<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ____)
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 240.14a-11(c) or 240.14a-12
CAPITAL INVESTMENT OF HAWAII, INC.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$23,250 - amount to be expended to purchase fractional shares
resulting from going private reverse stock split
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
5) Total fee paid:
$4.65
-----------------------------------------------------------------
<PAGE> 2
[ ] 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
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------
3) Filing Party:
-----------------------------------------------------------------
4) Date Filed:
-----------------------------------------------------------------
<PAGE> 3
CAPITAL INVESTMENT OF HAWAII, INC.
SUITE 1700, MAKAI TOWER
733 BISHOP STREET
HONOLULU, HAWAII 96813
January 5, 2000
To the Shareholders of
Capital Investment of Hawaii, Inc.
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Annual Meeting") of Capital Investment of Hawaii, Inc. (the "Company"), at the
Grosvenor Center Conference Room (ground floor), 733 Bishop Street, Honolulu,
Hawaii, on Monday, January 31, 2000, at 9:30 a.m.
On December 21, 1999, the Company's Board of Directors adopted a
going-private plan (the "Plan") to restructure the share ownership of the
Company. The purpose of the Plan is to reduce the number of Company shareholders
below 300, thus allowing the Company to terminate its reporting obligations
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). This
will allow the Company to eliminate the substantial time and expense associated
with 1934 Act compliance. The Board of Directors believes that the Company's
shareholders derive little benefit from the Company's status as a publicly-held
corporation.
The objectives of the Plan will be accomplished by a 1-for-300 reverse
stock split that will have the effect of eliminating the shares of all Company
shareholders who own less than 300 shares of the Company's currently outstanding
common stock by converting such shares into a right to receive cash in the
amount of $.25 (25 cents) per share.
You are urged to read the accompanying Proxy Statement, which provides you
with a description of the terms of the proposed transactions.
As described in the enclosed Proxy Statement, at the Annual Meeting, in
addition to the election of directors, you will be asked to consider and vote
upon a proposal to approve and adopt the reverse stock split. Your Board of
Directors has determined that the reverse stock split is in the best interest of
Capital Investment of Hawaii, Inc. and its shareholders and has unanimously
approved the reverse stock split. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE REVERSE STOCK SPLIT AND THE ELECTION OF
DIRECTORS.
If the reverse stock split is consummated, shareholders who vote against
approval of the reverse stock split and who otherwise comply with the procedures
described in the Proxy Statement will be granted dissenters' appraisal rights.
See "The Reverse Stock Split -- Rights of Dissenting Shareholders."
It is very important that your shares be represented at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, you are requested to
complete, date, sign and return the enclosed Proxy in the postage-paid envelope
provided. Failure to return a properly executed Proxy or vote at the Annual
Meeting, will have the same effect as a vote against approval of the reverse
stock split. Executed proxies with no instructions indicated thereon will be
voted for approval and adoption of the reverse stock split.
Please do not send any of your stock certificates at this time. If the
reverse stock split is consummated, you will be sent a letter explaining the
procedures for exchanging your shares for cash or new shares.
We look forward to seeing you at the 2000 Annual Meeting of Shareholders.
If you have questions before the Annual Meeting regarding the matters discussed
in this letter, you may call Mr. Donald M. Wong, our Vice President, at (808)
537-3981.
Very truly yours,
/s/ STUART T. K. HO
Stuart T. K. Ho
Chairman of the Board and President
<PAGE> 4
CAPITAL INVESTMENT OF HAWAII, INC.
SUITE 1700, MAKAI TOWER
733 BISHOP STREET
HONOLULU, HAWAII 96813
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that, pursuant to call of its Directors, the Annual
Meeting of Shareholders of Capital Investment of Hawaii, Inc. (the "Company")
will be held at the Grosvenor Center Conference Room (ground floor) 733 Bishop
Street, Honolulu, Hawaii 96813, on Monday, January 31, 2000, at 9:30 a.m., for
the purpose of considering and voting upon the following matters:
1. AMENDMENT OF ARTICLES OF ASSOCIATION. To consider and act upon a
proposal to amend the Company's Articles of Association, to (i) reduce the
number of shares of common stock which the Company is authorized to issue
from 3 million shares, without par value ("Existing Shares"), to 10,000
shares, without par value ("New Common Stock"), and (ii) consolidate and
convert each 300 outstanding Existing Shares into one share of New Common
Stock.
2. ELECTION OF DIRECTORS. To elect a Board of Directors to hold office
until the next Annual Meeting of Shareholders or until their successors
have been elected and qualified.
3. Whatever Other Business may properly be brought before the meeting
or any adjournment thereof.
Only those shareholders of record at the close of business on December 15,
1999, shall be entitled to notice of the meeting and to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Stuart T. K. Ho
Stuart T. K. Ho
President
Honolulu, Hawaii
January 5, 2000
YOUR VOTE IS IMPORTANT
We urge you to complete and return the enclosed proxy as promptly as possible,
whether or not you plan to attend the meeting in person. If you do attend the
meeting, you may withdraw your proxy and vote in person.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE ANNUAL MEETING.................................... 1
SUMMARY OF THE REVERSE STOCK SPLIT.......................... 2
SUMMARY OF OTHER MATTERS IN CONNECTION WITH THE MEETING..... 3
SPECIAL FACTORS............................................. 3
Purposes of the Reverse Stock Split....................... 3
Alternatives Considered................................... 4
Reasons for the Reverse Stock Split....................... 4
Reasons for Undertaking the Reverse Stock Split at This
Time................................................... 6
Effects of the Reverse Stock Split........................ 6
Certain Federal Income Tax Considerations................. 7
Fairness of the Reverse Stock Split....................... 8
ANNUAL MEETING OF SHAREHOLDERS.............................. 12
Date, Time and Place...................................... 12
Purpose................................................... 12
Record Date; Shares Outstanding and Entitled to Vote...... 12
Vote Required............................................. 12
Voting, Solicitation and Revocation of Proxies............ 12
THE REVERSE STOCK SPLIT..................................... 13
General................................................... 13
Background................................................ 13
Basic Terms of the Reverse Stock Split.................... 13
Exchange of Stock Certificates............................ 14
Cash for Fractional Shares................................ 14
Conditions of the Reverse Stock Split; Regulatory
Approvals.............................................. 15
Effect on Market for Shares............................... 15
Termination of Exchange Act Registration.................. 15
Fees and Expenses; Sources of Funds; Persons and Assets
Employed, Retained or Utilized......................... 15
Interests of Certain Persons in the Reverse Stock Split... 16
Rights of Dissenting Shareholders......................... 16
Required Vote; Indications of Voting Intent by Ho Family
Shareholders and Management............................ 18
Recommendation of the Board of Directors.................. 18
MARKET AND DIVIDEND INFORMATION............................. 18
Market Information........................................ 18
Number of Equity Holders.................................. 18
Dividends................................................. 18
FINANCIAL INFORMATION/RATIO OF EARNINGS TO FIXED CHARGES.... 19
PRINCIPAL HOLDERS OF VOTING SECURITIES...................... 19
ELECTION OF DIRECTORS....................................... 20
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS...... 21
Compensation of Directors................................. 21
Information Regarding the Board of Directors and
Committees............................................. 21
Required Vote; Recommendation of the Board of Directors... 21
EXECUTIVE COMPENSATION...................................... 22
Compensation of Named Executive Officers.................. 22
Summary Compensation Table................................ 22
SECURITY OWNERSHIP OF MANAGEMENT............................ 22
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSACTIONS IN COMMON STOCK................................ 22
Public Offerings in Past Three Years...................... 22
Purchases by Company, Officers, Directors or Affiliates in
Past Sixty Days........................................ 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 22
COMPLIANCE WITH SECTION 16(a) REQUIREMENTS.................. 23
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS................... 23
SHAREHOLDER PROPOSALS....................................... 23
WHERE YOU CAN FIND MORE INFORMATION......................... 23
INFORMATION INCORPORATED BY REFERENCE....................... 24
OTHER BUSINESS.............................................. 24
</TABLE>
<TABLE>
<S> <C>
Appendix A -- Capital Investment of Hawaii, Inc.; Calculation of Net
After-Tax Asset Value in Liquidation; Pro Forma Balance
Sheet as of December 1, 1999
Appendix B -- Hawaii Dissenters' Rights Statute
Appendix C -- Proposed Amendment to Capital Investment of Hawaii,
Inc./Articles of Association
</TABLE>
ii
<PAGE> 7
CAPITAL INVESTMENT OF HAWAII, INC.
SUITE 1700, MAKAI TOWER
733 BISHOP STREET
HONOLULU, HAWAII 96813
(808) 537-3981
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement and the accompanying form of Proxy are being sent to
shareholders of Capital Investment of Hawaii, Inc. (the "Company") on or about
January 5, 2000 for use in connection with the Annual Meeting of Shareholders of
the Company ("Annual Meeting") to be held on January 31, 2000.
THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED ON THE FAIRNESS OR MERITS OF SUCH TRANSACTIONS NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
ABOUT THE ANNUAL MEETING
WHEN AND WHERE IS THE ANNUAL MEETING?
The Annual Meeting will be held at 9:30 a.m. on Monday, January 31, 2000,
at the Grosvenor Center Conference Room (ground floor), 733 Bishop Street,
Honolulu, Hawaii 96813.
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Annual Meeting, shareholders will act upon the matters outlined in
the accompanying notice of meeting, including a proposal to amend the Company's
Articles of Association to provide for a one-for-300 reverse stock split (the
"Reverse Stock Split") and the election of directors.
WHAT ARE THE COMPANY'S OBJECTIVES?
On December 21, 1999, the Company's Board of Directors adopted resolutions
providing for a going-private plan (the "Plan") to restructure the share
ownership of the Company. The purpose of the Plan is to reduce the number of
Company shareholders below 300, thus allowing the Company to terminate its
reporting obligations under the Securities Exchange Act of 1934, as amended (the
"1934 Act"). This will allow the Company to eliminate the very substantial time
and expense associated with 1934 Act compliance. The Company's Board of
Directors believes that the Company's shareholders derive little benefit from
the Company's status as a publicly-held corporation. Over the past several
years, the Company believes that third-party purchase or sale transactions have
been negligible.
HOW WILL THESE OBJECTIVES BE ACCOMPLISHED?
A one-for-300 reverse stock split ("Reverse Stock Split") that will have
the effect of eliminating the shares of all Company shareholders who own less
than 300 shares of the Company's currently outstanding voting common stock
without par value ("Existing Shares") by converting such Existing Shares into a
right to receive cash in the amount of $.25 (25 cents) per Existing Share.
Company shareholders who own 300 or more Existing Shares will have each 300 of
such shares converted into one share of common stock (the "New Common Stock")
and will receive cash in lieu of fractional shares at $.25 (25 cents) per
Existing Share. The Reverse Stock Split is summarized below and is described in
detail under "The Reverse Stock Split."
IF YOU OWN LESS THAN 300 EXISTING SHARES, AND IF THE REVERSE STOCK SPLIT IS
APPROVED AND IMPLEMENTED, YOU WILL RECEIVE CASH FOR THE SHARES THAT YOU OWN. SEE
"THE REVERSE STOCK SPLIT."
1
<PAGE> 8
IF YOU OWN 300 OR MORE EXISTING SHARES, YOU WILL RECEIVE ONE SHARE OF NEW
COMMON STOCK FOR EACH 300 SHARES OF EXISTING COMMON STOCK THAT YOU OWN, AND CASH
IN LIEU OF ANY FRACTIONAL SHARE.
SUMMARY OF THE REVERSE STOCK SPLIT
WHAT EFFECT WILL THE REVERSE STOCK SPLIT HAVE ON ME?
- If you own less than 300 Existing Shares on the effective date of the
Reverse Stock Split, you will receive cash in lieu of the fractional
share of New Common Stock to which you would otherwise be entitled, at a
price equal to $.25 (25 cents) per Existing Share. After the effective
date of the Reverse Stock Split, you will have no continuing interest as
a shareholder of the Company.
- If you own 300 or more Existing Shares on the effective date of the
Reverse Stock Split, you will receive one (1) share of New Common Stock
for each 300 shares of Existing Common Stock that you own, and you will
receive cash (at a rate equal to $.25 (25 cents) per Existing Share) in
lieu of any fractional share that would otherwise be issuable.
See "The Reverse Stock Split -- Basic Terms of the Reverse Stock Split."
AM I ENTITLED TO DISSENT FROM THE REVERSE STOCK SPLIT?
To be able to dissent from the Reverse Stock Split and demand the right to
receive a cash payment from the Company for the fair value of the Existing
Shares held by any such dissenter, a record shareholder must file a notice in
writing with the Company before the time of the vote to approve the Reverse
Stock Split at the Annual Meeting, advising that the shareholder intends to
demand to be paid fair compensation for his or her Existing Shares, and such
dissenting shareholder must refrain from voting for the Reverse Stock Split at
the Annual Meeting. Dissenting shareholders also must follow the procedures set
forth in the Hawaii Business Corporations Act, the applicable sections of which
are attached to this Proxy Statement as Appendix B. The failure of a shareholder
to follow the specific requirements set forth in the Hawaii Business
Corporations Act concerning such dissenters' rights will result in the loss of
such rights. See "The Reverse Stock Split -- Rights of Dissenting Shareholders."
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT?
Shareholders who receive cash upon redemption of their fractional share
interests in the New Common Stock as a result of the Reverse Stock Split will
generally recognize gain or loss based on their adjusted basis in the fractional
share interests redeemed. The Company has not received an opinion of counsel in
connection with the tax consequences of the Reverse Stock Split. Each
shareholder is urged to consult his or her own tax advisor regarding the tax
consequences of the Reverse Stock Split. See "Special Factors -- Certain Federal
Income Tax Considerations."
WHAT IS THE BOARD'S RECOMMENDATION?
The Board of Directors recommends that you vote "FOR" the proposal to amend
the Company's Articles of Association, effecting the Reverse Stock Split.
At a meeting held on December 21, 1999, the Company's Board of Directors
unanimously approved the Plan, including the Reverse Stock Split. The Board of
Directors has unanimously concluded that the Plan, and the Reverse Stock Split
provided for in the Plan, is fair to, and in the best interests of, the Company
and its shareholders. See "Special Factors -- Fairness of the Reverse Stock
Split."
Mr. Stuart T. K. Ho, a director of the Company, has been involved in the
initiation and structuring of the Reverse Stock Split and will continue to
beneficially own a significant equity interest in the Company after the
transaction is completed. Because two other directors (Messrs. Dean T. W. Ho and
Donald M. Wong) will continue to beneficially own significant equity interests
in the Company after the transactions are completed, they (together with Mr.
Stuart T. K. Ho) may be deemed to be "engaged" in the Reverse Stock Split under
2
<PAGE> 9
applicable regulations of the Securities and Exchange Commission ("SEC.")
Messrs. Stuart T. K. Ho, Dean T. W. Ho and Donald M. Wong are sometimes
collectively referred to in this document as the "Management Directors," and
certain additional information is provided with respect to them in that
capacity.
WHAT VOTE IS REQUIRED TO APPROVE THE REVERSE STOCK SPLIT?
The affirmative vote of at least 66 2/3% of all Existing Shares outstanding
on the record date is required to approve the amendment of the Company's
Articles of Association to effect the Reverse Stock Split.
As described under "Annual Meeting of Shareholders -- Vote Required," those
members of the Ho Family who are Company directors, executive officers or 10%
shareholders have indicated that they intend to vote in favor of the Reverse
Stock Split. Two of the five directors of the Company (Messrs. Pedro Ada and C.
B. Sung) are outside directors (i.e., neither a member of the Ho Family nor an
employee of the Company or the Company's subsidiaries). See "The Reverse Stock
Split -- Interests of Certain Persons in the Reverse Stock Split."
HAS THE COMPANY OBTAINED AN INDEPENDENT OPINION REGARDING THE REVERSE STOCK
SPLIT?
No. The Company has not obtained any such opinion.
SUMMARY OF OTHER MATTERS IN CONNECTION WITH THE MEETING
WHAT DO I NEED TO DO NOW?
ALL COMPANY SHAREHOLDERS will vote on the Reverse Stock Split and on the
election of directors. Read this Proxy Statement and mail your signed proxy card
in the enclosed return envelope as soon as possible, so that your shares can be
represented at the Annual Meeting.
CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
Yes. See "Annual Meeting of Shareholders -- Voting, Solicitation and
Revocation of Proxies."
SHOULD I SEND MY STOCK CERTIFICATES IN NOW?
DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. After the Reverse Stock Split
is approved and effected, the Company will send you instructions for submitting
your stock certificate(s) in exchange for a stock certificate representing your
shares of New Common Stock, if any, and cash in lieu of fractional shares.
SPECIAL FACTORS
In considering whether to vote in favor of the Reverse Stock Split,
shareholders should carefully consider the Special Factors discussed below,
including discussion as to the fairness to the Company's shareholders of the
Reverse Stock Split.
PURPOSES OF THE REVERSE STOCK SPLIT
The purpose of the Reverse Stock Split is to reduce the number of Company
shareholders to below 300 by buying the Existing Shares of small shareholders
(i.e., shareholders owning fewer than 300 Existing Shares) of the Company. Once
the Company has fewer than 300 shareholders, it will be able to deregister its
common stock under the 1934 Act, and will no longer be subject to the regulatory
and reporting requirements of that Act. The Board of Directors has determined
that few, if any, shareholders receive significant benefit from the Company's
compliance with the 1934 Act, as described below under "Reasons for the Reverse
Stock Split."
No director, officer or affiliate of the Company has any purpose with
respect to the Reverse Stock Split that is separate from or different than the
Company's purposes for those transactions as described above.
3
<PAGE> 10
ALTERNATIVES CONSIDERED
The Board of Directors did not consider any alternatives to the Reverse
Stock Split.
REASONS FOR THE REVERSE STOCK SPLIT
In considering the Reverse Stock Split, the Board of Directors determined
that the Company cannot afford the costs associated with retaining its status as
a public company, for the reasons discussed below.
Considering the case for "selling the company."
A reverse stock split would not be necessary if the Company was sold, i.e.
its assets sold and the Company's affairs wound up. The factors favoring
"selling the company" are (i) the continuing stagnation of Hawaii's
tourist-driven economy and the economies of certain Asian nations whose citizens
are historically a major source of Hawaii tourism; (ii) the large secured and
unsecured indebtedness of the Company (see "Appendix A"), which now cost the
Company approximately $440,000 per annum to service; and (iii) the Company's
lack of capital.
Considering the case for "growing the company."
The factors the Board of Directors considered for growing the Company arise
from the profitability and experience acquired by the Company since 1991 by
making "acquisition and development" loans ("ADC loans") to home builders in
Southern Nevada and Utah. An ADC loan is a transaction in which a lender
advances money to a builder to enable the builder to purchase zoned land and
build infrastructure and finished lot pads. The opportunity for the Company to
make ADC loans exists because federal regulations and regulators regard ADC
loans as risky and require that federally-insured lenders apply stringent
lending standards when making such loans. The result is usually very low
loan-to-value ratios for ADC loans. Small builders find this onerous, causing
some to seek non-traditional sources of ADC financing, but at a high borrowing
cost. Housing activity in many urban areas in the Western U.S. is largely
carried by small builders.
COMPANY'S HISTORY OF ADC LENDING
<TABLE>
<CAPTION>
INVESTMENT AT
FISCAL YEAR INCOME END OF FISCAL YEAR
----------- ---------- ------------------
<S> <C> <C>
1998 - 99................................................... $ 279,709 $1,217,871
1997 - 98................................................... 828,824 1,435,210
1996 - 97................................................... 449,842 2,711,737
1995 - 96................................................... 1,143,229 1,902,009
1994 - 95................................................... 1,360,568 3,574,360
1993 - 94................................................... 861,594 5,169,856
1992 - 93................................................... 788,000 4,444,421
</TABLE>
The table above describes the profitability of the Company's experience
with ADC lending. The Company experienced a decline in ADC income in Fiscal Year
1999, as the result of a $437,297 charge taken when a builder to whom several
project loans had been made defaulted. The default was the only one experienced
by the Company since it began making ADC loans in 1991. However, most of the
decline in ADC loan income (and investment) during the decade was not for lack
of business opportunity but rather the result of the Company diverting an
increasing amount of its capital to meet operating losses in Hawaii, to which
the Company's failed investment in "Bakery Europa," (acquired in 1990 and later
sold) was the major contributing factor. Despite this history, the Board of
Directors believe that ADC lending on the mainland is an enterprise that the
Company has the requisite skills to exploit. The business is profitable. And it
is a "niche" business which is protected from large investors because of the
relatively modest financing demands of builders and because of the burden of
dividing large pools of capital among so many small loans, all of which require
management.
4
<PAGE> 11
Analysis of the Board of Directors
The Board of Directors believe that "growing the company" through ADC
lending is the best strategy to pursue, but can only come about if the Company
can survive Hawaii's poor economic climate. They believe the Company can survive
only if it liquidates all or most of its debt through the sale of assets not
needed in its ADC lending business. They further believe that the Company can
liquidate its debt, given the range of liquidity implicit in the character its
assets and local market conditions, only if the Company significantly reduces
its administrative overhead to provide it with time to carry out an orderly sale
of assets. Recognizing the range of liquidity of the Company's assets, the Board
of Directors reviewed general and administrative expenses with a view towards
structural reduction of such expenses. One of the major expenses reviewed was
the cost of continuing to comply with the 1934 Act, which the Board of Directors
weighed against the 1934 Act's intended benefit to stockholders and investors.
- The cost of compliance with the 1934 Act is extremely high, the Board of
Directors concluded, in proportion to the Company's total costs and
expenses, exclusive of interest expense, and, therefore, a detriment to
the Company and its shareholders. For Fiscal Years 1998 and 1997, the
Company's total costs and expenses, exclusive of interest expense, were,
respectively, $1,721,599 and $1,845,446. The cost of compliance with SEC
rules and regulations -- which including auditing, preparation of
quarterly and annual filings with the SEC and other bookkeeping
costs -- for FY1998 and FY1997 were, respectively, $131,975 and $122,913,
or 8 percent and 7 percent, respectively, of the Company's total costs
and expenses, exclusive of interest expense, and 7 percent and 7 percent,
respectively, of the Company's revenues. Some of this high cost is the
result of steps to enhance profitability. For example, because ADC loans
often provide for what accountants call "contingent interest" but what
the Company calls a "profit-participation," the transaction is deemed a
"joint venture" for accounting purposes. As such, each "joint venture" is
required to be fully audited, thus contributing to the high cost of
compliance. To date, the Company has received invoices from the Company's
independent auditor, KPMG LLP, totaling approximately $93,700 for
professional services related to filing the Company's FY1999 Form 10-K.
- The Existing Shares are not listed on any stock exchange and in recent
years there has been no active trading of the shares. During the past
four fiscal years, i.e., within the year ended July 31, 1996, and through
the year ended July 31, 1999, the high and low bid for each quarter for
the Company's stock was a low bid of 3/16 and a high bid of 1/2, and lack
of trading activity has not changed since the end of fiscal year 1999 to
the date of this plan. On October 31, 1999, there were approximately 565
stockholders of record of common stock, excluding individuals and
institutions for whom shares are held in the name of nominees or
brokerage firms. Approximately 365 of the Company's current shareholders
of record own less than 300 Existing Shares each. Further, ownership of
approximately 49.22 percent of the Existing Shares is concentrated in the
family of the late founder of the Company, Chinn Ho, further reducing
potential liquidity in the trading of the Existing Shares if family
members elected not to engage in active trading of the shares.
Accordingly, given the lack of trading activity in the Existing Shares,
the number of shareholders owning Existing Shares, and the current
composition of stock ownership, the Board of Directors concludes that the
Company's shareholders derive little benefit from the Company's status as
a publicly-held corporation. Moreover, the Board of Directors believe
that the risks and expenses of continuing as a publicly-held company
substantially outweigh the benefits to current shareholders.
Accordingly, the Board of Directors proposed the Reverse Stock Split to
achieve the following purposes:
- To reduce the number of shareholders of record of the Company to less
than 300 in order to terminate the registration of the Company's common
stock under the 1934 Act; and
- To relieve the Company of the burdens, risks and costs associated with
the regulatory and reporting requirements of the 1934 Act and the rules
and regulations of the SEC pursuant to the 1934 Act (see "Termination of
Exchange Act Registration"), which have not, in view of the inactive
trading market for Existing Shares, provided corresponding benefits.
5
<PAGE> 12
REASONS FOR UNDERTAKING THE REVERSE STOCK SPLIT AT THIS TIME
The Board of Directors believe there is an urgent need for the Company to
substantially reduce its operating costs to conserve its cash and give it the
time to liquidate the Company's debt through asset sales. The need to eliminate
the cost of compliance with the 1934 Act at this time is pressing because there
is no assurance that the Hawaii economy, and the Asian economies that support
it, will recover sufficiently to restore asset values, especially real estate
asset values, that have significantly diminished during the decade of the
nineties. Declining asset values in Hawaii have reduced the ability of Hawaii
businesses, including the Company, to deleverage themselves through asset sales.
See notes to Appendix A for examples of declines in the values of certain
assets. As pointed out above (see "Reasons for the Stock Split") the cost of
compliance with the 1934 Act is, the Board of Directors believe, not only
disproportionately large with respect to the Company's non-interest expenses and
revenues but also works to the detriment of the Company and its shareholders
because, given the lack of trading in the Company's stock for several years, the
Company and its shareholders receive no benefit intended by the 1934 Act.
The Board of Directors previously discussed the feasibility of reducing the
number of Company shareholders, in order to permit deregistration under the 1934
Act. The Company announced, on November 15, 1989, that the Board of Directors
planned to submit a 1-for 500 reverse stock split to the Company's shareholder
for approval. Following an outside appraisal in 1990 to estimate the fair value
of the Company's stock, the Board of Directors took no action to proceed with a
going-private transaction because of uncertainty about the value of a large
investment owned by a subsidiary of the Company in Marin County, California, and
because of uncertainty in valuing the Company's sundry investment interests
managed by AEA Investors, Inc. ("AEA") See "Special Factors -- Fairness of the
Reverse Stock Split, Appendix A, Note 3." AEA is a private investment management
company that acquires privately-owned companies with a view towards improving
their financial performance and then selling shares of the acquired company in a
public offering. Another outside appraisal to estimate the fair value of the
Company's stock was made in 1995. Again, the Board of Directors took no action
to proceed with a going-private transaction. At that time, most of the Company's
interest in AEA-led investments was concentrated in the stock of Dal-Tile
International, Inc., ("Dal-Tile"). Dal-Tile was then, as it is now, the largest
manufacturer of ceramic tile in the U.S. but at the time of the 1995 appraisal
it was privately-owned. In considering the plan, the Board of Directors in 1995
were undecided about deciding the fairness of the value of a promising private
company whose prospects of going public seemed imminent.
The nature of the Company's interest in AEA has changed significantly.
Dal-Tile "went-public" in 1996, and its shares were listed on the New York Stock
Exchange (ticker symbol: DTL). While the Company's interest in Dal-Tile
continues to be illiquid because of a "lock-up" agreement among the AEA investor
group, including the Company, affecting approximately 55 percent of Dal-Tile's
stock, the listing on the New York Stock Exchange gives the value of the shares
a transparency that the Company's shareholders did not have in 1995. The
Company's other shareholding interests through AEA, i.e., outside of the
Company's interest in Dal-Tile, while not publicly-traded, have a relatively
small cost. The Peacock Gap investment is no longer an asset of the Company.
Hence, the factors that caused the Board of Directors to be undecided about the
fairness of the value of the Company's stock on earlier occasions no longer
exist.
EFFECTS OF THE REVERSE STOCK SPLIT
The effect of the Reverse Stock Split will be to convert the share
ownership interest who owns less than 300 Existing Shares into a right to
receive cash, in an amount equal to $0.25 per Existing Share. Such shareholders
will cease to be shareholders of the Company, and will not have any interest in
the equity or future prospects of the Company. Company shareholders who own 300
or more Existing Shares will receive one share of New Common Stock for each 300
Existing Shares that they own, and will receive cash for any resulting fraction
of a share of New Common Stock. See "The Reverse Stock Split -- Basic Terms of
the Reverse Stock Split."
The effect of the Reverse Stock Split will be to reduce the number of
Company shareholders to below 300, thus allowing the Company to deregister its
common stock under the 1934 Act, as described at "Reasons
6
<PAGE> 13
for the Reverse Stock Split." By eliminating the share ownership interests of
Company shareholders with less than 300 Existing Shares, the Reverse Stock Split
will eliminate the opportunity of such shareholders to participate in any
potential future growth of the Company; however, the Board of Directors has
determined that this loss of opportunity is offset by consideration to be paid
to such shareholders. See "Special Factors -- Fairness of the Reverse Stock
Split" below.
The effect of the Reverse Stock Split will be that the shareholders who
receive shares of New Common Stock pursuant to the Reverse Stock Split will be
shareholders in the Company, which will be privately held following the
Company's deregistration under the 1934 Act. The Company's capitalization
following the consummation of the Reverse Stock Split will effectively be
unchanged. The holders of New Common Stock will share in a portion of any future
increase in the Company's value, but will have corresponding exposure and risk
depending on the Company's future performance.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The receipt by a holder of Existing Shares of cash in lieu of fractional
shares of New Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes under the United States Internal
Revenue Code of 1986, as amended (the "Code").
Under Section 302 of the Code, a shareholder will recognize gain or loss
upon receiving cash in lieu of fractional shares of New Common Stock pursuant to
the Reverse Stock Split if:
- The Reverse Stock Split results in a "complete redemption" of all of the
shareholder's Existing Shares;
- The receipt of cash is "substantially disproportionate" with respect to
the shareholder; or
- The receipt of cash is "not essentially equivalent to a dividend" with
respect to the shareholder.
These three tests are applied by taking into account not only shares that a
shareholder actually owns, but also shares that the shareholder constructively
owns pursuant to Section 318 of the Code, as described below.
If any one of the three tests is satisfied, the shareholder will recognize
gain or loss on the difference between the amount of cash received by the
shareholder pursuant to the Reverse Stock Split and the tax basis in the
Existing Shares held by such shareholder prior to the Reverse Stock Split.
Provided that the Existing Shares constitute a capital asset in the hands of the
shareholder, this gain or loss will be long-term capital gain or loss if the
eligible Existing Shares are held for more than one year and will be short term
capital gain or loss if such shares are held for one year or less.
Under the constructive ownership rules of Section 318 of the Code, a
shareholder is deemed to constructively own shares owned by certain related
individuals and entities in addition to shares directly owned by the
shareholder. For example, an individual shareholder is considered to own shares
owned by or for his or her spouse and his or her children, grandchildren and
parents ("family attribution"). In addition, a shareholder is considered to own
a proportionate number of shares owned by estates or certain trusts in which the
shareholder has a beneficial interest, by partnerships in which the shareholder
is a partner, and by corporations in which 50% or more in value of the stock is
owned directly or indirectly by or for such shareholder. Similarly, shares
directly or indirectly owned by beneficiaries of estates of certain trusts, by
partners of partnerships and, under certain circumstances, by shareholders of
corporations may be considered owned by these entities ("entity attribution"). A
shareholder is also deemed to own shares which the shareholder has the right to
acquire by exercise of an option.
The receipt of cash by a shareholder pursuant to the Reverse Stock Split
will result in a "complete redemption" of all of the shareholder's Existing
Shares as long as the shareholder does not constructively own any shares of New
Common Stock immediately after the Reverse Stock Split. However, a shareholder
may qualify for gain or loss treatment under the "complete redemption" test even
though such shareholder constructively owns shares of New Common Stock provided
that (i) the shareholder constructively owns shares of New Common Stock as a
result of the family attribution rules (or, in some cases, as a result of a
combination of the family and entity attribution rules), and (ii) the
shareholder qualifies for a waiver of the family attribution rules (such waiver
being subject to several conditions, one of which is that the shareholder
7
<PAGE> 14
has no interest in the Company immediately after the Reverse Stock Split,
including as an officer, director or employee, other than an interest as a
creditor.
Shareholders who receive cash in lieu of fractional shares of New Common
Stock pursuant to the Reverse Stock Split will qualify for capital gain or loss
treatment as a result of satisfying the "complete redemption" requirements.
However, if the constructive ownership rules prevent compliance with these
requirements, such shareholder may nonetheless qualify for capital gain or loss
treatment by satisfying either the "substantially disproportionate" or the "not
essentially equivalent to a dividend" requirements. In general, the receipt of
cash pursuant to the Reverse Stock Split will be "substantially
disproportionate" with respect to the shareholder if the percentage of shares of
New Common Stock owned by the shareholder immediately after the Reverse Stock
Split is less than 80% of the percentage of Existing Shares directly and
constructively owned by the shareholder immediately before the Reverse Stock
Split (giving effect to the difference in number of shares due to the Reverse
Stock Split). Alternatively, the receipt of cash pursuant to the Reverse Stock
Split will, in general, be "not essentially equivalent to a dividend" if the
Reverse Stock Split or the receipt of payment pursuant to the Tender Offer
results in a "meaningful reduction" in the shareholder's proportionate interest
in the Company.
If none of the three tests described above is satisfied, the shareholder
will be treated as having received a taxable dividend in an amount equal to the
entire amount of cash received by the shareholder pursuant to the Reverse Stock
Split.
The receipt of shares of New Common Stock pursuant to the Reverse Stock
Split by owners of more than 300 Existing Shares will be a non-taxable
transaction for federal income tax purposes. Accordingly, a holder of more than
300 Existing Shares who receives shares of New Common Stock will not recognize
gain or loss, or dividend income, as a result of the Reverse Stock Split with
respect to the shares of New Common Stock received (but, as described above,
cash received in lieu of a fractional share of New Common Stock will be a
taxable transaction to the extent of such cash received). In addition, the basis
and holding period of such shareholder's shares of New Common Stock will carry
over as the basis and holding period of such shareholder's shares of New Common
Stock.
The backup withholding rules require a payor to deduct and withhold a tax
if (i) the payee fails to furnish a taxpayer identification number ("TIN") to
the payor; (ii) the IRS notifies the payor that the TIN furnished by the payee
is incorrect; (iii) the payee has failed to properly report the receipt of
"reportable payment" on several occasions and the IRS has notified the payor
that withholding is required; or (iv) there has been a failure of the payee to
certify under the penalty of perjury that the payee is not subject to
withholding under Section 3406 of the Code. As a result, if any one of the
events discussed above occurs, the Company will be required to withhold a tax
equal to 31% of any "reportable payment" made in connection with the Reverse
Stock Split. A "reportable payment" includes, among other things, dividends and
amounts paid through brokers in retirement of securities. Any amounts withheld
from a payment to a shareholder under the backup withholding rules will be
allowed as a refund or credit against such shareholder's federal income tax,
provided that the required information is furnished to the IRS. Certain
shareholders (including corporations and tax exempt organizations) are not
subject to the backup withholding requirements.
The foregoing is only a general description of certain of the United States
federal income tax consequences of the Reverse Stock Split, without reference to
the particular facts and circumstances of any particular shareholder. Each
shareholder is urged to consult his or her own tax advisor to determine the
particular tax consequences to such shareholder of the Reverse Stock Split
(including the application and effect of state and local income and other tax
laws).
FAIRNESS OF THE REVERSE STOCK SPLIT
On December 21, 1999, the Board of Directors, by unanimous vote, approved
and adopted the Plan. In approving and adopting the Plan, the Board of Directors
determined that the Plan is fair to, and in the best interests of, the
shareholders of the Company, including unaffiliated shareholders.
8
<PAGE> 15
In reaching its determination that the Reverse Stock Split is fair to the
unaffiliated shareholders of the Company, the Board of Directors considered,
among other matters, the following factors:
1. Current market prices;
2. Historical market prices;
3. Net book value;
4. Going concern value;
5. Liquidation value;
6. The price paid in purchases by the Company or its affiliates since
August 1, 1997, the commencement of the second full fiscal year preceding
the date of this schedule;
7. Any report, opinion, or appraisal received by the Company or its
affiliates relating to the transaction's fairness; and
8. Other firm offers of which the Company or its affiliates are aware
for merger, consolidation, or sale of the assets of the Company, or for
securities of the Company in order to exercise control.
The Board of Directors know it is often the practice in transactions of
this kind to engage an appraiser to render an opinion on the fairness of the
consideration to be offered to the shareholders. In this case, however, the
Board of Directors believe that most of the Company's assets are sufficiently
uncomplicated in kind and character and the methods used to ascertain their
current value sufficiently well understood that an outside appraisal to
establish the fairness of the consideration offered is unnecessary (and,
therefore, unnecessarily expensive). Moreover, the Board of Directors believe
that the fairness of the price, in this case, turns much less on net asset
values (because the net asset value of the Company's shares is so low) and much
more on the benefit to be received by the Company's shareholders by the Company
paying the price recommended as "fair" for fractional shares. Nonetheless, the
Board of Directors believe that all valuation factors should be considered,
whether relevant or not. The management of the Company has prepared and provided
its own estimation of the value of the Company's assets and liabilities (see
Appendix A).
Neither the Company nor its affiliates are aware of any firm offers for
merger, consolidation or sale of the assets of the Company, or for securities of
the Company in order to exercise control, nor have the Company or its affiliates
purchased any of the common stock of the Company since August 1, 1997, the
commencement of the second full fiscal year preceding the date of this schedule.
"Current market price" and "historical market price" methods of valuation
result in the best indications of value because they result directly from the
actions of informed and willing buyers and seller of shares. However, as earlier
indicated (see "Special Factors -- Reasons for the Reverse Stock Split"), there
has been no active trading in the Company's stock for several years. According
to the office of Abel-Behnke, a Honolulu investment firm that makes a market in
the Company's stock, the quotations for the Company's stock on October 30, 1999,
ranged between $0.187 bid and $0.250 asked. Richard Behnke, a principal of
Abel-Behnke, informed the Company on November 24, 1999, that to his knowledge
there had been no trading in the Company's stock "for a long time."
The "net book value" method is not a useful indicator of value because the
Company has had a negative book value since Fiscal Year 1996. Yet the Company
owns certain assets with market values that may well exceed their historical
cost. Nor is the "going concern value" method a valid valuation method to apply.
The going concern value method is more appropriate in a manufacturing, service
or rental income producing firm where the net income flows are steady or reveal
a reasonably predictable pattern. The Company's long financial history adheres
to a pattern of periodic losses punctuated by periodic profits resulting from
the sale of developed and undeveloped real estate or appreciated financial
assets. A valuation method like the going concern method, resting of the
capitalization of pre-tax or after-tax earnings would not, when applied to the
Company's history, lead to a creditable result.
9
<PAGE> 16
The "liquidation" method is, in the opinion of the Board of Directors, a
more appropriate valuation method than the methods discussed thus far
considering the Company's history of financial and real estate assets being
bought and sold at irregular intervals and where reported earnings are not
steady or predictable. The liquidation value method cures the problem in the net
book value method in that it restates assets at their market value or net
realizable value after allowance for marketing and the cost of the liquidation
effort. The applicability of this method should take into account that value
determined by the liquidation method is not synonymous with market liquidity.
For example, a warehouse valued at "market" does not mean that the value of the
warehouse can be immediately sold and its value converted to cash.
Appendix A summarizes the Company's assets, liabilities and stockholder's
equity applying a modified form of the liquidation method. The primary
techniques applied in valuing the individual assets are: (1) current and
historical market prices for listed or traded securities; (2) capitalization of
income or application of industry-recognized multipliers or adjusted purchase
prices for non-traded investments; and (3) estimated market values for real
estate parcels. Since the liquidation of the Company is not planned, no
provision is made for an estimated cost of liquidation or for a discount for
"book to market," an adjustment sometimes made by appraisers in the case of
investment companies because the market price of their shares are frequently
below the aggregate of the net asset values held by such firms. Appendix A
suggests an indicated value per share by liquidation (net current asset)
approach, as hereinabove qualified, of $0.03 per share.
Position of the Board of Directors
On December 21, 1999, the Board of Directors, by unanimous vote, approved
and adopted the Plan. In approving and adopting the Plan, the Board of Directors
determined that the Plan, which includes the Reverse Stock Split, is fair to,
and in the best interests of, the shareholders, including the unaffiliated
shareholders, of the Company.
In reaching its determination that the Reverse Stock Split is fair to the
shareholders, including the unaffiliated shareholders of the Company, the Board
of Directors considered the following factors:
- The indicated value per share of the Company's stock determined by a
modified liquidation (net current asset) approach is $0.03.
- The Company estimates that the approximate number of fractional shares
that will need to be purchased as a result of the Reverse Stock Split is
93,000 Existing Shares, after which the total number of shareholders of
the Company will be reduced to approximately 250.
- The cost to purchase the 93,000 Existing (fractional) Shares, at $.25 (25
cents) per share, is $23,250. Compared with the $131,975 and $122,913
cost of complying with the 1934 Act in Fiscal years 1998 and 1997,
respectively, the payment of the excess of the $0.25 per share redemption
price over the $0.03 indicated value of the Company's shares is a fair
price for the Company to pay to secure the cooperation of the holders of
fractional shares, and the Board of Directors accordingly believe that it
is in the best interest of the shareholders, including the unaffiliated
shareholders, that the price be paid.
- The lack of trading activity in the Company's shares and the low bid and
asking prices for the shares, the Company's poor financial performance,
the Board's knowledge of the state of the Hawaii economy, which has been
and is expected to continue to be relatively stagnant throughout 2000,
and the need to reduce the Company's operating costs in order to allow
the Company sufficient time to sell certain of its assets and reduce its
debt, were all factors that helped the Board to conclude that now is an
appropriate time to undertake the Reverse Stock Split.
In light of the number and variety of factors that the Board of Directors
considered in evaluating the fairness of the price to be paid for Existing
Shares pursuant to the Reverse Stock Split, they did not find it practicable to
assign relative weights to such factors, and accordingly, did not do so.
In addition to the factors listed above, which bear primarily on the
fairness of the price to be paid for Existing Shares from a financial point of
view, the Board considered factors applicable to the fairness generally
10
<PAGE> 17
of the Reverse Stock Split, to all Company shareholders, including unaffiliated
shareholders. The Board has informally discussed the feasibility of reducing the
number of Company shareholders in order to permit deregistration under the 1934
Act for a number of years, as described above (see "Reasons for Undertaking the
Reverse Stock Split at This Time") but did not believe that it was appropriate
to proceed with a going-private transaction under such circumstances. This fact,
together with certain of the financial and economic factors described above, led
the Board to conclude that the timing of the going-private transaction was fair
to the Company's shareholders.
The Board did consider that the Reverse Stock Split would eliminate the
opportunity of shareholders owning less than 300 Existing Shares to participate
in any potential future growth of the Company, but determined that the loss of
opportunity was offset by the consideration to be paid a premium for their
shares, particularly in view of the lack of trading for the Existing Shares and
considering the Company's recent financial history.
The Board of Directors believe that the risks and expenses of continuing as
a publicly-held company substantially outweigh any benefits to current
shareholders. Additionally, in view of the large number of Company shareholders
with very small holdings of Existing Shares, the Board believes that it is not
in the best interests of the Company to continue to allocate corporate
resources, including management time, to compliance with public company
regulatory and reporting requirements.
The Board of Directors determined not to require that the Reverse Stock
Split be approved by a majority of Company shareholders who are not Ho Family
members, in view of the large number of Company shareholders with small holdings
of Existing Shares, because of the likelihood of a low voter response. It has
not been the practice in past years to solicit the votes of the great majority
of unaffiliated shareholders for annual meeting purposes, and the Board is
concerned about a low response from unaffiliated shareholders who may not
believe their vote is important.
The Board of Directors determined that it was not feasible to establish an
independent committee of unaffiliated directors. The Company's outside directors
(Messrs. C.B. Sung and P.P. Ada) have not retained unaffiliated representatives
to act on behalf of Company shareholders who are not Ho Family members, for the
purpose of negotiating the terms of the Reverse Stock Split.
The Board believes that the Reverse Stock Split is fair to unaffiliated
shareholders despite the absence of such "procedural safeguards," based on its
analysis of the factors described above. With respect to the Reverse Stock
Split, the Board believes that the interests of the unaffiliated shareholders
owning less than 300 Existing Shares are adequately protected by their ability
to dissent from the Reverse Stock Split and obtain payment for their shares
under Hawaii law (see "Rights of Dissenting Shareholders"). Hawaii law does not
require dissenters' rights in connection with a reverse stock split, and this
right is being provided voluntarily by the Company as a procedural safeguard.
Position of the Management Directors
Additionally, the terms of the Reverse Stock Split have been approved by
the two outside Company directors, which serves as an additional procedural
safeguard. The two outside directors did not vote separately as a group in
voting to approve the Reverse Stock Split, but rather approved the transaction
in connection with the Board's unanimous approval.
Position of the Ho Family Shareholders
The Ho Family Shareholders also believe that the Reverse Stock Split are
fair to all Company shareholders, including unaffiliated shareholders. Such
belief is based on (i) the conclusions of, and the approval of, the Board of
Directors, as well as the basis therefore, which conclusions and bases, as set
forth above, are adopted by the Ho Family Shareholders and incorporated by
reference. The Ho Family Shareholders did not find it practical to, and did not,
quantify or otherwise attach relative weights to the specific factors that they
considered.
11
<PAGE> 18
ANNUAL MEETING OF SHAREHOLDERS
DATE, TIME AND PLACE
The Annual Meeting will be held on Monday, January 31, 2000, at 9:30 a.m.
Honolulu time, at the Grosvenor Center Conference Room (ground floor), 733
Bishop Street, Honolulu, Hawaii 96813.
PURPOSE
The purpose of the Annual Meeting is to consider and vote upon:
- The amendment of the Company's Articles of Association, which will effect
the Reverse Stock Split;
- The election of directors for the ensuing year; and
- Other matters, if any, that may properly come before the Annual Meeting.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The Company has fixed 5:00 p.m. Honolulu time on December 15, 1999 as the
record date for determining the holders of Company common stock entitled to
notice of, and to vote at, the Annual Meeting. At the close of business on the
record date, there were 1,032,692 Existing Shares issued and outstanding, held
by approximately 566 holders of record. Holders of record of Existing Shares are
entitled to one vote per share.
VOTE REQUIRED
Amendment of Articles of Association. The affirmative vote of at least
66 2/3% of all Existing Shares outstanding on the record date is required to
approve the amendment of the Company's Articles of Association, which will
effect the Reverse Stock Split. See "The Reverse Stock Split -- Required Vote;
Indications of Voting Intent by Ho Family Shareholders and Management."
Election of Directors. Each shareholder will have one vote for each
Existing Share held, except that cumulative voting may be required in the
election of directors. If cumulative voting applies, the necessary vote for the
election of directors is described below. If cumulative voting does not apply,
directors must be elected by a majority of the Existing Shares represented in
person or by proxy at the Annual Meeting, assuming that a quorum (a majority of
all Existing Shares entitled to vote) is present at such meeting.
Hawaii law requires use of cumulative voting in the election of directors
if, not less than 48 hours prior to the time fixed for the Annual Meeting, any
shareholder delivers a request therefor to an office of the Company. Cumulative
voting means that each shareholder present in person or by proxy may cast a
number of votes equal to the number of his or her shares multiplied by the
number of directors to be elected. The shareholder may cast all of such votes
for a single director or may distribute them among the number to be voted for,
or any two or more as the shareholder see fit. The nominees receiving the
highest number of votes on the foregoing basis, up to the total number to be
elected, will be the successful nominees. If cumulative voting is requested, the
holders of management proxies will vote the proxies received by them
cumulatively in such manner as is determined by them at that time.
VOTING, SOLICITATION AND REVOCATION OF PROXIES
If the enclosed proxy is duly executed and received in time for the Annual
Meeting, it will be voted in accordance with the instructions given. If no
instruction is given, it is the intention of the persons named in the proxy to
vote the shares represented by the proxy FOR (i) the approval of the amendment
of the Company's Articles of Association and (ii) the election of the nominated
directors. Any proxy given by a shareholder may be revoked before its exercise
by written notice to the Secretary of the Company, or by a subsequently dated
proxy, or in open meeting before the shareholder vote is taken. The shares
represented by properly executed unrevoked proxies will be voted in accordance
with the instructions on the proxy. With regard to any other matters that may
properly come before the Annual Meeting, it is the intention of the persons
named in the proxy to vote the proxy in accordance with the recommendations of
management on such matters.
12
<PAGE> 19
The proxy for the Annual meeting is being solicited on behalf of the
Company's Board of Directors. The Company will bear the cost of solicitation of
proxies from its shareholders. In addition to using the mails, proxies may be
solicited by personal interview, telephone and wire. Banks, brokerage houses,
other institutions, nominees and fiduciaries will be requested to forward their
proxy soliciting material to their principals and obtain authorization for the
execution of the proxies. Officers and other employees of the Company may
solicit proxies personally. The Company does not expect to pay any compensation
for the solicitation of proxies, but will, upon request, pay the standard
charges and expenses of banks, brokerage houses, other institutions, nominees,
and fiduciaries for forwarding proxy material to and obtaining proxies from
their principals.
THE REVERSE STOCK SPLIT
GENERAL
The purpose of the Reverse Stock Split is to reduce the number of Company
shareholders below 300 by buying the Existing Shares of small shareholders
(under 300 Existing Shares) in the Company. As described below under "Basic
Terms of the Reverse Stock Split," the Reverse Stock Split consists of an
amendment to the Company's Articles of Association, pursuant to which each 300
Existing Shares will be converted into one share of New Common Stock. The text
of the proposed amendment to the Company's Articles of Association is attached
as Appendix B. Because the Company will not issue fractional shares of New
Common Stock, any shareholder who owns less than 300 Existing Shares (which
would convert into less than a whole share of New Common Stock) will instead
receive cash in lieu of such fractional interest, at a price equal to $.25 (25
cents) per Existing Share.
BACKGROUND
The Company's Board of Directors has informally discussed the feasibility
of reducing the number of Company shareholders in order to permit deregistration
of the Company's common stock under the 1934 Act for several years. Based on
discussions with its legal counsel in mid-1999, the Board authorized the
exploration of strategies for accomplishing this objective. After review of the
legal, economic and procedural issues involved, management, in consultation with
its legal counsel, determined that the Reverse Stock Split was appropriate and
decided to recommend it to the Board.
The Board concurred with management's recommendation that the Reverse Stock
Split is the most efficient way to reduce the number of Company shareholders
below 300. On December 21, 1999, the Board approved and adopted the Reverse
Stock Split, and determined to submit it (specifically the amendment of the
Company's Articles of Association to effect the Reverse Stock Split) to the
Company's shareholders at the Annual Meeting.
BASIC TERMS OF THE REVERSE STOCK SPLIT
Upon shareholder approval and the filing of the amendment of the Company's
Articles of Association, the outstanding shares of Company common stock will be
consolidated and converted from 3 million to 10,000. Accordingly, each 300
Existing Shares that are outstanding on the date of the filing of the amendment
will be converted into one share of New Common Stock. After giving effect to the
Reverse Stock Split, the Company expects that the number of shareholders of
record will be reduced such that the Company's regulatory and reporting
requirements under the 1934 Act could be terminated. Based on the Company's
shareholder records, the Company believes that the Reverse Stock Split will
reduce the number of Company shareholders to approximately 250. Following the
Company's termination of its registration under the 1934 Act, the Company will
no longer incur the expense of compliance with 1934 Act regulatory and reporting
requirements. Corporate resources currently devoted to such compliance
(estimated to be approximately $100,000 inclusive of management time, per year)
can be allocated to other areas where they can be used more efficiently.
Holders of Less Than 300 Existing Shares. Upon the effectiveness of the
Reverse Stock Split, shareholders who are not entitled to receive a whole share
of New Common Stock (all shareholders who own
13
<PAGE> 20
less than 300 Existing Shares on the effective date of the Reverse Stock Split)
will cease to be shareholders or have any interest in the equity or future
prospects of the Company. Such shareholders will receive cash in lieu of the
fractional share of New Common Stock which they would otherwise receive, in an
amount equal to $.25 (25 cents) per Existing Share. Such shareholders will not
participate in any increase or decrease in the value of the Company or the New
Common Stock.
Holders of 300 or More Existing Shares. Shareholders who own 300 or more
Existing Shares will be entitled to receive one (1) share of New Common Stock
for each 300 Existing Shares that they own on the effective date of the Reverse
Stock Split. Except for the difference in the number of shares authorized and
the number of shares owned by shareholders, the New Common Stock be identical,
with respect to voting, dividend and other rights, to the former Existing
Shares. However, because the Company intends to terminate its registration under
the 1934 Act following the Reverse Stock Split, and thereafter will not file
reports pursuant to the 1934 Act, and because of the number and composition of
the Company's shareholders following the Reverse Stock Split, it is anticipated
that there will not be a market for the New Common Stock.
EXCHANGE OF STOCK CERTIFICATES
If the amendment to the Company's Articles of Association is approved by
the Company's shareholders, the Board of Directors will cause Amended and
Restated Articles of Association to be immediately filed with the Hawaii
Department of Commerce and Consumer Affairs, and a notice of such filing
("Notice"), along with a Transmittal Letter, to be sent to all holders of
Existing Shares.
On the effective date of the Reverse Stock Split, each certificate
representing an Existing Share will be deemed for all corporate purposes, and
without any further action by any person, to evidence ownership of the reduced
number of shares of New Common Stock and/or the right to receive cash for any
fractional share interest. Each shareholder who holds fewer than 300 Existing
Shares on the effective date of the Reverse Stock Split will cease to have any
rights with respect to New Common Stock, and will have only the right to receive
cash in lieu of the fractional share to which such holder would otherwise be
entitled, as described in "Cash for Fractional Shares" below.
If certificates for Existing Shares have been lost or destroyed, the
Company may, in its sole discretion, accept in connection with the Reverse Stock
Split a duly executed affidavit and indemnity agreement of loss or destruction,
in a form satisfactory to the Company, in lieu of the lost or destroyed
certificate. Additional instructions regarding lost or destroyed stock
certificates will be included in the Notice and Transmittal Letter sent to
Company shareholders after the effectiveness of the Reverse Stock Split.
THE NOTICE AND TRANSMITTAL LETTER WILL BE SENT BY THE COMPANY TO
SHAREHOLDERS PROMPTLY AFTER THE EFFECTIVE DATE OF THE REVERSE STOCK SPLIT. DO
NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE THE NOTICE AND TRANSMITTAL
LETTER.
There will be no service charges or costs payable by Company shareholders
in connection with the exchange of their certificates or in connection with the
payment of cash in lieu of fractional shares. These costs will be borne by the
Company.
CASH FOR FRACTIONAL SHARES
The Company will not issue fractional shares of New Common Stock.
Accordingly, if you own less than 300 Existing Shares, you will not receive a
fractional share of New Common Stock, but will instead receive cash in lieu of
such fractional interest. The amount of cash that you will receive will be equal
to $.25 (25 cents) for each Existing Share that you own on the effective date of
the Reverse Stock Split.
If you own 300 or more Existing Shares, you will receive one share of New
Common Stock for each 300 Existing Shares that you own on the effective date of
the Reverse Stock Split, and you will receive cash in lieu of any resulting
fractional share of New Common Stock, also at a price equal to $.25 (25 cents)
per Existing Share represented.
14
<PAGE> 21
CONDITIONS OF THE REVERSE STOCK SPLIT; REGULATORY APPROVALS
Aside from shareholder approval of the amendment of the Company's Articles
of Association (see "Required Vote; Indications of Voting Intentions of Ho
Family Shareholders and Management") the Reverse Stock Split is not subject to
any conditions or regulatory approvals. The Company is required to make certain
filings with the SEC under the 1934 Act in connection with the Reverse Stock
Split and this Proxy Statement. Such filings have been made.
EFFECT ON MARKET FOR SHARES
Following the Reverse Stock Split, the Company intends to deregister its
common stock under the 1934 Act. See "Termination of Exchange Act Registration"
below. This and other factors will likely mean that the market for New Common
Stock will be significantly more limited than the market for Existing Shares has
historically been.
TERMINATION OF EXCHANGE ACT REGISTRATION
The Existing Shares are currently registered under the 1934 Act. Such
registration may be terminated upon application of the Company to the SEC if
there are fewer than 300 record holders of the Company's outstanding shares.
Upon the consummation of the Reverse Stock Split, the Company will have
approximately 250 shareholders. The Company intends to make application for
termination of registration of the shares of New Common Stock as promptly as
possible after the effective date of the Reverse Stock Split.
Termination of registration under the 1934 Act will substantially reduce
the information required to be furnished by the Company to its shareholders and
to the SEC and would make certain provisions of the 1934 Act, such as the
short-swing profit provisions of Section 16(b), the requirement of furnishing a
proxy or information statement in connection with shareholder meetings pursuant
to Section 14(a), and the requirements of Rule 13E-3 under the 1934 Act
regarding "going private" transactions, no longer applicable to the Company.
The Company estimates that termination of registration of the New Common
Stock under the 1934 Act will save the Company as much as approximately $100,000
per year in legal, accounting, printing, management time, and other expenses per
year.
FEES AND EXPENSES; SOURCES OF FUNDS; PERSONS AND ASSETS EMPLOYED, RETAINED OR
UTILIZED
Fees and Expenses; Sources of Funds. The total amount of funds that will be
required by the Company to fund the cash payments in lieu of fractional shares
of New Common Stock pursuant to the Reverse Stock Split (the "Purchase Funds")
is estimated to be approximately $23,250. This estimated total is based on the
stock records of the Company as of June 30, 1999. Additionally the Company
anticipates legal, financial advisory, accounting, printing, and other fees and
expenses in relation to the transactions contemplated by the Reverse Stock Split
(the "Transaction Expenses") of approximately $30,000. The Company has
sufficient cash on hand to pay the Purchase Funds and Transaction Expenses.
Persons and Assets Employed, Retained or Utilized. As described above, the
Company will fund the Transaction Expenses with cash on hand. No other
significant assets of the Company will be employed or utilized in connection
with the Reverse Stock Split. As described in "THE ANNUAL MEETING -- Voting,
Solicitation and Revocation of Proxies," certain officers and employees of the
Company may personally solicit proxies in connection with the Annual Meeting.
Additionally, certain employees of the Company will be involved in coordinating
the procedural aspects of the Reverse Stock Split, as the Company serves as the
transfer agent for the Company. No officer or employee of the Company will be
separately compensated for the solicitation of proxies or any other activity
undertaken in connection with the solicitation of proxies or the consummation of
the Reverse Stock Split generally. The Management Directors will not separately
employ, retain or utilize any person, or any assets of the Company, in
connection with the Reverse Stock Split.
15
<PAGE> 22
INTERESTS OF CERTAIN PERSONS IN THE REVERSE STOCK SPLIT
Company directors Messrs. Stuart T. K. Ho and Dean T. W. Ho are members of
the Ho Family. As described above under "Reasons for the Reverse Stock Split,"
the purpose of the Reverse Stock Split is to reduce the number of Company
shareholders in order to allow the Company to "go private" by deregistering
under the 1934 Act. The elimination of small holdings of Existing Shares will
further concentrate the equity ownership of the Company in the Ho Family.
Members of the Ho Family, including directors named above, have a substantial
interest, by virtue of being members of the Ho Family, in the implementation of
the Reverse Stock Split.
RIGHTS OF DISSENTING SHAREHOLDERS
Although Hawaii law does not require dissenters' rights in connection with
a reverse stock split, the Company has voluntarily elected to provide
shareholders the right to dissent from the Reverse Stock Split and obtain
payment for their Existing Shares pursuant to Sections 415-80 and 415-81 of the
Hawaii Business Corporation Act (the "Act"). A shareholder who wishes to dissent
must file with the Company, prior to the vote on the Reverse Stock Split at the
Annual Meeting, a written notice that the shareholder intends to demand to be
paid fair compensation for his Existing Shares, and he or she must refrain from
voting such shares in approval of the Reverse Stock Split. A shareholder who
fails in either respect will have no right to payment for the Existing Shares
under either Section 415-80 or Section 415-81 of the Act. Such notice should be
sent to Capital Investment of Hawaii, Inc., Suite 1700, Makai Tower, 733 Bishop
Street, Honolulu, Hawaii 96813; Attention: President
A PROXY CARD DIRECTING A VOTE AGAINST THE AMENDMENT OF THE COMPANY'S
ARTICLES OF ASSOCIATION TO EFFECT THE REVERSE STOCK SPLIT, OR AN ABSTENTION FROM
VOTING, IS INSUFFICIENT TO SATISFY THE REQUIREMENTS FOR THE WRITTEN NOTICE THAT
IS REQUIRED UNDER SECTION 415-81 OF THE ACT.
Sections 415-80 and 415-81 of the Act are reprinted in their entirety as
Appendix B to this Proxy Statement. All references in Sections 415-80 and 415-81
of the Act and in this section to a "shareholder" are references to the record
holder of Existing Shares. A person or persons having a beneficial interest in
Existing Shares held of record in the name of another person or persons, such as
a broker or nominee, and wishing to exercise dissenters' rights should act
promptly to cause the shareholder of record to properly follow the steps
summarized below and in a timely manner to perfect dissenters' rights concerning
such Existing Shares.
A SUMMARY OF IMPORTANT DETAILS CONCERNING THESE REQUIREMENTS IS SET FORTH
BELOW; THE REQUIRED PROCEDURES SET FORTH IN SECTIONS 415-80 AND 415-81 OF THE
ACT MUST BE FOLLOWED EXACTLY OR DISSENTERS' RIGHTS MAY BE LOST.
The following discussion is not a complete statement of the law relating to
dissenters' rights; it is qualified in its entirety by Appendix B. This
discussion and Appendix B should be reviewed carefully by any shareholder who
wishes to exercise dissenters' rights, or who wishes to preserve the right to do
so; failure to comply with the procedures set forth in Sections 415-80 and
415-81 of the Act will result in the loss of dissenters' rights. Shareholders
should consult their own legal advisors.
If the Reverse Stock Split is effectuated, those shareholders of the
Company who elect to exercise their dissenters' rights and who properly and
timely perfect such rights will be entitled to receive the fair value in cash of
their Existing Shares. Such cash payment would be in lieu of the shares of New
Common Stock and/ or amount of the cash they would otherwise receive upon the
effectiveness of the Reverse Stock Split. Pursuant to Section 415-81 of the Act,
"fair value" means the value of the Existing Shares immediately before the
effectuation of the Reverse Stock Split, excluding any appreciation or
depreciation in anticipation of the Reverse Stock Split, unless such exclusion
would be inequitable.
If the Company's shareholders approve the Reverse Stock Split by the
required vote, then the Company must mail to those shareholders who submitted a
written notice of intention to demand dissenters' rights and who refrained from
voting their Existing Shares to approve of the Reverse Stock Split, a notice
that the required shareholder approval of the Reverse Stock Split was obtained
(the "Notice of Approval"). The Notice of Approval must: (i) state where and
when a demand for payment must be sent and certificates of
16
<PAGE> 23
certificated shares must be deposited to obtain payment; (ii) inform holders of
uncertificated shares to what extent transfer of shares will be restricted from
the time that demand for payment is received; (iii) supply a form for demanding
payment that includes a request for certification of the date on which the
shareholder, or the person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares; and (iv) be accompanied by a copy of
Sections 415-80 and 415-81 of the Act. The time set for the demand and deposit
must not be less than 30 days from the Company's mailing of the Notice of
Approval.
A shareholder who fails to demand payment and deposit his or her shares in
the time and in the manner set forth in the Notice of Approval, will have no
right as a dissenter to receive the fair value of his or her Existing Shares.
The dissenter will retain all other rights of a shareholder until those rights
are modified by effectuation of the Reverse Stock Split.
Immediately upon effectuating the Reverse Stock Split, or upon receipt of
timely demand for payment if the Reverse Stock Split already has been
effectuated, the Company must remit to dissenters who have properly made their
demand and deposited their stock certificates, the amount that the Company
estimates to be the fair value of the Existing Shares, with interest if any has
accrued. The Company's Board has determined that the fair value of the Existing
Shares to be $.25 (25 cents) per share, which is the same price to be paid for
fractional shares after the Reverse Stock Split. See "Basic Terms of the Reverse
Stock Split."
The payment from the Company must be accompanied by: (i) the Company's
balance sheet and statement of income for the fiscal year ending as of July 31,
1999, together with the Company's latest interim financial statements; (ii) a
statement of the Company's estimate of the fair value of the Existing Shares;
and (iii) a statement of the dissenter's right to demand supplemental payment
for Existing Shares, with a copy of Sections 415-80 and 415-81 of the Act.
If, within 60 days after the date set for demanding payment and depositing
certificates as set forth in the Notice of Approval, the Company has not
effectuated the Reverse Stock Split and remitted payment to dissenting
shareholders, then the Company must return any stock certificates that have been
deposited.
If the Company fails to remit payment as set forth above or if the
dissenter believes that the amount remitted is less than the fair value, or that
the interest is incorrectly determined, then the dissenter may send to the
Company his or her own estimate of the value of the Existing Shares or of the
interest, and demand payment of the deficiency (the "Deficiency Notice"). If the
dissenter does not file the Deficiency Notice with the Company within 30 days
after the Company's mailing of the remittance to the dissenter, then the
dissenter will be entitled to no more than the amount already remitted.
Within 60 days of receiving a Deficiency Notice from a dissenter in
accordance with the terms of Sections 415-80 and 415-81 of the Act, if any such
demands for payment remain unsettled, the Company must file an action in an
appropriate court of competent jurisdiction in the County of Honolulu, Hawaii,
requesting that the court determine the fair value of the Existing Shares and
interest. All dissenters who have complied fully with Sections 415-80 and 415-81
of the Act, wherever residing, whose demands have not been settled must be made
parties to that proceeding. The court may appoint one or more persons as
appraisers, to receive evidence and recommend a decision on the question of fair
value. All dissenters made parties will be entitled to judgment for the amount
by which the fair value of their shares is found to exceed the amount the
Company previously remitted, with interest. If the Company fails to file suit in
the time frame specified above, then the Company must pay each dissenter the
amount he or she demanded in his or her Deficiency Notice.
The costs and expenses of any proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, will be
determined by the court and assessed against the Company; however, the court may
apportion and assess any part of the costs and expenses as it deems equitable,
against all or some of the dissenters who are parties and whose action in
demanding supplemental payment the court finds to be arbitrary, vexatious, or
not in good faith. Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems equitable against the
Company and for any or all dissenters, if the Company failed to comply
substantially with the requirements of Section 415-81 of the Act. The court may
assess fees and costs against either the Company or a dissenter, in favor of any
other party, if
17
<PAGE> 24
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith concerning the rights
provided by Sections 415-80 and 415-81 of the Act.
If the shareholder votes for the Reverse Stock Split (either in person or
by proxy), or if the Company does not timely receive such shareholder's written
demand and deposit of shares or if the shareholder otherwise fails to comply in
a timely manner with the procedures of Sections 415-80 and 415-81 of the Act,
then such shareholder will be bound by the terms of the Reverse Stock Split, and
he or she will lose the right as a dissenter to receive the fair value of his or
her Existing Shares in cash. Any shares that lose their status as dissenting
Existing Shares will be, or be deemed to have been, converted into the right to
receive pursuant to the Reverse Stock Split: (i) one share of New Common Stock
for every 300 Existing Stock Shares, and (ii) cash in lieu of fractional shares.
See "Basic Terms of the Reverse Stock Split" and "Cash for Fractional Shares."
REQUIRED VOTE; INDICATIONS OF VOTING INTENT BY HO FAMILY SHAREHOLDERS AND
MANAGEMENT
The affirmative vote of at least 66 2/3% of all Existing Shares outstanding
on the record date is required to approve the amendment of the Company's
Articles of Association to effect the Reverse Stock Split. To the extent known
to the Company after reasonable inquiry, the officers, directors and affiliates
of the Company (including all members of the Ho Family) intend to vote in favor
of the amendment of the Company's Articles of Association. Such shareholders
beneficially own approximately 49.22% of the outstanding Existing Shares.
Approval of the amendment of the Company's Articles of Association has not been
structured so that approval by at least of a majority of unaffiliated
shareholders is required.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously concluded that the Reverse Stock
Split is fair to, and in the best interests of, the shareholders of the Company.
See "Special Factors -- Fairness of the Reverse Stock Split" for a description
of the factors considered by the Board of Directors in reaching this conclusion.
The Board of Directors recommends that you vote "FOR" the proposal to amend the
Company's Articles of Association, effecting the Reverse Stock Split.
MARKET AND DIVIDEND INFORMATION
MARKET INFORMATION
The Company's Existing Shares consist of common stock without par value.
COMPLETION OF THE REVERSE STOCK SPLIT IS EXPECTED TO RESULT IN THE
DEREGISTRATION OF THE NEW COMMON STOCK UNDER THE 1934 ACT.
The Company's Existing Shares are not actively traded and are not listed on
any exchange. However, based upon quotations obtained from Abel-Behnke
Corporation, the high and low bids for the Company's common stock during the
fiscal year ending July 31, 1999 ranged between $.1875 and $.50, and during the
fiscal year ending July 31, 1998, from $.50 to $.50. The Company's book value
per share at July 31, 1999 and July 31, 1998 was $(2.43) and $(1.38),
respectively. Neither the book value nor its trading price may be indicative of
the value of the Company's common stock. During the first quarter of the 2000
fiscal year, the bid price of the Company's common stock ranged from $.1875 and
$.25.
NUMBER OF EQUITY HOLDERS
As of October 31, 1999, there were approximately 566 common shareholders of
record, not including shares held in "street name". The Company serves as its
own transfer agent.
DIVIDENDS
The Company has never paid dividends.
18
<PAGE> 25
FINANCIAL INFORMATION/RATIO OF EARNINGS TO FIXED CHARGES
CAPITAL INVESTMENT OF HAWAII, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
FIXED CHARGES:
Total interest charges..................................... $ 536,522 $ 907,203
Interest component of rentals.............................. 37,262 52,953
----------- ---------
TOTAL FIXED CHARGES.............................. $ 573,784 $ 960,156
=========== =========
EARNINGS:
Pretax income (loss) from continuing operations............ $(1,325,158) $(907,203)
Fixed charges, as shown.................................... 573,784 960,156
----------- ---------
EARNINGS (LOSS) AVAILABLE FOR FIXED CHARGES................ $ (751,374) $ 52,953
=========== =========
RATIOS OF EARNINGS TO FIXED CHARGES........................ $ (1.31) 0.06
=========== =========
</TABLE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The stockholders known to be the beneficial owners of more than 5% of the
outstanding voting stock (common stock, no par value) of Capital Investment of
Hawaii, Inc., are as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Stuart T. K. Ho, Dean T.W. Ho and Karen Ho Hong,
Trustees of the Chinn Ho Trust............................ 168,650 16.3%
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Stuart T. K. Ho............................................. 252,536(1) 24.5%
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Dean T. W. Ho............................................... 225,850(2) 21.9%
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Karen Ho Hong............................................... 212,425(3) 20.6%
4976 Poola Street
Honolulu, Hawaii 96821
Robin Ho Lee................................................ 77,250 7.5%
977 Longridge Road
Oakland, California 94610
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
(1) Includes: (a) sole voting and investment power, 22,813 shares.
(b) shared voting and investment power for 168,650 shares owned
by the Chinn Ho Trust, of which Stuart Ho is one of three
trustees, and 29,500 shares owned by the Chinn Ho
Foundation, of which Stuart Ho is one of four trustees.
(c) 10,850 shares owned by Mary L. Ho, spouse, who has sole
voting and investment power.
(d) 20,723 shares held in IRA account.
(2) Includes: (a) sole voting and investment power, 27,700 shares.
(b) shared voting and investment power for 168,650 shares owned
by the Chinn Ho Trust, of which Dean Ho is one of three
trustees, and 29,500 shares owned by the Chinn Ho
Foundation, of which Dean Ho is one of four trustees.
</TABLE>
19
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
(3) Includes: (a) sole voting and investment power, 38,775 shares.
(b) shared voting and investment power for 168,650 shares owned
by the Chinn Ho Trust, of which Karen Ho Hong is one of
three trustees.
(c) shared voting and investment power for 5,000 shares owned by
Karen Ho Hong and Stanley Hong, as Trustees for David Hong.
</TABLE>
ELECTION OF DIRECTORS
At the Annual Meeting, five directors of the Company (the entire Board of
Directors) are to be elected to serve until the next Annual Meeting of
Stockholders or until their respective successors shall be duly elected and
qualified. Each of the nominees for director, identified below, is currently a
director of the Company. If any of the nominees should be unavailable to serve,
other persons shall be designated by the present Board of Directors to serve. In
the election of directors, each stockholder shall have the right to vote the
number of shares owned by him or her for as many as persons as there are
directors to be elected. The five nominees receiving the highest number of votes
at the Annual Meeting will be elected.
Certain information with respect to each nominee is set forth below:
STUART T. K. HO, 64, has been a director of the Company since 1971,
Chairman of the Board since 1982, President from 1975 to 1982, Vice President
and Secretary from 1966 to 1975. He is also director of Pacific Century
Financial Corporation, College Retirement Equities Fund, Gannett Co., Inc. and
Aloha Airgroup, Inc.
DEAN T. W. HO, 61, has been a director since 1981, Vice Chairman since 1988
and Secretary since 1991, President from 1982 to 1987, Executive Vice President
from 1975 to 1982, and Vice President from 1965 to 1975.
DONALD M. WONG, 81, has been a director since 1974, Senior Vice President
since 1990, Financial Vice President from 1965 to 1990 and Treasurer since 1965.
PEDRO ADA, 69, has been a director since 1971. Mr. Ada is President of
Ada's Incorporated, a real estate, insurance agency and investment company in
Guam and a director of Bank of Guam.
C. B. SUNG, 74, has been a director since 1985. Mr. Sung is Chairman of
Unison International and President and Chief Executive Officer of Unison Pacific
Corp., a private investment company.
20
<PAGE> 27
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of common stock of the
Company reported to the Company as of July 31, 1999, to be beneficially owned by
each nominee for director, each continuing director, the chief executive
officer, and other executive officers, and all of such persons as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
PERCENTAGE OF
NO. OF SHARES CLASS
------------- -------------
<S> <C> <C>
Stuart T. K. Ho............................................. 252,536(1) 24.5%
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Dean T. W. Ho............................................... 225,850(1) 21.9%
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Donald M. Wong.............................................. 39,750 3.8%
4440 Malia Street
Honolulu, Hawaii 96821
Pedro Ada................................................... 5,444 .5%
P. O. Box AP
Agana, Guam 96932
C. B. Sung.................................................. 5,000 .5%
651 Gateway Boulevard, Suite 880
South San Francisco, California 94080
All Directors and Officers of the Company (9 Persons)....... 336,132 32.5%
</TABLE>
- ---------------
(1) Includes (a) 168,650 shares owned by the Chinn Ho Trust as to which two
executive officers of the Registrant are Trustees. The trust agreement is
effective until two years after the death of Mrs. Chinn Ho or at such time
as the personal representative of Mrs. Ho's estate is discharged and
appropriately released, whichever occurs later, not to exceed 21 years after
the death of the last survivor of Chinn Ho, Mrs. Ho and the children of
Chinn Ho; and (b) 29,500 shares owned by the Chinn Ho Foundation qualified
under Section 501(c)(3) of the Internal Revenue Service Code, as to which
four executive officers of the Registrant are Trustees.
(2) Includes (a) Shared voting and investment power for 10,250 owned by Donald
M. Wong and Eugenia C. Wong; and (b) 29,500 shares owned by the Chinn Ho
Foundation, of which Donald Wong is one of four trustees.
COMPENSATION OF DIRECTORS
The Company's directors are paid a fee of $400 for each director's meeting
attended for the fiscal year ended July 31, 1999. Directors who are not
employees of the Company also receive $500 quarterly and are reimbursed expenses
incurred in attending meetings of the board.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
There are no standing audit, nominating, compensation or other similar
committees of the Company's Board of Directors.
The Company's Board of Directors held four meetings during the fiscal year
ended July 31, 1999, which were attended by all of the directors.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
With respect to the election of directors, each shareholder will have one
vote for each Existing Share held, except that cumulative voting may be required
in the election of directors. Hawaii law requires use of cumulative voting in
the election of directors if, not less than 48 hours prior to the time fixed for
the Annual Meeting, any shareholder delivers a request therefor to an office of
the Company. Under cumulative voting,
21
<PAGE> 28
each shareholder present in person or by proxy may cast a number of votes equal
to the number of his or her shares multiplied by the number of directors to be
elected. The shareholder may cast all of such votes for a single director or may
distribute them among the number to be voted for, or any two or more as the
shareholder see fit. The nominees receiving the highest number of votes on the
foregoing basis, up to the total number to be elected, will be the successful
nominees. If cumulative voting is requested, the holders of management proxies
will vote the proxies received by them cumulatively in such manner as is
determined by them at that time.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR
ELECTION AS DIRECTORS.
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following information regarding executive compensation is provided
consistent with the SEC's disclosure requirements. These requirements are
intended to provide shareholders with a clear and concise view of the
compensation paid to executive officers and directors, and an understanding of
the directors' reasoning in making compensation decisions.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------- ----------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER RESTRICTED SECURITY
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
- --------------------------- ---- ------- ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STUART T. K. HO............ 1999 121,016 -- -- -- -- -- --
Chairman of the 1998 127,008 -- -- -- -- -- --
Board and President 1997 127,424 -- -- -- -- -- --
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The Company has no executive officers who are not also directors and
nominees for directors.
TRANSACTIONS IN COMMON STOCK
PUBLIC OFFERINGS IN PAST THREE YEARS
The Company has not made an underwritten public offering of its common
stock during the past three years that was registered under the Securities Act
of 1933, or exempt from such registration under Regulation A promulgated under
such Act.
PURCHASES BY COMPANY, OFFICERS, DIRECTORS OR AFFILIATES IN PAST SIXTY DAYS
No Company executive officer, director or affiliate has purchased Company
Common Stock in the past two years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into loan participation agreements during 1999 and
1998, which provided that the Company sell, without recourse, to participants,
an undivided participating interest in the loans to Touchstone Development of
Utah, LLC, Hearthstone Homes, Inc., Martin Development, Inc., and Hearthstone
Homebuilders, Inc. There were no outstanding amounts due to participants on the
loan agreements with Touchstone Development of Utah, LLC and Hearthstone Homes,
Inc., at July 31, 1999. Included in the total
22
<PAGE> 29
participants' share of the loan commitment to Martin Development, Inc.,
amounting to $351,824 at July 31, 1999, was $58,608 from a director of the
Company and $234,608 from an officer of the Company. Included in the total
participants' share of loan commitment to Hearthstone Homebuilders, Inc.,
amounting to $449,049 at July 31, 1999, was $149,684 from a director of the
Company. Included in the total participants' share of the loan commitment to
Touchstone Development of Utah, LLC, amounting to $391,538 at July 31, 1998, was
$78,307 borrowed from a director of the Company and $39,154 borrowed from an
officer of the Company. The participants' share of the loan commitment to
Hearthstone Homes, Inc., amounting to $119,804 at July 31, 1998 was from an
officer of a subsidiary of the Company.
COMPLIANCE WITH SECTION 16(a) REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, ("Section
16(a)") requires that all executive officers and directors of the Company and
all persons who beneficially own more than 10% of the Company's common stock
file reports with the Securities and Exchange Commission with respect to
beneficial ownership of the Company's securities. The Company has adopted
procedures to assist its directors and executive officers in complying with the
Section 16(a) filings.
Based solely upon the Company's review of the copies of the filings which
it received with respect to the fiscal year ended July 31, 1999, or written
representations from certain reporting persons, the Company believes that all
reporting persons made all filings required by Section 16(a) on a timely basis.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The firm of KPMG LLP performed the audit of the consolidated financial
statements for the Company for the year ended July 31, 1999. The Board of
Directors has recommended that the shareholders qualify the appointment of KPMG
LLP as independent auditors of the Company for the current year. Representatives
of KPMG LLP will be present at the Annual Meeting. They will be given the
opportunity to present a statement, if they so desire, and will be available to
respond to appropriate questions.
There were no changes in accountants nor disagreements on accounting or
financial disclosure matters for the years ended July 31, 1999 and 1998.
SHAREHOLDER PROPOSALS
The 2001 Annual Meeting of Shareholders will be held on or about January
15, 2001. Therefore, in the event the Company solicits proxies and remains
subject to the SEC's proxy rules, proposals of shareholders intended to be
presented at the 2001 Annual Meeting must be received by the Secretary of the
Board of Directors before August 1, 2000 for inclusion in the 2001 Proxy
Statement and form of Proxy. All notices of proposals should be directed to the
Secretary of the Board of Directors, Capital Investment of Hawaii, Inc., Suite
1700, Makai Tower, 733 Bishop Street, Honolulu, Hawaii 96813.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that the Company files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The Company's SEC filings are also
available to the public on the SEC Internet site (http://www.sec.gov).
The Company has filed a Schedule 13E-3 with the SEC in connection with the
proposed going-private transaction. This Proxy Statement does not contain all of
the information set forth in the Schedule 13E-3. The Schedule 13E-3, including
exhibits, and other filings made with the SEC as described above, may be
inspected or obtained by contacting the SEC as described above.
23
<PAGE> 30
INFORMATION INCORPORATED BY REFERENCE
The consolidated financial statements of the Company and the report of its
independent accountants thereon, together with supplementary financial data,
management's discussion and analysis and analysis of financial condition and
results of operations, and quantitative and qualitative disclosures about market
risk, are included in the Company's Annual Report to Shareholders for the fiscal
year ended July 31, 1999 and are incorporated by reference in this Proxy
Statement. A copy of such Annual Report to Shareholders is enclosed.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS REQUIRED TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE MADE AVAILABLE WITHOUT
CHARGE TO EACH SHAREHOLDER UPON REQUEST TO:
Donald M. Wong, Vice President
Capital Investment of Hawaii, Inc.
Suite 1700, Makai Tower
733 Bishop Street
Honolulu, Hawaii 96813
Phone: (808) 537-3981
OTHER BUSINESS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if other matters should properly come before the
meeting, it is the intention of the persons named in the Proxy to vote the Proxy
in accordance with the recommendations of management on such matters.
By Order of the Board of Directors
Dean T. W. Ho
Secretary
Honolulu, Hawaii
January 4, 2000
<TABLE>
<S> <C>
Appendix A -- Capital Investment of Hawaii, Inc.; Calculation of Net
After-Tax Asset Value in Liquidation; Pro Forma Balance
Sheet as of December 1, 1999
Appendix B -- Hawaii Dissenters' Rights Statute
Appendix C -- Proposed Amendment to Company's Articles of Association
</TABLE>
24
<PAGE> 31
APPENDIX A
CAPITAL INVESTMENT OF HAWAII, INC; CALCULATION OF NET
AFTER-TAX ASSET VALUE IN LIQUIDATION; PRO FORMA
BALANCE SHEET AS OF DECEMBER 1, 1999
<TABLE>
<CAPTION>
ASSETS AT
CURRENT
VALUE NOTE
---------- ----
<S> <C> <C> <C>
ASSETS
Cash........................................................ $ 597,000 (1)
Accounts and notes receivable GO Pacific (sale of Bakery
Europa)................................................ $ 66,000
Other receivables...................................... 67,000
133,000
Net realizable value of developed real estate 3
apartments, Ilikai Apartment Bldg...................... $ 825,000
2 apartments, Ilikai Marina Apt. Bldg.................. 390,000
5 apartments, Makaha Valley Towers..................... 410,000
Land and warehouses, Puuhale Rd.,...................... 808,000
----------
$2,433,000
Less 10% sales expense............................... 243,000
----------
2,190,000 (2)
Undeveloped land 8 lots, Ivins, UT, net of deed of
trust.................................................. 92,000
Parcels at Waianae and Makaha, HI...................... 400,000
----------
492,000 (3)
Investments
AEA: Dal-Tile International............................ 755,000 (4)
AEA: Other investments................................. 27,000
Investment in general insurance agency................. 336,000 (5)
Loans to Nevada home builders.......................... 487,000 (6)
Office premises........................................... 32,000
Deferred charges.......................................... 11,000
----------
Total Assets...................................... $5,060,000
Liabilities
Debentures and term notes................................. $2,428,000
Secured note to a bank.................................... 627,000
Other secured notes....................................... 1,715,000
Accounts payable.......................................... 161,000
----------
Total Liabilities................................. $4,931,000
Stockholders' Equity/Net Asset Value........................ $ 129,000
For 1,032,692 shares issued and outstanding, per share.... $ 0.03
INDICATED VALUE PER SHARE BY LIQUIDATION
(NET CURRENT ASSET) APPROACH (MODIFIED)................... $ 0.03
</TABLE>
A-1
<PAGE> 32
NOTES TO APPENDIX A
All values set forth on Appendix A are after-tax estimated values. The
Company has sufficient net operating loss carry-forward to apply to all gains
from sales assumed by Appendix A.
1. Cash balance after the closing of the sale by the Company on November
30, 1999, of the Company's apartment management business located at the Ilikai
Apartment Building, Waikiki, Honolulu, Hawaii.
2. The calculation of the value of developed real estate is as follows:
<TABLE>
<CAPTION>
MARKET
VALUE
----------
<S> <C>
Property: Ilikai and Ilikai Marina, Waikiki
Ilikai Unit 309 (2-BR, city view)........................... $ 275,000
Ilikai Unit 409 (2-BR, city view)......................... 275,000
Ilikai Unit 325 (2-BR, city view)......................... 275,000
Ilikai Marina Unit 480 (1-BR, ocean view)................. 230,000
Ilikai Marina Unit 1599 (1-BR, city view)................. 160,000
----------
Subtotal............................................... $1,215,000
</TABLE>
The five apartments described above, all located on Ala Moana Blvd. in
Waikiki, were appraised in August 1995 at $1,940,000 by Hastings Conboy Braig &
Associates, Ltd., real estate appraisers.
Currently, other Ilikai units with the same floor plans and views (Units
525, 509 and 1509) are currently respectively offered at $330,000, $338,000 and
$349,000. Ilikai unit 726, same floor plan but facing the Hilton Hawaiian
Village Hotel and its lagoon, sold in August 1999 for $338,000.
At the Ilikai Marina, four units with floor plans and views identical with
Unit 480 are currently listed at between $220,000 and $325,000. Sales at the
Ilikai Marina have been slow, but recently increased, mirroring the
widely-reported improvement in condominium unit sales on Oahu. Recent sales have
been of units with different (smaller) floor plans.
<TABLE>
<CAPTION>
MARKET
VALUE
--------
<S> <C>
Property: Makaha Valley Towers, Makaha
Unit 202, 2-BR.............................................. $125,000
Unit 203, 2-BR............................................ 125,000
Unit 325, 1-BR............................................ 60,000
Unit 719, 1-BR............................................ 60,000
Unit 717, Studio.......................................... 40,000
--------
Subtotal............................................... $410,000
</TABLE>
The five apartments described above, all located within the Makaha Valley
Towers, a 586-unit condominium project at Makaha, Oahu, Hawaii, were appraised
in August 1995 at $776,000, by Hastings Conboy Braig & Associates, real estate
appraisers.
Sales at this project have been slow. Asking prices for 2-bedroom units
range between $128,900 and $140,000, at the $65,000 level for 1-bedroom units
and at $45,000 for studios. The Company declined an offer to buy Unit 719 for
$58,000.
Land and warehouses at 251 Puuhale Road (TMK 1-2-08:94 & 95) are comprised
of 9,737 square feet of land and 8,889 square feet of floor area within two
buildings. The buildings were built in 1986. Annual rent from two tenants, net
of taxes, is $64,680 suggesting a value, capitalized at 8%, of $808,500. The
Company purchased this property in 1992 for $1,376,000.
3. Undeveloped land at Ivins, UT, is comprised of 8 lots in the "Red Rock
Canyon" tract with a net value of $17,000 per lot, or an aggregate value of
$136,000. These lots were conveyed to the Company by a deed in lieu of
foreclosure, subject to a prior deed of trust in favor of U.S. Bank in the
amount of $44,000.
A-2
<PAGE> 33
Hence, the net value to the Company is $92,000. Undeveloped land at Waianae and
Makaha, Hawaii, includes streets, segments of abandoned railroad right of way,
abandoned pump sites and a few unsold remnants from the piecemeal sale of Makaha
and Waianae Valley. Parcel TMK 8-4-2-59, or Lot 1249-A (shown on Map 218, filed
with Land Court Application 1052), area 2.823 acres, abuts Farrington Highway
and a public park where both government-owned parcels join the Makaha surfing
beach. Lot 1249-A also abuts the entire length of a 2 acre parcel owned by AT&T
which serves as the site for a strategically important telecommunications
junction facility. The facility is the juncture for a number of undersea
telecommunications cables inter-connecting North America with Hawaii, Guam and
Asia and as such it is therefore a key installation in AT&T's worldwide network.
AT&T owns an easement to lay and maintain the cables over and beneath Lot
1249-A, and is currently enlarging the facility to accommodate more cables. Lot
1249-A was appraised by Hastings Conboy Braig & Associates in July 1995 to have
a value of $430,000, with this comment: "If there were an active market
environment, this property could sell at a price of $3.50 per square foot, or a
total of $430,000." The "market environment" has not improved since July 1995,
but the growing importance of the abutting lot owned by AT&T and the interest of
the City & County of Honolulu and State of Hawaii in realigning Farrington
Highway to control the erosion of Makaha Beach, an important and
politically-sensitive public asset, indicates that Lot 1249-A has a current
value of $3.25 per square foot, or a total value of $399,652.
No value is assigned to the following real property at Makaha, Hawaii:
The Company's reversionary interest in Lot 1585, area 368,285 square feet
(8.45 acres), as shown on Map 187, filed with Land Court Application 1052
(amended) of Waianae Company. This reservoir lot is owned by the Board of
Water Supply and is entirely within the Maunaolu residential subdivision.
Title to the lot reverts to the Company in the event the Board ceases to
use the property for water reservoir purposes. The Board collects
non-potable surface water in this reservoir and uses it solely for the
purpose of irrigating two golf courses in Makaha Valley. The lot is zoned
for "Country" residential use.
4. The Company owns shares in a limited liability company called DTI
Investors LLC organized by AEA to hold approximately 55 percent of the
outstanding common stock of Dal-Tile International, Inc. Dal-Tile is publicly
traded and is the largest manufacturer and marketer of ceramic tile in the U.S.
According to Dal-Tile's annual report issued in March 1999, the company "has
roughly three times the sales of its nearest rival." The Company's shares of DTI
stock entitle the Company to own 79,498 shares of Dal-Tile which, at a recent
price of 9 1/2, has a market value of approximately $755,000. However, the
Company is a party to an agreement among other AEA investors and AEA agreeing to
"lock-up" the stock until December 31, 2001, unless the "lock-up" is sooner
terminated. AEA has long been in the business of acquiring private companies,
improving their financial performance, and then selling their shares to the
public through initial public offerings. Dal-Tile's stock is listed on the New
York Stock Exchange (ticker symbol: DTL) and went-public in late 1996 at $14 per
share. The stock's price rose in trading to as high as $20 per share. However,
Dal-Tile's inability to successfully integrate a large, new acquisition caused
its financial performance and stock price to sharply decline. As a result, a new
chief executive officer was appointed to head Dal-Tile in July 1997. This is an
abstract of the Dal-Tile's financial performance since Dal-Tile's new CEO,
Jacques Sardas, was appointed:
<TABLE>
<CAPTION>
ADJUSTED
EARNINGS EARNINGS NET SALES
PERIOD PER SHARE PER SHARE ($ MILLION)
------ --------- --------- -----------
<S> <C> <C> <C>
3Q, FYE Jan. 1, 2000........................................ 0.43 0.28 $219
3Q, FYE Jan. 1, 1999........................................ 0.18 0.13 $194
3Q, FYE Jan. 2, 1998........................................ -1.51 $178
</TABLE>
Since current earnings of Dal-Tile are beneficially affected by net loss
carry forward, earnings are adjusted to show the pro forma effect of net income
taxes at an effective rate of 38.5%. At a price of 9 1/2, Dal-Tile has a value
equal to a multiple of 8 times the last four quarters of earnings and 8 times
the annualized third quarter adjusted earnings per share.
A-3
<PAGE> 34
5. The value of the 1,668 shares, or 9.77 percent of the 17,056 shares of
common stock of the general insurance agency outstanding, was calculated by
multiplying the revenues of the agency for the fiscal year ended May 31, 1999,
by a (industry standard) multiple of 1.3 times revenues. Revenues of this
privately-owned company for the fiscal year ended May 31, 1999 were $2,641,910,
compared with $2,894,368 for the same year-earlier period. Revenues for the
first quarter of the fiscal year to end May 31, 2000 were $949,506, compared
with revenues of $825,330 for the same year-earlier quarter. Applying the 1.3
multiple to $2,641,910 suggests a value of $3,434,000 for the insurance agency,
and therefore, indicates a value of $336,000 for the Company's stock. An officer
of the Company is a director of the insurance agency.
6. The Company owns, as of October 31, 1999, the following interests in
loans made to home builders in Nevada and Utah, all of which are performing
loans in good standing:
<TABLE>
<CAPTION>
PRINCIPAL
BUILDER PROJECT BALANCE
------- ------- ---------
<S> <C> <C>
Hearthstone Homebuilders............................ Craig Estates II, Las Vegas, NV $ 76,538
Hearthstone Construction............................ Sweet Dreams, Las Vegas, NV 39,830
Martin Development Co............................... Copper Bluffs, Mesquite, NV 371,128
--------
$487,496
</TABLE>
A-4
<PAGE> 35
APPENDIX B
HAWAII BUSINESS CORPORATION ACT
HAWAII REVISED STATUTES CH. 415
SECTION 415-80. Right of Shareholders to Dissent.
(a) Any shareholder of a corporation shall have the right to dissent from,
and to obtain payment for the shareholder's shares in the event of, any of the
following corporate actions:
(1) Any plan of merger or consolidation to which the corporation is a
party, except as provided in subsection (c);
(2) Any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of
its business, including a sale in dissolution, but not including a sale
pursuant to an order of a court having jurisdiction in the premises or a
sale for cash on terms requiring that all or substantially all of the net
proceeds of sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of sale;
(3) Any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) Any amendment of the Articles of Association which materially and
adversely affects the rights appurtenant to the shares of the dissenting
shareholder in that it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities; or
(D) Excludes or limits the right of the holder of the shares to
vote on any matter, or to cumulate the holder's votes, except as the
right may be limited by dilution through the issuance of shares or other
securities with similar voting rights; or
(5) Any other corporate action taken pursuant to a shareholder vote
with respect to which the Articles of Association, the bylaws, or a
resolution of the board of directors directs that dissenting shareholders
shall have a right to obtain payment for their shares.
(b)(1) A record holder of shares may assert dissenters' rights as to less
than all of the shares registered in the record holder's name only if the record
holder dissents with respect to all the shares beneficially owned by any one
person, and discloses the name and address of the person or persons on whose
behalf the record holder dissents. In that event, the record holder's rights
shall be determined as if the shares as to which the record holder has dissented
and the record holder's other shares were registered in the names of different
shareholders.
(2) A beneficial owner of shares who is not the record holder may assert
dissenters' rights with respect to shares held on the beneficial owner's behalf,
and shall be treated as a dissenting shareholder under the terms of this section
and section 415-31 if the beneficial owner submits to the corporation at the
time of or before the assertion of these rights a written consent of the record
holder.
(c) The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of the corporation is not necessary to authorize the merger.
(d) A shareholder of a corporation who has a right under this section to
obtain payment for the shareholder's shares shall have no right at law or in
equity to attack the validity of the corporate action that gives rise to the
shareholder's right to obtain payment, nor to have the action set aside or
rescinded, except
B-1
<PAGE> 36
when the corporate action is unlawful or fraudulent with regard to the
complaining shareholder or to the corporation.
SECTION 415-81. Rights of Dissenting Shareholders.
(a) As used in this section:
"Dissenter" means a shareholder or beneficial owner who is entitled to
and does assert dissenters' rights under section 415-80, and who has
performed every act required up to the time involved for the assertion of
such rights.
"Corporation" means the issuer of the shares held by the dissenter
before the corporate action, or the successor by merger or consolidation of
that issuer.
"Fair value" of shares means their value immediately before the
effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless the exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at such rate as is
fair and equitable under all of the circumstances.
(b) If a proposed corporate action which would give rise to dissenters'
rights under section 415-80(a) is submitted to a vote at a meeting of
shareholders, the notice of meeting shall notify all shareholders that they have
or may have a right to dissent and obtain payment for their shares by complying
with the terms of this section, and shall be accompanied by a copy of sections
415-80 and 415-81 of this chapter.
(c) If the proposed corporate action is submitted to a vote at a meeting of
shareholders, any shareholder who wishes to dissent and obtain payment for the
shareholder's shares must file with the corporation, prior to the vote, a
written notice of intention to demand that the shareholder be paid fair
compensation for the shareholder's shares if the proposed action is effectuated
and shall refrain from voting the shareholder's shares in approval of the
action. A shareholder who fails in either respect shall acquire no right to
payment for the shareholder's shares under this section or section 415-80.
(d) If the proposed corporate action is approved by the required vote at a
meeting of shareholders, the corporation shall mail a further notice to all
shareholders who gave due notice of intention to demand payment and who
refrained from voting in favor of the proposed action. If the proposed corporate
action is to be taken without a vote of shareholders, the corporation shall send
to all shareholders who are entitled to dissent and demand payment for their
shares a notice of the adoption of the plan of corporate action. The notice
shall: (1) state where and when a demand for payment must be sent and
certificates of certificated shares must be deposited in order to obtain
payment; (2) inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received; (3)
supply a form for demanding payment which includes a request for certification
of the date on which the shareholder, or the person on whose behalf the
shareholder dissents, acquired beneficial ownership of the shares; and (4) be
accompanied by a copy of sections 415-80 and 415-81 of this chapter. The time
set for the demand and deposit shall not be less than thirty days from the
mailing of the notice.
(e) A shareholder who fails to demand payment, or fails (in the case of
certified shares) to deposit certificates, as required by a notice pursuant to
subsection (d) shall have no right under this section or section 415-80 to
receive payment for the shareholder's shares. If the shares are not represented
by certificates, the corporation may restrict their transfer from the time of
receipt of demand for payment until effectuation of the proposed corporate
action, or the release of restrictions under the terms of subsection (f). The
dissenter shall retain all other rights of a shareholder until these rights are
modified by effectuation of the proposed corporate action.
(f)(1) Within sixty days after the date set for demanding payment and
depositing certificates, if the corporation has not effectuated the proposed
corporate action and remitted payment for shares pursuant to
B-2
<PAGE> 37
paragraph (3), it shall return any certificates that have been deposited, and
release uncertificated shares from any transfer restrictions imposed by reason
of the demand for payment.
(2) When uncertificated shares have been released from transfer
restrictions, and deposited certificates have been returned, the corporation may
at any later time send a new notice conforming to the requirements of subsection
(d), with like effect.
(3) Immediately upon effectuation of the proposed corporate action, or upon
receipt of demand for payment if the corporate action has already been
effectuated, the corporation shall remit to dissenters who have made demand and
(if their shares are certificated) have deposited their certificates the amount
which the corporation estimates to be the fair value of the shares, with
interest if any has accrued. The remittance shall be accompanied by:
(A) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than sixteen months before the date of
remittance, together with the latest available interim financial
statements;
(B) A statement of the corporation's estimate of fair value of the
shares; and
(C) A notice of the dissenter's right to demand supplemental payment,
accompanied by a copy of sections 415-80 and 415-81 of this chapter.
(g)(1) If the corporation fails to remit as required by subsection (f), or
if the dissenter believes that the amount remitted is less than the fair value
of the dissenter's shares, or that the interest is not correctly determined, the
dissenter may send the corporation the dissenter's own estimate of the value of
the shares or of the interest, and demand payment of the deficiency.
(2) If the dissenter does not file such an estimate within thirty days
after the corporation's mailing of its remittance, the dissenter shall be
entitled to no more than the amount remitted.
(h)(1) Not more than sixty days after receiving a demand for payment
pursuant to subsection (g), if any such demands for payment remain unsettled,
the corporation shall file in an appropriate court a petition requesting that
the fair value of the shares and interest thereon be determined by the court.
(2) An appropriate court shall be a court of competent jurisdiction in the
county of this State where the principal office of the corporation is located.
If, in the case of a merger or consolidation or share exchange, the corporation
is a foreign corporation without a registered office in this State, the petition
shall be filed in the county where the principal office of the domestic
corporation was last located.
(3) All dissenters, wherever residing, whose demands have not been settled
shall be made parties to the proceeding as in an action against their shares. A
copy of the petition shall be served on each dissenter; if a dissenter is a
nonresident, the copy may be served on the dissenter by registered or certified
mail or by publication as provided by law.
(4) The jurisdiction of the court shall be plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers shall have such power
and authority as shall be specified in the order of their appointment or in any
amendment thereof. The dissenters shall be entitled to discovery in the same
manner as parties in other civil suits.
(5) All dissenters who are made parties shall be entitled to judgment for
the amount by which the fair value of their shares is found to exceed the amount
previously remitted, with interest.
(6) If the corporation fails to file a petition as provided in paragraph
(1) of this subsection, each dissenter who made a demand and who has not already
settled the dissenter's claim against the corporation shall be paid by the
corporation the amount demanded by the dissenter, with interest, and may sue
therefor in an appropriate court.
(i)(1) The costs and expenses of any proceeding under subsection (h),
including the reasonable compensation and expenses of appraisers appointed by
the court, shall be determined by the court and
B-3
<PAGE> 38
assessed against the corporation, except that any part of the costs and expenses
may be apportioned and assessed as the court may deem equitable against all or
some of the dissenters who are parties and whose action in demanding
supplemental payment the court finds to be arbitrary, vexatious, or not in good
faith.
(2) Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court may deem equitable against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this section, and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section and section 415-80.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and should not be
assessed against the corporation, it may award to these counsel reasonable fees
to be paid out of the amounts awarded to the dissenters who were benefited.
(j)(1) Notwithstanding the foregoing provisions of this section, the
corporation may elect to withhold the remittance required by subsection (f) from
any dissenter with respect to shares of which the dissenter (or the person on
whose behalf the dissenter acts) was not the beneficial owner on the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action. With respect to such shares, the corporation shall, upon
effectuating the corporate action, state to each dissenter its estimate of the
fair value of the shares, state the rate of interest to be used (explaining the
basis thereof), and offer to pay the resulting amounts on receiving the
dissenter's agreement to accept them in full satisfaction.
(2) If the dissenter believes that the amount offered is less than the fair
value of the shares and interest determined according to this section, the
dissenter may within thirty days after the date of mailing of the corporation's
offer, mail to the corporation the dissenter's own estimate of fair value and
interest, and demand their payment. If the dissenter fails to do so, the
dissenter shall be entitled to no more than the corporation's offer.
(3) If the dissenter makes a demand as provided in paragraph (2), the
provisions of subsections (h) and (i) shall apply to further proceedings on the
dissenter's demand.
B-4
<PAGE> 39
APPENDIX C
PROPOSED AMENDMENT
TO
CAPITAL INVESTMENT OF HAWAII, INC.
ARTICLES OF ASSOCIATION
ARTICLE V of the Articles of Association is amended by deleting Section (1)
thereto and substituting the following provision in lieu thereof:
(1)(a) The authorized capital stock of the corporation shall consist of
10,000 shares of common stock, without part value.
(b) No fractional shares of common stock of the corporation shall be
issued.
(c) No shareholder of the corporation shall transfer any fractional shares
of common stock of the corporation, and the corporation shall not recognize on
its stock record books any purported transfer of any fractional share of common
stock of the corporation.
(d) Upon the filing of this amendment with the director of the Department
of Commerce and Consumer Affairs of the State of Hawaii, each share of common
stock, without par value, of the corporation issued and outstanding or held by
the corporation as treasury shares at such time shall, by virtue of this
amendment to the corporation's articles of association, be changed into one
three-hundredth 1/300 of one share of fully paid and nonassessable common stock
of the corporation.
(e) In lieu of the issuance of any fractional shares that would otherwise
result from the reverse stock split effected by paragraph (d) of this Section
(1), the corporation shall pay to any shareholder that would otherwise received
fractional shares, other than the corporation with respect to treasury shares,
an amount in cash equal to $0.25 (25 cents) for each one three-hundredth 1/300
of a share of common stock constituting such fractional shares.
(f) Following the effectiveness of this amendment, certificates for the
shares of common stock to be outstanding after the reverse stock split and cash
payments pursuant to paragraph (e) hereof shall be issued and made, as the case
may be, pursuant to procedures adopted by the corporation's board of directors
and communicated to those who are to receive new certificates or cash.
(g) Following issuance of certificates and payment of cash pursuant to
paragraph (f) hereof, the board of directors of the corporation may amend or
restate the corporation's articles of association to eliminated paragraphs (d),
(e), and (g) hereof without approval of the shareholders of the corporation.
ARTICLE V of the Articles of Association is further amended by deleting
Sections (2), (3) and (4) thereof in their entirety and by renumbering Sections
(5) and (6) thereof as Sections (2) and (3) respectively.
C-1
<PAGE> 40
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS OF
CAPITAL INVESTMENT OF HAWAII, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(PLEASE SIGN AND RETURN IMMEDIATELY)
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned Shareholder of
Capital Investment of Hawaii, Inc., Honolulu, Hawaii (the "Company") do hereby
nominate, constitute and appoint Stuart T. K. Ho and Donald M. Wong and each of
them (with full power to act alone) my true and lawful attorney with full power
of substitution, for me and in my name, place and stead to vote all the common
stock of the Company standing in my name and on its books on December 15, 1999,
at the Annual Meeting of Shareholders to be held in the Grosvenor Center
Conference Room (ground floor), 733 Bishop Street, Honolulu, Hawaii 96813, on
Monday, January 31, 2000 at 9:30 a.m., or at any adjournments thereof, with all
the powers the undersigned would possess if personally present, as follows:
1. AMENDMENT OF THE COMPANY'S ARTICLES OF ASSOCIATION. The amendment of the
Company's Articles of Association to reduce the number of the Company's
authorized shares from 3 million shares of common stock without par value, to
10,000 shares of common stock without par value, and the consolidation and
conversion of each 300 shares of issued and outstanding common stock into one
share of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF DIRECTORS. The election of the persons listed below to serve as
directors for the ensuing year.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as marked to the [ ] WITHHOLD AUTHORITY to vote for all nominees listed
contrary below) below
</TABLE>
Stuart T. K. Ho, Dean T. W. Ho, Donald M. Wong, Pedro Ada and C. B. Sung
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
<PAGE> 41
3. In their discretion, upon such other matters as may properly come before the
meeting.
THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" AND WILL BE VOTED "FOR" THE
PROPOSITIONS LISTED UNLESS AUTHORITY IS WITHHELD, IN WHICH CASE THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION SO MADE.
Management knows of no other matters that may properly be, or which are
likely to be brought before the meeting. However, if any other matters are
properly presented at said meeting, this proxy shall be voted in accordance with
the recommendations of management.
The Board of Directors recommends a vote "FOR" the listed propositions.
Dated:
(SIGNATURE OF SHAREHOLDER)
(SIGNATURE OF SHAREHOLDER)
When Signing as Attorney,
Executor, Administrator,
Trustee or Guardian,
Please Give Full Title. If
More Than One Trustee, All
Should Sign. ALL JOINT
OWNERS MUST SIGN.
