder approval to (a) materially
increase the benefits accruing to participants under the Plan, (ii) materially
increase the number of shares of Common Stock
25
<PAGE> 28
which may be issued under the Plan or (iii) materially modify the requirements
as to eligibility for participation in the Plan.
EIGHTY PERCENT PERIOD LIMITATIONS AND CONVERSION TO SARS
The ownership interest of Capital Bank in the Company (currently
approximately 81% of the outstanding Common Stock) has been structured so as
not to violate one of the requirements necessary for the Company to qualify for
a subsequent tax free distribution of all or a portion of Capital Bank's shares
of the Company, should Capital Bancorp (Capital Bank's parent company) or
Capital Bank decide to make such a distribution in the future. The Company has
been advised by Capital Bancorp and Capital Bank that no decision has been made
to make such a distribution and that even if a decision is made to proceed with
such a distribution, no assurances can be given that all conditions precedent
could be satisfied. As a part of such corporate structure, no additional
shares of the Company's Common Stock may be issued that would reduce Capital
Bank's interest in the Company below 80% without Capital Bank's written
approval, for the period that Capital Bank owns at least 80% of the issued and
outstanding Common Stock of the Company (the "Eighty Percent Period").
Therefore, pursuant to the Plan, during the Eighty Percent Period no more than
200,000 of the 1,300,000 shares reserved for issuance under the Plan may be
issued pursuant to the exercise of options. Optionees desiring to exercise
options for the remaining 1,100,000 shares available pursuant to the Plan (the
"Restricted Options") must make written inquiry of the Company and Capital Bank
requesting approval to exercise. Capital Bank may in its sole discretion
consent to the exercise of the Restricted Options during the Eighty Percent
Period.
Each Restricted Option granted pursuant to the Plan is accompanied by
a stock appreciation right (a "SAR"). The SARs shall be exercisable as
provided by the Committee, but in no event prior to April 15, 2001, and then,
only in the event that Capital Bank does not provide written approval for the
exercise of the Restricted Options. In addition, the SARs are only exercisable
during the Eighty Percent Period. Each SAR is exercisable with respect to the
same number of shares of Common Stock that can be acquired pursuant to the
exercise of a Restricted Option. Upon the exercise of a SAR, the Optionee will
be paid in cash an amount equal to the product of (i) the amount by which the
fair market value per share of Common Stock on the date on which the SAR is
exercised exceeds the exercise price per share of Common Stock prescribed in
the SAR and (ii) the number of shares subject to the exercisable portion of the
SAR with respect to which the Optionee has requested the ability to exercise.
PRIOR GRANTS OF OPTIONS
As of the Record Date, the Committee had granted non-statutory stock
options (the "1996 Options") pursuant to the Plan for an aggregate of 572,500
shares of Common Stock to 77 employees (including the Named Executive Officers)
and eight non-employee directors at an exercise price equal to $8.50 (the
public offering price of the Common Stock for the initial public offering of
the Company's Common Stock which was completed in the third quarter of 1996).
In addition, non-statutory stock options (the "1997 Options") to purchase an
additional 117,350 shares were granted to seven executive officers and 70
employees of the Company and Capital Factors on April 25, 1997 at an exercise
price of $13.50 per share (the closing price of the Common Stock on April 24,
1997 as quoted on the Nasdaq National Market). All of such options are
currently outstanding, have a term of 10 years, and will become exercisable in
20% increments over a five year period.
Pursuant to the limitations imposed on the Company during the Eighty
Percent Period, each of the current option holders may only exercise 34.9% of
the 1996 Options that have been granted to them under the Plan and none of the
1997 Options. The remaining options, even if vested, may not be exercised
without the written
26
<PAGE> 29
approval of Capital Bank during the Eighty Percent Period, and are accompanied
by SARs which will become exercisable as discussed above under " -- Eighty
Percent Period Limitations and Conversion to SARs."
The following table indicates certain information about the 1996 and
1997 Options granted under the Plan to the persons and groups indicated:
<TABLE>
<CAPTION>
Value of
Options at
Number of Exercise April 25, 1997
Shares Subject Price Exercisable (E)
Name and Position to Options (1) Per Share Unexercisable (U)
- ------------------------------------------ -------------- --------- -----------------
<S> <C> <C> <C>
John W. Kiefer, Chief Executive
Officer and President 120,000 $ 8.50 $ 600,000 (U)
24,000 $13.50 $ 0 (U)
Stephen J. Donohue, Executive
Vice President - NY Regional Manager 60,000 $ 8.50 $ 300,000 (U)
12,000 $13.50 $ 0 (U)
James L. Morrison, Executive
Vice President - CA Regional Manager 60,000 $ 8.50 $ 300,000 (U)
12,000 $13.50 $ 0 (U)
Michael J. Sullivan, Executive
Vice President - NC Regional Manager 20,000 $ 8.50 $ 100,000 (U)
4,000 $13.50 $ 0 (U)
Dennis A. McDermott - Senior
Vice President and Chief Financial Officer 40,000 $ 8.50 $ 200,000 (U)
10,000 $13.50 $ 0 (U)
All current executive
officers as a group (7 persons) 350,000 $ 8.50 $1,750,000 (U)
77,000 $13.50 $ 0 (U)
All current directors who are not executive
officers as a group (8 persons) 80,000 $ 8.50 $ 400,000 (U)
0 -- --
All employees as a group, other than executive
officers (69 persons) 142,500 $ 8.50 $ 712,500 (U)
(70 persons) 40,350 $13.50 $ 0 (U)
</TABLE>
- -------------------------------
(1) This table includes options which were granted on April 25, 1997 and
which are not included in the compensation tables set forth under "Executive
Compensation" above. It is assumed that such options had no value as of April
25, 1997 because they were granted at the fair market value of the Common Stock
as determined on the grant date.
FEDERAL INCOME TAX EFFECTS
The Plan is not qualified under the provisions of Section 401(a) of
the Code, nor is it subject to any of the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
INCENTIVE STOCK OPTIONS. Incentive stock options are "incentive stock
options" as defined in Section 422 of the Code. Under the Code, an optionee
generally is not subject to ordinary income tax upon the grant or exercise of
an incentive stock option. If, subsequent to the exercise of an incentive
stock option, the optionee holds the shares received upon exercise for a period
that exceeds (a) two years from the date such incentive stock
27
<PAGE> 30
option was granted or, if later, (b) one year from the date of exercise (the
"Required Holding Period"), the difference (if any) between the amount realized
from the sale of such shares and the tax basis to the holder will be taxed as
long- term capital gain or loss. In general, if, after exercising an incentive
stock option, an employee disposes of the shares so acquired before the end of
the Required Holding Period (a "Disqualifying Disposition"), such optionee
would be deemed in receipt of ordinary income in the year of the Disqualifying
Disposition, in an amount equal to the excess of the fair market value of the
shares at the date the incentive stock option was exercised over the exercise
price. If the Disqualifying Disposition is a sale or exchange which would
permit a loss to be recognized under the Code (were a loss in fact to be
sustained), and the sales proceeds are less than the fair market value of the
shares on the date of exercise, the optionee's ordinary income would be limited
to the gain (if any) from the sale. If the amount realized upon disposition
exceeds the fair market value of the shares on the date of exercise, the excess
would be treated as short-term or long-term capital gain, depending on whether
the holding period for such shares exceeded one year.
The alternative minimum tax on individuals is imposed at a rate of 26%
of the first $175,000 of taxable excess, and 28% of so much of the taxable
excess as exceeds $175,000. Taxable excess is defined as the excess of (i) an
individual's taxable income plus certain specified tax preference items and
subject to certain items of adjustment, over (ii) an exemption amount ($33,750
in the case of non-married individuals; $45,000 in the case of married
individuals filing jointly; and $22,500 in the case of married individuals
filing separately). The exemption amount is reduced or eliminated in certain
cases. An individual will be liable for the alternative minimum tax only to
the extent of the amount by which such tax exceeds the liability for regular
Federal income tax (reduced by certain credits). A foreign tax credit may be
applied against the alternative minimum tax. Further, the amount of minimum
tax liability generally is allowed as a credit offsetting regular tax liability
in subsequent years.
The amount by which the fair market value of the shares acquired at
the time of exercise of an incentive stock option exceeds the exercise price of
such shares under such option generally will be treated as an item of
adjustment included in the optionee's alternative minimum taxable income for
purposes of the alternative minimum tax for the year in which the option is
exercised. If, however, there is a Disqualifying Disposition of the shares in
the year in which the option is exercised, there will be no item of adjustment
for purposes of the alternative minimum tax as a result of the exercise of the
option with respect to those shares. If there is a Disqualifying Disposition
in a year after the year of exercise, the income on the Disqualifying
Disposition will not be considered income for purposes of the alternative
minimum tax in that subsequent year. The optionee's tax basis for shares
acquired pursuant to the exercise of an incentive stock option will be
increased for purposes of determining the alternative minimum tax by the amount
of the item of adjustment recognized with respect to such shares in the year
the option was exercised.
An income tax deduction is not allowed to the Company with respect to
the grant or exercise of an incentive stock option or the disposition, after
the Required Holding Period, of shares acquired upon exercise. In the event of
a Disqualifying Disposition, a Federal income tax deduction will be allowed to
the Company in an amount equal to the ordinary income to be recognized by the
optionee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable, and either the employee
includes that amount in income or the Company timely satisfies its reporting
requirements with respect to that amount.
NON-STATUTORY STOCK OPTIONS. An optionee granted a non-statutory
stock option will generally recognize, at the date of exercise of such
non-statutory stock option, ordinary income equal to the difference between the
exercise price and the fair market value of the shares of Common Stock subject
to the non-statutory stock option. This taxable ordinary income will be
subject to Federal income tax withholding. A Federal income tax deduction will
be allowed to the Company in an amount equal to the ordinary income to be
recognized by the
28
<PAGE> 31
optionee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable, and either the employee
includes that amount in income or the Company timely satisfies its reporting
requirements with respect to that amount.
If an optionee exercises a non-statutory stock option by delivering
other shares, the optionee will not recognize gain or loss with respect to the
exchange of such shares, even if the then fair market value of the shares is
different from the optionee's tax basis. The optionee, however, will be taxed
as described above with respect to the exercise of the non-statutory stock
option as if he has paid the exercise price in cash, and the Company likewise
generally will be entitled to an equivalent tax deduction. Provided a separate
identifiable stock certificate is issued therefor, the optionee's tax basis in
that number of shares received on such exercise which is equal to the number of
shares surrendered on such exercise will be equal to his or her tax basis in
the shares surrendered and his or her holding period for such number of shares
received will include his or her holding period for the shares surrendered.
The optionee's tax basis and holding period for the additional shares received
on exercise of a non-statutory stock option paid for, in whole or in part, with
shares will be the same if the optionee had exercised the non-statutory stock
option solely for cash.
The Board of Directors believes that the success of the Company
depends to a great extent on its continued ability to attract and retain
employees and directors of high quality who are motivated to exert their best
efforts on behalf of the Company and Capital Factors, and believes that the
Plan will be effective in retaining its present employees and directors and
attracting new employees and directors in the future.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE STOCK OPTION PLAN.
29
<PAGE> 32
PROPOSAL TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS
RELATING TO THE INCENTIVE COMPENSATION AND DEFERRED COMPENSATION
PROVISIONS SET FORTH IN THE EMPLOYMENT AGREEMENT
Effective January 1, 1996, the Company and Capital Factors entered
into an employment agreement with John W. Kiefer, the President and Chief
Executive Officer of the Company and Capital Factors (the "Agreement"). The
Agreement is attached hereto as Appendix B. The material features of the
Agreement are discussed below, but the description is subject to, and is
qualified in its entirety by, the full text of the Agreement.
Under the terms the Agreement, payment of the portion of Mr. Kiefer's
incentive compensation and deferred compensation that otherwise would not be
deductible under Section 162(m) of the Code is subject to approval by the
Company's shareholders of the material terms of the performance goals upon which
such incentive compensation and deferred compensation are based. The material
terms of such performance goals relating to the incentive compensation and
deferred compensation set forth in the Agreement include the employee eligible
to receive the compensation, the business criteria on which the performance
goals are based and the maximum amount that could be paid to the employee if the
performance goals are obtained. The material terms of the performance goals
relating to the incentive compensation and deferred compensation provisions set
forth in the Agreement are therefore being submitted to the shareholders for
approval. If approval is not obtained, Mr. Kiefer would still be entitled to
that portion of the incentive compensation and deferred compensation that would
be deductible by the Company under Section 162(m).
The Agreement has a term of five years and expires in December 2000.
Upon execution of the Agreement, Mr. Kiefer received a signing bonus of
$250,000 and a $100,000 loan payable in five equal installments of principal
plus all accrued interest through the date of payment during the term, but due
in full upon earlier termination of the Agreement. The Agreement provides for
an annual base salary to Mr. Kiefer of $300,000 in the first year, subject to
adjustment in the discretion of the Company's Board of Directors or
Compensation Committee, although the minimum increase will be $25,000 per year.
For 1997, Mr. Kiefer's salary was increased to $325,000. Mr. Kiefer will
receive a bonus on December 31 of each year during the term of the Agreement if
he is then still employed thereunder, in an amount equal to the amount of
principal and interest then due under his loan from the Company.
THIS PARAGRAPH AND THE FOLLOWING PARAGRAPH DISCUSS THE MATERIAL TERMS
OF THE PERFORMANCE GOALS OF THE INCENTIVE COMPENSATION AND DEFERRED
COMPENSATION PROVISIONS OF THE AGREEMENT THAT ARE THE SUBJECT OF THIS PROPOSAL.
The Agreement provides for an annual bonus based on the Company's success
in reaching certain targets for net revenues and income before income taxes,
which targets are ultimately determined by the Compensation Committee or the
Board on an annual basis. In the event the targets are reached, the portion of
the bonus relating to net revenues would equal 20% of Mr. Kiefer's salary and
the portion of the bonus relating to income before income taxes would equal 80%
of his salary. Each portion of the bonus could be a smaller or larger
percentage of his salary depending upon whether the targets are either not met
or exceeded, with the aggregate maximum in any year being 185% of salary if
both targets are doubled (148% of salary if income before taxes is doubled or
higher and 37% of salary if net revenues is doubled or higher). The Agreement
provides that, during the term of the Agreement, the maximum amount of Mr.
Kiefer's base salary that may be taken into account for purposes of determining
his incentive compensation is $600,000. Therefore, the highest incentive
compensation he could receive in any one year, assuming the maximum salary and
doubling all targets set by the Compensation Committee, would be $1,110,000.
For Mr. Kiefer to receive no bonus, both net revenues and income before income
taxes would have to be no more than 50% of target levels. For the 1996
30
<PAGE> 33
fiscal year, Mr. Kiefer received incentive compensation of $346,200 (115.4 % of
base salary) out of a total of $555,000 which could have been earned based on a
salary of $300,000.
Mr. Kiefer shall also receive deferred compensation equal to 67% of
his salary for each year that (i) net revenues and income before income taxes
exceed projected net revenues and income before income taxes as set forth in
the Company's five-year plan (which calls for increases in these items each
year), (ii) net revenues increase by 13.5% over net revenues for the prior year
and (iii) income before income taxes increases by 22.5% over income before
income taxes for the prior year. The deferred compensation shall vest 50%
after three years and 25% after each of the fourth and fifth years, provided
that Mr. Kiefer is still employed by the Company, although the employment
condition for vesting will lapse after the five-year term of the Agreement if
Mr. Kiefer is employed at that time. If at the end of the five- year term, Mr.
Kiefer agrees to be employed by the Company for another five years, then all
deferred compensation that has not yet vested shall immediately vest. The
Agreement provides that, during the term of the Agreement, the maximum amount
of Mr. Kiefer's base salary that may be taken into account for purposes of
determining his deferred compensation is $600,000. Therefore, the highest
deferred compensation Mr. Kiefer could earn in any one year would be $402,000.
Mr. Kiefer would receive no deferred compensation if any one of the goals
specified in (i) through (iii) above were not met. For the 1996 fiscal year,
Mr. Kiefer earned deferred compensation of $200,000 based on a salary of
$300,000.
In addition, pursuant to the Agreement, upon the effective date of the
initial public offering of the Company's Common Stock, Mr. Kiefer received
options to purchase one percent of the Company's Common Stock outstanding after
giving effect to such offering (but not including the exercise of the
overallotment option granted to the underwriters of such offering) at the
initial public offering price, subject to the terms and conditions of the
Capital Factors Holding, Inc. Stock Option Plan then in effect. For additional
information regarding such option grant, see "Compensation Pursuant to Plans --
1996 Stock Option Grants."
Upon the Company's termination of Mr. Kiefer's employment without
cause, Mr. Kiefer shall be entitled to receive, among other things, (i) base
salary through the date of such termination, (ii) all previous bonuses and a
pro- rata portion of the bonus payable, if any, for the year in which
termination occurs, (iii) an acceleration of the vesting of all deferred
compensation and (iv) subject to mitigation if he obtains subsequent
employment, his base salary through the expiration date of the Agreement. In
the event of a change in control, Mr. Kiefer shall receive the same
compensation as if terminated without cause except that in lieu of the
compensation payable in (iv) above, Mr. Kiefer shall be entitled to receive a
lump sum payment equal to two times his base salary and prior year's bonus if
he terminates his employment because of changes in his employment situation and
an additional amount equal to two times his prior year's deferred compensation,
if any, if he is terminated by the Company without cause within one year after
a change in control. Upon termination for "cause" or upon voluntary
resignation, Mr. Kiefer shall be entitled to receive his base salary through
the date of such termination.
Payment of the incentive compensation bonus and deferred compensation
in certain years during the term that would not otherwise be deductible by
reason of Section 162(m) of the Internal Revenue Code of 1986, as amended, is
subject to certain approvals, including shareholder approval. The agreement
also contains certain non-competition covenants and covenants against
solicitation of clients and employees for a competitive business.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS RELATING TO THE
INCENTIVE COMPENSATION AND DEFERRED COMPENSATION PROVISIONS SET FORTH IN THE
EMPLOYMENT AGREEMENT.
31
<PAGE> 34
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31,
1997 concerning (i) the nominees for re-election to the Company's Board of
Directors (see "Election of Directors"); (ii) the Named Executive Officers (see
"Executive Compensation -- Annual Compensation"); (iii) all directors, nominees
for director and executive officers of the Company as a group; and (iv) any
person who is known to be the beneficial owner, as such term is defined in Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended, of more than 5% of the outstanding shares of the
Company's Common Stock, according to filings by such persons with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Beneficial Ownership Common Stock
Name and Address of Common Stock (1) Outstanding
- ------------------------------------- ----------------------- ----------------
<S> <C> <C>
DIRECTORS:
John W. Kiefer 29,200 (2) *
Javier J. Holtz 0 (3) *
Daniel M. Holtz 0 (4) *
Stephen N. Ashman 0 (5) *
Ronald S. Chase 12,000 (5) *
Cynthia R. Cohen 0 (5) *
Norman G. Einspruch 0 (5) *
Jack D. Listanowsky 0 (5) *
Harold L. Oshry 0 (5) *
Bruce S. Raiffe 12,500 (5) *
OTHER NAMED EXECUTIVE OFFICERS:
Stephen J. Donohue 0 (6) *
James L. Morrison 1,000 (6) *
Michael J. Sullivan 1,000 (7) *
Dennis A. McDermott 0 (8) *
ALL CURRENT DIRECTORS AND EXECUTIVE 56,500 *
OFFICERS OF THE COMPANY
AS A GROUP (15 persons)
OTHER 5% OWNERS:
Capital Bancorp 10,000,000 (9) 81.3%
1221 Brickell Avenue
Miami, Florida 33131
Capital Bank 10,000,000 (10) 81.3%
1221 Brickell Avenue
Miami, Florida 33131
Fana Holtz (11) (11)
9999 Collins Avenue, PH 3B
Bal Harbor, Florida 33154
</TABLE>
- -------------------------
*Less than 1%
(Footnotes on following page.)
32
<PAGE> 35
(1) The nature of the reported beneficial ownership is unshared voting and
investment power unless otherwise indicated. Beneficial ownership of
Common Stock does not reflect shares that would be received upon the
exercise of options that are not exercisable within 60 days. Fana
Holtz is the mother of Daniel and Javier Holtz.
(2) Does not includes 120,000 shares of Common Stock that Mr. Kiefer has
the right to acquire pursuant to stock options which were granted in
1996 but are not currently exercisable. See "Proposal to Approve
Stock Option Plan" above for more information regarding the vesting of
the Company's stock options and the limitations on exercise of options
during the Eighty Percent Period . Also does not include 24,000
shares that Mr. Kiefer has the right to acquire pursuant to stock
options granted on April 25, 1997, which are not currently
exercisable.
(3) Does not include 25,000 shares of Common Stock that Mr. Holtz has the
right to acquire pursuant to stock options which were granted in 1996
but are not currently exercisable. See "Proposal to Approve Stock
Option Plan" above for more information regarding the vesting of the
Company's stock options and the limitations on exercise of options
during the Eighty Percent Period. Also does not include 10,000 shares
that Mr. Holtz has the right to acquire pursuant to stock options
granted on April 25, 1997, which are not currently exercisable. In
addition, Mr. Javier Holtz is the beneficial owner of approximately
3.8% of the outstanding shares of Capital Bancorp, which is the parent
company of Capital Bank. Capital Bank is the direct owner of
approximately 81.3% of the outstanding Common Stock of the Company.
Pursuant to a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 1997, Javier Holtz disclaims beneficial
ownership of the 3.1% of Company shares which may be attributed to
him through his beneficial ownership of Capital Bancorp Common Stock.
Mr. Holtz, individually, and together with his mother Fana Holtz, and
his brother, Daniel Holtz, have filed an application with the Florida
Department of Banking and Finance to acquire and/or maintain control
of Capital Bancorp, although they do not believe that such an
application is legally required.
(4) Does not include 10,000 shares of Common Stock that Mr. Holtz has the
right to acquire pursuant to stock options which are not currently
exercisable. See "Proposal to Approve Stock Option Plan" above for
more information regarding the vesting of the Company's stock options
and the limitations on exercise of options during the Eighty Percent
Period. In addition, Mr. Daniel Holtz is the beneficial owner of
approximately 6.4% of the outstanding shares of Capital Bancorp, which
is the parent company of Capital Bank. Capital Bank is the direct
owner of approximately 81.3% of the outstanding Common Stock of the
Company. Pursuant to a Schedule 13G filed with the Securities and
Exchange Commission on February 14, 1997, Daniel Holtz disclaims
beneficial ownership of the 5.2% of Company shares which may be
attributed to him through his beneficial ownership of Capital Bancorp
Common Stock. Mr. Holtz, individually, and together with his mother
Fana Holtz, and his brother, Javier Holtz, have filed an application
with the Florida Department of Banking and Finance to acquire and/or
maintain control of Capital Bancorp, although they do not believe that
such an application is legally required.
(5) Does not include 10,000 shares of Common Stock which he or she has the
right to acquire pursuant to stock options which are not currently
exercisable. See "Proposal to Approve Stock Option Plan" above for
more information regarding the vesting of the Company's stock options
and the limitations on exercise of options during the Eighty Percent
Period.
(6) Does not include 60,000 shares of Common Stock that such person has
the right to acquire pursuant to stock options which were granted in
1996 but are not currently exercisable. See "Proposal to Approve
Stock Option Plan" above for more information regarding the vesting of
the Company's stock options and the limitations on exercise of options
during the Eighty Percent Period. Also does not include 12,000 shares
that such person has the right to acquire pursuant to stock options
granted on April 25, 1997, which are not currently exercisable.
(7) Does not include 20,000 shares of Common Stock that Mr. Sullivan has
the right to acquire pursuant to stock options which were granted in
1996 but are not currently exercisable. See "Proposal to Approve
Stock Option Plan" above for more information regarding the vesting of
the Company's stock options and the limitations on exercise of options
during the Eighty Percent Period. Also does not include 4,000 shares
that Mr. Sullivan has the right to acquire pursuant to stock options
granted on April 25, 1997, which are not currently exercisable.
(Footnotes continued on following page.)
33
<PAGE> 36
(8) Does not include 40,000 shares of Common Stock that Mr. McDermott has
the right to acquire pursuant to stock options which were granted in
1996 but are not currently exercisable. See "Proposal to Approve
Stock Option Plan" above for more information regarding the vesting of
the Company's stock options and the limitations on exercise of options
during the Eighty Percent Period. Also does not include 10,000 shares
that Mr. McDermott has the right to acquire pursuant to stock options
granted on April 25, 1997, which are not currently exercisable.
(9) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 5, 1997. Capital
Bancorp is the parent company of Capital Bank, which is the owner of
81.3% of the outstanding Common Stock of the Company.
(10) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 5, 1997.
(11) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 1997. Fana Holtz
is the beneficial owner of approximately 36.8% of the outstanding
shares of Capital Bancorp, which is the parent company of Capital
Bank. Capital Bank is the direct owner of approximately 81.3% of the
outstanding Common Stock of the Company. Fana Holtz disclaims
beneficial ownership of the 29.9% of Company shares which may be
attributed to her through her beneficial ownership of Capital Bancorp
Common Stock. Mrs. Holtz, individually, and together with her sons,
Javier Holtz and Daniel Holtz, have filed an application with the
Florida Department of Banking and Finance to acquire and/or maintain
control of Capital Bancorp, although they do not believe that such an
application is legally required.
34
<PAGE> 37
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before
the Annual Meeting. If, however, any other business should properly come
before the Annual Meeting, the persons named in the accompanying proxy will
vote proxies as, in their discretion, they may deem appropriate, unless they
are directed by a proxy to do otherwise.
MISCELLANEOUS
INDEPENDENT AUDITORS
On April 24, 1997, the Audit Committee recommended and the Board of
Directors appointed the firm of Deloitte & Touche, LLP, independent certified
public accountants, to examine the consolidated financial statements of the
Company and its subsidiaries for the 1997 fiscal year. Representatives of
Deloitte & Touche, LLP are expected to be present at the Annual Meeting and
will have an opportunity to make a statement if they desire to do so and to
respond to appropriate questions from shareholders.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than 10% of the Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and 10% shareholders are required by regulation to furnish the
Company with all such Section 16(a) filings made. The Company believes that,
during the fiscal year ended December 31, 1996, its executive officers,
directors and holders of more than 10% of the Company's Common Stock complied
with all applicable Section 16(a) filing requirements, except that the Forms 3
relating to their initial beneficial ownership were inadvertently filed late by
Capital Bancorp and Fana Holtz (neither of which directly own any shares of
Company Common Stock). Pursuant to a Schedule 13G filed with the Securities
and Exchange Commission on February 14, 1997, Mrs. Holtz disclaims beneficial
ownership of any shares of Common Stock of the Company. In addition, a Form 4
relating to changes in his beneficial ownership during the first quarter of
1997 was inadvertently filed late by John Apgar, Senior Vice President of
Capital Factors.
SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange
Commission, a shareholder intending to present a proposal for action at the
Company's 1998 Annual Meeting of Shareholders must deliver a proposal in
writing to the Company's principal executive offices no later than January 2,
1998 for inclusion in the Company's proxy statement relating to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Javier J. Holtz, Chairman of the Board
May 2, 1997
35
<PAGE> 38
APPENDIX A
---------------------------------------
CAPITAL FACTORS HOLDING, INC.
STOCK OPTION PLAN
---------------------------------------
Purpose. The purpose of this Plan is to advance the interests of
Capital Factors Holding, Inc., a Florida corporation (the "Company"), by
providing an additional incentive to attract, retain and motivate qualified and
competent persons who are key to the Company (as hereinafter defined), including
key employees, Officers and Directors, and upon whose efforts and judgment the
success of the Company is largely dependent, through the encouragement of stock
ownership in the Company by such persons.
1. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Bank" shall refer to Capital Bank, a Florida bank and
majority shareholder of the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Company's Compensation and
Benefits Committee.
(e) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(f) "Company" shall refer to Capital Factors Holding, Inc., a
Florida corporation, its wholly-owned subsidiary, Capital Factors, Inc., a
Florida corporation, and any additional existing or future direct or indirect
majority owned subsidiary of the Company.
(g) "Director" shall mean a member of the Board.
(h) "Disinterested Person" shall mean a Director who is not,
during the one year prior to his or her service as an administrator of this
Plan, or during such service, granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any of its affiliates, except
that:
(i) participation in a formula plan meeting the
conditions in paragraph (c)(2)(ii) of Rule 16b-3 promulgated
under the Securities Exchange Act shall not disqualify a
Director from being a Disinterested Person;
(ii) participation in an ongoing securities
acquisition plan meeting the conditions in paragraph (d)(2)(i)
of Rule 16b-3 promulgated under the Securities Exchange Act
shall not disqualify a Director from being a Disinterested
Person; and
(iii) an election to receive an annual retainer fee
in either cash or an equivalent amount of securities, or
partly in cash and partly in securities, shall not disqualify
a Director from being a Disinterested Person.
A-1
<PAGE> 39
In addition, in order to be a "Disinterested Person" a director shall be an
outside director as defined in the rules and regulations under Section 162(m) of
the Code. Such rules and regulations presently provide that a director shall not
be a current employee of the Company or, a former employee receiving
compensation from the Company for prior services (other than from a qualified
retirement plan), shall not have been an officer of the Company, and shall not
be receiving any remuneration from the Company, either directly or indirectly,
in any capacity other than as a director. Remuneration is considered received,
either directly or indirectly, by a director if:
(i) it is paid in the applicable year to the director
or to an entity in which the director has a beneficial
ownership interest of greater than 50%;
(ii) it is not de minimis, and was paid in the prior
year to an entity in which the director has a beneficial
interest of at least 5% but not more than 50%; or
(iii) it is not de minimis, and was paid in the prior
year to an entity in which the director is employed or
self-employed other than as a director.
For the purposes hereof, remuneration paid for goods or services shall be
considered to be de minimis if the amount paid by the Company in its preceding
taxable year does not exceed 5% of the recipient's gross revenues. However,
remuneration in excess of $60,000 paid to an entity is not de minimis if it is
paid to an entity described in (ii) above (one in which the director owns from a
5% to 50% interest), or if it is paid for personal services to an entity
described in (iii) above (one by which the director is employed but owns less
than a 5% interest).
(i) "Effective Date" shall mean the commencement date of the
Company's initial public offering of Common Stock as contemplated by the
Company's Registration Statement on Form S-1 (Registration No. 333-3419)
initially filed with the Securities and Exchange Commission on May 9, 1996.
(j) "Eighty Percent Control" shall refer to control of the
Company within the meaning of Section 368(c) of the Code, that is ownership of
at least 80 percent of the total combined voting power of all classes of stock
entitled to vote for directors of the Company and at least 80 percent of the
total number of shares of each other class of stock of the Company, all as
defined in Section 368(c) of the Code.
(k) "Eighty Percent Holder" shall refer to Bank or any
designee of the Bank or any previous designee of the Bank to whom or which the
Bank or such previous designee has transferred Eighty Percent Control.
(l) "Eighty Percent Period" shall refer to that period during
which any Eighty Percent Holder has Eighty Percent Control.
(m) "Employee Director" shall mean a member of the Board who is
also an employee of the Company or a Subsidiary.
(n) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock
A-2
<PAGE> 40
on such exchange or reporting system, as reported in any newspaper of general
circulation, (ii) if the Common Stock is quoted on the National Association of
Securities Dealers Automated Quotations System ("Nasdaq"), or any similar system
of automated dissemination of quotations of securities prices in common use, the
last reported sale price of Common Stock for such day on such system, or (iii)
if neither clause (i) or (ii) is applicable, the mean between the high bid and
low asked quotations for the Common Stock as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both bid
and asked quotations for Common Stock on at least five of the ten preceding
days.
(o) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Code.
(p) "Non-Employee Director" shall mean a member of the Board who
is not an employee of the Company or a Subsidiary.
(q) "Non-Qualified Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(r) "Officer" shall mean the Company's president, principal
financial officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice-president of the Company in charge
of a principal business unit, division or function (such as administration or
finance), any other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the Company. Officers of
Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase
"policy-making function" does not include policy-making functions that are not
significant. Unless specified otherwise in a resolution by the Board, an
"executive officer" pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.
229.401(b)) shall be only such person designated as an "Officer" pursuant to the
foregoing provisions of this paragraph.
(s) "Option" (when capitalized) shall mean any option granted
under this Plan.
(t) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(u) "Plan" shall mean this Stock Option Plan for the Company.
(v) "SAR" shall mean a stock appreciation right.
(w) "Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(x) "Share(s)" shall mean a share or shares of the Common Stock.
(y) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. SHARES AND OPTIONS. The Company may grant to Optionees from time
to time Options to purchase an aggregate of up to 1,300,000 Shares from
authorized and unissued Shares. If any Option granted
A-3
<PAGE> 41
under the Plan shall terminate, expire, or be canceled or surrendered as to any
Shares, new Options may thereafter be granted covering such Shares. Subject to
the provisions of Section 15 hereof, an Option granted hereunder shall be either
an Incentive Stock Option or a Non-Qualified Stock Option as determined by the
Committee at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or Non-Qualified Stock Option. All Incentive Stock
Options shall be granted within 10 years from the effective date of this Plan.
3. DOLLAR LIMITATION. Options otherwise qualifying as Incentive
Stock Options hereunder will not be treated as Incentive Stock Options to the
extent that the aggregate Fair Market Value (determined at the time the Option
is granted) of the Shares, with respect to which Options meeting the
requirements of Code Section 422(b) are exercisable for the first time by any
individual during any calendar year (under all plans of the Company and any
Subsidiary), exceeds $100,000.
4. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. In
addition to Non-Employee Directors (who shall receive Options only pursuant to
Section 16 of this Plan), Optionees shall be those persons selected by the
Committee from the class of all regular employees of the Company or its
Subsidiaries, including Employee Directors and Officers who are regular
employees of the Company. Any person who files with the Committee, in a form
satisfactory to the Committee, a written waiver of eligibility to receive any
Option under this Plan shall not be eligible to receive any Option under this
Plan for the duration of such waiver.
(b) In granting Options to employees of the Company or its
Subsidiaries, the Committee shall take into consideration the contribution the
person has made to the success of the Company or its Subsidiaries and such other
factors as the Committee shall determine. The Committee shall also have the
authority to consult with and receive recommendations from officers and other
personnel of the Company and its Subsidiaries with regard to these matters. The
Committee may from time to time in granting Options to employees of the Company
or its Subsidiaries under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, upon termination of the Eighty Percent Period, the
consent of the Eighty Percent Holder and/or the attainment of stated goals, or
(iii) relating an Option to the continued employment of the Optionee for a
specified period of time, provided that such terms and conditions are not more
favorable to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
(d) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, Options may not be granted to
(i) an Officer or Employee Director unless the grant of such Options is
authorized by, and all of the terms of such Options are determined by, a
Committee that is appointed in accordance with Section 14 of this Plan and all
of whose members are Disinterested Persons, or (ii) a Non-Employee Director
unless the grant of such Options is made in accordance with Section 16 of this
Plan.
A-4
<PAGE> 42
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Director, Officer or employee may not exceed 35% of the total
number of options available for grant under the Plan.
5. OPTION PRICE. The option price per Share of any Option shall be
any price determined by the Committee but shall not be less than the par value
per Share; provided, however, that in no event shall the option price per
Share of any Incentive Stock Option or Option granted pursuant to Section 16
of this Plan be less than the Fair Market Value of the Shares underlying such
Option on the date such Option is granted.
6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of the amount that is necessary for the
Company or Subsidiary employing the Optionee to withhold in accordance with
applicable Federal or state tax withholding requirements. Unless further limited
by the Committee in any Option, the option price of any Shares purchased shall
be paid in cash, by certified or official bank check, by money order, with
Shares or by a combination of the above; provided further, however, that the
Committee in its sole discretion may accept a personal check in full or partial
payment of any Shares. If the exercise price is paid in whole or in part with
Shares, the value of the Shares surrendered shall be their Fair Market Value on
the date the Option is exercised. The Company in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this Plan, and subject to applicable law, lend money to an Optionee, guarantee a
loan to an Optionee, or otherwise assist an Optionee to obtain the cash
necessary to exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise. If the exercise
price is paid in whole or part with Optionee's promissory note, such note shall
(i) provide for full recourse to the maker, (ii) be collateralized by the pledge
of the Shares that the Optionee purchases upon exercise of such Option, (iii)
bear interest at a rate no less than the prime rate of the Company's principal
lender, and (iv) contain such other terms as the Board in its sole discretion
shall reasonably require. No Optionee shall be deemed to be a holder of any
Shares subject to an Option unless and until a stock certificate or certificates
for such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
7. EXERCISABILITY OF OPTIONS. Except as provided in Section 9
hereof or otherwise provided in this Section 8, any Option shall become
exercisable in such amounts, at such intervals and upon such terms as the
Committee shall provide in such Option.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or occurring
pursuant to a plan), that has the result that shareholders of the
Company immediately before such transaction cease to own at least 51
percent of the voting stock of the
A-5
<PAGE> 43
Company or of any entity that results from the participation of the
Company in a reorganization, consolidation, merger, liquidation or any
other form of corporate transaction;
(ii) if the shareholders of the Company shall approve
a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved
merger, consolidation, reorganization, liquidation or dissolution is
subsequently abandoned); or
(iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of
all or substantially all the property and assets of the Company (unless
such plan is subsequently abandoned);
provided, however, that this Section 8(b) shall not apply to accelerate the
exercisability of any Option if all or part of the shares in the Company are
distributed to Capital Bank, Capital Bancorp, to shareholders of Capital Bancorp
or to any of their affiliates, regardless of the manner in which such Shares are
distributed.
(c) Except with respect to an Option granted pursuant to
Section 15 of this Plan, and subject to the restrictions of Section 9, the
Committee may in its sole discretion accelerate the date on which any Option may
be exercised and may accelerate the vesting of any Shares subject to any Option
or previously acquired by the exercise of any Option.
8. RESTRICTIONS ON GRANT AND EXERCISE OF OPTIONS DURING EIGHTY
PERCENT PERIOD; CONVERSION TO SARS.
(a) During the Eighty Percent Period, Options to purchase no
more than 200,000 shares of Common Stock may be granted under the Plan without
the restrictions on exercise set forth in the next two sentences of this Section
9(a). Options to purchase any additional shares issuable under the Plan, even if
vested pursuant to the terms of such Options, may not be exercised by an
Optionee without the prior written approval of the Eighty Percent Holder
during the Eighty Percent Period. Optionees desiring to exercise such Options,
must make written inquiry of the Company and the Eighty Percent Holder
requesting approval of any such exercise, prior to exercising any such Options
during the Eighty Percent Period. The Eighty Percent Holder may, in its sole
discretion, consent to the removal or limitation of the restrictions contained
in this Section 9(a).
(b) Each Non-Qualified Stock Option or portion thereof subject
to the restrictions contained in Section 9(a) requiring approval by the Eighty
Percent Holder in order to be exercised shall be issued accompanied by an SAR.
The SARs shall be exercisable as provided by the Committee in the Non-Qualified
Stock Option, but in no event prior to April 15, 2001, and then only in the
event that the Eighty Percent Holder does not provide written approval of the
Optionee's exercise of such vested Non-Qualified Stock Option or vested portion
thereof which is subject to the restrictions set forth in Section 9(a) above and
only during the Eighty Percent Period. Each such SAR shall be exercisable with
respect to the same number of shares of Common Stock that are subject to
restriction pursuant to the vested Non-Qualified Stock Option or vested portion
thereof that the Optionee requested to exercise. Upon the Optionee's exercise of
such SAR, the Optionee shall be paid, in cash, an amount equal to the product of
(i) the amount by which the Fair Market Value per share of Common Stock on the
date on which the SAR is exercised exceeds the exercise price per share of
Common Stock prescribed in the SAR (former Non-Qualified Stock Option) and (ii)
the number of shares subject to the exercisable portion of the SAR with respect
to which the Optionee has requested the ability to exercise. Any exercise of an
SAR by an Optionee shall only occur during the period beginning on the third
business day
A-6
<PAGE> 44
following the release by the Company of its quarterly or annual financial
results and ending on the last business day of the quarter in which such release
was made.
(c) Each and every SAR accompanying a Non-Qualified Stock
Option shall be subject to the same provisions and restrictions relating to
Non-Qualified Stock Options as are set forth in this Plan. In the event that any
Optionee's employment by the Company or any Subsidiary or service as a Director
of the Company shall terminate, any SARs held by any such Optionee on the date
of such termination may be exercised during the same period, by the same person
or persons, and to the same extent as any Non-Qualified Stock Options may, or
would be exercised by such Optionee.
(d) The restrictions set forth in this Section 9 and the SARs
shall immediately terminate at such time as there is no Eighty Percent Holder.
9. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option, other than an
Option granted pursuant to Section 16 hereof, shall automatically and without
notice terminate and become null and void at the time of the earliest to occur
of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason
of (A) Cause, which, shall mean "Cause" under Optionee's employment
agreement, if any, or which, solely for purposes of this Plan, shall
mean the termination of the Optionee's employment (or, in the case of
non-employee Directors, the removal of the Optionee as a Director) by
reason of any act or any failure to act, by the Optionee that
constitutes (1) misfeasance or malfeasance in connection with the
performance by him of his duties and responsibilities as an employee or
Director of the Company; (2) fraud, embezzlement or breach of trust;
(3) any criminal act other than minor traffic infractions; or (4) the
willful or knowing refusal by the Optionee to perform substantially all
or any portion of his duties and responsibilities as an employee or
Director of the Company; (B) a mental or physical disability as
determined by a medical doctor satisfactory to the Committee, or (C)
death;
(ii) immediately upon the termination of the Optionee's
employment for Cause;
(iii) twelve months after the date on which the
Optionee's employment is terminated by reason of a mental or physical
disability (within the meaning of Code Section 22(e)) as determined by
a medical doctor satisfactory to the Committee; or
(iv) (A) twelve months after the date of termination of the
Optionee's employment by reason of death of the employee, or (B) three
months after the date on which the Optionee shall die if such death
shall occur during the one year period specified in Subsection
9(a)(iii) hereof; provided, however, that the Committee may adjust
these terms, in its sole discretion, with respect to any Option that
contains restrictions pursuant to Section 9 of this Plan.
(b) The Committee in its sole discretion may by giving written
notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a
A-7
<PAGE> 45
reasonable period of time prior to the proposed date of such cancellation and
may be given either before or after approval of such corporate transaction.
10. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that
the same percentage of the Company's issued and outstanding Shares
shall continue to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject
to any outstanding Option, so that the same percentage of the Company's
issued and outstanding Shares shall remain subject to purchase at the
same aggregate exercise price.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, subject to written
approval of the during the Eighty Percent Holder during the Eighty Percent
Period, including with respect to the option price or the number of Shares
subject to the Options, or both, when, in the Committee's sole discretion, such
adjustments become appropriate by reason of a corporate transaction described in
Subsections 8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise; although the foregoing shall remain subject to the
provisions in the Company's Amended and Restated Articles of Incorporation.
11. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such
Option shall not be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable during
the Optionee's lifetime only by the Optionee.
A-8
<PAGE> 46
12. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring
the Shares to be issued to him for investment and not with a view to,
or for sale in connection with, the distribution of any such Shares;
and
(ii) a representation, warranty and/or agreement to
be bound by any legends that are, in the opinion of the Committee,
necessary or appropriate to comply with the provisions of any
securities law deemed by the Committee to be applicable to the issuance
of the Shares and are endorsed upon the Share certificates.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors, each of whom shall be
Disinterested Persons to the extent required by Section 5(d) hereof, provided
that the Committee shall not have any discretion with respect to the grant of
Options to Non-Employee Directors pursuant to Section 16 of this Plan. The
Committee shall have all of the powers of the Board with respect to the Plan.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
14. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any
other provisions of the Plan to the contrary, an Incentive Stock Option shall
not be granted to any person owning directly or indirectly (through attribution
under Section 424(d) of the Code) at the date of grant, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company (or of its subsidiary [as defined in Section 424 of the Code] at the
date of grant) unless the option price of such Option is at least 110% of the
Fair Market Value of the Shares subject to such Option on the date the Option is
granted, and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
15. FORMULA GRANTS TO NON-EMPLOYEE DIRECTORS. Each Non-Employee
Director will receive (i) on the later of the date of his or her appointment as
a Director or the Effective Date, a Non-Qualified Stock Option to purchase
10,000 shares of Common Stock, and (ii) on the date of each annual meeting of
the Company's shareholders, beginning with the first such annual meeting that
occurs after December 31, 1996, if such person continues to serve as a director
on such date, a Non-Qualified Stock Option to purchase 2,000 shares of Common
Stock. During the Eighty Percent Period, such Options granted on the Effective
Date shall be subject to the restrictions of Section 9 on a pro-rata basis with
all other Options granted on the Effective Date and shall be
A-9
<PAGE> 47
accompanied by SARs on the same pro-rata basis. Thereafter, during the Eighty
Percent Period, all such Options shall be subject to the restrictions of Section
9 and shall be accompanied by SARs. All such SARs will have the same terms and
conditions as provided in Sections 9(b) - (d). Subject to the restrictions set
forth in Section 9, such Options will become exercisable for 20% of the shares
on the first anniversary date of grant and the balance in equal annual
installments over the four-year period thereafter. The per share exercise price
of all Options granted to Non-Employee Directors pursuant to this Section 16
will be equal to the Fair Market Value of the Shares underlying such Option. The
unexercised portion of any Option granted pursuant to this Section 16 shall
become null and void (i) three months after the date on which such Non-Employee
Director ceases to be a Director for any reason other than for mental or
physical disability or death of the Non-Employee Director, or (ii) twelve months
after the mental or physical disability or death of the Non-Employee Director,
PROVIDED, HOWEVER, if an Option granted to a Non-Employee Director is subject to
the restrictions set forth in Section 9 hereof at the time such Non-Employee
Director ceases to be a Director, then, the foregoing periods of exercisability
shall not commence until such restrictions terminate, or until the SAR
accompanying the Option is exercisable, whichever is earlier, and for the period
contained in (i) or (ii) above, whichever is applicable. If the exercise term of
the Option expires while the Option is still subject to Section 9 hereof, then
the Option (or SAR) shall be exercisable for three months after the termination
of such restrictions or its exercisability as an SAR, whichever is earlier.
16. INTERPRETATION.
(a) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under section 422 of the Code. If any provision of the Plan should be
held invalid for the granting of Incentive Stock Options or illegal for any
reason, such determination shall not affect the remaining provisions hereof, but
instead the Plan shall be construed and enforced as if such provision had never
been included in the Plan.
(b) This Plan shall be governed by the laws of the State of
Florida.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
17. AMENDMENT AND DISCONTINUATION OF THE PLAN.
(a) Either the Board or the Committee may from time to time
amend the Plan or any Option; provided, however, that, except to the extent
provided in Section 11, no such amendment may, without approval by the
shareholders of the Company, (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of securities
which may be issued under the Plan, or (iii) materially modify the requirements
as to eligibility for participation in the Plan; and provided further, that,
except to the extent provided in Section 10, no amendment or suspension of the
Plan or any Option issued hereunder shall substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.
(b) Notwithstanding anything herein to the contrary, the
provisions of this Plan which govern the number of Options to be awarded to
Non-Employee Directors, the exercise price per share under each such Option,
when and under what circumstances such Option will be granted and the period
within which each
A-10
<PAGE> 48
such Option may be exercised, shall not be amended more than once every six
months (even with shareholder approval), other than to conform to changes to the
Code, or the rules promulgated thereunder, and under the Employee Retirement
Income Security Act of 1974, as amended, or the rules promulgated thereunder, or
with rules promulgated by the Securities and Exchange Commission.
18. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective
upon the Effective Date and shall terminate on the 10th anniversary of the
Effective Date.
A-11
<PAGE> 49
APPENDIX B
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made and entered into as of
January 1, 1996 by and between CAPITAL FACTORS HOLDING, INC., a Florida
corporation (the "Company"), CAPITAL FACTORS, INC., a Florida corporation
("Factors"), and JOHN W. KIEFER (hereinafter called the "Executive").
R E C I T A L S
- - - - - - - -
A. The Executive is currently employed as President and Chief
Executive Officer of the Company and of its direct and indirect subsidiaries,
including Factors (collectively, the "Subsidiaries").
B. The Executive possesses intimate knowledge of the business and
affairs of the Company and the Subsidiaries, their policies, methods and
personnel.
C. The Board of Directors of the Company (the "Board") recognizes
that the Executive has contributed to the growth and success of the Company and
the Subsidiaries, and desires to assure the Company and the Subsidiaries of the
Executive's continued employment and to compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company and
the Subsidiaries.
E. The Executive is willing to make his services available to the
Company and the Subsidiaries on the terms and conditions hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERMS. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company and its
Subsidiaries, including Factors, on the terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement,
the Executive shall serve as the President and Chief Executive Officer of the
Company and of such of the Subsidiaries, including Factors, as directed by the
Board, shall diligently perform all services as may be assigned to him by the
Board (provided that, such services shall not materially differ from the
services currently provided by the Executive), and shall exercise such power and
authority as may from time to time be delegated to him by the Board. The
Executive shall devote his full time and attention to the business and affairs
of the Company and the Subsidiaries, render such services to the best of his
ability, and use his best efforts to promote the interests of the Company and
the Subsidiaries.
2. TERM. The term of this Agreement, and the employment of the
Executive hereunder, shall commence as of January 1, 1996 (the "Commencement
Date") and shall expire on December 31, 2000 (the
B-1
<PAGE> 50
"Expiration Date"), unless sooner terminated prior to the Expiration Date in
accordance with the terms and conditions hereof (the "Term").
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate of $300,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's or Capital Factors, Inc.'s normal payroll schedule, subject to
applicable withholding and other taxes. The Base Salary shall be reviewed, at
least annually, for merit increases and may, by action and in the discretion of
the Board or the Company's Compensation and Benefits Committee, be increased at
any time or from time to time. At a minimum, the Base Salary shall be increased
each year by $25,000.
3.2 SIGNING BONUS AND COMPANY LOAN. Upon execution of this
Agreement, the Company shall: (i) pay the Executive $250,000 in cash as a
signing bonus, subject to applicable withholding and other taxes; and (ii) loan
the Executive $100,000 (the "Company Loan"). The Company Loan shall bear
interest at the WALL STREET JOURNAL prime rate (as defined in the Capital Bank
line of credit agreements) plus 1 1/2% . On each December 31 during the Term,
twenty percent of the entire remaining principal amount of the Company Loan
together with all interest accrued through such date shall become immediately
due and payable. The entire principal balance together with all accrued interest
thereon shall be due and payable in full in the event of and upon the earlier
termination of this Agreement. Notwithstanding the foregoing, the Company shall,
for each December 31 during the Term that Executive continues to be employed by
the Company at such time, pay to the Executive a bonus equal to the amount of
principal and accrued interest due and payable to the Company under the Company
Loan at such December 31.
3.3 ANNUAL BONUSES. The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") for each year during the Term
of this Agreement, commencing with the 1996 year, as set forth below:
(a) Attached hereto as Exhibits "A" and "B" is Executive's
strategic plan (the "Plan") for the Company and the Subsidiaries during the
Term, including projections as to net revenues ("Projected Net Revenues") and
net earnings before income taxes ("Projected EBT") as set forth on Exhibits "A"
and "B." Exhibit "A" assumes completion of a Public Offering (as defined in
Section 4.5 hereof). For purposes hereof, "Net Revenues" is the sum of (i) the
difference between interest income and interest expense, (ii) factoring fees or
commission income and (iii) other income. For purposes hereof, "EBT" is net
earnings before income taxes or the difference between (i) Net Revenues and (ii)
the sum of total operating expenses and any provisions, and is otherwise
referred to in the Plan and on the Company's consolidated financial statements
as "Income Before Income Taxes."
(b) Not less than 45 days prior to the beginning of each
calendar year during the Term, the Executive shall propose an annual budget for
the forthcoming year (the "Annual Budget"). Approval of each Annual Budget shall
be in the sole discretion of the Board and the Company's Compensation and
Benefits Committee. After 1996, in no event shall Net Revenues and EBT in any
Annual Budget be less than Projected Net Revenues and Projected EBT as set forth
on Exhibit "A" or Exhibit "B" hereto, as applicable, for the preceding calendar
year, unless otherwise agreed by the Board and the Company's Compensation and
Benefits Committee in its sole discretion. Exhibit "A" shall be used to
determine Projected Net Revenues and Projected EBT if the Company has completed
a Public Offering (as defined in Section 4.5 hereof) on or prior to the year
applicable. Otherwise, Exhibit "B" shall be used to determined Projected Net
Revenues and Projected EBT. For purposes of this Agreement, the Net Revenues and
EBT as set forth in any Annual Budget shall be referred to
B-2
<PAGE> 51
as "Target Net Revenues" and "Target EBT" for the calendar year with respect to
which the Annual Budget was prepared. Furthermore, Target Net Revenues and
Target EBT for 1996 are $45,289,295 and $18,606,913, respectively, if an IPO is
completed in 1996 and $43,915,787 and $17,233,405, respectively, if an IPO is
not completed in 1996.
(c) Within 90 days after the end of each calendar year
during the Term, the Company shall calculate Net Revenues for such preceding
calendar year. In addition, the Company shall calculate an amount equal to the
quotient of Net Revenues for such year divided by Target Net Revenues for such
year (the "Net Revenues Realization Ratio"). For each such year, the Executive
shall be entitled to a bonus (the "Net Revenues Bonus") equal to the product of
(i) Base Salary for the applicable year and (ii) the applicable percentage (the
"Applicable Percentage") set forth on Exhibit "C" to this Agreement next to the
Net Revenues Realization Ratio that is equal to or, if not equal, closest to but
less than the Net Revenues Realization Ratio for that year. For example, the Net
Revenues Bonus shall be 20% of Base Salary if Net Revenues = Target Net
Revenues.
(d) Within 90 days after the end of each calendar year
during the Term, the Company shall calculate EBT for such preceding calendar
year. In addition, the Company shall calculate an amount equal to the quotient
of EBT for such year divided by Target EBT for such year (the "EBT Realization
Ratio"). For each such year, the Executive shall be entitled to a bonus (the
"EBT Bonus") equal to the product of (i) Base Salary for the applicable year and
(ii) the Applicable Percentage set forth on Exhibit "D" to this Agreement next
to the EBT Realization Ratio that is equal to or, if not equal, closest to but
less than the EBT Realization Ratio for that year. For example, the EBT Bonus
shall be 80% of Base Salary if EBT = Target EBT.
(e) Net Revenues and EBT for each year during the Term
shall be as reported on or calculated from the Company's annual audited
consolidated financial statements for the Company's calendar year and shall be
calculated in accordance with generally accepted accounting principles, applied
consistently with prior periods.
(f) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated Incentive
Compensation"), net of any withholding and other taxes, within fifteen
(15) days after the end of each year during the Term, such Estimated Incentive
Compensation to be determined by the Compensation Committee based on the
Company's unaudited consolidated financial statements as reviewed and approved
by the Board. In no event shall the Estimated Incentive Compensation exceed the
amount, if any, by which (i) $1,000,000 exceeds (ii) all remuneration, other
than the Incentive Compensation, payable to the Executive that is required to
be taken into account in determining the maximum amount of such remuneration
that may be deducted by the Company under Section 162(m) of the Code for the
year for which the Incentive Compensation is payable. The Estimated Incentive
Compensation will be subject to upward or downward adjustment based on the
Company's annual audited consolidated financial statements from the Company's
independent certified public accountants (the "Adjustment"). The Adjustment
shall be paid by the Executive to the Company, or shall be paid by the Company
to the Executive, as the case may be, within fifteen (15) days of receipt of the
Company's audited consolidated financial statements, but in no event prior to
the date on which the Compensation Committee of the Company has certified in
writing that the performance goals upon which the Incentive Compensation is
based have been met. In the event the Executive does not reimburse the Company
for any Adjustment within such fifteen-day period, the Company shall have the
right to offset the Adjustment against any other payments due to the Executive
hereunder.
(g) For purposes of determining the Executive's Incentive
Compensation for any year during the Term:
(i) the Executive's Base Salary taken into account
shall be equal to the Executive's Base Salary as of March 31 of the calendar
year for which the Incentive Compensation is payable, and
(ii) the maximum amount of Base Salary that may be
taken into account shall be $600,000.
3.4 DEFERRED COMPENSATION. The Executive shall be entitled to
deferred compensation equal to .67 of his Base Salary (the "Deferred
Compensation"), vesting and payable as set forth below, for each year during the
Term that (i) both Net Revenues and EBT are equal to or greater than applicable
Projected Net Revenues and Projected EBT as set forth in the applicable Plan (as
determined in accordance with Section 3.3(b)), (ii) Net Revenues for such year
have increased at least 13.5% over Net Revenues for the prior year, and (iii)
EBT for such year has increased at least 22.5% over EBT for the prior year.
The Executive's rights in and to the Deferred Compensation for each
year shall vest as follows:
(i) The Executive shall vest in 50% of the Deferred
Compensation payable for any year during the Term on the January 1
first following the third anniversary of December 31 of the year
B-3
<PAGE> 52
in which Deferred Compensation is earned by the Executive, provided
that the Executive is still employed by the Company at such time;
(ii) The Executive shall vest in an additional 25% of the
Deferred Compensation payable for any year during the Term on the
January 1 first following the fourth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time;
(iii) The Executive shall vest in the final 25% of
the Deferred Compensation payable for any year during the Term on the
January 1 first following the fifth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time; and
(iv) Notwithstanding the foregoing, the Executive
shall not be required to remain employed by the Company after the
Expiration Date in order to vest in Deferred Compensation vesting after
the Expiration Date, provided that the Executive is employed by the
Company pursuant to this Agreement through the Expiration Date.
Furthermore, should the Company and the Executive enter into another
employment agreement or amend or extend this Agreement for an
additional period of five years or more, then, immediately following
the Expiration Date, the remaining unvested portion of the Deferred
Compensation shall immediately become vested.
Subject to Section 3.6 hereof, upon or after the Executive's vesting in any
Deferred Compensation, whether during or after the Term, such Deferred
Compensation shall be paid to the Executive. Subject to Section 3.6 hereof,
payments shall be made on the date on which the Executive's Deferred
Compensation vests (the "Vesting Date"), or on such later date elected in
writing by the Executive at least one year prior to the earlier of the Vesting
Date or the Expiration Date.
For purposes of determining the Deferred Compensation
earned for any year during the Term:
(i) the Executive's Base Salary taken into account
shall be equal to the Executive's Base Salary as of the March 31 of the
calendar year for which the Deferred Compensation is payable, and
(ii) the maximum amount of Base Salary that may be
taken into account shall be $600,000.
In no event shall any Deferred Compensation earned for
any year be paid prior to the date on which the Compensation Committee of the
Company has certified in writing that the performance goals upon which the
Deferred Compensation is based have been met.
3.5 BOARD ELECTION ON PAYMENT OF COMPENSATION. At the election
of the Board, all or any portion of the compensation or any other amounts due to
the Executive pursuant to this Section 3 or any other section of this Agreement
shall be paid by Factors.
3.6 EVENT OF NON-DEDUCTIBILITY.
SECTION 162(M) LIMITS. Notwithstanding any other provision
of this Agreement, if the Company becomes a separate publicly-held corporation
(a "Separate Publicly Held Corporation") for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
(collectively, "Section 162(m)"), then for each calendar year that ends after
the first regularly scheduled meeting of the Company's shareholders that occurs
more than 12 months after the Company becomes a Separate Publicly Held
Corporation, payment of the portion (the "Section 162(m) Portion") of the
Executive's Incentive Compensation and Deferred Compensation that would not
otherwise be deductible by reason of Section 162(m) (determined after taking
into account all other remuneration required to be taken into account under
Section 162(m) for the year), shall be subject to the following conditions:
(i) the performance goals set forth in Sections 3.3 and 3.4 that must be
satisfied in order for the Section 162(m) Portion to be earned for that year
shall be subject to the approval of, and may be modified by, the Compensation
Committee of the Company, at such times as may be required for the Section
162(m) Portion to be deductible under Section 162(m); (ii) payment of the
Section 162(m) Portion shall be subject to the approval by the shareholders of
the Company of the material terms of the performance goals relating to the
B-4
<PAGE> 53
Section 162(m) Portion before the Section 162(m) Portion is paid; and (iii) the
maximum amount of Incentive Compensation and Deferred Compensation payable to
the Executive is as set forth in Sections 3.3 and 3.4 and Exhibits "C" and "D."
In addition, the grant of options to purchase shares of Common Stock pursuant to
Section 4.5 hereof shall be subject to and conditioned upon (i) the approval by
either the Stock Option Committee of Capital Bancorp before the Company becomes
a Separate Publicly Held Corporation or the Compensation Committee of the
Company after the Company becomes a Separate Publicly Held Corporation, and (ii)
the approval by shareholders of the Company after the Company becomes a Separate
Publicly Held Corporation, of a stock option plan pursuant to which the options
shall be granted.
3.7 NO PAYMENT IN VIOLATION OF APPLICABLE LAW OR REGULATION.
Notwithstanding anything else contained herein, no payment shall be made
hereunder that constitutes a golden parachute payment or prohibited
indemnification payment in violation of 12 CFR Part 359.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of Executive's
employment hereunder, the Company or the Subsidiaries, upon the submission of
proper substantiation by the Executive, shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course
of and pursuant to the business of the Company or the Subsidiaries. The
Executive shall account to the Company or the relevant Subsidiary in writing
for all expenses for which reimbursement is sought and shall supply to the
Company or the relevant Subsidiary copies of all relevant invoices, receipts
or other evidence reasonably requested by the Company or the relevant
Subsidiary.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insurance, and any
and all other plans as are presently and hereinafter offered by the Company to
its executives. The Executive shall be entitled to four weeks of vacation every
year. During the term of this Agreement, the Company shall continue to pay for
the Executive's membership in a country club on terms consistent with past
practices.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 AUTOMOBILE. The Company shall continue to provide the
Executive with the use of an automobile comparable to the existing automobile
provided to Executive, together with reimbursement of the operating expenses
thereof.
4.5 STOCK OPTIONS. In the event the Company sells its
common stock, par value $.01 per share (the "Common Stock"), pursuant to any
registration statement declared effective under the Securities Act
B-5
<PAGE> 54
of 1933, as amended (the "Public Offering") during the Term, then, subject to
the terms and conditions of this Section 4.5, the Company shall grant to the
Executive sufficient non-qualified options to purchase the Company's Common
Stock so that at the end of the Term, the Executive will have been granted
non-qualified options to purchase one percent (1.0%) of the total issued and
outstanding shares of the Company's Common Stock, after giving effect to the
Public Offering. The number of shares of Common Stock subject to the options
granted hereunder shall be adjusted for any subsequent stock splits, stock
dividends or similar recapitalizations of the Company's Common Stock which
results in an increase or decrease of the number of shares of outstanding Common
Stock of the Company. Such options will be granted under (and therefore be
subject to all terms and conditions of) the Company's stock option plan in
effect at that time and all rules and regulations of the Securities and Exchange
Commission applicable to stock option plans then in effect, and will contain
such restrictions as required by the Board or applicable committee thereof. The
options will (i) be granted upon effectiveness of the Public Offering, and (ii)
have a per share exercise price equal to the Public Offering price of the Common
Stock. The options shall vest as determined by the Board. The Executive may be
considered for the grant of options under the Capital Bancorp Stock Option Plan
pursuant to the terms thereof and subject to the restrictions contained therein,
including those as to eligibility.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times
have the right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, for cause. For purposes of this Agreement, the
term "cause" shall mean (i) an action or omission of the Executive which
constitutes a willful and material breach of this Agreement which is not cured
within fifteen (15) days after receipt by the Executive of written notice of
same, (ii) fraud, embezzlement, misappropriation of funds or breach of trust,
(iii) any criminal act which is a felony, (iv) gross negligence in connection
with the performance of the Executive's duties hereunder, (v) material and
willful or knowing failure or refusal (other than as a result of a disability)
by the Executive to perform his duties hereunder, or (vi) the written request by
any regulatory agency that regulates Capital Bank or Capital Bancorp that the
Executive be removed from his duties hereunder, such written request to set
forth in detail the basis therefor. Any termination for cause shall be made in
writing to the Executive, which notice shall set forth in detail all acts or
omissions upon which the Company is relying for such termination. The Executive
shall have the right to address the Company's Board regarding the acts set forth
in the notice of termination. Upon any termination pursuant to this Section 5.1,
the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have accumulated
during the calendar year in which such termination occurs).
5.2 DISABILITY. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall, as the result of mental or
physical incapacity, illness or disability, become unable to perform his
obligations hereunder for a period of 90 consecutive days. Upon any termination
pursuant to this Section 5.2, the Company shall (i) pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice, (ii) pay to the Executive the Incentive Compensation, if any, not yet
paid to the Executive for any year prior to such termination, at such time as
the Incentive Compensation would otherwise have been payable to the Executive,
(iii) pay to the Executive a severance payment equal to three (3) months of the
Executive's Base Salary at the time of such disability, (iv) pay to the
Executive (within 45 days after such termination) a pro rata portion of the
Incentive Compensation, if any, for the year in which such termination occurs,
as calculated pursuant to the terms of Section 3.3; provided that, for purposes
of such calculation, (x) Net Revenues and EBT shall be calculated for
B-6
<PAGE> 55
the portion of the year through the end of the month prior to the month in which
such termination occurs, and based upon unaudited financial information prepared
in accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the Board, (y)
Target Net Revenues and Target EBT shall be modified by multiplying each by a
fraction, the numerator of which is the number of months in the year through the
month prior to the month in which termination occurs and the denominator of
which is 12 and (z) in determining the Net Revenues Bonus and EBT Bonus, Base
Salary shall be the amount of Base Salary actually paid to the Executive during
the year of termination other than pursuant to Section 5.2(iii), and (v) pay to
the Executive, within 45 days after the termination date, any Deferred
Compensation earned in prior years during the Term, whether or not vested, and a
pro rata portion of the Deferred Compensation for the current year, if any.
Whether any Deferred Compensation is due for the current year shall be
determined pursuant to Section 3.4(i)-(iii) after multiplying each of Net
Revenues and EBT for the year through the month prior to the month in which
termination occurs by a fraction, the numerator of which is 12 and the
denominator of which is the number of months in the year through the month prior
to the month in which termination occurs, and using the product of each in
performing the calculations under Section 3.4(i)-(iii). If Deferred Compensation
is due, the amount due shall be calculated by multiplying .67 by the amount of
Base Salary paid to the Executive for the year other than pursuant to Section
5.2(iii). The Company shall have no further liability hereunder (other than for
(i) reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (ii) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 DEATH. In the event of the death of the Executive
during the term of his employment hereunder, the Company shall (i) pay to the
estate of the Executive any unpaid Base Salary through the Executive's date of
death, (ii) pay to the estate of the deceased Executive the Incentive
Compensation, if any, not yet paid to the estate of the Executive for any year
prior to the date of death, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iii) pay to the estate of the
Executive (within 45 days after such termination) a pro rata portion of the
Incentive Compensation, if any, for the year in which such termination occurs,
as calculated pursuant to the terms of Section 3.3; provided that, for purposes
of such calculation, (x) Net Revenues and EBT shall be calculated for the
portion of the year through the end of the month prior to the month in which
such termination occurs, and based upon unaudited financial information prepared
in accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the Board, (y)
Target Net Revenues and Target EBT shall be multiplied by multiplying each by a
fraction, the numerator of which is the number of months in the year through the
month prior to the month in which termination occurs and the denominator of
which is 12 and (z) in determining the Net Revenues Bonus and EBT Bonus, Base
Salary shall be the amount of Base Salary actually paid to the Executive during
the year of termination, and (iv) pay to the estate of the Executive, within 45
days after the termination date, any Deferred Compensation earned in prior years
during the Term, whether or not vested, and a pro rata portion of the Deferred
Compensation for the current year, if any. Whether any Deferred Compensation is
due for the current year shall be determined pursuant to Section 3.4(i)-(iii)
after multiplying each of Net Revenues and EBT for the year through the month
prior to the month in which termination occurs by a fraction, the numerator of
which is 12 and the denominator of which is the number of months in the year
through the month prior to the month in which termination occurs, and using the
product of each in performing the calculations under Section 3.4(i)-(iii). If
Deferred Compensation is due, the amount due shall be calculated by multiplying
.67 by the amount of Base Salary paid to the Executive for the year. The Company
shall have no further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of the Executive's
death, subject, however to the provisions of Section 4.1, and (ii) payment of
compensation for unused vacation days that have accumulated during the calendar
year in which such termination occurs).
B-7
<PAGE> 56
5.4 TERMINATION WITHOUT CAUSE. At any time the Company
shall have the right to terminate the Executive's employment hereunder by
written notice to the Executive. Upon any termination pursuant to this Section
5.4 (that is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6),
the Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) subject to the last
sentence of this Section 5.4, continue to pay the Executive's Base Salary
through the Expiration Date, in the manner and at such time as the Base Salary
would otherwise have been payable to the Executive, (iii) pay to the Executive
the Incentive Compensation, if any, not yet paid to the Executive for any year
prior to such termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iv) pay to the Executive (within
45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3; provided that, for purposes of
such calculation, (x) Net Revenues and EBT shall be calculated for the portion
of the year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods, as approved and reviewed by the Board, (y) Target Net
Revenues and Target EBT shall be multiplied by multiplying each by a fraction,
the numerator of which is the number of months in the year through the month
prior to the month in which termination occurs and the denominator of which is
12 and (z) in determining the Net Revenues Bonus and EBT Bonus, Base Salary
shall be the amount of Base Salary actually paid to the Executive during the
year of termination other than pursuant to Section 5.4(ii), and (v) pay to the
Executive, within 45 days after the termination date, any Deferred Compensation
earned in prior years during the Term, whether or not vested, and a pro rata
portion of the Deferred Compensation for the current year, if any. Whether any
Deferred Compensation is due for the current year shall be determined pursuant
to Section 3.4(i)-(iii) after multiplying each of Net Revenues and EBT for the
year through the month prior to the month in which termination occurs by a
fraction, the numerator of which is 12 and the denominator of which is the
number of months in the year through the month in which termination occurs, and
using the product of each in performing the calculations under Sections
3.4(i)-(iii). If Deferred Compensation is due, the amount due shall be
calculated by multiplying .67 by the amount of Base Salary paid to the Executive
for the year other than pursuant to Section 5.4(ii). The Company shall have no
further liability hereunder (other than for (i) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1, and (ii) payment of compensation for unused
vacation days that have accumulated during the calendar year in which such
termination occurs). Notwithstanding the foregoing, if the Executive shall find
other employment prior to the Expiration Date, then the Executive shall notify
the Company in writing of the date and terms of such employment and the Company
shall be entitled to reduce the amount payable to the Executive pursuant to
Section 5.4(ii) during the period from the commencement of such other employment
until the Expiration Date (the "Other Employment Period") by the compensation
payable to the Executive for services rendered in connection with such other
employment during the Other Employment Period. Nothing contained in this Section
5.4 or elsewhere herein shall relieve that Executive from any obligation to
comply with any of the provisions of Section 6 hereof, which shall remain
binding on the Executive.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at all
times have the right, upon 90 days written notice to the Company, to terminate
the Executive's employment hereunder. Upon any termination pursuant to this
Section 5.5, the Executive shall be entitled to be paid his Base Salary to the
date of termination and the Company shall have no further liability hereunder
(other than for (i) reimbursement for reasonable business expenses incurred
prior to the date of termination, subject, however, to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
B-8
<PAGE> 57
5.6 CHANGE IN CONTROL OF THE COMPANY. In the event that
(x) a Change in Control (as hereafter defined) in the Company shall occur during
the Term, and (y) within one year of such Change in Control, the Executive is
(i) assigned any position, duties or responsibilities that are significantly
diminished or changed when compared with the position, duties or
responsibilities of the Executive prior to such Change in Control, (ii) forced
to relocate to another location more than 50 miles from his location prior to
the Change in Control or (iii) no longer provided coverage under benefit
programs in existence prior to the Change in Control (unless a comparable
substitute is offered) (any of (i) to (iii) being hereinafter referred to as an
"Event"); then the Executive, by written notice to the Company at any time
within the thirty (30) day period following the occurrence of an Event, shall
have the right to terminate his employment hereunder. For purposes of this
Agreement, the term "Change in Control" shall be deemed to have occurred if (a)
Capital Bank and any other direct or indirect subsidiaries of Capital Bancorp
("Corporate Affiliates"), after aggregating all the shares of the Company held
by such entities, no longer own enough shares of the Company to, in the
aggregate, be the largest single shareholder of the Company, (b) Capital Bank
and its Corporate Affiliates, in the aggregate, cease to own at least 25% of the
outstanding Common Stock of the Company; or (c) there occurs any transaction
which shall include a series of transactions occurring within 60 days or
occurring pursuant to a plan (collectively, "Transaction") that has the result
that (i) shareholders of Capital Bancorp immediately before such Transaction
cease to own at least 51% of the voting stock of Capital Bancorp or of any
entity that results from the participation of Capital Bancorp in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction and (ii) any person or group of persons acting in concert
acquire in excess of 40% or more of the outstanding voting stock of Capital
Bancorp; provided, however, that it shall not constitute a "Change in Control"
if all or part of the shares in the Company are distributed to shareholders of
Capital Bancorp, regardless of the manner in which such shares are distributed.
In the event that Capital Bank and Capital Bancorp make such a distribution
then, thereafter, a "Change in Control" shall be deemed to have occurred only
upon the following: (a) the shareholders of the Company shall approve and the
Company shall consummate a plan of merger, consolidation, reorganization,
liquidation or any other form of corporate transaction in which shareholders of
the Company immediately before such transaction cease to own at least 51% of the
voting stock of the Company or any other entity that results from the
participation of the Company in any of the foregoing; or (b) the shareholders of
the Company shall approve and the Company shall consummate a plan for the sale,
lease, exchange or other disposition of all or substantially all of the property
and assets of the Company.
Upon termination by the Executive pursuant to this Section 5.6, the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as the Incentive Compensation
would otherwise have been payable to the Executive, (iii) pay to the Executive
(within 45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3; provided that, for purposes of
such calculation, (x) Net Revenues and EBT shall be calculated for the portion
of the year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods, as approved and reviewed by the Board, (y) Target Net
Revenues and Target EBT shall be multiplied by multiplying each by a fraction,
the numerator of which is the number of months in the year through the month
prior to the month in which termination occurs and the denominator of which is
12 and (z) in determining the Net Revenues Bonus and EBT Bonus, Base Salary
shall be the amount of Base Salary actually paid to the Executive during the
year of termination other than as a lump sum pursuant to Section 5.6, (iv) pay
to the Executive, within 45 days after the termination date, any Deferred
Compensation earned in prior years during the Term, whether or not vested, and a
pro rata portion of the Deferred Compensation for the current year, if any
(whether any Deferred Compensation is due for the current year shall be
determined pursuant to
B-9
<PAGE> 58
Section 3.4(i)-(iii) after multiplying each of Net Revenues and EBT for the year
through the month prior to the month in which termination occurs by a fraction,
the numerator of which is 12 and the denominator of which is the number of
months in the year through the month in which termination occurs, and using the
product of each in performing the calculations under Sections 3.4(i)-(iii). If
Deferred Compensation is due, the amount due shall be calculated by multiplying
.67 by the amount of Base Salary paid to the Executive for the year other than
as a lump sum pursuant to this Section 5.6); and (v) pay to the Executive a lump
sum equal to the sum of (a) two years' Base Salary at the date of termination
plus (b) the product of his Incentive Compensation for the prior year multiplied
by two. In the event that the Executive's employment is terminated by the
Company within one year following a Change in Control and Without Cause, then,
in lieu of the compensation in clause (v) of this paragraph above, the Company
shall pay to the Executive a lump sum equal to the sum of (a) two years' Base
Salary at the date of termination and (b) the product of the sum of his
Incentive Compensation and Deferred Compensation for the prior year multiplied
by two. The Company shall also continue to pay the premiums for the same or
substantially similar medical and hospitalization, life and other insurance
coverage provided to the Executive pursuant to Section 4.2 hereof for a period
of two years from the date of termination. In addition, all options held by the
Executive to purchase shares of Common Stock shall immediately vest in the
Executive, subject to any other restrictions contained in the applicable option
agreement or option plan. The Company shall have no further liability hereunder
(other than for (i) reimbursement for reasonable business expenses incurred
prior to the date of termination, subject, however, to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the Expiration
Date (except that, if the Executive's employment is terminated pursuant to
Sections 5.4 or 5.6 hereof, the period shall be the greater of (i) one year
after such termination date, but in no event beyond the Expiration Date, or (ii)
(A) if the termination is pursuant to Section 5.4, the period of time that or
for which the Executive is receiving Base Salary payments or (B) if the
termination is pursuant to Section 5.6, the period of time with respect to which
the Executive receives a lump sum Base Salary payment pursuant to Section 5.6
(identified as two years in Section 5.6), the Executive shall not, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation or business or any other person or entity (whether as
an employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) that directly or indirectly engages in competition with
the Company in any state in which the Company operates or has a client or
customer at the time of such termination; provided that such provision shall not
apply to the Executive's ownership of Common Stock of the Company or the
acquisition by the Executive, solely as an investment, of securities of any
issuer that is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted for trading on
any United States national securities exchange or that are quoted on the
National Association of Securities Dealers Automated Quotations System, or any
similar system or automated dissemination of quotations of securities prices in
common use, so long as the Executive is not a member of any control group
(within the meaning of the rules and regulations of the Securities and Exchange
Commission) of any such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any confidential information pertaining
to the business of the Company. Any confidential information or data now or
hereafter acquired by the Executive with respect to the business of the Company
(which shall include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of leads and
methods of doing business) shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive
B-10
<PAGE> 59
in confidence and as a fiduciary, and Executive shall remain a fiduciary to the
Company with respect to all of such information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the
period through the Expiration Date, and for a period of two years following the
Expiration Date (except that, the period shall be six months after the
Expiration Date if (i) the Executive is employed by the Company on the
Expiration Date, and (ii) the Company has not offered, at or prior to the
Expiration Date, to employ the Executive after the Expiration Date on terms that
provide for payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the Executive on
the Expiration Date, and (y) incentive compensation on terms equal to or greater
than the Incentive Compensation terms in effect as of the Expiration Date); the
Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity (i) employ
or attempt to employ or enter into any contractual arrangement with any employee
or former employee of the Company, unless such employee or former employee has
not been employed by the Company for a period in excess of six months, and/or
(ii) call on or solicit any of the actual or targeted prospective clients of the
Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, nor shall the Executive make known
the names and addresses of such clients or any information relating in any
manner to the Company's trade or business relationships with such customers,
other than in connection with the performance of Executive's duties under this
Agreement.
6.4 BOOKS AND RECORDS. All books, records and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in this Section 6, the
term "Company" shall also include Factors and any existing or future
subsidiaries of the Company that are operating during the time periods described
herein.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive
acknowledges and confirms that the length of the term of the provisions of this
Section 6 and the geographical restrictions contained in Section 6.1 are fair
and reasonable and not the result of overreaching, duress or coercion of any
kind. The Executive further acknowledges and confirms that his observance of
each of the covenants contained in this Section 6 will not cause him any undue
hardship, financial or otherwise, and that such covenants are fair and
reasonable and are reasonably required for the protection of the interests of
the Company, its affiliates, officers and directors, and to prevent irreparable
harm to the foregoing. The Executive acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6.
6.7 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the
parties hereto that a breach by the Executive of any of the covenants contained
in Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
B-11
<PAGE> 60
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company and
Factors shall have the right to assign this Agreement. The Executive shall not
delegate his employment obligations hereunder, or any portion thereof, to any
other person.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, upon its effectiveness, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive,
the Company and Factors (or any of their affiliates) with respect to such
subject matter. This Agreement may not be modified in any way unless by a
written instrument signed by the Company, Factors and the Executive.
11. NOTICES: Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand or when deposited in the
United States mail, by registered or certified mail, return receipt requested,
postage prepaid, (i) if to the Company or Factors, to the address of the
Company's principal offices in Fort Lauderdale, Florida, with a copy to Capital
Bank, 1221 Brickell Avenue, Miami, Florida 33133, Attention: President, and (ii)
if to the Executive, to his address as reflected on the payroll records of the
Company, or to such other address as either party hereto may from time to time
give notice of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for the
benefit of and binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and, where
applicable, assigns, including, without limitation, any successor to the Company
and Factors, whether by merger, consolidation, sale of stock, sale of assets or
otherwise.
13. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this Agreement shall
not affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
15. DAMAGES. Nothing contained herein shall be construed to
prevent the Company, Factors and/or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. In the event that either
party hereto brings suit for the collection of any damages resulting from, or
the injunction of any action constituting, a breach of any of the terms or
provisions of this Agreement, then the party found to be at fault shall pay all
reasonable court costs and attorneys' fees of the other.
B-12
<PAGE> 61
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person other than the Company, the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and assigns, any
rights or remedies under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law, the
Company shall indemnify the Executive to the fullest extent permitted by law.
19. WAIVER OF JURY TRIAL. THE UNDERSIGNED EXPRESSLY (I) WAIVE
ANY RIGHT TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF THIS AGREEMENT OR IN ANY WAY RELATED OR INCIDENTAL TO THE
PERFORMANCE OF THE PARTIES' OBLIGATIONS HEREUNDER, AND (II) AGREE THAT THE
COMPANY, FACTORS OR THE EXECUTIVE MAY FILE AN ORIGINAL COUNTERPART OR COPY OF
THIS SECTION 19 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER
OF THE RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
CAPITAL FACTORS HOLDING, INC.
By: /s/ JAVIER J. HOLTZ
-------------------------
FACTORS:
CAPITAL FACTORS, INC.
By: /s/ JAVIER J. HOLTZ
-------------------------
EXECUTIVE:
/s/ JOHN W. KIEFER
-------------------------------
JOHN W. KIEFER
B-13
<PAGE> 62
Form of Proxy
CAPITAL FACTORS HOLDING, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John W. Kiefer and Ronald S. Chase, or any one
of them with full power of substitution, proxies to vote at the Annual Meeting
of Shareholders of Capital Factors Holding, Inc. (the "Company") to be held on
May 23, 1997 at 10:00 a.m., local time, and at any postponements or
adjournments thereof, hereby revoking any proxies heretofore given, all shares
of Common Stock of the Company held or owned by the undersigned as directed on
this proxy card, and in their discretion upon such other matters as may come
before the meeting.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
1. Election NOMINEES: John W. Kiefer
of ----- ---------- Javier J. Holtz
Directors; Daniel M. Holtz
Stephen N. Ashman
FOR, except vote withheld from the following nominees: Ronald S. Chase
Cynthia R. Cohen
Norman G. Einspruch
----------------------------------------- Jack D. Listanowsky
Harold L. Oshry
Bruce S. Raiffe
2. Proposal to Approve the Capital Factors Holding, Inc. Stock Option Plan FOR AGAINST ABSTAIN
---- ---- ----
3. Proposal to Approve the Material Terms of the Performance Goals Relating to the FOR AGAINST ABSTAIN
Incentive Compensation and Deferred Compensation Provisions Set Forth
in the Employment Agreement between the Company and John W. Kiefer,
Chief Executive Officer and President of the Company
---- ---- ----
THIS PROXY IS REVOCABLE AND WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. UNLESS CONTRARY DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED "FOR" ALL OF THE NOMINEES FOR DIRECTOR, "FOR" PROPOSALS
2 AND 3 AND OTHERWISE IN THE DISCRETION OF THE PROXIES UPON ALL OTHER MATTERS
THAT MAY COME BEFORE THE MEETING.
Please mark, sign, date and return this proxy card promptly, using the enclosed envelope.
<S> <C>
Signature Date ,1997 Signature Date , 1997
------------------ --------------- ------------------ ----------------
(If held jointly)
Note: Please sign exactly as your name(s) appears hereon. When signing in a representative capacity, please give title.
</TABLE>
