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:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Capital Associates, Inc.
--------------------------------------------
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
|x| $125 per Exchange Act Rules 0-11(c)(1)(ii) or 14a-6(i)(1), or 14a-6(i)(2)
| | $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6
(1)(3)
| | 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):_______________________________
(4) Proposed maximum aggregate value of transaction:___________________________
(5) Total fee paid:
|x| Fee paid previously with preliminary materials
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
CAPITAL ASSOCIATES, INC.
7175 WEST JEFFERSON AVENUE
LAKEWOOD, COLORADO 80235
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 24, 1997
To the Stockholders of
Capital Associates, Inc.:
The 1997 Annual Meeting of Stockholders (the "Annual Meeting") of
Capital Associates, Inc., a Delaware corporation (the "Company"), will be held
on Friday, October 24, 1997, starting at 8:30 a.m. (local time), in the
Wadsworth Room of the Holiday Inn, 7390 West Hampden Avenue, Lakewood, Colorado
80235, for the following purposes:
1. To elect six directors of the Company to serve until the next
annual meeting of stockholders or until their successors are duly elected and
qualified.
2. To ratify and approve the Rights Agreement of the Company.
3. To ratify the selection by the Board of Directors (the "Board")
of KPMG Peat Marwick LLP as independent auditors of the Company for the 1998
fiscal year.
4. To transact such other business as may properly come before the
Annual Meeting, or any adjournment(s) or postponement(s) thereof.
The Board has fixed the close of business on Friday, September 19,
1997, as the record date for determining the stockholders entitled to notice of,
and to vote at, the Annual Meeting. A complete list of stockholders entitled to
vote at the Annual Meeting will be available for examination during normal
business hours by any stockholder of the Company, for any purpose germane to the
Annual Meeting, for a period of ten (10) days prior to the Annual Meeting at the
Company's offices located at the address set forth above.
A copy of the Company's Annual Report for the fiscal year ended May
31, 1997, a Proxy Statement and a proxy card accompany this notice. These
materials are first being sent to stockholders on or about September 26, 1997.
Stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, please
complete and sign the enclosed proxy card and return it promptly. If you choose,
you may still vote in person at the Annual Meeting even though you previously
submitted a proxy card.
By Order of the Board of Directors,
PHILIP J. TEIGEN
Secretary
Lakewood, Colorado
September 26, 1997
<PAGE>
CAPITAL ASSOCIATES, INC.
7175 WEST JEFFERSON AVENUE
LAKEWOOD, COLORADO 80235
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, OCTOBER 24, 1997
This Proxy Statement and the accompanying proxy card are being
furnished to the stockholders of the Company, in connection with the
solicitation of proxies by and on behalf of the Board of Directors of the
Company (the "Board") for use at the Company's 1997 Annual Meeting of
Stockholders to be held on Friday, October 24, 1997, at 8:30 a.m. (local time),
in the Wadsworth Room of the Holiday Inn, 7390 Hampden Avenue, Lakewood,
Colorado, and at any adjournment(s) or postponement(s) thereof (the "Annual
Meeting"). This Proxy Statement, the accompanying proxy card and the Company's
Annual Report (the "Annual Report") for the fiscal year ended May 31, 1997
("Fiscal 1997"), are first being mailed to stockholders on or about September
26, 1997. The Annual Report is not to be considered a part of the Company's
proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, stockholders will be asked to (1) elect six
directors of the Company to serve until the next annual meeting of stockholders
or until their successors are duly elected and qualified; (2) ratify and approve
the Company's Rights Agreement (the "Rights Plan"); (3) ratify KPMG Peat Marwick
LLP as the Company's auditors for the year ending May 31, 1998 ("Fiscal 1998");
and (4) transact such other business as may properly come before the Annual
Meeting.
The Board recommends a vote "FOR" (1) the election of the six
nominees for directors of the Company listed below, (2) ratification and
approval of the Rights Plan and (3) ratification of KPMG Peat Marwick LLP as the
Company's auditors for Fiscal 1998.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum at
the Annual Meeting. Only stockholders of record at the close of business on
Friday, September 19, 1997 (the "Record Date"), will be entitled to notice of,
and to vote at, the Annual Meeting. As of the Record Date, there were 5,016,582
shares of Common Stock outstanding and entitled to vote. Holders of Common Stock
as of the Record Date are entitled to one vote for each share held.
1
<PAGE>
All shares of Common Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of (i.e., "FOR") (1) the election
of the six nominees for directors of the Company listed below, (2) ratification
and approval of the Rights Plan and (3) ratification of KPMG Peat Marwick LLP as
the Company's auditors for Fiscal 1998. The affirmative vote of the holders of a
majority of the shares of Common Stock present or represented at the Annual
Meeting and constituting a quorum is required for the election of directors,
approval of the Rights Plan and ratification of the Company's auditors. Broker
non-votes will not be counted as shares present for quorum purposes, for
purposes of the matters not voted on by the brokers and will not count for any
purpose in determining whether such a proposal has been approved. Abstentions
will be counted as shares present for quorum purposes, but otherwise will count
as a vote against the applicable proposal.
Any stockholder executing a proxy has the power to revoke such proxy
at any time prior to its exercise. A proxy may be revoked by (1) filing with the
Company a written revocation of the proxy, (2) appearing at the Annual Meeting,
revoking the proxy, if any, and casting a vote in person or (3) submitting a
duly executed proxy bearing a later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and regular
employees of the Company may solicit proxies by written communication,
telephone, telegraph or personal call. These persons are to receive no special
compensation for any solicitation activities. The Company will reimburse banks,
brokers and other persons holding Common Stock in their names, or those of their
nominees, for their expenses in forwarding proxy solicitation materials to
beneficial owners of Common Stock.
ELECTION OF DIRECTORS
NOMINEES
The Board currently consists of six members: William H. Buckland,
James D. Edwards, Gary M. Jacobs, Dennis J. Lacey, Robert A. Sharpe II and James
D. Walker. All of the directors were elected at the 1996 annual meeting of
stockholders of the Company (the "1996 Annual Meeting").
The Board proposes that the six individuals listed below as nominees
be elected as directors of the Company to hold office until the next annual
meeting of stockholders or until their successors are duly elected and
qualified. Each nominee has consented to serve if elected to the Board. In the
event that any nominee is unable to serve as a director at the time of the
Annual Meeting (which is not expected), proxies with respect to which no
contrary direction is made will be voted "FOR" such substitute nominee as shall
be designated by the Board to fill the vacancy.
2
<PAGE>
The names of the nominees, their ages at the Record Date and certain
other information about them are set forth below:
Nominee Age Position(s) with Company Director Since
------- --- ------------------------ --------------
William H. Buckland 52 Director 1995
James D. Edwards 57 Director 1987
Gary M. Jacobs 50 Director 1978-1990 and 1994
Dennis J. Lacey 44 Chief Executive Officer, 1991
President and Director
Robert A. Sharpe II 39 Director 1996
James D. Walker 52 Chairman of the Board and 1994
Director
- ------------------------------------------
Mr. Buckland has been Chairman of the Board, Secretary, Treasurer, a
director and 50% stockholder of MCC Financial Corporation, an aircraft and
equipment lessor ("MCC"), since May 1988. Immediately prior to the purchase of
MCC in 1988, Mr. Buckland held, from 1978 to 1988, a number of executive
positions at Fairchild Industries, Inc. Mr. Buckland is also a director of MCC
Aircraft Leasing I, Inc., MCC World Aviation Associates, Inc., and Capital
Associates International, Inc., a wholly-owned subsidiary of the Company
("CAII").
Mr. Edwards has been retired since 1995. From May 1989 to May 1995,
Mr. Edwards was President, Chief Executive Officer and a director of Tricord
Systems, Inc., a computer hardware and software development firm. From 1987 to
1989, Mr. Edwards was President and Chief Executive Officer of Telwatch, Inc., a
telecommunications firm. From 1983 to 1987, Mr. Edwards held various executive
positions with AT&T, including President of AT&T Computer Systems. Prior to
1983, Mr. Edwards held executive positions with IBM Corporation, Xerox
Corporation and Bausch & Lomb. Mr. Edwards is also a director of Chatcom, Inc.
and CAII.
Mr. Jacobs has been Executive Vice President and Secretary of
Corporate Express, Inc., an office products supply company ("CEI") since July
1995. From 1992 to July 1995, Mr. Jacobs was also Chief Financial Officer of
CEI. From 1990 through November 1992, Mr. Jacobs served as the President and
Chief Executive Officer of Boulder Retail Finance Corporation, an investment
firm controlled by Mr. Jacobs. From 1978 through mid-1990, Mr. Jacobs served as
Executive Vice President and in various other senior executive positions with
the Company and CAII. Prior to joining the Company, Mr. Jacobs served as a
director of finance for Storage Technology Corporation, a company which
manufactures computer peripheral devices. Mr. Jacobs served as a director of the
Company and CAII from 1978 through mid-1990 and is currently a director of
Boulder Retail Finance Corporation and CAII.
Mr. Lacey has been the President and Chief Executive Officer of the
Company since September 6, 1991. Mr. Lacey joined the Company as Vice President,
Operations, in October 1989, and was appointed Treasurer on January 1, 1991,
Chief Financial Officer on April 11, 1991 and a director on July 19, 1991. Prior
to joining the Company, Mr. Lacey was an audit partner for the public accounting
firm of Coopers & Lybrand. Mr. Lacey is also a director and senior officer of
CAII, CAI Equipment Leasing I Corp., CAI Equipment Leasing II Corp., CAI
Equipment Leasing III Corp., CAI Equipment Leasing IV Corp., CAI Equipment
Leasing V Corp., CAI Leasing Canada, Ltd., CAI Partners Management Company, CAI
Securities Corporation, CAI Lease Securitization I Corp., CAI-UBK Equipment
Corp., Capital Equipment Corporation and Capital Associates International de
Mexico (collectively referred to herein as the "CAI Affiliates"), all of which
are first- or second-tier wholly-owned subsidiaries of the Company. Mr. Lacey is
also a director of Guaranty National Corporation.
3
<PAGE>
Mr. Sharpe has been Executive Vice President of Fairchild Fasteners,
a __________, since July 1996. From July 1994 through June 1996, Mr. Sharpe was
Vice President, Corporate Development of Smithfield Foods, Inc, a
_______________. Prior to joining Smithfield Foods, Inc., Mr. Sharpe had a ten
year career in corporate banking. From 1987 through June 1994, Mr. Sharpe served
in a number of capacities at NationsBank Corporation, a bank holding company,
including Senior Vice President in charge of Mid-Atlantic Corporate Banking
relationships for NationsBank Corporation. Mr. Sharpe is also a director of the
Fairchild Corporation and CAII.
Mr. Walker ha been President, Chief Executive Officer, a director
and 50% stockholder of MCC since May 1988. Prior to that time, Mr. Walker was
involved in equipment lease management with Thomson McKinnon Securities and
Finalco, Inc. Prior to that, Mr. Walker held marketing and engineering positions
with IBM Corporation and TRW, Inc. Mr. Walker is also a director of MCC Aircraft
Leasing I, Inc., MCC World Aviation Associates, Inc., and CAII.
BOARD COMMITTEES AND MEETINGS
The Board held a total of four (4) regular meetings during Fiscal
1997 and no special meetings. The Board currently has an Audit and Finance
Committee, Compensation and Operations Committee, Nominating Committee and
Executive Committee. During the period October 1996 through May 1997, the
Company also had a Special Committee which completed its work in May 1997.
The Audit and Finance Committee, consisting of Messrs. Buckland,
Jacobs, Lacey and Sharpe, held a total of four (4) meetings during Fiscal 1997.
The Audit and Finance Committee recommends selection of the Company's
independent auditors and is primarily responsible for reviewing recommendations
made by the Company's independent auditors, evaluating the Company's adoption of
such recommendations and evaluating, and making recommendations with respect to,
the Company's internal audit functions and certain finance matters. Mr. Jacobs
currently serves as the Chairman of the Audit and Finance Committee.
From June through October 1996, the Compensation and Operations
Committee consisted of Messrs. Edwards, Patton (who did not stand for reelection
at the 1996 Annual Meeting) and Walker. After October 1996, the Compensation and
Operations Committee consisted of (and currently consists of) Messrs. Edwards,
Lacey and Walker. The Compensation and Operations Committee held a total of four
(4) meetings during Fiscal 1997. The Compensation and Operations Committee is
responsible for initiating, evaluating and recommending to the Board amendments
to the Company's compensation plans and overseeing certain operations matters.
Mr. Edwards currently serves as the Chairman of the Compensation and Operations
Committee.
From June through September 1997, the Nominating Committee consisted
of Messrs. Lacey, Patton (who did not stand for reelection at the 1996 Annual
Meeting) and Walker. After October 1996, the Nominating Committee consisted of
(and currently consists of ) Messrs. Lacey, Sharpe and Walker. The Nominating
Committee held two (2) meetings during Fiscal 1997. The Nominating Committee
recommends to the Board nominees for appointment to the Board and nominees for
the slate of directors to be voted on by the Company's stockholders at the
annual meetings. On May 2, 1997, the Nominating Committee approved and
recommended to the Board, and the Board ratified and approved, the slate of
directors nominated for election at the Annual Meeting. The Nominating Committee
will consider nominees recommended by stockholders in accordance with the
procedures described in "Stockholder Proposals" below. Mr. Walker currently
serves as the Chairman of the Nominating Committee.
4
<PAGE>
During Fiscal 1997, the Executive Committee consisted (and currently
consists) of Messrs. Buckland, Lacey and Walker. The Executive Committee held a
total of twelve ( 12 ) meetings during Fiscal 1997. The Executive Committee is
responsible for (1) overseeing, reviewing and consulting with senior management,
and approving certain actions of senior management, concerning the execution and
implementation of the Company's business plan, (2) approving certain material
lease transactions, (3) approving promotions and compensation adjustments for
all employees below the senior vice president level and (4) performing such
other duties as may be assigned to it by the Board from time to time.
In June 1996, the Board established a Special Committee, consisting
of Messrs. Edwards, Jacobs and Sharpe, to review proposed changes to the
compensation for non-employee members of the Executive Committee. This Special
Committee held two (2) meetings during Fiscal 1997.
During Fiscal 1997, all directors (including Mr. Patton through the
date of his term ended) attended 75% or more of the aggregate number of regular
meetings of the Board, and all members of the Audit and Finance Committee,
Compensation and Operations Committee, Nominating Committee, Executive Committee
and Special Committee attended 75% or more of the aggregate number of their
respective committee meetings (except for Mr. Sharpe, who was only able to
attend one of the two Special Committee meetings).
DIRECTOR COMPENSATION
The Board amended and restated the Company's Board of Directors
Compensation Policy in Fiscal 1996 (the "Amended Policy"), effective on and as
of October 26, 1995. Pursuant to the Amended Policy, the Company pays each
director who is not an officer of the Company (a "Non-Employee Director") (1) a
$3,750 quarterly retainer ($5,000 in the case of the Chairman of the Board), (2)
$1,000 for each Board meeting attended, (3) $1,000 for each committee meeting
(other than Executive Committee meetings) attended, (4) consulting fees for
consulting services at a rate approved by the Board in advance of the
commencement of any consulting assignment and (5) all reasonable out-of-pocket
expenses of attending such meetings and performing any consulting services for
the Company.
Pursuant to Consulting Agreements with Messrs. Buckland and Walker,
dated as of June 1, 1996, the Company paid $187,500 and $250,000, respectively,
for services rendered during Fiscal 1997. In addition, per the Consulting
Agreements, the Board's Special Committee determined the form of incentive
compensation for Messrs. Buckland and Walker for Fiscal 1997. The Board's
Special Committee decided to provide such incentive compensation to each of
Messrs. Buckland and Walker through the Company's assignment to each, a 2.70735
percent interest in the residual proceeds derived from equipment subject to
equipment leases with General Motors that originated from June 1, 1995 through
May 31, 1997. Such residual proceeds will be realized and paid over
approximately seven (7) years. The assignments of these interests in the
residual proceeds are in the form of the Company's non-recourse residual sharing
notes. In Fiscal 1997, the Company accrued an estimated expense of $50,500 for
each of the residual sharing notes, reducing the Company's book value for these
residuals to reflect this assigned interest to Messrs Buckland and Walker.
5
<PAGE>
The following table sets forth the amount of quarterly retainer
fees, meeting fees, Executive Committee fees, consulting fees and total fees
paid to each of the Non-Employee Directors who served as directors at any time
during Fiscal 1997:
<TABLE>
<CAPTION>
====================================================================================================================================
Directors Quarterly Retainer Meeting Fees Prior Year Fees Consulting Fees(1) Total(2)
--------- ------------------ ------------ --------------- ------------------ --------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William H. Buckland $ 15,000 $ 8,000 (5) $ 0 $ 187,500 $ 210,500
- ------------------------------------------------------------------------------------------------------------------------------------
James D. Edwards $ 15,000 $ 10,000 (6) $ 0 $ 0 $ 25,000
- ------------------------------------------------------------------------------------------------------------------------------------
Gary M. Jacobs $ 15,000 $ 10,000 (7) $ 27,000 $ 0 $ 52,000
- ------------------------------------------------------------------------------------------------------------------------------------
William B. Patton, Jr. $ 5,976 (3) $ 3,000 (8) $ 38,075 $ 0 $ 47,051
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Sharpe II $ 15,000 $ 7,000 (9) $ 2,000 $ 0 $ 24,000
- ------------------------------------------------------------------------------------------------------------------------------------
James D. Walker $ 20,000 (4) $ 8,000 (10) $ 0 $ 250,000 $ 278,000
====================================================================================================================================
</TABLE>
(1) As described in the preceding paragraph, under their Consulting Agreements
with the Company Messrs. Buckland and Walker were each granted incentive
compensation in the form of a $111,500 face value residual sharing note
payable, and the amounts eventually realized by Messrs. Buckland and
Walker can not be determined at this time. Thus, no amount attributable to
such incentive compensation can be provided at this time.
(2) These amounts do not include (a) expense reimbursements paid to the
Non-Employee Directors during Fiscal 1997, (b) the value of stock options
that were granted to the Non-Employee Directors in Fiscal 1997 and prior
fiscal years that vested during Fiscal 1997, and (c) any amount that
Messrs. Buckland and Walker could receive as incentive compensation.
(3) Mr. Patton elected to defer receipt of certain prior year's fees beyond
the close of Fiscal 1996. Mr. Patton did not seek reelection as a director
at the 1996 Annual Shareholders Meeting and his term ended on the date of
that meeting, October 25, 1996, and his second quarter retainer was
reduced to $2,226 (the prorated amount based on the number of days that he
served on the Board during the second quarter of Fiscal 1997).
(4) As Chairman of the Board, Mr. Walker's quarterly retainer increased to
$5,000 per quarter. At Mr. Walker's instructions, the Company paid (a)
$5,000 of accrued Board fees otherwise payable to Mr. Walker to MCC World
Aviation, a corporation owned 50% by Mr. Buckland and 50% by Mr. Walker
("MCC Aviation").
(5) Consists of $1,000 per meeting for (a) four (4) regular Board meetings and
(b) four (4) committee meetings.
(6) Consists of $1,000 per meeting for (a) four (4) regular Board meetings and
(b) four (4) committee meetings, and (c) two (2) special committee
meetings.
(7) Consists of $1,000 per meeting for (a) four (4) regular Board meetings,
(b) four (4) committee meetings, and two (2) special committee meetings.
Mr. Jacobs elected to defer receipt of prior year's fees beyond the close
of Fiscal 1996.
(8) Consists of $1,000 per meeting for (a) one (1) regular Board meeting and
(b) two (2) committee meetings. Mr. Patton elected to defer receipt of
certain prior year's fees beyond the close of Fiscal 1996.
(9) Consists of $1,000 per meeting for (a) three (3) regular Board meetings,
(b) three (3) committee meetings, and one (1) special committee meeting.
Mr. Sharpe elected to defer receipt of $2,000 of prior year's fees beyond
the close of Fiscal 1996.
(10) Consists of $1,000 per meeting for (a) four (4) regular Board meetings and
(b) four (4) committee meetings.
On June 1, 1996, the Company granted to each of the Non-Employee
Directors (including Mr. Patton) an option under the Non-Employee Director Stock
Option Plan of Capital Associates, Inc. (the "Non-Employee Director Plan"), to
acquire 5,000 shares of Common Stock at an exercise price of $3.00 per share
(the "1997 Director Options"). All of the 1997 Director Options (other than Mr.
Patton's 1996 Director Options which terminated upon his term expiring) vested
in full on May 31, 1997, and will expire on _________ , 2___ . Mr. Lacey, a
director and employee of the Company, is not eligible to participate in the
Non-Employee Director Plan.
6
<PAGE>
COMPENSATION AND OPERATIONS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From June through October 1996, the Compensation and Operations
Committee consisted of Messrs. Edwards, Patton (who did not stand for reelection
at the 1996 Annual Meeting) and Walker. In October 1966, Mr. Lacey replaced Mr.
Patton on the Compensation and Operations Committee. Messrs. Edwards, Patton
(until October 1996) and Walker are (were) directors of the Company. However,
none of the three of them is, was or ever has been an officer or employee of the
Company. Messrs. Edwards, Patton( until October 1996) and Walker also are (were)
directors of CAII, Mr. Walker is a director, officer and 50% stockholder of MCC,
which owns of record 2,138,369 shares of Common Stock and has the right to
purchase from Messrs. Durliat and Jacobs (and holds proxies from Messrs. Durliat
and Jacobs to vote) an additional 695,000 shares of Common Stock. Mr. Patton is
a director of Media Vision and Prolog Corporation. Mr. Lacey is President and
Chief Executive Officer and a director of the Company and its senior officer and
director of the CAI Affiliates.
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive
officers, (ii) their ages at the Record Date and (iii) the capacities in which
they serve the Company:
Name of Individual Age Capacities in Which Served
------------------ --- --------------------------
Dennis J. Lacey 44 President, Chief Executive Officer & Director
Anthony M. DiPaolo 38 Senior Vice President - Chief Financial Officer &
Treasurer
John F. Olmstead 53 Senior Vice President - Public Equity, Syndications
& Assistant Secretary
Robert A. Golden 51 Vice President - Sales
Aylin N. Cankardes 36 Vice President - Lease Acquisitions
Richard H. Abernethy 43 Vice President - Asset Management
- ------------------------------------------
See "Election of Directors - Nominees" above for a description of
Mr. Lacey's background and the positions held by Mr. Lacey with the Company.
Mr. DiPaolo has been Senior Vice President - Chief Financial Officer
and Treasurer of the Company since March 1997. Mr. DiPaolo joined the Company in
July 1990 as an Assistant Treasurer and has held several positions in the
treasury, credit administration, tax and accounting departments until October,
1991. From October 1991 to January 1992 Mr. DiPaolo was Vice President -
Controller of the Company. From January 1992 to January 1994 Mr. DiPaolo was
Vice President - Accounting and Assistant Secretary of the Company. From January
1994 to March 1997, Mr. DiPaolo was Senior Vice President - Finance and Business
Development for the Company. Prior to July 1990, he held the offices of Chief
Financial Officer for the Mile High Kennel Club, Inc. and Vice President -
Controller for VICORP Restaurants, Inc. and was an audit manager for Coopers &
Lybrand. Mr. DiPaolo is a director and officer of all of the CAI Affiliates
(other than CAII, CAI Leasing Canada, Ltd, Capital Equipment Corporation and
Whitewood Credit Corporation). Mr. DiPaolo is an officer, but not a director, of
CAII and CAI Leasing Canada, Ltd., Capital Equipment Corporation and Whitewood
Credit Corporation.
7
<PAGE>
Mr. Olmstead has been Vice President - Public Equity, Syndications
and Assistant Secretary of the Company since September 1991. Mr. Olmstead joined
the Company as a Vice President in December 1988. He was promoted to his current
office of From 1969 through 1983, Mr. Olmstead was a co-owner Finalco, Inc., an
independent leasing company, and served as a senior officer of Finalco
Corporation. From 1983 through the present, Mr. Olmstead has served as Chairman
of the Board of Neo-kam Industries, Inc., Matchless Metal Polish Company, Inc.,
and ACL, Inc. Mr. Olmstead is a director and officer of all of the CAI
Affiliates (other than CAII and CAI Leasing Canada, Ltd). Mr. Olmstead is an
officer, but not a director, of CAII and CAI Leasing Canada, Ltd.
Mr. Golden has been Vice President - Sales of the Company since May
1996. Mr. Golden was Vice President - National Sales Manager from September 1994
to May 1996. Mr. Golden joined the Company in 1993 as a Branch Manager. Prior to
joining the Company, he was an Executive Vice President with the U.S. Funds
Group, President of BoCon Capital Group and Vice President with Ellco/GE Capital
for fifteen years. Mr. Golden is an officer, but not a director, of CAII.
Ms. Cankardes has been Vice President - Lease Acquisitions of the
Company since March 1997. Ms. Cankardes was Vice President - Sales of the
Company. From January 1994 to February 1997, Ms. Cankardes was Vice President -
Sales. From August 1992 to February 1997, Ms. Cankardes was Assistant Vice
President - Sales. Ms. Cankardes joined the Company in April 1989 as Director of
Wholesale Marketing. From ______ 19__ to _______ 19__ Ms. Cankardes was
Assistant Vice President in charge of syndications and acquisitions of Finalco,
Inc. Ms. Cankardes is an officer, but not a director, of CAII.
Mr. Abernethy has been Vice President - Asset Management of the
Company since April 1994. Mr. Abernethy joined the Company in April 1992 as
Equipment Valuation Manager . From April 1994 to present, he has held the office
of From November 1986 to February 1992, he served in various capacities
including Equipment Manager with Barclays Leasing and from January 1981 to
November 1986, he served in a similar positions with Budd Leasing Corporation.
Mr. Abernethy is an officer, but not a director, of CAII.
EXECUTIVE COMPENSATION
COMPENSATION AND OPERATIONS COMMITTEE REPORT. The Compensation and
Operations Committee is composed currently of Messrs. Edwards, Lacey and Walker.
The Company's compensation programs are designed to (1) relate the level of
compensation paid to individual executive officers and all executive officers as
a group to the Company's success in meeting its annual and long-term performance
goals and business plans, (2) reward individual, group and team achievement(s),
(3) attract and retain executives capable of leading the Company to meet its
performance and business plan goals and (4) motivate executive officers to
enhance long-term stockholder value.
The Compensation and Operations Committee annually evaluates the
total cash compensation (including base salary and incentive cash compensation)
paid to, Common Stock ownership of and stock option ownership of the Company's
executive officers, including its Chief Executive Officer, in light of corporate
performance compared with the Company's business plan and the performance of
other independent leasing companies. The Company has considered and will
continue to consider the potential impact of Section 162(m) of the Internal
Revenue Code of 1986, as amended. Section 162(m) disallows a tax deduction for
any publicly-held corporation for individual compensation exceeding $1 million
in any taxable year for the named executive officers, unless compensation is
performance based. Since the targeted cash compensation of each of the named
executive officers is well below the $1 million threshold and any stock options
granted under any existing employee stock option plan (and it is anticipated
that any stock options granted under the 1996 Plan) will meet the requirement of
being performance based, the Compensation and Operations Committee believes that
this section will not reduce the tax deduction available to the Company. The
Company's policy is to qualify to the maximum extent possible its executives'
compensation for deductibility under applicable tax laws.
8
<PAGE>
The Company's Fiscal 1997 executive officer compensation program was
composed entirely of base salary compensation and cash bonuses. The base salary
compensation of each of the Company's executives was established with survey
data of compensation paid by other independent leasing companies and was within
the salary range for executives performing similar duties and having similar
responsibilities at such other companies. The Compensation and Operations
Committee also relied, in part, on other subjective considerations in setting
executive officer compensation levels based on the Company's overall performance
goals.
In October 1996, the Compensation and Operations Committee approved
the Capital Associates Cash Incentive Bonus Plan for the Fiscal Year Ending May
31, 1997 (the "1997 Cash Bonus Plan"). The maximum amount of the bonus pool for
senior executive officers (including the Chief Executive Officer) was $319,000,
which vested in increasing percentages as the Company achieved certain earnings
targets. Each executive officer's share of the bonus pool amount was based, in
part, on the Company achieving certain earnings targets and, in part, on the
officer achieving the officers personal performance targets (which were
identified in an attachment to the 1997 Cash Bonus Plan). In setting the
earnings targets, the personal performance targets and the vesting percentages
in the 1997 Cash Bonus Plan, the Compensation and Operations Committee sought to
motivate management to increase operating earnings in a responsible manner and
with a view to establishing a basis for sustained growth of the Company's stock
price all in the context of (1) the Company's performance against its Fiscal
1997 business plan, (2) the percentage of earnings from ordinary operations as
opposed to extraordinary or non-recurring transactions and (3) the performance
of the Company's Common Stock during Fiscal 1997. Based on the foregoing, and in
recognition of (a) the significant improvement in the Company's net income from
operations (adjusted for one-time items in Fiscal 1997) as compared to Fiscal
1996 (despite certain one-time charges that were taken during Fiscal 1997) and
(b) the increase in the stock price, the Compensation and Operations Committee
approved a bonus amount of $202,300 for all of the senior officers, $75,000 of
which was awarded to Mr. Lacey. See "Summary Compensation Table" for a
discussion of the bonuses awarded to the Named Executive Officers, as defined
below.
The Compensation and Operations Committee reviewed the Common Stock
and stock option ownership of the Company's executives at the beginning of
Fiscal 1997. Based on that review, the Compensation and Operations Committee
determined that increases in the price of the Common Stock during Fiscal 1997,
assuming the Company met its financial goals in Fiscal 1997, would be sufficient
to reward the Company's executives, each of whom owns Common Stock and stock
options as the result of compensation awards in prior fiscal years, for
outstanding performance in Fiscal 1997, and, therefore, did not make any
additional Common Stock awards or stock option grants to the executive officers
during Fiscal 1997. The incentive Common Stock awards and stock option grants to
executives in prior fiscal years were paid pursuant to incentive plans that
provided for awards and grants to the executives only if the Company met certain
key performance goals established at the time the plans were adopted. These
goals included, among other things, earnings and other financial targets.
Dennis J. Lacey is the Company's President and Chief Executive
Officer. Mr. Lacey's compensation during Fiscal 1997 was governed by the terms
of the Lacey Employment Agreement, which is described in detail in "Executive
Officers - Executive Employment Agreements" below. The Compensation and
Operations Committee set Mr. Lacey's Fiscal 1997 compensation on both
quantitative and qualitative factors directly linked to the Company's
performance, achievement of short- and long-term objectives, the enhancement of
stockholder value and, in the case of Mr. Lacey's Fiscal 1997 cash bonus, the
factors set forth in the 1997 Cash Bonus Plan. During Fiscal 1997, Mr. Lacey's
annual base salary was $250,000. Mr. Lacey's base salary in Fiscal 1997 was
within the range of salaries paid to chief executive officers of other
independent leasing companies. Mr. Lacey also received cash bonuses of $50,000
in Fiscal 1997 for services performed during Fiscal 1996 and $75,000 in Fiscal
1998 for services performed in Fiscal 1997. See "Executive Officers - Summary
Compensation Table" below. The Compensation and Operations Committee believes
that the amount of the cash bonus paid to Mr. Lacey for Fiscal 1997 was
reasonable in relation to the financial performance of the Company during Fiscal
1997.
9
<PAGE>
The Compensation and Operations Committee believes the Company's
executive officer compensation programs serve the Company's best interests by
attracting and retaining qualified professionals and providing those persons
incentives to attain financial and other goals which benefit the Company and its
stockholders.
Compensation and Operations Committee
Dennis J. Lacey
James D. Edwards
James D. Walker
September 5, 1997
EXECUTIVE EMPLOYMENT AGREEMENTS.
THE LACEY EMPLOYMENT AGREEMENT. During Fiscal 1997, the terms of Mr.
Lacey's compensation were governed by the Lacey Employment Agreement (as defined
below). The parties amended and restated the Lacey Employment Agreement on
October 2, 1995 (see the discussion of the Second Amendment, as defined below).
On October 2, 1995, the Company and Mr. Lacey executed that certain
Second Amended and Restated Dennis J. Lacey Executive Employment Agreement (the
"Lacey Employment Agreement") whereby, effective as of October 2, 1995: (1) the
term was extended through September 30, 1997 (subject to the early termination
provisions set forth in the Lacey Employment Agreement), (2) Mr. Lacey's base
salary increased to $250,000, (3) Mr. Lacey's right to receive the unearned
450,000 Incentive Shares (on a pre-Reverse Stock Split basis) under the prior
Lacey Employment Agreement was canceled, (4) Mr. Lacey was granted options under
the Amended and Restated Stock Option Plan of Capital Associates, Inc. to
acquire 75,000 shares of Common Stock at an exercise price of $1.6875 per share,
all of which were fully vested and immediately exercisable on the date of grant,
all of which expire on ______________ , and (5) the change of control provisions
in the Lacey Employment Agreement were eliminated with respect to any change of
control effected by MCC and/or its affiliates.
Pursuant to the Lacey Employment Agreement, Mr. Lacey received an
automobile allowance of $500 per month and was entitled to participate in all
Company benefit plans. Mr. Lacey is also entitled to severance benefits upon the
termination of his employment with the Company for any reason, including a
change of control of the Company, unless his termination is voluntary or for
cause. The severance benefits are equal to 100% of his base salary, will be paid
in twelve (12) equal monthly installments and will be reduced by any salary Mr.
Lacey receives from subsequent employment during such 12-month period. The Lacey
Employment Agreement provides that the Company will pay Mr. Lacey his share of
any bonuses declared by the Company's Compensation and Operations Committee,
prorated based upon the aggregate dollar amounts of the bonus and Mr. Lacey's
employment for the portion of the year prior to his termination date. The
Company has also agreed to maintain Mr. Lacey's health insurance for the period
during which Mr. Lacey receives severance payments.
By Extension and Amendment of the Second Amended and Restated Dennis
J. Lacey Employment Agreement ("Third Amendment"), dated as of June 27, 1997,
and having an Effective Date of October 1, 1997, established a long term
incentive bonus program (which is in addition to the annual cash bonuses
declared by the Board's Compensation and Operations Committee, as described
above), to be paid annually by the setting of incremental annual goals which can
lead to the attainment of certain long term goals to be determined and set by
the Executive Committee. The Third Amendment also provides an increase in the
automobile allowance to $1,000 per month from $500 per month, extension of the
Lacey Employment Agreement to September 30, 1999, additional annual stock option
grants under the 1996 Plan which equal those granted to the non-employee
Directors under the Non- Employee Director Stock Option Plan and an amendment to
the "Change of Control" termination provision, providing upon termination an
immediate payment to Mr. Lacey of 100% of Mr. Lacey's base salary for a two year
period, provided Mr. Lacey agrees not to compete (as defined therein) against
the Company during those two years.
10
<PAGE>
SUMMARY COMPENSATION TABLE. The following table provides certain
summary information for Fiscal 1997, Fiscal 1996 and Fiscal 1995, concerning
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and each of the four other executive officers of the Company whose
aggregate base salary and bonus for Fiscal 1997 exceeded $100,000 and one
executive officer that resigned his offices in March 1997(collectively referred
to herein as the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term Incentive
Compensation ("LTIP")
------------------------------------------
Awards
Fiscal Annual Compensation -----------------------
Year ------------------------------------- Restricted
Ended Other Annual Stock Number of
Name and Position 5/31 Salary(1) Bonus (8) Compensation Awards Options LTIP Payouts
----------------- ------ --------- ----- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Dennis J. Lacey, 1997 $256,800 $75,000 $ 9,560(9) -0- -0- $76,922(20)
President, Chief 1996 $252,362 $50,000 $ 9,193(10) -0-(19) 75,000(19) -0-
Executive Officer & 1995 $228,584 $33,000 $ 9,990(11) -0- -0- -0-
Director
- ------------------------------------------------------------------------------------------------------------------------------------
John E. Christensen, (2) 1997 $151,031 -0- $ 1,027(12) -0- -0- $83,766(21)
Senior Vice President - 1996 $164,300 $10,000 -0- -0- -0- -0-
Chief Financial Officer 1995 $164,300 $8,000 -0- -0- -0- -0-
& Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony M. DiPaolo, (2) 1997 $110,722 $20,000 -0- -0- -0- $45,335(22)
Senior Vice President - 1996 $ 99,097 $13,000 -0- -0- -0- -0-
Chief Financial Officer 1995 $ 93,533 $8,500 -0- -0- -0- -0-
& Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Olmstead, 1997 $168,783 $40,000 -0- -0- -0- $81,527(23)
Senior Vice President - 1996 $164,300 $30,000 -0- -0- -0- -0-
Public Equity, 1995 $164,300 $6,500 -0- -0- -0- -0-
Syndications & Assistant
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Golden, 1997 $178,320 -0- $13,315(13) -0- -0- $18,000(24)
Vice President - Sales 1996 $165,362(3) -0- $ 6,000(14) -0- -0- -0-
1995 $130,093(4) -0- $ 5,000(15) -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Aylin N. Cankardes, 1997 $124,339(5) -0- $ 4,550(16) -0- -0- -0-
Vice President - Lease 1996 $120,976(6) -0- $ 3,850(17) -0- -0- -0-
Acquisitions 1665 $137,223(7) -0- $ 3,150(18) -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes and the accrual of a $6,800 in Fiscal 1997, $6,800 in Fiscal 1996
and $6,800 in Fiscal 1995 for premium paid on behalf of each Named
Executive Officer for a universal life insurance policy pursuant to an
insurance benefit plan (the "Insurance Plan"). The amount of the annual
premium allowance under the Insurance Plan is determined by a formula
based on the value of certain benefits relinquished by the Named Executive
Officers under the Company's 401(k) plan, from which such officers
voluntarily withdrew during the fiscal year ended May 31, 1991 in order to
prevent the Company's 401(k) plan from being "top heavy" under applicable
Treasury regulations.
(2) In March 1997, Mr. Christensen resigned from his offices with the Company
and Mr. DiPaolo was elected to the offices of Senior Vice President -
Chief Financial Officer and Treasurer..
(3) Includes $29,799 of relocation expenses that were reimbursed in Fiscal
1996.
11
<PAGE>
(4) Consists $100,116 of base compensation and $29,977 of commissions.
(5) Consists $80,000 of base compensation and $44,339 of commissions.
(6) Consists $80,000 of base compensation and $40,976 of commissions.
(7) Consists $74,462 of base compensation and $62,761 of commissions.
(8) All bonuses were paid in the following Fiscal Year.
(9) Includes a $6,000 automobile allowance, $3,560 of premiums paid for term
life and disability insurance and $1,600 for President's Club trip to
Hawaii.
(10) Includes a $6,000 automobile allowance and $3,193 of premiums paid for
term life and disability insurance.
(11) Includes a $6,000 automobile allowance and $3,990 of premiums paid for
term life and disability insurance.
(12) Automobile allowance.
(13) Includes a $6,000 automobile allowance and $7,316 in relocation expenses.
(14) Automobile allowance.
(15) Automobile allowance.
(16) Automobile allowance.
(17) Automobile allowance.
(18) Automobile allowance.
(19) Through October 1, 1995, Mr. Lacey was entitled to earn up to 500,000
Incentive Shares (on a pre-Reverse Stock Split basis) under the Lacey
Employment Agreement, subject to certain earnout arrangements tied to
incremental increases in the trading price of the Common Stock. As of
October 2, 1995, the Incentive Share program was canceled and Mr. Lacey
received an option to acquire 75,000 shares of Common Stock (which option
was fully vested on the date of grant) at an exercise price of $1.6875 per
share. See the discussion of the Lacey Employment Agreement and the Second
Amendment in "Executive Officers - Compensation and Operations Committee
Report" and "Executive Officers - Executive Employment Agreements" above.
(20) In Fiscal 1997, Mr. Lacey received $76,922 of proceeds (net of the option
exercise prices) from the sale of options to acquire 78,750 shares of
Common Stock to the Company pursuant to the Stock Option Repurchase
Program.
(21) In Fiscal 1997, Mr. Christensen received $83,766 of proceeds (net of the
option exercise prices) from the sale of options to acquire 50,625 shares
of Common Stock to the Company pursuant to the Stock Option Repurchase
Program.
(22) In Fiscal 1997, Mr. DiPaolo received $45,335 of proceeds (net of the
option exercise prices) from the sale of options to acquire 40,000 shares
of Common Stock to the Company pursuant to the Stock Option Repurchase
Program.
(23) In Fiscal 1997, Mr. Olmstead received $81,527 of proceeds (net of the
option exercise prices) from the sale of options to acquire 56,250 shares
of Common Stock to the Company pursuant to the Stock Option Repurchase
Program.
(24) In Fiscal 1997, Mr. Golden received $18,000 of proceeds (net of the option
exercise prices) from the sale of options to acquire 15,000 shares of
Common Stock to the Company pursuant to the Stock Option Repurchase
Program.
12
<PAGE>
STOCK OPTION GRANTS. The Company granted no stock options to the
Named Executive Officers during Fiscal 1997.
OPTION EXERCISES AND HOLDINGS. The following table provides
information with respect to the Named Executive Officers concerning the exercise
of stock options during Fiscal 1997 and unexercised stock options held as of the
end of Fiscal 1997 (after giving effect to sales of stock options to the Company
pursuant to the Stock Option Repurchase Program discussed below):
<TABLE>
<CAPTION>
====================================================================================================================================
Value of Unexercised
Number of Unexercised Options In-the-money Options
Number of at Year End at Year End (2)
Shares Acquired Value Realized ----------------------------- --------------------------------
Name On Exercise (1) on Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Lacey -0- -0- 26,250 -0- $47,578 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
John E. Christensen (3) -0- -0- 16,875 -0- $40,078 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony M. DiPaolo -0- -0- 10,000 -0- $28,200 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Olmstead -0- -0- 18,750 -0- $35,156 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Golden -0- -0- 13,750 -0- $27,188 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Aylin N. Cankardes -0- -0- 2,310 -0- $6,321 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Stock Option Repurchase Program" below and "Executive Officers -
Summary Compensation Table" above for information concerning sales of
stock options by Named Executive Officers to the Company during Fiscal
1997.
(2) The value of unexercised in-the-money options at the end of Fiscal 1997 is
based on the closing price of the Common Stock as reported on the
NASDAQ/NMS at May 31, 1997 ($3.00 per share), less the exercise price per
share of the options.
(3) In March 1997, Mr. Christensen resigned from his offices with the Company.
LONG-TERM INCENTIVE PLANS. The Company awarded no shares or other
compensation under long-term incentive plans to the Named Executive Officers
during Fiscal 1997. See "Summary Compensation Table" above for a discussion of
long-term incentive plan awards in years prior to Fiscal 1997. See also "Stock
Option Repurchase Program" below for information concerning sales of stock
options by Named Executive Officers to the Company during Fiscal 1997.
13
<PAGE>
PERFORMANCE GRAPH. The following graph is a comparison of cumulative
total return on investment among the Company, the NASDAQ Composite Index (the
"NASDAQ Index") and a peer group index consisting of certain independent leasing
companies (the "Peer Group Index"):
[PERFORMANCE GRAPH APPEARS HERE)
================================================================================
1992 1993 1994 1995 1996 1997
================================================================================
NASDAQ $ 100 $ 120 $ 127 $ 151 $ 219 $ 247
- --------------------------------------------------------------------------------
SELECT PEER $ 100 $ 109 $ 150 $ 202 $ 273 $ 370
- --------------------------------------------------------------------------------
CAI $ 100 $ 200 $ 156 $ 128 $ 267 $ 311
================================================================================
* Assumes $100 Investment on January 1, 1992
* Select Peer Group is comprise of the following independent leasing companies:*
Amplicon
Comdisco, Inc.
Sunrise Leasing
* LDI Corp. and Industrial Funding Group, which were included in Fiscal 1996
Select Peer Group, are not included in the Fiscal 1997 Select Peer Group. LDI
was acquired by NationsBank during Fiscal 1997 and information is not available
for Industrial Funding Group.
14
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") requires the Company's directors, executive officers and
persons who own more than ten percent of a registered class of the Company's
equity securities ("10% Holders") to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Directors, officers and 10% Holders are required by
SEC regulations to furnish the Company with copies of all of the Section 16(a)
reports they file.
To the Company's knowledge, during Fiscal 1997, all Section 16(a)
filing requirements applicable to its directors, executive officers and 10%
Holders were complied with, except that Philip J. Teigen, failed to timely file
his Form 3 within ten days of his election as an officer of the Company.
CERTAIN TRANSACTIONS
On October 2, 1995, the Company, Mr. Jack Durliat and Mr. Jacobs
terminated the Stockholders' Agreement to which they were parties. During Fiscal
1997, the Company paid premiums of $17,790 and $14,355 with respect to the life
insurance policies covering Messrs. Durliat and Jacobs, respectively (which
policies the Company was required to maintain by the terms of the Stockholders'
Agreement). As a result of the termination of the Stockholders' Agreement, the
Company was relieved of all of its obligations thereunder, including the
obligation to continue to maintain life insurance on Messrs. Durliat and Jacobs.
Pursuant to their rights under the Stockholders' Agreement, Messrs. Durliat and
Jacobs purchased such insurance policies from the Company for fifty percent
(50%) of their net cash surrender values (i.e., $218,933 in Mr. Durliat's case
and $128,164 in Mr. Jacobs' case).
On November 10, 1995, MCC acquired voting control of the Company
through a private stock purchase transaction and the delivery to MCC of proxies
for shares of Common Stock subject to purchase in the future pursuant to
agreements (the "Stock Purchase Agreements") executed by and among MCC, Messrs.
Durliat and Jacobs, who, at that time, were two of the Company's largest
stockholders. Pursuant to these Stock Purchase Agreements, MCC acquired 65,120
shares of Common Stock for a purchase price of $3.30 per share, or an aggregate
amount of $214,896. In addition, MCC acquired (1) the right to purchase an
additional 1,245,000 shares of Common Stock in the future for an aggregate
purchase price of approximately $4.5 million and (2) proxies from Messrs.
Durliat and Jacobs to vote such shares, pending their purchase. On January 9 and
10, 1997, pursuant to one of the Stock Purchase Agreements, MCC completed the
purchase of 550,000 shares of Common Stock for a purchase price of $3.30 per
share, or an aggregate amount of $1,815,000.
CAII purchases substantially all of its office supplies from CEI.
Mr. Jacobs is an executive officer of CEI. CAII does not presently have, and
does not anticipate that it will enter into in the future, a written
purchase/supply contract with CEI. CAII paid CEI approximately $40,972 in Fiscal
1997 for office supplies.
The Company believes that the transactions described above and under
the subheading "Compensation and Operations Committee Interlocks and Insider
Participation" were on terms no less favorable to the Company than could have
been obtained in arm's length transactions. All transactions or loans between
the Company and its directors, officers, principal stockholders and their
affiliates occurring after June 1, 1994 have been, and similar future
transactions or loans will be, approved in advance by disinterested directors
and have been or will be on terms believed by the Company to be no less
favorable to the Company than those which could be obtained in arm's length
transactions.
15
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, the number of
shares and percentage of the outstanding Common Stock beneficially owned by each
person known by the Company to own more than 5% of the outstanding Common Stock
("Major Stockholders"):
Beneficial Ownership(4)
----------------------------------------------
Number of Shares Percent
---------------- -------
James D. Walker (1) 1,443,352 28.62%
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
William H. Buckland (1) 1,440,052 28.57%
8180 Greensboro Drive
Suite 920
McLean, Virginia 22102
Gary M. Jacobs (2) 372,162 7.39%
2995 Baseline Road
Boulder, Colorado 80303
- -----------------
(1) MCC is the record owner of 2,575,869 shares of Common Stock. Messrs.
Walker and Buckland, who are otherwise unrelated to each other, each own
50% of the issued and outstanding stock of MCC. Mr. Walker owns 26,667
vested stock options. Mr. Buckland owns 23,367 vested stock options. These
amounts do not include 10,000 unvested stock options owned by each of Mr.
Walker and Mr. Buckland. These amounts include 135,007 shares and 122,493
shares of Common Stock for which MCC holds proxies from Mr. Durliat and
Mr. Jacobs, respectively. See "Certain Transactions" above.
(2) Includes (a) 20,971 shares of Common Stock that Mr. Jacobs is entitled to
acquire upon the exercise of vested stock options, (b) 3,000 shares held
in the name of Mr. Jacobs' minor children for which he disclaims
beneficial ownership and (c) another 348,191 shares held of record. See
"Certain Transactions" above. This does not include 5,000 unvested stock
options owned by Mr. Jacobs and 122,493 shares held of record by Mr.
Jacobs that are subject to proxies granted to MCC and for which Mr. Jacobs
disclaims beneficial ownership.
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within sixty (60) days from the Record Date upon
the exercise of options. The record ownership of each beneficial owner is
determined by assuming that stock options that are held by such person and
that are exercisable within sixty (60) days from the Record Date have been
exercised. The total outstanding shares used to calculate each beneficial
owner's percentage includes such stock options.
16
<PAGE>
The following table sets forth, as of the Record Date, the number of
shares and percentage of the outstanding Common Stock beneficially owned by
directors who are not Major Stockholders, the executive officers and the
directors and executive officers as a group:
Management Ownership (9)
----------------------------------------
Holder Number of Shares Percent
- ------------------------ ---------------- --------
Richard H. Abernethy (1) 2,310 .05%
Aylin N. Cankardes (2) 3,750 .07%
John E. Christensen (3) 57,876 1.15%
Anthony M. DiPaolo (4) 26,000 .52%
James D. Edwards (5) 95,250 1.89%
Robert A. Golden (6) 13,750 .24%
Dennis J. Lacey (7) 133,750 2.65%
John F. Olmstead (8) 47,250 .94%
William B. Patton, Jr. (9) 149,000 2.89%
Robert A. Sharpe II (10) 7,959 .16%
Directors and Executive Officers 552,520 10.90%
(other than Major Stockholders) as
a Group (10 persons)
- --------------------------
(1) Includes 3,750 shares of Common Stock that Mr. Mr. Abernethy is entitled
to acquire upon the exercise of vested stock options.
(2) Includes 2,310 shares of Common Stock that Ms. Cankardes is entitled to
acquire upon the exercise of vested stock options.
(3) Includes 16,875 shares of Common Stock that Mr. Christensen is entitled to
acquire upon the exercise of vested stock options. In March 1997, Mr.
Christensen resigned from his offices with the Company.
(4) Includes 10,000 shares of Common Stock that Mr. DiPaolo is entitled to
acquire upon the exercise of vested stock options.
(5) Includes 81,250 shares of Common Stock that Mr. Edwards is entitled to
acquire upon the exercise of vested stock options. This does not include
5,000 unvested stock options owned by Mr. Edwards.
(6) Includes 18,750 shares of Common Stock that Mr. Olmstead is entitled to
acquire upon the exercise of vested stock options.
(7) Includes 26,250 shares of Common Stock that Mr. Lacey is entitled to
acquire upon the exercise of vested stock options.
17
<PAGE>
(8) Includes 144,000 shares of Common Stock that Mr. Patton is entitled to
acquire upon the exercise of vested stock options.
(9) Includes 13,750 shares of Common Stock that Mr. Golden is entitled to
acquire upon the exercise of vested stock options.
(10) Includes 7,959 shares of Common Stock that Mr. Sharpe is entitled to
acquire upon the exercise of vested stock options. This does not include
5,000 unvested stock options owned by Mr. Sharpe.
(11) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within sixty (60) days from the Record Date upon
the exercise of options. The record ownership of each beneficial owner is
determined by assuming that options that are held by such person and that
are exercisable within sixty (60) days from the Record Date have been
exercised. The total outstanding shares used to calculate each beneficial
owner's percentage includes such options.
APPROVAL AND ADOPTION OF THE CAPITAL ASSOCIATES, INC.
SHAREHOLDER RIGHTS PLAN
By unanimous written consent dated as of September ____ , 1997, the Board
adopted a Shareholder Rights Plan, subject to the ratification and adoption by
the Shareholders. Accordingly, the proposal for the Shareholders to ratify and
adopt the Shareholder Rights Plan is the second item to be considered for a vote
at this Annual Meeting of Shareholders.
PURPOSES.
The Shareholder Rights Plan ("Rights Plan") is intended to
strengthen the position of the Board of Directors if it becomes necessary to
negotiate an acquisition of the Company. The Rights Plan is also designed to
discourage offers to acquire the Company or to obtain substantial equity
positions in the Company that, in the judgment of the Board of Directors, are
coercive or do not reflect the fair value of the Company. The Rights Plan
permits the Company's stockholders to acquire rights in the shares of the
acquiring company's stock at half value if the acquiring company purchases all
of the Company's $.008 par value common stock ("Common Stock") by merger or a
similar transaction. To prevent partial acquisitions, the Rights Plan permits
the holders of rights to purchase shares of the Company's Common Stock at half
price if the acquiring company purchases more than twenty percent (20%) of the
Company's Common Stock or purchases twenty percent (20%) and then has a
self-dealing transaction. The rights are redeemable for a nominal price and will
not interfere with an acquisition approved by the Company's Board of Directors,
nor will the rights plan preclude a proxy fight for control of the Company. The
effect of these provisions typically is to bring the acquiring company to the
bargaining table with the Company's Board of Directors.
The Rights Plan is designed not to interfere with the day-to-day
operations of the Company. Prior to the Rights Plan being activated by an
acquisition of a large block of the Company's Common Stock, the Rights Plan has
no effect on the Company's balance sheet or income statement and the Rights Plan
has no tax effect on the Company or its shareholders. The Company can split its
Common Stock, issue stock dividends and combine its Common Stock without
interference from the Rights Plan. While the Rights Plan will require special
care in such transactions, it will not hinder public offerings of Common Stock
or SEC clearance of pooling of interests transactions.
18
<PAGE>
Rights plans, such as this proposed Rights Plan, are now well
established in case law and statutory law. Starting with the Delaware Supreme
Court's 1985 decision in the HOUSEHOLD case, upholding one of the first rights
plans to be adopted, the Delaware courts and courts in other jurisdictions have
widely recognized the legality and legitimate uses of a variety of rights plans.
The HOUSEHOLD case and subsequent case law establish that adoption
of a rights plan does not change the fiduciary standards to be followed by a
board of directors in responding to a takeover bid. In the event of a specific
takeover bid, the rights plan and its operation will have to be assessed in
light of the response that the board of directors decides is appropriate based
on the advice at that time of the Company's financial advisors and legal
counsel. Much of the case law since HOUSEHOLD has focused on how a board uses
the rights plan in the face of a takeover bid, particularly on the decision
whether to redeem the rights in response to a particular takeover bid.
As can be seen from the discussion in this statement regarding
"Principal Stockholders," MCC owns 2,575,869 shares of Common Stock and holds
proxies to vote an additional 257,500 shares of Common Stock, which constitutes
a control of 57.19% of the outstanding shares of Common Stock. While these
circumstances exist, the Company is not now and will not be subject to any kind
of hostile takeover, and the Board of Directors certainly has sufficient
strength to negotiate any offer. Nevertheless, the Board of Directors is of the
belief that the Rights Plan should be adopted now, when no such issue is
pending, so that in the event MCC's control should be reduced below 50% of the
outstanding Common Stock, this protective mechanism will be in place for the
benefit of the Company and its shareholders.
IMPLEMENTATION.
The Rights Plan calls for declaration of a dividend of one nonvoting
right ("Right") for each share of issued and outstanding Common Stock. Each
Right will permit the holder to purchase 1/100th of a share of a series of
Junior Participating Preferred Stock of the Company (the "Preferred Stock").
Each 1/100th of a share of Preferred Stock is generally the equivalent of one
share of Common Stock. The purchase price for each 1/100th of a share of
Preferred Stock (the "Purchase Price") of $ _______ is several times the current
price of a share of the Company's Common Stock, subject to certain adjustments.
(1)
EXERCISE AND TRANSFER.
Initially, the Rights are neither exercisable nor transferable
separate from the related Common Stock certificates. The Rights become
exercisable and separately transferable on the earlier of two events: (i) the
tenth business day after the commencement of a tender or exchange offer (other
than a tender or exchange offer for all the Company's outstanding stock that a
majority of the directors of the Company, unrelated to the acquiring company,
concludes is fair to the Company's stockholders and in the best interests of the
Company and its stockholders (a "Qualifying Offer")) that if consummated would
result in any person beneficially owning twenty percent (20%) or more of the
Company's outstanding Common Stock or (ii) the tenth calendar day after the
first public disclosure that a person or group (subject to certain exceptions)
has acquired beneficial ownership of twenty percent (20%) or more of the
Company's outstanding Common Stock. This date is referred to as the
"Distribution Date."
- ------------------------
1 The price represents the expected value of the Company's Common
Stock at the end of the term of the Rights Plan, as estimated by the
Board of Directors.
19
<PAGE>
If the Distribution Date occurs because of a tender or exchange
offer as described in (i) above, a holder of a Right will be entitled to
purchase, for the Purchase Price, 1/100th of a share of Preferred Stock, subject
to certain adjustments. Because of the relatively high Purchase Price for the
Preferred Stock, however, holders of Rights would be unlikely to exercise their
purchase rights before a "flip-in" or "flip-over" (described below) occurs. A
Distribution Date occurring due to an actual acquisition of twenty percent (20%)
or more of the Company's stock as described in (ii) above would occur only in
conjunction with a flip-in.
FLIP-IN PROVISION.
The so-called "flip-in" provision would be triggered if any person
or group (other than the existing stockholder's of the Company) becomes the
beneficial owner of twenty percent (20%) or more of the outstanding Common
Stock. In that event, each holder of a Right is entitled to purchase, for the
Purchase Price, a number of shares of Common Stock that at the time of the
flip-in have a market value of twice the Purchase Price (2). If there is a
flip-in, Rights that are or were beneficially owned by the twenty percent (20%)
or more stockholder may not be exercised.
FLIP OVER PROVISION.
If the Company's Common Stock or assets are acquired in a merger or
other business combination (other than a merger that follows a Qualifying Offer
and satisfies certain other requirements) after which the Company has a twenty
percent (20%) or more stockholder, the Rights will "flip-over," even if the
acquiring company is unrelated to the twenty percent (20%) or more stockholder.
In that event, each holder of a Right would be entitled to purchase, for the
Purchase Price, a number of shares of common stock of the acquiring corporation
(or its parent corporation if the acquiring corporation has no registered
shares) that would have a market value at the time of the transaction of twice
the Purchase Price (3).
REDEMPTION AND AMENDMENT.
The Rights Plan also provides a "window period" to give the Board of
Directors flexibility in responding to proposed acquisitions. The Rights Plan
authorizes the Board of Directors to redeem the Rights any time before the
earlier of (i) the tenth calendar day after the first public announcement that
the Company has a twenty percent (20%) or more stockholder, or (ii) ten years
after the rights plan takes effect (the "Expiration Date") (4). Even within this
period, redemption requires approval by a majority of the Continuing Directors
(5) if the Company has a twenty percent (20%)or more stockholder (excluding its
- ----------------------
2 Assuming a Purchase Price of $100 and a market price of the Common
Stock of $50 per share at the time of the "flip-in," each Right
would entitle its holder to purchase, for $100, four shares of
Common Stock (having a market value of $200).
3 The acquiring entity would also be required to register shares
issuable upon exercise of a Right. It is therefore likely that a
market would exist for those shares.
4 Redemption of the Rights would require payment to Rights holders of
a redemption price of $.01 per Right (the "Redemption Price").
5 The term "Continuing Directors" is defined as directors who (i) are
not a 20% or more stockholder or affiliated with a 20% or more
stockholder and (ii) were directors prior to the time a 20% or more
stockholder became such or were elected or recommended by a majority
of the then Continuing Directors.
20
<PAGE>
existing twenty percent (20%) or more stockholders or if a majority of the Board
of Directors is changed after a person in a proxy fight states (or the Board of
Directors believes) that he intends to become a twenty percent (20%) or more
stockholder or otherwise cause a flip-in or flip-over event. The Board of
Director's redemption power is important because it gives the Board of Directors
flexibility to authorize a negotiated business combination with a twenty percent
(20%) or more stockholder or third party. The Rights cannot be exercised while
they are still redeemable.
The Board of Directors may also amend the Rights Plan in some
circumstances. No amendment of the Rights Plan may alter certain fundamental
provisions of the Rights (e.g., the Redemption Price, Purchase Price, Expiration
Date and the number of Shares of Preferred Stock purchasable upon exercise of
the Rights). The Board of Directors may amend any other part of the Rights Plan
before the Distribution Date (after which date the Rights become exercisable).
For example, the Rights Plan permits the Board of Directors to amend the plan
before the Distribution Date to postpone the Distribution Date (and thus extend
the time permitted for amendment) or any redemption period. This would allow
additional time to evaluate available options before the Rights become
non-redeemable. After the Distribution Date, the power to amend is more limited,
and may be used only for clerical matters, to extend periods, or to make other
changes that do not harm holders of the Rights. The redemption period can be
extended only if the Rights are redeemable at the time of the extension (i.e.,
for the 10 calendar days after the twenty percent (20%) threshold is crossed
unless the redemption period previously has been extended). Any amendment made
after the Company has a twenty percent (20%) stockholder requires approval by a
majority of the Continuing Directors.
OTHER CONSIDERATIONS.
The Rights Plan provided that , MCC and any person (individual,
corporation, limited liability company, partnership and the like) who purchase
the Company's Common Stock from MCC, are not included in the definition
"Acquiring Person" and thus the Rights Plan will not apply to any of them.
Issuance of the Rights will not dilute earnings per share, nor is
the distribution taxable to the Company or its stockholders. If the Rights
become exercisable or if the flip-in or flip-over provisions are triggered,
stockholders may recognize ordinary income equal to the value of the Rights at
that time. If the Rights are redeemed, stockholders will have ordinary income
equal to the redemption price, $.01 per share.
Various studies have indicated that shareholder rights plans have
not stopped legitimate offers that were fair to stockholders. These studies also
indicate that companies having shareholder rights plans appear to have received
higher premiums over their stock prices as of a specified time prior to the
takeover than have companies not having shareholder rights plans. Institutional
investors, however, typically have resisted shareholder rights plans, and have
occasionally asked directors to rescind them.
Nevertheless, it is important to remember that the proposed Rights
Plan will not prevent hostile takeovers, it is simply intended to give the Board
of Directors of the Company control over the process so that it may fulfill its
fiduciary duty in obtaining the best price possible for stockholders, or
retaining the Company's independence if that is considered to be in the
stockholders' best interest.
21
<PAGE>
In an effort to share the decision as to whether or not the Company
should adopt the Shareholder Rights Plan, MCC will vote the shares of Common
Stock it controls on a pro rata basis, based on the vote of the other
shareholders "for," "against" and "abstain."
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed KPMG Peat Marwick LLP, certified public
accountants, as auditors to examine the financial statements of the Company for
Fiscal 1998 and to perform other appropriate accounting services and is
requesting ratification of such appointment by the stockholders. KPMG Peat
Marwick LLP has served as the Company's auditors since May 3, 1993.
In the event that the stockholders do not ratify the appointment of
KPMG Peat Marwick LLP, the adverse vote will be considered as a direction to the
Board to select other auditors for the next fiscal year. However, because of the
difficulty and expense of making any substitution of auditors after the
beginning of the current fiscal year, it is contemplated that the appointment
for Fiscal 1998 will be permitted to stand unless the Board finds other reasons
for making a change.
It is understood that even if the selection of KPMG Peat Marwick LLP
is ratified, the Board, in its discretion, may direct the appointment of a new
independent accounting firm at any time during the year if the Board feels that
such a change would be in the best interests of the Company and its
stockholders.
A representative of KPMG Peat Marwick LLP is expected to attend the
Annual Meeting and will have an opportunity to make a statement if he desires to
do so and to respond to appropriate questions.
STOCK OPTION REPURCHASE PROGRAM
Effective as of May 31, 1996, the Company adopted and implemented
its Stock Option Repurchase Program, pursuant to which it repurchased 401,367
stock options granted under its employee stock option plan from 33 employees at
a price of $2.45 per option share less the exercise price of the repurchased
stock options (a total repurchase price, net of option exercise amounts, of
$557,240).
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at the Company's annual meetings consistent with regulations
adopted by the SEC. For such proposals to be considered for inclusion in the
proxy statement and form of proxy relating to the 1998 annual meeting, they must
be received by the Company not later than May 29, 1998. Such proposals should be
addressed to the Company at 7175 West Jefferson Avenue, Suite 4000, Lakewood,
Colorado 80235, Attn: Corporate Secretary.
OTHER MATTERS
Management does not intend to present, and has no information as of
the date of preparation of this Proxy Statement that others will present, any
business at the Annual Meeting other than business pertaining to matters
required to be set forth in the Notice of Annual Meeting and Proxy Statement.
However, if other matters requiring the vote of the stockholders properly come
before the Annual Meeting, it is the intention of the persons named in the
enclosed proxy to vote the proxies held by them in accordance with their best
judgment on such matters.
22
<PAGE>
FORM OF PROXY
CAPITAL ASSOCIATES, INC.
7175 WEST JEFFERSON AVENUE
LAKEWOOD, COLORADO 80235
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 24, 1997
The undersigned hereby appoints each of James D. Walker and Philip J. Teigen
as proxy and attorney-in-fact for the undersigned with full power of
substitution to vote on behalf of the undersigned at the Company's 1997 Annual
Meeting of Stockholders to be held on October 24, 1997, and at any
adjournment(s) or postponement(s) thereof, all shares of the Common Stock $.008
par value, of the Company standing in the name of the undersigned or which the
undersigned may be entitled to vote as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" ITEMS 1, 2 AND 3. In their discretion, the proxies are authorized
to vote upon such other business as may properly come before the Annual Meeting
or any adjournments or postponements thereof, hereby revoking any proxy or
proxies heretofore given by the undersigned.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
1. ELECTION OF DIRECTORS.....FOR all nominees____ WITHHOLD AUTHORITY______
(except as indicated to the contrary) to vote for all nominees
Nominees: William H. Buckland, James D. Edwards, Gary M. Jacobs,
Dennis J. Lacey, Robert A. Sharpe, II and James D. Walker
To withhold authority to vote for any individual nominee, write that
individual's name in the space provided below.
- --------------------------------------------------------------------------------
2. Ratification and Approval of the Capital Associates, Inc. Shareholder Rights
Plan:
FOR____ AGAINST____ ABSTAIN____
- --------------------------------------------------------------------------------
3. Ratification of KPMG Peat Marwick LLP as auditors for the Company for the
1997 fiscal year:
FOR____ AGAINST____ ABSTAIN____
Please sign exactly as name appears at left:
Dated:___________________________________________
_________________________________________________
Signature
_________________________________________________
Signature (if held jointly)
When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please
sign in the corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
